Summary
Today, the global order is fracturing, and major powers are acting more coercively, limiting the room to maneuver for small and vulnerable states. Managers in multinational enterprises (MNEs) face challenging strategic choices about where to invest, with whom to trade, and which political relationships to cultivate.
Yet international business (IB) research often treats geopolitics narrowly, assuming that all countries operate on equal footing. In our Journal of Management Studies article, we revisit history to show how small states face distinct diplomatic constraints and how their MNEs engage diplomatically with major powers to secure more favorable outcomes for themselves.
Small States and their MNEs in a Fracturing World Economy
For much of modern history, there has been a dominant geographical power that has stabilized political and economic institutions at the international level, thereby facilitating cross-border trade and investment. This stability particularly benefited small states, which are otherwise exposed to security risks and other forms of coercion. However, as the dominant power’s relative influence declines, the system inevitably becomes unstable.
For small states, this means a difficult choice: stand by a weakening ally or seek new geopolitical alignments?
For firms from these states, the question becomes: how can diplomatic engagement be used to secure market access and mitigate geopolitical risk?
A Case in Point: Finland and its Struggling Superpower Neighbor
History shows that such geopolitical realignments are nothing new. We examined two periods when Finland’s powerful eastern neighbor weakened and its global network of alliances, institutions, and markets began to crumble. In both periods, Finnish MNEs faced severe constraints – and responded through different forms of diplomatic engagement.
Case 1: Paper MNEs’ internationalization
When the Bolshevik Revolution erupted in 1917, Finnish paper producers—today’s UPM-Kymmene and Metsä Group—suddenly lost access to their largest market, the Russian Empire. Rather than waiting for the situation to stabilize, they shifted exports toward Western markets and facilitated diplomatic efforts to anchor Finland in emerging Western institutional structures.
Case 2: Shipbuilder MNEs’ de-internationalization
Decades later, Finnish shipbuilders, then part of today’s Wärtsilä and Valmet, faced a similar dilemma when the Soviet Union disintegrated in the late 1980s. Their last profitable order dated from 1987, yet the firms intensified diplomatic engagement to keep bilateral ties with the Soviets alive and to sustain access to those markets. What followed was a painful restructuring, with the next ship not being delivered to Russia until 2005.
Defensive and Exploratory Forms of Corporate Diplomatic Activity
In both cases, we identified corporate diplomatic activity (CDA) as the central non-market mechanism shaping (de)internationalization outcomes. The cases, however, reflected two distinct orientations: an exploratory strategy that redirects the home country toward alternative power centers, and a defensive strategy that preserves alignment with the old dominant center of power.
A contemporary example of exploratory CDA is PKN Orlen, the Polish energy giant whose commercial decisions and diplomatic engagement helped push Poland away from its long-standing energy dependence on Russia. A recent defensive example is the Swiss business delegation that visited the White House under President Trump to restore goodwill after punitive tariffs and secure access to the U.S. market. These findings challenge the common IB view that international relations lie beyond MNE influence. We show that MNEs are not passive observers but active diplomatic players, even though their room for maneuver is constrained by power politics and domestic institutions.
Explaining Diplomatic Engagement
Our study identifies several conditions that shape whether firms adopt exploratory or defensive CDA.
1. Constraints set by power politics
Major powers limit the diplomatic options of small states and, by extension, their MNEs. In our first case, World War I and the Russian Revolutions pushed Finland out of the Russian orbit. During the Cold War, the pull of the United States and European integration drew Finland toward Western institutions, while the Soviet Union applied subtle pressure to keep it aligned with Moscow.
For managers, this means that power politics narrow firms’ strategic and diplomatic options – constraints that must be recognized and built into planning. For example, when Finnish paper MNEs left Russia during WWI, they initially had to operate within a regional order in which Germany was becoming the dominant power, adjusting their activities to this new reality before they could later turn more fully toward the Western alliance that emerged after the war.
2. Firm-level characteristics
Firm-level characteristics shape how MNEs engage diplomatically. The companies we studied were central to Finland’s economy, but their options depended on host-market dependence, global demand, reshoring potential, and asset specificity. For instance, industries with high asset specificity—such as shipbuilding—tend to favor defensive strategies because their assets are difficult to redeploy.
3. Home-country institutions and elite beliefs
Home-country institutions and elite beliefs also guide strategic choices. In our first case, Finland’s independence led to the emergence of new elite networks that broke with their prior alignment with Tsarist Russia. By contrast, during the late Soviet period, Finland’s technocratic elite, though distrustful of Moscow, regarded bilateral trade as essential to preserving sovereignty. This continuity of belief provided stability amid uncertainty, making a defensive, status quo strategy more likely than an exploratory one.
For firms, this implies that domestic political cultures and elite networks can either enable or constrain bold diplomatic moves, even when managers see commercial opportunities elsewhere.
Implications for IB Research: A Small-State Perspective on Geopolitics
Much of the IB literature treats geopolitics through generalized home-host country dyads, but our study shows that states differ markedly in their geopolitical clout. Some are small rather than great, vulnerable rather than powerful, peripheral rather than central.
These structural realities shape what their MNEs can and cannot do.
We call for IB research to take power asymmetries seriously and offer a small-state perspective on geopolitics that helps explain how a home country’s structural position enables or constrains its firms’ strategies amid geopolitical instability.
Policy implications
For small states, diplomatic access is often limited, especially in moments of tension with major powers. Large globally connected firms, however, can draw on international networks that may reach further than a small state’s diplomatic apparatus. Diplomats should recognize this and make more deliberate use of such networks when attempting to initiate conversations or mitigate tensions with major powers.
At the same time, firms pursue their own business interests, which do not always align with national foreign-policy priorities. What is discussed behind closed doors is not always transparent, and small states may later face expectations that they cannot or should not accept. Effective business-supported diplomacy, therefore, requires both strategic use of firms’ access and careful oversight to ensure that CDA does not create more diplomatic problems than it solves.
