Economic sanctions effect on multinational corporations strategies

Abstract

The use of economic sanctions has grown in recent years and led to increased uncertainty and turbulence in the global economy. The Ukraine conflict in February 2014 led to the implementation of sanctions and counter-sanctions between the EU and Russia which resulted in a significant loss of trade and investments between the regions. This study aims to answer how the implementation of sanctions against Russia influence the business strategies of foreign MNCs. A multiple case study approach has been adapted where semi-structured interviews have been conducted with six Scandinavian MNCs that exports to the Russian market. The findings of this study show us that firms expand their international activities as a result of the sanctions, in order to increase the scope and scale of their internationalization to diversify their revenue and limit their exposure. Further, the result show that firms increased their flexibility, streamlined their operations and took advantage of the favorable investment environment in Russia as a result of sanctions and the downturn in the Russian economy. While exporting to the Russian market through a third country proved difficult, it was possible for MNCs to circumvent the agriculture sanctions by locating production inside Russia and using local components in their products. The involuntary de-internationalization from the Russian market forced upon some of the case firms as a result from the sanctions isn’t accounted for in majority of previous theories of internationalization. Further, the study confirm the trade destructive effects of sanctions, and how it indirectly hurt broad sectors of the Russian and European economies. This thesis highlighted the loss of revenue and exports for MNCs and the unpredictable nature of economic sanctions that will continue to be challenging for managers to foresee.