In the complex landscape of international business (IB), the impact of sanctions on firms is a topic of growing interest and concern. In his latest paper, Dr. Andrei Panibratov, a Professor-Researcher at EMLV, delves deep into this intricate terrain. His research examines how sanctions affect IB and sheds light on the nuanced ways in which firms respond to these economic constraints.
By framing his analysis through the prominent lenses of institutions—and resource-based views, Dr Panibratov offers fresh insights into the dynamics at play.
Understanding Sanctions’ Effects on International Business Frameworks
In this paper we discuss how sanctions disrupt the institutional framework for International Business and how firms respond to sanctions. We also propose a new research agenda that would help firms and governments to shape their geopolitical strategies. IB Scholars should go beyond existing approaches to explain F behavior when facing sanctions.
Types, Consequences, and Political Impacts of Sanctions
Traditionally, sanctions are used as a political tool to weaken the government of a specific country in times of conflict and war. This makes an alternative to a military conflict to cause a change in the policies of the targeted government. Sanctions have mostly been imposed by economically powerful countries or coalitions of countries, often led by the US or the European Union, but in recent years also by China.
Sanctions come in various forms, including technological, economic, financial, and trade sanctions. Yet there may be more targeted measures such as arms embargoes, travel restrictions, or digital platform blocking. Sanctions have economic consequences for both the sanctioning and the sanctioned countries that are broad and hard to predict.
The impact of sanctions weakens over time as the target country becomes less dependent on the sanctioning country. Past exposure to sanctions may enhance national resilience by localizing supply chains and diversifying trade patterns.
However, the effectiveness of sanctions remains weak; very few sanctions led to regime change. The limited political impact may be because political elites can better shelter their interests by circumventing rules and re-channeling the impact of sanctions.
Firms’ Strategic Responses and Implications of Sanctions
For firms, sanctions increase uncertainty in operations, disrupt supply chains, increase transaction costs, and ultimately negatively influence profits from international operations.
For example, the impact of sanctions on Iran and Russia shows substantial changes for foreign firms already invested in a host country. The introduction of sanctions raises complex legal and ethical questions. Firms often find ways to substitute their trading partners, advocate for industry exemptions from sanctions, or restructure their international operations. Surprisingly, sanctions can also stimulate innovations.
We propose that firms’ reactions to sanctions can be analyzed through the lenses of leading IB theories, including institutions based view and resource-based view. Sanctions represent major institutional transitions, fundamental and comprehensive changes in the formal and informal rules of the game that affect firms.
When faced with sanctions, multinational companies as well as domestic firms have to make critical strategic decisions regarding their operations, driven by an interplay between institution-based and resource-based considerations with significant financial and ethical consequences.
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