When Great Powers Struggle: How Geopolitical Alignments of Small States Are Influenced by Their MNEs

Abstract

Comparing two distinct deglobalization periods, this study shows how Finnish multinational enterprises (MNEs) used corporate diplomatic activities (CDA) to influence Finland's alignment with a struggling great power. Drawing from hegemonic stability theory and new institutional economics, we argue that the power's collapsing global networks and institutions exposed Finnish MNEs to cross-border constraints typical of small states – reliant on but unable to govern the rules set by great powers. We identify two distinct CDA responses aimed at sustaining cross-border activities: in one period, Finnish shipbuilding MNEs adopted a defensive approach to maintain alignment with the struggling power; in the other, Finnish paper MNEs pursued an explorative strategy to reposition Finland toward alternative powers. Informal institutions at home explain these divergent responses: they either discredited or legitimized existing geopolitical alignments. These CDA mechanisms produced contrasting outcomes: shipbuilders' defensive stance drove de-internationalization after the collapse of the great power's global networks and institutions, while the paper MNEs' explorative strategy turned shifting geopolitics into an opportunity for renewed internationalization. By showing how MNEs influence diplomatic processes between their ‘small’ home country and great powers, we call on management scholars to take more seriously structural power asymmetries that shape global politics that constrain MNE behaviour during periods of geopolitical instability.