Review Article
Economic nationalism and internationalization of services: Review and research agenda

https://doi.org/10.1016/j.jwb.2022.101314Get rights and content

Abstract

The world is witnessing a growth in economic nationalism, especially in countries like the United States and United Kingdom, where this would scarcely have been predicted a few years ago. These developments threaten the internationalization of services and gains made through various global trading arrangements. Moreover, there are concerns that the COVID-19 pandemic will further undermine supranational forms of governance and nurture the trend towards protectionism and economic nationalism. We undertake a systemic literature review on economic nationalism and services internationalization to identify research themes. The findings of the study have implications for policymakers, and we provide directions for future research.

Introduction

Economic nationalism is not a new phenomenon. However, we are currently witnessing a growth in this stance, especially in countries where this would scarcely have been predicted a few years ago (Globerman, 2017). While some key players in the global economy have long operated under substantial degrees of economic nationalism, the shift away from a more globalization-oriented mindset by some nations that had previously espoused more free trade-oriented policies is arguably contributing to the uncertainty and volatility that characterizes the current international business environment (Fidler, 2017; Hopkin, 2017). For example, in the United States (US), policies are creating new barriers to foreign trade (Hoda, 2019; Talley, 2017). In the United Kingdom (UK), Brexit negotiations are fundamentally changing the nature of trade with the EU (which accounts for approximately 40% of UK exports) and leading some MNEs to rethink their location strategies, including shifting regional headquarters out of the country (Ward, 2019b). In addition, there are concerns that the COVID-19 pandemic will further undermine supranational forms of governance and nurture the trend towards protectionism and economic nationalism (Davies, 2020).

The growing economic nationalism threatens the internationalization of services and the gains made through the General Agreement on Trade in Services (GATS) (Kelsey, 2008; WTO, 2020). Despite accounting for the bulk of international trade, services have traditionally been under-studied in the International Business (IB) literature (Blagoeva, Jensen, & Merchant, 2020; Kundu & Lahiri, 2015; Kundu & Merchant, 2008; Merchant & Gaur, 2008; Rammal & Rose, 2014). The fact that we still struggle to define and classify services themselves and measure their impact on national economies is telling (Kowalkowski, Gebauer, Kamp, & Parry, 2017). This is partly due to the interweaving of service and manufacturing activities throughout the international value chain. Many “manufacturing” MNEs earn large proportions of their revenue from service activities (e.g., elevator and escalator providers such as KONE), while many “service” MNEs have substantial manufacturing-related aspects of their operations (e.g., McDonald's) (Harrington, Hammond, Ottenbacher, Chathoth, & Marlowe, 2019). This all makes for a messy context to study but is both interesting and critically important for international business research and practice.

Our literature review highlights the impact of economic nationalism on a variety of key international service activities. For example, the rise of economic nationalism has powerful implications for internationalization in knowledge-intensive services, depending on information-rich, person-to-person interactions (Shearmur, Doloreux, & Laperrière, 2015). These implications pertain to both the service providers, who rely heavily on the ability of employees to move across borders, and the host countries, who are dependent on the transfer of often-tacit knowledge that can result from such interactions (Ward, 2019a).

Economic nationalism has the potential to affect a wide variety of service-related industries. For example, professional services, such as consulting and other soft services involve considerable face-to-face interaction. This consists of the movement of people across borders, which is complicated by the changes in visa requirements that result from shifts toward economic nationalism. The international provision of many services (e.g., architecture and design, medical care) also involves navigating registration requirements subject to rapid change under these conditions. Service-related businesses in industries that can be viewed as economically critical (e.g., mining, oil, and gas) or with substantial security implications (e.g., telecommunications) may find themselves subject to increased fluctuation concerning regulatory environments, challenging managers’ abilities to undertake even relatively short-term strategizing.

Thus, it is critical that IB scholarship provides a contemporary understanding of how economic nationalism affects the internationalization of services. Hence, the purpose of this literature review is to answer the following research questions:

How does economic nationalism affect services internationalization? What is the role of the global trade regulatory bodies, and how do service firms strategize and respond to formal and informal barriers?

By reviewing the topics of economic nationalism and internationalization of services, we address contemporary issues in IB and set future practice and research agendas for policymakers, practitioners, and academicians. In doing so, we answer the calls for IB scholars to contribute to issues that are of interest to a broader range of stakeholders (Boddewyn & Rottig, 2017; Kaspar, 2017).

Section snippets

Conceptualization of services and research method

The study of service firms’ internationalization is still in its infancy. Historically, the production and consumption of services could not be separated. Therefore, they were deemed to be produced for domestic consumption only. However, improvements in information and communication technologies (ICT) have made it possible to decouple production and consumption, and such services can be exported.

Services can be classified as being soft or hard. Services where the production and consumption

Protectionism and internationalization

Globalization and economic nationalism are interrelated. The liberalization of markets and free movement of goods and services raise people's expectations that their government will restrict foreign firms’ activities and protect domestic suppliers (Akhter, 2007). Regardless of whether a historical perspective is taken or more recent examples discussed, economic nationalism remains a powerful ideology. This seems to be true of all economies, developed and emerging. D'Costa's (2009) article

Future research directions

Our review of the literature highlights several gaps and emergent themes that future studies could address. The first gap we encounter is the limited emphasis on regulatory frameworks like GATS in the IB literature. The second issue relates to the internationalization of services and economic nationalism being identified as a recent phenomenon, and the changing nature and use of technology and its impact on servitization.

Conclusion

This study reviews the literature to answer key questions about how economic nationalism affects the internationalization of service firms, the role of regulatory bodies, and how service firms strategize and respond to formal and informal barriers. In answering these questions, we identify three major research themes in the literature: protectionism and internationalization, institutions and liberalization of the services sector, and the strategic response of service firms. Previous studies

Hussain G. Rammal is Professor of International Business at the University of Adelaide, Australia. Hussain is co-editor-in-chief of the Review of International Business and Strategy, founding editor of the Emerging Issues in International Business and Global Strategy book series, and the Real Impact Editor (Oceania) for the Journal of Knowledge Management. His research interests include trade in services, international business negotiations, and knowledge management and innovation in MNEs.

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    Hussain G. Rammal is Professor of International Business at the University of Adelaide, Australia. Hussain is co-editor-in-chief of the Review of International Business and Strategy, founding editor of the Emerging Issues in International Business and Global Strategy book series, and the Real Impact Editor (Oceania) for the Journal of Knowledge Management. His research interests include trade in services, international business negotiations, and knowledge management and innovation in MNEs.

    Elizabeth L. Rose is Professor Business Policy and Strategy at Indian Institute of Management Udaipur, India. A Fellow of the Academy of International Business, Beth is co-editor-in-chief of the Review of International Business and Strategy and serves in senior editorial roles for the Oxford Research Encyclopedia of Business and Management and Academy of Management Collections. Her research interests include various aspects of internationalization, with emphasis on smaller firms, emerging markets, and the service sector.

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