Chapter 11: Switching Governance Modes to Improve the Resilience of Global Value Chains Against External Disruptions

Given the growing external value chain disruptions, there have been many studies seeking to propose methods for improving the resilience of global value chains (GVCs). This study complements previous studies by proposing the perspective of firm strategy in switching governance modes to improve the resilience of GVCs. Specifically, this study explores under what conditions MNCs are more likely to switch governance toward non-equity mode (NEM) from the alternative ones. This study introduces three industry-specific factors that affect MNCs’ decision for NEM. It then applies this framework to explain how Korean MNCs’ strategic governance change for the co-productions with Chinese firms when entering their film market which is highly restricted by the Chinese government. This study enriches the research on GVC resilience by arguing that MNCs can avoid unfavorable environmental impacts by flexibly changing their GVC governance modes under certain conditions. This study also contributes to the understanding on why some countries maintain their high attractiveness for foreign MNCs, whereas other countries do not, given the similar level of restrictive government regulations. The protectionist policies of the host government are valid only in an industry where the three conditions are met, as they increase the possibility of domestic firms’ participation by encouraging foreign MNCs to shift their entry mode from sole venture toward alliances with domestic firms.