This article examines the strategic and ethical implications of regulatory arbitrage in global markets. While firms expand into less regulated environments to increase flexibility and growth, these strategies raise questions about long-term sustainability and corporate responsibility. The purpose is to show that regulatory arbitrage is not only a source of competitive advantage but also a potential source of strategic exposure, as actions taken in one market increasingly shape stakeholder perceptions across others.
The article adopts a conceptual approach supported by a case-based illustration of the 2008 spin-off of Philip Morris International. Drawing on institutional and stakeholder perspectives, it develops a three-dimensional framework to analyze how regulatory distance, stakeholder visibility, and legitimacy spillover interact to shape the risks associated with global expansion strategies.
The analysis shows that regulatory arbitrage can simultaneously generate economic value and increase legitimacy risk. While firms benefit from reduced constraints and expanded market access, these gains may be offset by heightened scrutiny and cross-market reputational effects. The findings suggest that strategic decisions cannot be evaluated solely within local regulatory contexts, as stakeholder expectations increasingly operate across global boundaries.
This article introduces the concept of strategic exposure as a distinct extension of traditional views of regulatory arbitrage. The framework integrates institutional conditions with stakeholder evaluation to explain how global strategies produce both advantage and risk. It advances existing discussions through a clear emphasis on cross-market visibility and legitimacy spillover as defining features of contemporary global competition, offering a more precise way to assess the consequences of operating across uneven regulatory environments.
