The firm as a geoeconomic actor

Abstract

Cutting-edge research on geoeconomics has under-explored one core constituent – the firm. Presenting two empirical ‘snapshots’ from different historical-geographical conjunctures, this essay spotlights the continuities that underpin firms’ function as geoeconomic actors. The first conjuncture is the expansion of British geoeconomic influence through the East India Company. The US government’s ongoing attempt to curtail attempts by China-based firms to develop high performance semiconductor chips comprises the second conjuncture. While each snapshot is distinct, the logics from the first conjuncture can be utilised for understanding how firms’ operating logics impact on state-driven geoeconomic strategies during the second conjuncture. These snapshots collectively demonstrate how the evolution of transnational economic integration has been underpinned by proactive firm attempts at expanding foreign operations. The effects of these attempts on states’ geoeconomic objectives will subsequently trigger positive or negative interventions by state actors. A new ‘critical geoeconomics’ agenda must therefore consider how firms constitute and/or constrain geoeconomic influence.

Introduction

The prioritisation of commercial over military methods to secure territorial and strategic control has become a vibrant research field often labelled as ‘geoeconomics’ (Sparke, 1998; Vihma, 2018). While growing interest in this field is widely associated with Edward Luttwark’s writings in the early 1990s, Mallin and Sidaway (2024a) demonstrate how the term emanated from place-specific contexts as far back as a century ago. Their work brings into sharp relief the state’s longstanding entwinement with a central contradiction of capital accumulation: the search for spatial ‘fixes’ in specific territories through breaking down barriers across and between state space. Mallin and Sidaway (2024b) subsequently call for a ‘critical geoeconomics’ that examines the rationale and effects of this entwinement. This essay contributes to this emergent exploration by posing the following question: if states seek geoeconomic influence by easing tensions in the capital accumulation process through methods of commerce, what are the roles of commercial actors in shaping this influence?

Contemporary states are underpinned by a sovereignty-accumulation nexus, through which sovereign power is sustained and reproduced through territoriality and capital accumulation (Su and Lim, 2023). Understanding how firms – a major commercial actor – affect the impact of state territoriality on capital accumulation will advance knowledge on individual states’ ability to secure territorial and/or strategic control through economic means. Current debates on geoeconomics have primarily focused on state intentions for territorial and resource competition (Blackwill and Harris, 2016; Scholvin and Wigell, 2018), but, insofar as firms are key actors that invest and/or valorise capital, there is a corresponding necessity to examine how firm strategies enable or encumber this competitive outcome (see, e.g. Lim and Su, 2023; Su and Lim, 2019). To be sure, firms’ alignment with and support of economic statecraft is an important ‘method of commerce’; however, they can also proactively drive transnational operations in ways that shape geopolitical calculations (i.e. states’ responses to firms’ foreign forays) and state power. It is in this sense that this essay corresponds with Jim Glassman’s call in this theme section to develop ‘more finely calibrated analytical tools’ to examine the ‘practicalities and context specific processes’ of business leaders and policymakers: because firms develop and refine their production and market-building strategies as they navigate multiple state territories (and hence multiple state managers), it is only through understanding firms’ interactions with these state managers that the concrete effects of geoeconomic influence can be ascertained.

Two empirical ‘snapshots’ from different historical-geographical conjunctures will be presented to illustrate the importance of a firm-centred analytical approach to ‘critical geoeconomics’. The first conjuncture is the expansion of British geoeconomic influence through the East India Company. The US government’s ongoing attempt to curtail expanding Chinese geoeconomic influence comprises the second conjuncture. While each snapshot is distinct, the logics from the first conjuncture can be utilised for understanding firm behaviour and impact on state-driven geoeconomic strategies of the second conjuncture. These snapshots collectively demonstrate how the evolution of transnational economic integration has been underpinned by proactive firm attempts at expanding foreign operations that subsequently drew positive or negative interventions by state actors. Such is the extent of some firms’ transnational influence, state institutions often have to ‘tame’ these firms even as they simultaneously leverage the firms’ capacities to extend and enhance state power. The outcome is an irresolvable tension that can be eased either through the formation of temporary state-firm alliances or through state-driven attempts to undermine, if not obliterate, firms’ transnational operations.

The ‘East India Company Syndrome’

An emergent ‘critical’ geoeconomics research agenda might productively extend the genealogy of ‘geoeconomics’ to what some have coined the ‘East India Company Syndrome’. Of immense relevance for comprehending contemporary geo-economic configurations, this ‘syndrome’ is associated with the establishment of the East India Company (EIC) under a British Royal Charter ¹ in 1600 in London and its subsequent driving role in expanding the British Empire worldwide. Such is the political and economic significance of the EIC, observes Robins (2012: 199), it ‘is forever entangled in London’s emergence as an imperial metropolis and Britain’s rise to global supremacy’. Armed with its own army and navy, the EIC played proactive roles in shaping new economic geographies in Asia through the ‘capture’ of Mughal India; the control of the India-to-China opium trade route through key ports in Southeast Asia (Penang, Malacca and Singapore); and the establishment of Hong Kong as a financial and trading centre after Britain’s two Opium Wars with China in the 19th century.

The EIC ‘syndrome’ is of particular significance for understanding the extent and limits of contemporary ‘methods of commerce’ to determine and/or curtail state-driven geoeconomic influence. Here, the extent and endurance of specific geoeconomic configurations are as much, if not more, contingent on corporate ambitions as they are on states’ geopolitical calculations. More crucially, as the British state’s relationship with the EIC shows, states could allow firms to take the lead in geoeconomic expansion. Robins (2012: 23) provides a sharp illustration of this firm-led approach:

Unlike the pioneers of the Asia trade, the Portuguese, who adopted a wholly state-led strategy, or the Dutch, who introduced a mixed public-private model, the English pushed forward a private sector strategy for tapping the wealth of the East. What made the English East India Company special is the way it bridged the medieval concept of the corporation as an essentially public body with the industrial model of an enterprise acting primarily in the interests of its shareholders.

Yet shareholder interests are not public interests; they may even be antithetical to public welfare. Indeed, the narrow pursuit of profits by firms such as the EIC need not be detrimental only for foreign economies; they may also pose a threat to the very ‘home’ state that endorsed and encouraged this foreign expansion. In the case of the EIC, opposition to the firm emerged within the British state after the substantial growth of EIC power and influence in the Far East. As Dalrymple (2019: 390) reveals:

By 1825 there was growing opposition in Parliament to the continuing existence of the East India Company at all. One MP remarked that the power and influence of the Company were so great that ‘were it not, indeed, that the locality of its wealth is at so remote a distance, the very existence of such a body would be dangerous, not merely to the liberty of the subject, but to the stability of the state’.

With the eventual dissolution of the EIC, Dalrymple (2019: 396) adds, it appears that both national governments and firms have become savvier in the ways they leverage one another’s capacities to advance their respective interests:

The East India Company has, thankfully, no exact modern equivalent. Walmart, which is the world’s largest corporation in revenue terms, does not number amongst its assets a fleet of nuclear submarines; neither Facebook nor Shell possesses regiments of infantry. Yet the East India Company – the first great multinational corporation, and the first to run amok – was the ultimate model and prototype for many of today’s joint stock corporations. The most powerful among them do not need their own armies: they can rely on governments to protect their interests and bail them out.

The key question here is whether firms rely on just one state – presumably the ‘home’ state where they first began operations – for ‘protection’ or whether this ‘reliance’ has now become transnational. In a contemporary global economy that is characterised by functional integration between national economies, transnational corporations may be simultaneously embedded in multiple national economies that makes it difficult to cater to just one state’s geopolitical agenda. Furthermore, as the EIC’s increasingly acrimonious relationship with the British state indicates, the ‘capture’ of foreign markets by transnational corporations need not be positive for their respective ‘home’ states. Addressing these points would be crucial for assessing and conceptualising what is arguably the most definitive attempt at geoeconomic reconfigurations in the 21st century – the ongoing US-China ‘trade war’.

All eyes on Charlotte

The 2008 global financial crisis illuminated the instability of deepening US-China economic integration and impelled Chinese policymakers to divert the allocation of surplus Chinese capital from US Treasury bonds through a range of globally-oriented geoeconomic strategies (Lim, 2010, 2023). In response, the-then US president, Donald Trump, sparked a tit-for-tat ‘trade war’ through imposing punitive tariffs on Chinese imports and sanctioning firms that are deemed to pose strategic, military and/or economic threats to national security. Of interest for the emerging critical geoeconomics agenda is the Trump administration’s crackdown on the privately-owned Chinese info-communication firm, Huawei, and its suppliers in September 2020. US-based suppliers such as Intel and Google encountered growing restrictions as the US government moved to cut Huawei, then in fierce competition with Apple for market share in the global mobile phone market and a market-leader in 5G mobile communications technology, from global production networks. Firms in countries allied to the US were then expected to follow suit under the ‘Foreign Direct Product Rule’ ² by cutting ties with Huawei (e.g. the Dutch-based lithography machine manufacturer ASML, the Korea-based memory chip maker SK Hynix and the Taiwan-based semiconductor producer TSMC). Integral to the ‘global chip war’ discussed in greater detail by Szu-Yun Hsu in this theme section, the US government’s targeted containment of Huawei is to preclude the firm from acquiring advanced technology – and semiconductor chips in particular – for powering the most advanced info-communication devices that could then be utilised for espionage. Huawei’s global market position was strongly and suddenly shaken. Concomitantly, it indeed appeared that the Trump administration’s ‘methods of commerce’ were effective in scaling back Chinese geoeconomic influence. And then came a massive surprise in 2023 – the launch of a semiconductor chip codenamed Charlotte.

A distinct case of a firm seeking ‘protection’ from its ‘home’ country, Huawei responded to US sanctions by deepening collaborations with Semiconductor Manufacturing International Corporation (SMIC), a state-supported foundry in China. Because SMIC was also on the US sanctions list and could not gain easy access to advanced equipment, it had to find alternative and almost certainly more costly means – the details of which remain undisclosed – to build chips that could fulfil Huawei’s demands. Crucially, these high costs were cushioned by a substantial increase in Chinese state funding. Drawing on Huawei and SMIC’s company reports, Liu (2023) reports in a Financial Times article that Huawei received more than US$800 million in state funds in 2022 alone while SMIC has been allocated more than US$280 million annually in state support since 2019. This strong state-firm collaboration seemingly reaped dividends when Huawei launched the Mate 60 Pro smartphone containing a seven-nanometre chip – Charlotte – that had hitherto been considered too advanced for the capacities of China-based firms under sanctions. US officials were unsurprisingly concerned, with Mike Gallagher, the Chair of the House of Representatives’ committee on China, calling for a total control on technological exports to Huawei and SMIC:

This chip likely could not be produced without US technology and thus SMIC may have violated the Department of Commerce’s Foreign Direct Product Rule. . .The time has come to end all U.S. technology exports to both Huawei and SMIC to make clear any firm that flouts U.S. law and undermines our national security will be cut off from our technology. (Statement published by Reuters, 2023)

Gallagher’s comments raise a series of intriguing questions that could feed into the emergent critical geoeconomics agenda. Who are the key actors in the Huawei-SMIC production networks, and where are their geographies? Why, prior to the surprise appearance of Charlotte, was American intelligence unaware of its existence? Is contemporary geoeconomics not only about carving out mappable territories of influence, but also about creating clandestine production networks? Given that US-based firms could be associated with these networks, would an attempt by the US government to identify and negate these networks necessarily enhance US geoeconomic influence?

Addressing these questions would enable a reassessment of the US’s role in East Asian geopolitics and foregrounds how firm-driven operations sit uneasily with geoeconomic reconfigurations. Specifically, they enable an evaluation of the (in)commensurability of political realism with capitalist realism. On the one hand, firms’ quest for profits may lead to trade, investments and co-production with foreign partners that may not be deemed ‘secure’ by their ‘home’ state (e.g. US-based firms’ exports to Huawei and SMIC now appear to threatening US national security). As first discussed in the introductory section, states find themselves having to ‘tame’ these firms even when they are significant actors within their respective domestic economies. On the other hand, states may seek to fulfil their political ambitions by supporting the strategies of privately-owned ‘home’ firms, but the process could involve utilising resources from firms based in ‘hostile’ states. These states could then respond negatively and exacerbate geopolitical tensions (e.g. Chinese state support of Huawei and SMIC to drive semiconductor chip production led to the use of component parts produced by US-based firms that then exacerbated US-China international relations). The EIC relied on strong support from the British state to control foreign territories, only to generate animosity within those territories; currently, both the Chinese and US governments are actively supporting ‘home’ firms to counter each other’s antagonistic initiatives, only to generate new political challenges domestically as their respective ‘home’ firms continue to collaborate with one another. ³

Critical geoeconomics: Mapping geoeconomic influence through firm activities

The emergence of Charlotte calls for a redefinition of what constitutes geoeconomic influence. State spatial strategies constitute one aspect of territoriality to embed and enable capital accumulation, but firms – especially transnational corporations – also proactively reconfigure the geographies of their operations to achieve their much narrower profit objectives. While substantial research has examined how states facilitate and/or constrain capital accumulation through territoriality, much less is known about how transnational corporations review and reshape the geographies of their production and markets in response to shifting geoeconomic strategies. As this essay has argued, understanding firms’ role as geoeconomic actors might benefit from extending the genealogy of geoeconomics to consider the legacy of the EIC’s multifaceted relationship with the British state.

Transnational corporations are arguably more integrated globally today than the EIC during the 19th century due to their multiple production networks and consumer markets. State attempts to clamp down on access to these networks and markets may be effective to a certain degree, but they simultaneously generate counter currents that shape new geoeconomic configurations that may not even be empirically mappable (as the mystery underpinning the Huawei-SMIC collaboration demonstrates). This is where the continuity with the EIC experience is most distinct: firms remain key players in determining whether ‘methods of commerce’ can truly work for the reproduction and/or reinforcement of state power. Mapping the operations and markets of firms deemed ‘strategic’ to national interests and security therefore offers a crucial platform to assess the extent and limits of geoeconomic influence.