Friend-shoring or reshoring under geopolitical uncertainties? – Evidence from Taiwan-based MNEs

Purpose Taiwan's position at the nexus of the U.S.-China geopolitical rivalry offers a compelling lens to study the impact of geopolitical tensions on how Taiwan-based multinational enterprises (MNEs) adjust their outward foreign direct investment (OFDI) location choices. Using 2016 as a pivotal election year in rising geopolitical tensions, we study the key factors driving the relocation decisions while controlling for firm characteristics, such as size, industry and internationalization degree. Design/methodology/approach Based on a unique firm-level dataset, we use the hierarchical regressions of the percentage of firms' direct investments to different regions on the control variables and year dummies. We also use Logit models to estimate the probabilities of a Taiwan-based MNE changing its OFDI to these regions when a particular explanatory variable changes by a given percentage. Findings Taiwan-based MNEs exhibit distinctive adaptive behaviors shaped by their firm-specific advantages and competitive positioning. Firms with lower ratios of overseas fixed assets decreased their offshoring investments in mainland China significantly more than those with higher ratios, while firms with higher overseas sales ratios also decreased their offshoring investments in mainland China significantly. Both groups of firms also increased their friend-shoring investments in other countries, whereas reshoring to Taiwan was especially evident among high-tech MNEs. Originality/value This research contributes to the intersection of international business and political economy by demonstrating how geopolitical risk shapes the global investment decisions of MNEs. We provide critical insights into the strategic reconfiguration of Taiwan-based MNEs amidst escalating U.S.-China tensions, expanding the literature and offering valuable implications for other MNEs to reshape their global business strategies.