In the last two decades, global crises such as the Covid-19 pandemic, climate change, large-scale migration, and the Russian war against Ukraine, have become more frequent and intense. This has weakened business confidence and increased uncertainty in economic policy and international relations. Political power and economic influence have become more intertwined. Strategic competition between nations has shifted to focus on economic issues like access to cutting-edge technology, setting norms and standards, and restricting access to key resources and materials through sanctions. Meanwhile, investments are being directed away from financing “hostile” innovation through mechanisms like the proposed outbound investment screening in the United States. These developments have changed the requirements and design of global governance institutions.

As strategic competition between countries and global uncertainty continues to affect economic development, businesses are becoming increasingly important actors in global governance. Companies are essential for attaining technological supremacy, defining industrial standards, securing raw materials, and implementing sanctions. Their role is twofold: they act as “executers” of public directives such as sanctions and as “facilitators” to achieve specific goals such as setting industrial standards and developing technology. As the global population continues to grow and resources become more scarce, geopolitical tensions and competition will likely continue to intensify, resulting in a further breakdown of international governance and a more significant role for the private sector. This will usher in a new era of institutional formation in global governance.

However, it is unclear how this institutional formation in global governance will evolve. Drawing from theoretical assumptions about critical junctures, uncertainty, and institutional change, this paper seeks to shed light on the role of corporations in the increasingly fragmented global governance landscape. With a focus on five major pressure points driving this fragmentation. Our goal is to initiate a more nuanced debate on the transformation of global governance in the aftermath of multiple crises that carefully considers the role of corporations. The following section outlines the theoretical basis and summarizes key assumptions of this paper.

Theoretical Conceptualization

When analyzing the drivers of disruptive institutional change, it is essential to consider critical junctures, which can create a sense of uncertainty that enables changes in institutions. To concentrate on the role of corporations, we refer to the concept of policy entrepreneurs and start from Hall’s concept of the first-, second-, and third-order change.

Ikenberry (1994), Thelen (1999) and Capoccia and Kelemen (2007) distinguish between two different paths of institutional formation: developmental pathways and critical junctures. Both approaches build on the concept of path dependency, which assumes that previous decisions or events influence future institutional developments. Developmental pathways occur gradually over time, in response to changing conditions. An example of this is the EU integration processes (Pierson, 1996). Critical junctures, in turn, are “crucial moments of institutional formation at a specific point in time” (Blenk, 2019, p. 66). Critical junctures can set a state or national economy on a different institutional pathway that will shape later development (Ikenberry, 1994, p. 16–18). Examples include the 2008 global financial crisis, which revealed the fragility of the global financial sector, triggered a wave of government interventions and highlighted the need for financial sector reform, or the global Covid-19 pandemic, which demonstrated the weakness of multilateralism and resulted in the first reforms in global health governance.

Following the assumption that a crisis can act as an opportunity for fundamental institutional change, it is vital to understand why certain crises lead to profound changes, while others do not. Soifer (2012) suggests that certain conditions need to be present for a crisis to lead to meaningful institutional change. He distinguishes between permissive and productive conditions. Permissive conditions create a window of opportunity in which transformative changes can take place, while productive conditions are what actually shape the new institutional outcome after the critical juncture (Soifer, 2012, pp. 1573, 1576–1577). When the window of opportunity closes, it is the productive conditions that remain, enabling the new outcome to persist.

Uncertainty is a second important factor in understanding why institutional change may or may not occur. Here, uncertainty is defined as collective ignorance of future policy outcomes (McNamara, 1998, p. 57). In terms of Soifer’s distinction between permissive and productive conditions, uncertainty serves as a vital permissive condition, allowing for the potential of disruptive institutional change. According to Blyth (2011), outcomes are often unpredictable, and the generators of the outcome are not visible (Blenk, 2019, p. 67). This makes it difficult to calculate the risk of certain outcomes. Therefore, second- and third-order changes, as categorized by Hall (detailed below), can be expected in times of high uncertainty.

A distinction in three so-called worlds illustrates the problem of hidden generators and risk calculation under the assumption of uncertainty (Abdelal et al., 2010a; Blyth, 2011; Taleb & Pipel, 2004). In a type-1 world, directly observable generators produce outcomes with calculable probabilities and models based on past data are reliable in predicting future outcomes, e.g., dice numbers. In a type-2 world, generators are not or only partially observable and interdependent with actor interpretations. Thus, outcomes become uncertain and models based on past data hardly predict them. For example, in a stock market, stock fluctuations are observable but hardly the reasons why shares move. In a type-3 world, generators are not observable and produce unexpected outcomes, e.g., the end of the Cold War or the Financial Crisis in 2008. Theories based on past data offer no predictability. Systems seem to be stable for a certain period and then radically change.

This argument also links back to Minsky’s financial instability hypothesis (1977), which forms the basis of post- and neo-Keynesian theory on financial economics (Blenk, 2019, p. 3; Tavasci & Toporowski, 2010, pp. 2–5). Minsky argues that investors assume a stable investment environment as inherent over time, investment strategies get more and more aggressive and thus destabilize the whole system until it collapses. This suggests that systems can appear most stable when they are in fact most vulnerable. Many authors have built on Minsky's hypothesis and focused on the role of uncertainty (Bibow, 2009; Fontana & Gerrard, 2004; Pech & Milan, 2009; van Ees & Garretsen, 1993). This is also linked to the debate on the role of ideas for institutional change in a situation of collective uncertainty. Interests can be vague and can fail to explain institutional change (Abdelal et al., 2010b, pp. 11–12; Goldstein, 1993, p. 23; March & Olsen, 1996). In complex societies, information asymmetries become prevalent, making ideas an even more powerful tool in influencing change (Jacobsen, 1995, p. 293).

Kingdon’s (1984) concept of “policy entrepreneurs” can be used to better understand the role of corporate actors in institutional formation. Following a critical juncture, when overall uncertainty is high, policy entrepreneurs have the potential to be successful in pushing for their preferred institutional outcomes (Blenk, 2019, p. 104). This is achieved by connecting new ideas to existing problems and contributing to agenda-setting (Kingdon, 1984, pp. 205–218; Mehta, 2011, p. 28).

When considering disruptive change following a critical juncture and the role of policy entrepreneurs, it is important to delineate the extent of institutional change. How can we differentiate minor changes from more comprehensive, institutional change? Although institutional theory provides several concepts and differentiations, many elements relate to Peter Hall’s typology of policy changes (Table 1).

Table 1 Hall’s typology of policy changes

The last few years have witnessed a significant rise in global uncertainty due to a series of crises. This has had a pivotal effect on the existing state of global governance, bringing about drastic changes to the institutional structure at a global level. Although it is too soon to accurately assess the extent of these changes, we can expect to see at least second-order changes to start unfolding.

Building on the conceptualization developed here, this paper will begin to focus on the role of large corporations in responding to these changes as policy entrepreneurs. The underlying assumption is that we currently witness a phase of fundamental change in global governance after a series of multiple crises. The next section looks at the pressure points on the global economic order that are challenging the pre-Covid-19 state of the world, leading to fragmentation and with which the existing system of global governance cannot keep pace.

Five Interrelated Pressure Points Driving the Fragmentation of the World Economic Order

Over the past decade, the global economic order has become increasingly fragmented mainly due to five factors: (1) the rise of great powers like China and Russia, (2) technological disruptions, (3) the weaponization of critical raw materials, (4) the rise in nationalism, anti-globalization sentiment, and increased protectionism, and (5) climate change and widening economic inequalities.

Of these, the rise of market-oriented, but partly or wholly illiberal economies such as China and Russia but also of India and Brazil, has had the most significant impact on the global balance of power, shifting it away from American hegemony toward a multipolar world. This shift is most evident in China's share of global GDP (adjusted for PPP) almost doubling from 9.6% in 2005 to 18.6% in 2021, while the US’ share has shrunk from 19.1% to 15.7% (IMF, October 2022). Moreover, the G20 as the global group of major developed and emerging economies have begun to rival the G7 (formerly: G8) group of industrialized countries for their role in shaping global governance and international institutions.

Technological disruption constitutes a second pressure point in the global economy. The digital revolution has enabled the emergence of new markets and businesses, allowing companies to operate on a global scale. This has led to an integrated world economy, where competition is fiercer than ever, and the cost of devolution is high (Kobrin, 2015). High-tech and innovation technologies have become a key battleground for major industrial economies fighting to stay ahead of the curve and remain competitive.

Third, the race for critical raw materials (CRMs), or rather their weaponization, is another pressure point. The geopolitical realignments, the urgency to decarbonize, and the race to lead in 5G networks and artificial intelligence (AI) in a digitalized world have all resulted in increasing competition to secure uninterrupted access to CRMs as indispensable inputs for high-technology applications. Rare earths, lithium, and cobalt are among the most critical raw materials. They are found in high geographic concentration, creating hotspots of contention, especially in unstable parts of the world. Few governments have articulated, let alone implemented, an effective resource strategy, and supplier countries may leverage their supply advantage in trade wars, as seen with China in 2019 (Kalantzakos, 2020). This has put critical minerals center stage in the competition among leading industrial actors.

Nationalism, anti-globalization sentiment, and increased protectionism constitute a fourth pressure point. As governments engage in geopolitical conflicts, protectionism and state discrimination have proliferated rapidly and have become the “new normal” (Hoekman, 2015). The rise in protectionist and discriminatory measures has taken place on a much greater scale and with greater dynamics than that of liberalization. In 2021, governments worldwide intervened with protectionist and discriminatory measures rather than liberalizing ones with a ratio of 5:1 (or 28,552 to 5,474, to be exact: Evenett & Fritz, 2021). Protectionist policies, incl. barriers and obstacles to international trade and cross-border investments, undermine multilateralism.

Climate change imposes a fifth pressure point on the global economic order, widening existing disparities and deepening the divide between the haves and the have-nots. It is intensifying extreme weather events—causing destruction, displacement and disruption of economic activity—and disproportionately affecting poorer, more vulnerable populations with fewer resources to respond or adapt. Inequality is at levels similar to those of the early twentieth century, and the pandemic has only exacerbated the gap. The richest ten percent of the world's population own 190 times more wealth than the poorest half (Chancel et al., 2022), and they receive 52% of all income, compared to the not even 9% earned by the latter. This inequality has far-reaching implications, impacting individuals, governments, and international governance.

The five pressure points discussed above are changing the demands on global governance. The rise of major powers such as China and Russia has challenged the traditional US-led global order, leading to increased competition and the need for new forms of global cooperation. Technological disruption has enabled the emergence of new markets and businesses, resulting in an integrated global economy with new challenges for regulation and governance. The weaponization of critical raw materials has created new geopolitical tensions and raised concerns about supply chain security. Rising nationalism, anti-globalization sentiment and protectionism have eroded the multilateralism that has underpinned global governance, while climate change and economic inequality are putting pressure on governments and international institutions to coordinate action. The current period of high uncertainty and market volatility, exacerbated by the Covid-19 pandemic and Russia’s attack on Ukraine, presents a window of opportunity for change in global governance and redefinition of the role of corporations. As Soifer points out, crises can provide opportunities for institutional change (2012). Corporations as policy entrepreneurs have an important role to play in shaping the future of global governance in these turbulent times.

The Role of Corporations in an Increasingly Fragmented Economic World

The current global governance system has been unable to keep up with the complexities and scale of transnational pressures discussed in the previous section, leading to a “global governance gap”—a lack of effective global governance structures for addressing them (Crane et al., 2008). This has made coordinating and taking decisions on global issues that require collective action increasingly difficult at a time when it is needed more than ever (Kobrin, 2015). Simultaneously, multiple intertwined pressure points, such as the emergence of a multipolar world and the weaponization of critical raw materials, have also changed the global business landscape. The private sector cannot escape these realities, particularly the way that geopolitical competition is playing out in the private sector.

In response to the governance gap, corporations have taken on quasi-governmental responsibilities, such as promoting environmental initiatives and investing in critical infrastructure and renewable energy (Crane et al., 2008, p. 86). However, this should not be seen as a zero-sum dynamic, in which firms compensate for the absence or failure of government, as the relationship between corporate and state powers is intricately intertwined (Eberlein, 2019). Still, corporations can serve as powerful allies or “facilitators” to governments, aiding in the attainment of objectives like enhancing supply chain security, optimizing resource management, and establishing industrial standards. Moreover, they can also take a leading role in implementing government-instituted regulations, such as those concerning sanctions.

Supply Chain Security and Resource Management

The US–China trade conflict, the Covid-19 pandemic, and Russia's war against Ukraine have all had disruptive effects on global trade, prompting governments to prioritize supply chain security for key sectors such as energy, microelectronics, medical technology, and pharmaceuticals. The private sector has been called upon to assist in “re-shoring,” “near-shoring,” and “friend-shoring” strategies by adjusting its production strategies based on political judgments about host countries and policy guidance to meet national (security) interests. For example, the Biden administration is investing federal funds to form a public–private consortium that will re-shore the production of essential active pharmaceutical ingredients to the United States. Phlow Crop. has pledged to restore domestic production by building manufacturing capacity (Rowland, 2022). Additionally, the US and EU have enacted legislation that provides tax credits, grants, and other incentives to companies that invest in chip production and research. As an example, Intel is receiving government subsidies to build factories in Ohio and Arizona in a bid to reduce costs and increase autonomy in semiconductor chip manufacturing (King, 2022). Private sector representatives are also consulted as part of special government task forces to identify international dependencies and increase the resiliency of critical supply chains. Examples of these include the US Supply Chain Disruption Task Force, which includes the CEOs of FedEx and Yellow Corp, and a White House virtual summit with the CEOs from Alphabet, AT&T, Intel and General Motors to address the global semiconductor shortages.


International standards for new technologies promote interoperability and enable safety and quality of service. While standard-setting is primarily viewed as a technical process, it also has economic implications due to patents, royalty obligations, and market access, as well as political dimensions because standards may have social consequences or reflect the interests of the stakeholders involved (Voo and Cremers, 2021). As tech competition continues to heat up, the geopolitical implications of standards are becoming more and more apparent, with corporations taking a leading role as policy entrepreneurs in the standard-setting process. China has adopted a government-led strategy that encourages Chinese firms to participate in standards-setting activities and promotes standards that are in line with China’s strategic interests (Reynolds, 2022). As a result, China has significantly increased its participation in international standard-setting organizations over the past decade. The number of Chinese-occupied secretariats in the International Organization for Standardization (ISO) and International Electrotechnical Commission (IEC) rose by 73% and 67%, respectively (Li and Chen, 2021). Chinese nationals have also held leadership positions in the three major standard-setting organizations: Zhao Xiaogang (ISO 2015-17), Zhao Houlin (ITU 2015-22) and Shu Yinbiao (IEC 2020-22). However, as of January 2023, none of the three organizations is headed by a Chinese national.

Standards are typically set by a group of industry-leading firms and international industry associations. China did not actively participate in the first wave of mobile and internet infrastructure standards-setting but is now taking the lead in 5G technology standards-setting. To this end, China is leveraging its presence in international standard-setting organizations but also its national telecoms champion Huawei. As of early 2022, Huawei not only held the most 5G standards essential patentsFootnote 1 (14.5%), ahead of Samsung of South Korea (11.7%) and Qualcomm Inc. of the US (9.8%) but also led in standards proposals to the 3rd Generation Partnership Project, an umbrella term for standards organizations developing protocols for mobile telecommunications, a quarter of which had been approved (Singla, 2022). It is understood that China not only sets standards through certain companies but also actively coordinates its private sector representatives. In a 3rd Generation Partnership Project vote on a technology called low-density parity check, a representative from Lenovo, who had previously voted for a Qualcomm-led proposal, voted for a Huawei-led proposal. The Lenovo founder reasoned that “Chinese companies should be united and cannot be played off each other by outsiders” (Gorman, 2020). This case demonstrates the role companies can play in furthering policy objectives and setting standards.

Sanctions: The Role of Corporations in Implementing Sanctions and Upholding the Rules-Based International Order

The use of economic sanctions as a coercive foreign policy tool has increased significantly in the last two decades, with a particularly noticeable spike since 2018. By August 2022, the Global Sanctions Index (GSI) reported 273 sanctions in place, a 14.6% year-on-year increase and with over 52,000 persons and entities affected. This marks a 270% increase since the base date of January 2017 (Refinitiv, 2022). Economic sanctions are imposed to limit or restrict economic activities in order to achieve political or diplomatic objectives, such as preventing illicit activity that could jeopardize national security and the security of allies and partners. These sanctions may take the form of embargoes, tariffs, restrictions on foreign aid, or investment prohibitions.

As sanctions become a more common element of foreign policy, corporations have been forced to navigate a politically charged environment. Previously, businesses that traded with countries seen as international pariahs had a clear divide between commerce and politics. Now, companies must consider the potential implications of sanctions when making decisions. It is the responsibility of corporations to uphold these sanctions, which often come with a hefty price tag.

Companies can find themselves in the middle of geopolitical disputes but may also be able to influence geopolitical issues via their agenda-setting power. In October 2022, the United States Commerce Department announced a series of export restrictions on advanced semiconductor technologies traded with China (US Department of Commerce, 2022). These restrictions, based on de minimis and foreign direct product regulations, require companies worldwide that use US-origin technology or intellectual property to obtain a US license before exporting. The Biden administration sought to restrict the flow of primarily commercial technologies to China, recognizing advanced semiconductors as “force multipliers” for military strength and critical to US economic security. The move was part of Biden's national security strategy to maintain a lead in key technologies over China. The export restrictions have far-reaching implications, impacting US chip manufacturers such as Intel and Nvidia, as well as semiconductor equipment providers like Applied Materials. Applied Materials estimates the regulations have cost them $400 million in the fourth quarter of 2022 alone (Applied Materials, 2022). Additionally, US and Western suppliers have started to sever ties with Chinese chip factories, such as KLA Corp. and Lam Research Corp. of California, pausing support of installed equipment and halting new installations at YMTC. The export restrictions have also sent shockwaves throughout Asia, although they still have another year to take effect, threatening semiconductor manufacturers such as TSMC, SK Hynix, and Samsung. Moreover, the US export restrictions will also have far-reaching effect on trade and investment decisions made by the EU, such as those outlined in the European Chips Act. Companies will have to adjust their R&D, mergers, and acquisitions strategies in response to US measures, while cooperation between the EU and the US, and between the EU and China on emerging technologies such as quantum computing could be greatly impeded.

That companies can get caught in the crossfire of geopolitical tensions through sanctions became very evident in 2018. President Donald Trump's decision to abandon the Iran nuclear deal and the subsequent reinstatement of US sanctions on the country has made it hard for businesses to understand and abide by the international trade embargo. Not only were they obliged to follow US sanctions, but they also had to adhere to the EU's “blocking statute,” which was created to protect European companies from US penalties for doing business with or in Iran (Harris and Ewing, 2018). This has created a dilemma for businesses, as following either option could lead to penalties.

Even when caught in the geopolitical crossfire, the private sector has the power to influence geopolitical issues. The war in Ukraine has led to unprecedented sanctions from NATO countries and their Western allies, as well as the exodus of over 1000 companies who have chosen to curtail or terminate operations in Russia beyond what is mandated by sanctions (Sonnenfeld et al., 2023). This corporate activism shows the power that the private sector has to limit or block Russia’s access to economic and financial resources and contribute to upholding the rules-based international order. Reputational and operational factors have driven the huge exodus, as companies have sought to disassociate themselves from Putin’s regime and compensate for transportation routes and supply chains that have been interrupted.


This paper argues that we are currently presented with a window of opportunity for initiating significant second- and third-order change in global governance. Growing uncertainty in the international political and economic sphere has changed the requirements for the design of global governance structures. Large corporations have taken on a more active role, acting as both “executers” and “facilitators” of policies, which has resulted in their increased politicization. To adequately address global challenges such as climate change, effective global governance regimes must be in place. However, the global governance system is fragmenting, as new actors and institutions compete with the more traditional UN-based system in a multiplex world (Acharya, 2017). As a result, liberal values and institutions must be able to coexist and interact with the ideas and institutions of other nations, particularly those created by China.

Multinational corporations can act as a bridge between different world regions, and contribute to the effectiveness of global governance. From a normative perspective, companies should take on a more active role as policy entrepreneurs and help set the agenda of global governance. This is necessary due to the further digitalization of societies, threats to cybersecurity, and the weaponization of economic tools. It is also clear that the corporate sector will be greatly impacted by government decisions, so it is rational for them to shape global institutions and address issues such as resources scarcity and climate change. Nevertheless, there are restrictions on the role of corporations in global governance. The extent to which companies are independent from state influence varies greatly depending on the region, and competition between companies at a global level must also be taken into account.

To gain a better understanding of the role of corporations in global governance, further research is needed into the various types of corporate behavior. Studies have largely focused on global political structures, but less attention has been paid to the role of business in international relations. It is thus essential to explore how businesses can act as policy entrepreneurs, leveraging changes in global structures to more effectively address global issues.