https://orcid.org/0000-0003-2799-1230
![Sample our Geography journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5937/TOC-Subject-Sample-2021-Geography.jpg"})
Abstract
This article introduces the concept of geopolitical decoupling in global production networks (GPNs). Geopolitical decoupling is imposed on coupling participants by geopolitical forces that pressure transnational corporations to exit host regions/economies by cutting investment, production, and trade links with host country firms and industries. It also aims to disrupt inside-out trade, investment, and production links of host country firms abroad. The article identifies the basic features of geopolitical decoupling, the central role of states in geopolitical decoupling, the strategic responses of firms to deal with decoupling pressures, and the state strategies to cope with the negative effects of geopolitical decoupling in affected regions/economies. Empirically, the article investigates geopolitical decoupling on the example of the Iranian automotive industry, which experienced three geopolitical decouplings from automotive industry GPNs since 1979. It demonstrates the short- and long-term effects of geopolitical decoupling and recoupling on the Iranian automotive industry in the context of the strategic responses by the state and the political struggles over the nature of the state industrial development policy in Iran.
Acknowledgments
I wish to thank three anonymous referees for their comments on an earlier version of this article. This work was supported by the Czech Science Foundation [Grant Number 23-07819S].
Notes
1 Geopolitical decoupling in Iran in 2018 cost Western TNCs billions of dollars in lost trade and investment deals in the automotive, aircraft, energy, and pharmaceutical industries. It also resulted in high economic losses for local firms (Motevalli Citation2017; Koenig and Charlton Citation2018). Due to geopolitical decoupling, Western TNCs reported more than $59 billion in losses four months following the 2022 invasion of Ukraine by Russia (Maloney and Gryta Citation2022).
2 More than four hundred foreign automotive firms departed Russia leaving behind assets worth billions of dollars between February 24 and May 16, 2022 (Automotive News Europe Citation2022b).
3 By exiting Russia in 2022, Renault lost 18 percent of its worldwide sales (Renault sold 480,000 vehicles in Russia in 2021) (Automotive News Europe Citation2022c; Sigal Citation2022).
4 Chinese automakers increased their market share in Iran following the geopolitical decoupling of Western firms (Gibbs Citation2017) as they did in Russia (Automotive News Europe Citation2022a), where the market share of Chinese vehicles increased from 9.6 percent in January 2022 to 31.3 percent in November 2022 (Stolyarov Citation2022).
5 French PSA sold 458,000 cars in Iran in 2011 that were assembled locally from imported completely knocked down kits, making Iran PSA’s second largest export market for completely knocked down vehicles (Automotive Manufacturing Solutions [AMS] Citation2013). Following the imposition of 2011 economic sanctions on Iran, these exports were banned, negatively affecting the output of PSA factories and workers that manufactured them. In completely knocked down assembly, the cars are imported completely disassembled from the home plant and assembled locally with the use of locally manufactured components.
6 Sonnenfeld et al. (Citation2023) classified post-2021 TNC decoupling strategies in Russia as follows: a complete decoupling involving an exit and divestment (13 percent of all foreign firms and 22 percent of workers employed by all foreign firms in Russia as of January 2023); a temporary decoupling, which includes a suspension of all operations but without divestment and exit (9 percent, 13 percent); scaling back substantive but not all operations (14 percent, 19 percent); pausing new investments but continuing substantive operations (16 percent, 24 percent); continuing full operations and facing consequences (49 percent, 22 percent).
7 For example, the buyback options negotiated in Russia in 2022 by Western car companies and other TNCs, including Renault (six years), Mercedes-Benz (six years), Nissan (six years), Ford (five years), Mazda (three years), Henkel (ten years), and McDonalds (fifteen years).
8 As of July 2023, the percentage of foreign firms that exited or planned to leave Russia exceeded 60 percent in sport, media, gaming, consulting and law, online services, and alcohol and tobacco. On the contrary, more than 50 percent of foreign firms staying were in metals and mining, pharmaceutical and health, electronics, manufacturing, agriculture, industrial equipment, food and beverages, chemical, and construction and architecture industries (KSE Institute Citation2023).
9 As of July 2023, more than 70 percent of firms headquartered in Ireland, Lithuania, Finland, Ukraine, Sweden, and Norway announced the intention to leave or have already exited Russia compared to 5 percent or less headquartered in China, India, Turkey, and the United Arab Emirates (KSE Institute Citation2023).
10 As of July 2023, a high percentage of firms not decoupling from Russia were from sanctioning EU countries, including Hungary (68 percent), Austria (66 percent), Italy (62 percent), and Germany (56 percent) (KSE Institute Citation2023).
11 Due to geopolitical decoupling, car output decreased by 67 percent in Russia in 2022 (Reuters Citation2023). Production drops in the Iranian automotive industry are shown in the section “Geopolitical Decouplings from GPNs in the Iranian Automotive Industry.”
12 In Iran, thousands of jobs were lost, and hundreds of automotive industry factories were affected; many of them closed, following geopolitical decouplings triggered by the 2011 and 2018 economic sanctions. In Russia, 258 foreign TNCs that left between March 2022 and August 2023 employed 419,000 workers, and an additional 323 TNCs that announced exit employed 390,000 workers (KSE Institute Citation2023). Not all these jobs have been lost, however, since in many cases production has continued under new owners.
13 Between March 21, 2021, and March 20, 2022, IKCO produced 451,121 vehicles (52 percent of the total), SAIPA 304,533 (35 percent), and Pars Khodro, which is controlled by SAPIA (51 percent of shares), 109,838 (12.7 percent) (Tehran Times Citation2022).
14 In semi-knocked down assembly, the cars are imported disassembled into several basic parts and then assembled in an assembly plant in the host economy.
15 The Hillman Hunter licensed to IKCO by the British Talbot in 1967 was locally manufactured as the Peykan until 2005. The 1980s Peugeot 405, licensed to IKCO in 1990, was assembled until 2022, twenty-five years after its production stopped in Europe. The Kia Pride, licensed to SAIPA in 1993, was based on a 1980s model and was manufactured without significant upgrading in Iran until 2020.
16 Economic sanctions were partially lifted in November 2013, allowing Renault to resume exports of completely knocked down kits and sell 36,300 cars in Iran in 2014, down from 108,000 in 2012 (Tehran Times Citation2015).
17 For example, the Peugeot 405 reached the local content of 93 percent and the Kia Pride reached 87 percent (Henry Citation2019).
18 Executive Order 13645, 78 Fed. Reg. 33945 (June 3, 2013).
19 IKCO and SAIPA accumulated $28.3 billion in losses by October 2022, and owed $10.9 billion to parts manufacturers and an undisclosed sum to Iranian banks (Khodrocar Citation2022b).