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Proactive investments in switching-flexibility and the value of agility in international business

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  • Jostein Tvedt

    (The Institute of Transport Economics
    BI-Norwegian Business School)

  • Randi Lunnan

    (BI-Norwegian Business School)

Abstract

How should a multinational enterprise (MNE) shape its own agility in response to the environments in which it operates? In this paper we argue that proactive investments in switching-flexibility, e.g., to facilitate future relocations of production assets, can be a powerful tool for handling international business (IB) volatility. If options to invest in future flexibility are exercised strategically, international relocation may become a more frequent phenomenon in high than in low volatility industries. This prediction contrasts the value-of-waiting recommendation of the classical real options literature, which suggests that relocation becomes less frequent if volatility is high. The differences in predictions stem from a change in perspective—from exogenous flexibility in the classical literature to endogenous flexibility in this study. Optimal proactive investments in future agility increase the value of a firm and enhance the firm’s ability to handle risk. This suggests that MNEs operating in volatile and competitive international markets typically become more agile than firms operating in stable environments. The paper’s proposition is supported by illustrative cases from ocean industries and by a real options model with endogenous reversibility. The model shows that optimal proactive investments in flexibility may tighten the entry and exit threshold spread for higher volatility.

Suggested Citation

  • Jostein Tvedt & Randi Lunnan, 2025. "Proactive investments in switching-flexibility and the value of agility in international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 56(5), pages 646-658, July.
  • Handle: RePEc:pal:jintbs:v:56:y:2025:i:5:d:10.1057_s41267-025-00770-6
    DOI: 10.1057/s41267-025-00770-6
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