CROSS-BORDER KNOWLEDGE AND GOVERNANCE UNDER UNCERTAINTY-THE ROLE OF GEOPOLITICAL TENSION, KNOWLEDGE RECOMBINATION, AND LEARNING IN INTERNALIZATION

Abstract

International strategy increasingly requires firms to make decisions under uncertainty. Firms must decide not only whether to enter foreign markets, collaborate across borders, or rely on foreign knowledge, but also when and how to adjust these strategic choices as external conditions change. Yet existing research often treats uncertainty as a general reason for delay, withdrawal, or strategic caution. This dissertation argues that firms’ responses to uncertainty are more conditional and uneven. Some forms of uncertainty encourage postponement, while others increase the value of early action. Similarly, some international ties can be adjusted quickly, while others remain more stable because they are embedded in commitments, routines, and relationship-specific investments (Dyer & Singh, 1998). Accordingly, this dissertation examines how firms manage international strategy under uncertainty by studying two related domains: foreign entry governance and cross-border innovation.The dissertation is grounded in international business, internalization theory, real options logic, organizational learning, and innovation search. Together, these perspectives suggest that firms do not respond to uncertain international environments through a single uniform strategy. Instead, firms compare the value of waiting, committing, learning, and reconfiguring depending on the type of uncertainty they face and the type of strategic tie or governance mode involved. This dissertation therefore asks how firms make dynamic international strategy decisions when market opportunities, governance capabilities, and geopolitical conditions change over time. Two studies outline the dissertation. The first study develops a multi-period dynamic model of foreign entry in which a firm chooses in each period among waiting, quasi-internalization, and internalization. The model examines how market-opportunity shocks, capability volatility, and governance learning jointly shape foreign entry timing and governance mode choice. Internal and external governance capabilities evolve through a stochastic process modeled as geometric Brownian motion, while repeated governance use generates learning that updates subsequent capabilities. Solving the model by backward induction shows three main results. First, waiting is most prevalent when market opportunity is neutral and capability evolution is stable. As capability volatility rises, the waiting region contracts even though flexibility becomes more valuable. Second, sufficiently favorable market opportunities eliminate waiting across learning speeds and volatility conditions; learning speed mainly affects timing when opportunities are weak or ambiguous. Third, learning speed moderates how opportunity shocks are allocated across governance modes. Slower learning amplifies sorting into the governance mode favored by the opportunity-to-payoff mapping, producing more polarized mode selection. These findings refine the common intuition that uncertainty leads to delay by showing that the effect of uncertainty depends on whether uncertainty comes from market opportunity, capability turbulence, or learning conditions. The second study examines how geopolitical tension reshapes cross-border knowledge ties. It focuses on the July 2018 escalation of U.S.–China geopolitical tension and studies three firm-level knowledge ties: U.S. citations of Chinese patents, Chinese citations of U.S. patents, and U.S.–China co-invention. Using USPTO patent data in a firm–partner-country–month panel from 2016 to 2020, the study applies a difference-in-differences design comparing the U.S.–China knowledge dyad with analogous dyads involving seven comparison countries. The results show that citation-based knowledge ties decline in both directions after the geopolitical shock, while U.S.–China co-invention shows no detectable short-run decline. Contrast tests further show that citation-based ties contract significantly more than co-invention. These findings indicate that firms adjust lower-commitment, more visible knowledge-use ties more quickly, while higher-commitment collaborative invention ties remain more stable in the short run. Thus, technological decoupling unfolds unevenly across knowledge channels rather than uniformly across all forms of cross-border innovation. Together, the two studies contribute to international strategy research in three ways. First, the dissertation advances a dynamic view of strategic choice under uncertainty. It shows that uncertainty does not automatically lead firms to wait, withdraw, or avoid commitment. Instead, firms’ responses depend on the source of uncertainty and the strategic consequences of action. Second, the dissertation clarifies the role of capabilities and learning in international governance. The dynamic model shows that entry timing and governance mode choice are jointly shaped by market signals, capability evolution, and learning speed. Third, the dissertation contributes to research on geopolitical tension and global innovation by showing that firms reconfigure cross-border knowledge ties unevenly. Citation-based knowledge use represents a flexible adjustment margin, while co-invention reflects a structurally embedded collaboration margin that changes more slowly. Overall, this dissertation shows that firms navigate international uncertainty through selective and staged adjustment. In foreign entry, firms decide whether to wait, quasi-internalize, or internalize based on the interaction between opportunity conditions, capability turbulence, and learning. In cross-border innovation, firms respond to geopolitical tension by reducing visible reliance on rival-country knowledge before restructuring deeper collaborative relationships. These findings suggest that international strategy under uncertainty is not simply a matter of delay or disengagement. Rather, it is a dynamic process in which firms adjust some strategic margins quickly while preserving others when commitment, learning, and relationship-specific investments make immediate change costly.