Pushed out or locked in? Geopolitical tension and emerging market multinationals' divestment from advanced markets

Research Summary We investigate how home–host geopolitical tension influences the divestment decisions of emerging market multinational enterprises (EMNEs) in advanced host markets. Institutional theory suggests that such tension generates legitimacy deficits that compel exit, whereas resource dependence theory points to incentives to stay and secure critical resources. We integrate these logics into a contingency framework. Using a longitudinal dataset of publicly listed Chinese high‐tech multinationals from 2000 to 2021, we find that geopolitical tension is positively associated with the likelihood of divestment. This association is attenuated for firms with high technological capability and deep technological embeddedness in the host market, but amplified for those with greater home institutional support, which operates as a liability rather than as a shield. Comparative case studies of forced divestment and contested stay corroborate these findings. Managerial Summary Geopolitical tensions present managers of EMNEs with a critical dilemma: whether to divest from advanced markets or to maintain operations despite hostility. Our study of Chinese high‐tech firms reveals that while rising geopolitical tension generally accelerates divestment, a firm's strategic positioning can alter this outcome. We find that firms with strong technological capabilities or deep technological embeddedness in the host market are better positioned to resist exit pressures. These attributes create mutual dependencies that can turn local stakeholders into de facto allies who lobby against restrictive policies. However, managers should be cautious about relying on home institutional support when bilateral relations deteriorate. Rather than providing a shield, such support can mark the firm as a political agent, thereby amplifying its legitimacy deficits.