GVC transformation and a new investment landscape in the

PERSPECTIVE

GVC transformation and a new investment

landscape in the 2020s: Driving forces,

directions, and a forward-looking research

and policy agenda

James X. Zhan

United Nations Conference on Trade and

Development, Geneva, Switzerland

Correspondence:JX Zhan, United Nations Conference onTrade and Development, Geneva,Switzerlande-mail: [email protected]

AbstractGlobal value chains (GVCs) will undergo substantive transformation in the

decade ahead, reshaping the global trade and investment landscape. The

change will be driven by five major forces: economic governance realignment,the new industrial revolution, the sustainability endeavor, corporate

accountability, and resilience-oriented restructuring. All of this will present

challenges and opportunities for firms and states alike, leading to aninvestment-development paradigm shift. This article discusses the five driving

forces for the GVC transformation, projects ten broad trends in the evolution of

the global trade and investment landscape, and also presents a forward-looking

agenda for multi-dimensional research and policy in the decade ahead. It aimsat providing a framework for future research that encourages cross-disciplinary

collaboration as well as a structured dialogue between academia and

policymakers.Journal of International Business Policy (2021) 4, 206–220.https://doi.org/10.1057/s42214-020-00088-0

Keywords: investment; trade; technological change; global value chains; MNEs; re-search; policy; sustainable development

LONG-TERM TRENDS IN TRADE, INVESTMENT, AND GVCSDuring the past 30 years, international production has seen twodecades of rapid growth followed by one of stagnation (UNCTAD,2020a). Flows of cross-border investment in physical productiveassets stopped growing in the 2010s, the growth of trade sloweddown, and GVC trade declined as a share of total trade (seeFigure 1).

In the early 1990s, the global presence of MNEs started to evolvefrom relatively simple cross-border structures predominantly moti-vated by the search for natural resources and international marketsto more complex global value chains, built to exploit differences inlabor costs and productivity.

In the 1990s and into the 2000s, this process accelerated. The twodecades witnessed rapid growth in GVCs, a tenfold increase in the

The online version of this article is available Open Access

Journal of International Business Policy (2021) 4, 206–220ª 2021 The Author(s) All rights reserved 2522-0691/21

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Received: 7 November 2020Revised: 11 December 2020Accepted: 11 December 2020Online publication date: 2 February 2021

global stock of FDI and a fivefold increase in globaltrade. Roughly two-thirds of global trade was intra-firm trade between affiliates of the same MNE andtrade within supply chains coordinated by MNEs.

A series of fundamental shifts in GVCs could beobserved during this period. Patterns of FDIchanged, with emerging markets becoming notonly increasingly important recipients of FDI, butgradually also outward investors. The compositionchanged, with services playing a more importantrole, both through the internationalization ofservice industries and through the servicificationof manufacturing activities, and the modalitiesthrough which MNEs expanded abroad changed,with mergers and acquisitions (M&As) playing amajor role, and with corporate structures becominghighly complex.

In the 2010s, after the global financial crisis, thegrowth momentum of international productionstalled. This was first reflected in trade. Worldwideexports of goods and services, which had grown atmore than double the rate of GDP for decades,slowed down significantly relative to economicgrowth. The same development occurred in invest-ment, even though the stagnation was obscured forsome time by the expanding financial componentof FDI. The data on investment flows net ofconduits and offshore financial centers, clearlyshowed the lack of growth in global FDI.

It now seems that the 2010s were only the quietbefore the storm. The crisis caused by the COVID-19 pandemic arrives on top of the pre-existingchallenges to the system of international produc-tion (UNCTAD, 2020a). The decade to 2030 is likelyto prove a period of transformation for global valuechains, which will have significant implications forthe global trade and investment landscape andMNEs’ modes of operation.

FIVE DRIVING FORCES FOR GVCTRANSFORMATION TO 2030

Five major forces will drive the GVC transformationand reshape the global trade and investment land-scape in the upcoming decade (Table 1).

1. Economic governance realignment. Internationaleconomic policymaking and especially tradeand investment policies are shifting away frommultilateral cooperation towards regional andbilateral solutions. This is compounded by ageneral shift in national economic policymakingthrough new industrial policies, including pro-tectionism in numerous countries (Zhan, 2019a).The aggravated systemic competition (trade,investment, technology, etc.) between economicpowers may lead to a wide-spread global eco-nomic governance divide (Petricevic & Teece,2019; Kobrin, 2020).

Figure 1 Global value chains: two decades of growth followed by one of stagnation (FDI, trade, and GDP indexed, 2010 = 100; GVCs

percent). Source: UNCTAD (2020a)

GVC transformation and a new investment landscape James X. Zhan

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Journal of International Business Policy

2. The new industrial revolution. The application ofnew technologies in international production ofglobal MNEs will have far-reaching conse-quences for the configuration of GVCs. The keytechnology trends include robotics-enabledautomation and AI-enhanced systems, supplychain digitalization (including platforms, cloud,Internet of Things (IoT), blockchain, and addi-tive manufacturing and mass customization(UNCTAD, 2017; Brun, Gereffi & Zhan, 2019)).Each of these technologies will have distincteffects on the length, geographical distribution,and governance of GVCs. Each technology,depending on industry-specific deployment, willflatten, squeeze, or bend the ‘‘smile curve’’ ofGVCs in its own way (UNCTAD, 2020a). All thiswill reshape the global trade and investmentlandscape and exert long-term social and eco-nomic impact in different parts of the world.

3. Sustainability endeavor. The big push for the greenand blue agenda by markets and governments ischanging products and processes along the valuechains in the direction of sustainability(UNCTAD, 2014; UNCTAD 2018a; Zhan, 2019b;Zhan, 2020). According to UNCTAD’s latestestimates, the global sustainability-dedicated

funds are now at the level of $1.2-1.3 trillion,including $260 billion of green bonds, $105billion of social bonds, and over $900 billionsustainability-themed equity funds (UNCTAD,2020a). The global effort to mobilize and chan-nel investment to realize the Sustainable Devel-opment Goals (SDGs) will also change the futurepattern of FDI, including the sources of financ-ing, sectoral distribution, and geographical loca-tion (UNCTAD, 2015a; UNCTAD, 2020a).UNCTAD’s recent review has shown that sixout of 10 SDGs groupings saw an increase ininvestment over the past 6 years. Investment inSDGs is expected to grow to trillions in thecoming years.

4. Corporate accountability. International coopera-tion to fight corruption, illicit payments, taxevasion, and anti-competitive practices will haveimportant implications for the modes of opera-tion of MNEs. The environmental, social, andgovernance (ESG) standards and disclosurerequirements will add to trade and investmentpolicy pressures from both host and home states.Differences in approach between countries andregions on emission targets will impact the GVCgovernance choices. The author envisages the

Table 1 Five driving forces for GVC transformation and investment reconfiguration. Source: Author, partially based on UNCTAD

(2020a)

Key elements

3. Sustainability impera�ve

4. Corporate accountability

5. Resilience-oriented restructuring

Shi�ing away from mul�lateral towards regional and bilateral solu�onsIncreased trade and investment protec�onism, industrial policies for making at homeGeopoli�cal confronta�on leading to fragmenta�on of standards/systems

Supply chain digitaliza�on, including pla�orms, cloud, IoT, blockchainRobo�cs-enabled automa�on and AI-enhanced systemsDistributed and addi�ve manufacturing (3D prin�ng), mass customiza�on

Market-driven changes toward green and blue economySustainability-oriented product and process transforma�onGlobal endeavor to mobilize and channel investment to SDGs sectors

Environmental, social and governance (ESG) standards and disclosure requirements Global fight against corrup�on, illicit payments, tax evasion and an�-compe��ve prac�cesMainstreaming sustainability into business models, and reputa�onal risk aversion

Coping with increasing vola�lity, uncertainty, complexity, and ambiguity (VUCA)Adop�ng new working approaches to s�mulate agility and flexibilityDiversifying GVCs in response to growing geopoli�cal tensions and reshoring pressure

1. Economic governance realignment.

2. Technology and the newindustrial revolu�on

Driving Forces


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transformation of ESG standards in three dimen-sions in the coming years: A shift from icing-on-the-cake to integration into business models;from proliferation to harmonization of stan-dards; and from voluntary to mandatory com-pliance.1. The transformation is gathering newmomentum as governments and regulators aregearing up their efforts to integrate ESG intoregulatory frameworks for FDI and capital mar-kets, while MNEs worldwide are shifting theirbusiness value from shareholder-based to stake-holder-based (Zhan, 2020; UNSSE, 2019).

5. Resilience-oriented restructuring. The global crises,as well as growing geopolitical conflicts, willdrive MNEs to make their global value chainsmore resistant to new types of shocks, andgovernments to reduce reliance on foreignsources for critical supplies. Admittedly, it willnot be so easy for many MNEs to restructuretheir GVCs (Miroudot, 2020), and the reshoringand nearshoring have not been significant forsome countries during the pandemic (Evenett,2020). Nevertheless, the trend is emerging andlikely to continue beyond the pandemic. MNEswill adopt new modes of business operations toenhance agility and flexibility, and to cope withincreasing volatility, uncertainty, complexity,and ambiguity of the global business environ-ment. All of this will exert a significant impacton the future pattern of global investment flows,including through diversification, redundancyand, to a certain extent, reshoring andnearshoring.

The effects onglobal investment of thefivedrivingforces are multifaceted. They are sometimes mutu-ally reinforcing, and sometimes push in oppositedirections. They play out differently across indus-tries and geographies. Combined, these drivingforces will impact three sets of locational determi-nants of the host countries: the policies and regula-tory framework for international investment, thecharacteristics and dynamics of the host economy,and the investment facilitation and infrastructure.

The driving forces will also fundamentally alterthe way firms across industries will design andoperate their global value chains. They will influ-ence MNEs’ strategic choices for internationaloperations, i.e., modes of governance: arm’s lengthtransactions (trade), FDI or non-equity modes.They will affect where MNEs choose to locatewhich type of activities, how they distribute value

added, tangible and intangible assets over theirnetworks, and how they transmit practices, includ-ing environmental, social, and governance prac-tices, to actors along their value chains. Globalpatterns of trade and investment will changeconsequently, as will their potential impact oneconomic growth, employment creation, and sus-tainable development.

FUTURE GVC TRANSFORMATION AND THEINVESTMENT LANDSCAPE: TEN DIRECTIONS

In light of the above five driving forces which willchange the locational determinants and MNEs’strategic choice for modes of operation, ten broadtrends in the future GVC transformation andreconfiguration of global investment landscapecan be projected in the coming decade (Table 2):

1. More Regional and Less Global Value ChainsThe predominant configuration of future valuechains will be more regional than global. Theregionalization of value chains can be the resultof a pull-back from GVCs, with MNEs restructuringtheir global production networks into multipleregional and subregional production centers (relo-cation of value chain segments). The developmentof regional value chains can also be the result of theindigenous growth of international production in aregion, with MNEs building new value chains at theregional and sub-regional levels (replication ofvalue chains).While regional value chains are not easy to

establish and require regional coordination andconducive systemic conditions, the momentum forvalue chain regionalization is high and likely togrow further over the coming years, driven by theproliferation of regional integration initiatives (in-cluding regional free trade and investment agree-ments), pressure for post-pandemic resilience andregional self-reliance, aggravated geopolitical ten-sions, and the push for supply chain sustainabilityand responsibility. Rising protectionism may alsofurther contribute to the regionalization of globalvalue chains (Miroudot and Nordstrom, 2020).

2. Less Fragmented Manufacturing GVCs,and More Concentrated Value AddedThe main direction of GVCs in modern manufac-turing points towards simplification and localiza-tion, leading towards shorter and less fragmentedvalue chains within an industry. The value addedwill tend to become more concentrated. The auto


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industry transforming from combustion engine toelectrical vehicle manufacturing is a case in point.Production and value added are expected tobecome more concentrated because of the shift toelectrical vehicles with far fewer components andshorter value chains. An average internal combus-tion engine has more than 2000 moving parts,while an electrical vehicle has only 20, with valueadded concentrated in few parts (UNCTAD, 2020a).

Distributed manufacturing will also lead toshorter value chains and a re-bundling of produc-tion stages with more geographically distributedactivities, but more concentrated value added.Distributed manufacturing is generally associatedwith the application of 3D printing. Manufacturingmodels enabling replication range from networkscentrally coordinated by MNEs to the bottom-upatomization of production whereby every firmindependently produces final products. Digitaliza-tion of supply chains will enable a wider distribu-tion of economic activities, but potentially withmore concentrated value added in individual loca-tions. Reshoring may also lead to reconfiguringsome GVC segments, resulting in shorter, less-fragmented value chains and a higher geographicalconcentration of value added.

3. More Platform-Driven Governance and Asset-Light Value ChainsDigitally enhanced GVCs will strengthen the role oflarge digital MNEs providing the enabling digital

infrastructure. These large digital MNEs tend toprovide digital platforms concentrated in feweconomies and exhibit a distinctively ‘‘light’’ inter-national footprint. Unlike traditional MNEs, digitalMNEs possess fewer tangible foreign assets, indicat-ing a reduced international physical footprint eventhough they generate a significant portion of theirsales abroad (UNCTAD, 2017). In production-re-lated investments by MNEs or their suppliers, otherforms of investment may become more importantfor businesses with foreign asset-light businessmodels, including knowledge-seeking foreigninvestments. For GVC governance, digital plat-form-based MNEs will complement, displace, oreventually lead to the adaptation of traditionalMNEs as lead firms (Bolwijn, Casella & Zhan, 2018;Brun, Gereffi & Zhan, 2019).The overseas operations of MNEs are becoming

ever-more intangible and less dependent on invest-ment in physical assets (Figure 2). Non-equitymodes (NEMs) have become firmly established,between arm’s-length trade and FDI, as a gover-nance mechanism in international production.NEMs allow MNEs to access overseas marketsthrough contracts, rather than FDI, while stillexercising a significant degree of control overoperations. Technology-based MNEs also becomeincreasingly important. These firms can reach mar-kets worldwide through digital channels and with-out the need for a significant physical presence. Thenumber of asset-light technology MNEs in

Table 2 Ten salient features of the future GVC-investment landscape

Ten salient features

Changing pa�ern of global trade and

investment

1) More regional and less global value chains

2) Less fragmented manufacturing GVCs, and more concentrated value added

3) More pla�orm-driven and asset-light value chain governance

4) Growing services share in value chains and offshoring

5) Resilience and na�onal security driven GVC diversifica�on

6) Decline in global efficiency-seeking FDI, and increase in regional market-seeking FDI

7) Downward pressure on global trade in intermediate goods, less on trade in final products

8) A shi� from mass produc�on to mass customiza�on

9) Growing FDI in infrastructure and public services

10) A boost for FDI in the green and blue economies

Restructuring value chains

Main aspects


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UNCTAD’s 100 largest MNEs has increased, whilemanufacturing investment has declined (UNCTAD,2017). At the same time, the value of greenfieldcross-border investment projects in manufacturingindustries was structurally lower (by 20 to 25%)than in the previous decade (UNCTAD, 2020a).

4. Growing Services Share in Value Chainsand OffshoringThe broad application of enhanced digital tech-nologies will seriously affect service industries,particularly higher value-added services – i.e.,‘‘white collar’’ services, ranging from professionaland business services to finance, engineering, andmarketing activities. The enhanced digital tech-nologies could make service industries the newfrontier of offshoring, driven by labor cost arbi-trage. High and medium value-added services,traditionally highly centralized, will be increasinglydelivered offshore through teleworking. Telework-ing opportunities are being enhanced by advanceddigital communication tools, including teleconfer-encing, augmented reality, virtual reality, and 5G.Cloud storage and computing make it possible toperform complex tasks remotely, while improve-ments in translation software will facilitate com-munication (Baldwin, 2019).

Expansion of services GVCs will also be boostedby the unbundling of manufacturing-related activ-ities into services, a process known as servicificationof manufacturing (UNCTAD, 2017; Brun, Gereffi &

Zhan, 2019). The impact of digitalization on servi-cification is twofold. On the one hand smartmanufacturing driven by the Internet of Thingsand Big Data increase the service content of thefinal product, for example in terms of digital andICT services (embodied services). On the other, newservices are added to the final product, generallywith a major digital component (embedded ser-vices, such as software upgrades for cars andwashing machines). These transformations willlead to a hybrid, highly fragmented environmentwhere manufacturing activities are increasinglyintegrated with digital services (UNCTAD, 2020a;Bolwijn, Casella & Zhan, 2018).

5. Resilience and National Security-Driven GVCDiversificationOne trajectory to build resilience in GVCs isdiversification and redundancy. As the perceivedover-concentration of production and supply chaindependence are of primary concern by manygovernments, firms and states may find that diver-sifying internationally can be more effective thanreshoring (and de facto reconcentrating domesti-cally). This means giving up some economies ofscale by involving more locations and suppliers inthe value chain. Digitalization of the supply chainis pivotal to the process of diversification, as muchas automation is the technological trigger ofreshoring. Firms in many GVCs will have theopportunity to maintain and potentially extend

Figure 2 Indicators of international production by tangibility, 2000–2019. Source:UNCTAD (2020a)


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their complex network of international operationsby leveraging digital technologies to improve coor-dination and control. The mix of control over thesupply chain, enhanced marketing and flexibleprocesses enabled by a smart integration of digitaltechnologies allows firms to prevent, or at leastmanage, the kind of supply, demand, and opera-tional shocks that were so dramatically showcasedby the COVID-19 pandemic.

6. Decline in Global Efficiency-Seeking FDI,and Increase in Regional Market-Seeking FDIThe impact of digitalization and automation onlabor cost differentials will exert downward pres-sure on global efficiency-seeking FDI. Distributedmanufacturing enabled by IoT and 3D printingpotentially favors an increase in market-seekingFDI. Like robotics, 3D printing reduces the laborcomponent in production and the competitiveadvantage generated by labor cost differentials.The transition from efficiency-seeking, verticallyspecialized, value chains to distributed market-seeking manufacturing is also favored by relativelylimited capital cost differentials across countries.Overall, the weight of factor cost differentials ininternationalization decisions becomes smaller(UNCTAD, 2020a).

7. Downward Pressure on Trade in IntermediateGoods, Less on Trade in Final ProductsAs GVCs in manufacturing become more local,shorter, and less fragmented, physical concentra-tion of the production process will decrease cross-border trade in intermediate inputs and compo-nents. While reduction in intermediate trade isalready happening and it is likely to accelerate inthe future, the prospects for trade in final goods areless obvious.

Transformation of some industries will alsoreduce the production and trade in intermediategoods. As explained above, the transformation ofthe auto industry from combustion engine toelectrical vehicle manufacturing is a good example.Due to platform sharing and the shift to electricalvehicles with far fewer components, the valuechain will become shorter and the value addedmore concentrated. Consequently, electric vehiclesupply chains will involve far fewer suppliers andmuch less trade in intermediate goods.

8. A Shift from Mass Production to MassCustomizationAdvanced manufacturing points to a reconfigura-tion of international production characterized bysmall-scale, localized production, close to the pointof consumption. It is also supported by the appli-cation of new production technology – such as 3Dprinting (UNCTAD, 2017). 3D printing changes thetraditional patterns of international production bythe effects of re-bundling through technologicalinseparability.Distributed manufacturing enables the shift from

mass production and economies of scale to masscustomization. Value added stems from the design/programming phase – delivering the specificationsfor replicable 3D printing – and the customer-related activities, addressing the clients’ needs. Themanufacturing step tends to be a highly commod-ified, low value-added but capital-intensive activityreplicated in multiple countries. The focus andsource of value switches then from economies ofscale to economies of scope (UNCTAD, 2020a). Thepharmaceutical industry is an example of theapplication of distributed manufacturing (‘‘huband spoke’’). Beyond pharmaceuticals, distributedmanufacturing may have applications in cus-tomized segments of mass industries such asapparel or food that are characterized by limitedproduction complexity.The servitization of manufacturing to seek

economies of scope can also lead to the transfor-mation to customization. According to Baines et al.(2017), servitization is defined as a process ofbuilding revenue streams for manufacturers fromservices. In addition to basic and intermediateservices traditionally offered (such as spare parts,product repairs, maintenance, helpdesks, training,condition monitoring), manufacturers now alsoprovide advanced customized services, such ascustomer support agreements and outcome con-tracts. Examples of companies delivering suchadvanced services include Rolls-Royce, Caterpillar,Alstom, MAN, and Xerox (Baines et al., 2017).Services have also been described as value-creat-

ing activities, as their role is to create value all alongthe GVC. Services lead to higher value creation andare part of a shift towards more productive andmore customer-centric production models wherevalue can be seen as co-created with consumers(Demirkan et al., 2011).Supported by increasing Big Data and IoT, servi-

tization of manufacturing will exert a far-reachingimpact on future trade and investment by MNEs.


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9. Growing FDI in Infrastructure and PublicServicesLarge amounts of capital are now looking for invest-ment opportunities for value-creating projects ininfrastructure, agriculture, and public services. Someservices that have always beenpredominantly domes-tic are internationalizing, such as health care, educa-tion, and digital infrastructure, just as traditionalinternational production industries are retreating orrestructuring. That creates new opportunities forpromoting investment in new areas (UNCTAD2020a; UNCTAD 2018a). In the short to mediumterm, the development of infrastructure may supportdomestic recoveryby boosting the local economyandemployment. In the medium to long term, invest-ment in infrastructure enables buildingmore resilientlocal and regional ecosystems, physicallyanddigitallyintegrated, as well as supporting sustainable growth.

10. A Boost for FDI in Green and Blue EconomiesDriven by the global sustainability imperative, pro-moting the green economy and the blue economy(e.g., renewable energy, land andwatermanagement,sustainable maritime sector, climate change mitiga-tion and adaptation) presents great potential forinternational investment. MNEs will increasinglyalign their investment decisions, production pro-cesses, and products and services with the sustainabledevelopment agenda. Harmonization of ESG stan-dards and strengthening of corporate accountabilitywill exert further pressure on MNEs and their globalsupply networks to deliver sustainable impactthrough investment.As thegreenandblueeconomiesgain priority on the political agenda, theywill benefitfrom massive policy support, including through themainstreaming of the SDGs into investment policy-making and the reorientation of investment promo-tion and facilitation strategies towards the SDGs.

A FRESH RESEARCH AND POLICY AGENDA FORTHE DECADE AHEAD

As the transformation is unfolding, it is time tochart the way forward in research and policyanalysis to address tomorrow’s investment-devel-opment challenges and opportunities.

In the previous section, ten broad trends in GVCtransformation and the global trade and investmentlandscape have been highlighted (Table 2). The tenbroad trends can serve as a basis for a forward-looking research agenda for international business(IB) scholars and scholars in adjacent disciplines,such as international finance and economics,

international investment law, and developmentstudies. Each of these trends merits more in-depthresearch, and perhaps necessitates new theory. Atthe minimum, these trends require close monitoringthroughout the process of the transformation.Empirical studies can help validate, update, enrichand fine-tune established theoretical frameworks forinternational production systems and GVCs.Furthermore, the five driving forces and ten trends

can also present a long list of topical issues forevidence-based policy analysis on GVC-develop-ment strategies in the coming decade (Zhan, 2020).Threemaindimensionsof thepolicy analysis agendaare highlighted below: first, the investment policycore – priorities for policy action; second, policyimplications of the five driving forces – addressingthe key emerging trade and investment issues; andthird, international investment and global crises – achallenge for building back better.

1. The Investment Policy Core – Prioritieson the AgendaThere is a need to continue the great endeavorembarked on at the time of the investment-devel-opment paradigm shift (Zhan, 2010). In the pastdecade, considerable policy analysis has focused onmodernizing national laws and regulations andformulating a new international investment treatyregime (UNCTAD, 2015b; Zhan, 2020) whose over-arching objective is to align investment policiesand governance with sustainable development atthe national and international levels. Investmentpolicies typically address five sets of core regulatoryissues, i.e., liberalization, protection, promotion,facilitation and dispute settlement (UNCTAD,2015a; UNCTAD, 2017). Four priorities are high-lighted by the author below.

1) Updating Industrial and Investment Policiesin the Era of GVC transformationIndustrial policies have been proliferating.UNCTAD’s global survey of industrial policiesshows that today over 100 economies, both devel-oped and developing, have adopted formal indus-trial development strategies. Together, theyaccount for more than 90% of global GDP. Thelast few years have seen an acceleration in theformulation of new strategies (UNCTAD, 2018a).Modern industrial policies are increasingly

diverse and complex, addressing new themes andincluding myriad objectives beyond conventionalindustrial development and structural transforma-tion. Investment policies (in particular in


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developing countries) have been a key instrumentof industrial policies. Different industrial policymodels come with a different investment policymix.

Modern industrial policies need to follow severaldesign criteria. These include openness, sustain-ability and readiness for the technological revolu-tion. Investment policy choices should be guidedby these design criteria and by the need for policycoherence, flexibility, and effectiveness. Industrialpolicies need to use different investment policytools and focus on different sectors, economicactivities, and mechanisms to maximize the con-tribution of investment to the development ofindustrial capabilities. The investment policytoolkit needs to be developed in line with industrialpolicy models and stages of development.

Governments need to ensure that their invest-ment policy instruments are up-to-date, includingby reorienting investment incentives, modernizingSEZs, retooling investment promotion and facilita-tion, and crafting smart foreign investment screen-ing and monitoring mechanisms. Thetransformation of GVCs requires a strategic reviewof investment policies for industrial development.For modern industrial policies to contribute tosustainable development, policymakers need to

enhance their coherence with national and inter-national investment policies and other relatedpolicy areas, including trade, tax, and competition(Owens and Zhan, 2018), as well as social andenvironmental policies (Figure 3). They need totake a ‘‘whole of government’’ approach to createsynergy. They also need to strike a balance betweenthe roles of the market and the state and to avoidoverregulation. Finally, they need to adopt acollaborative approach that is open to internationalproductive capacity cooperation and avoid beggar-thy-neighbor outcomes (Zhan, 2011).As industrial policy further proliferates and

becomes the mainstream of development strategy,a key challenge is emerging today: new industrialpolicies need to make more effective use of invest-ment policy instruments, and investment policiesneed to modernize in line with new industrialdevelopment strategies. Together, they need to beupdated to address the key emerging challengesidentified in the previous section.

2) Boosting Investment in SDGsA second top priority today is to mainstream SDGsinto their national policy framework and invest-ment promotion strategies. More than 150 coun-tries have adopted national strategies on

Comprehensive Investment Policy Framework

SustainabilityNIR ReadinessOpenness

CoherenceFlexibilityEffec�veness

Industrial Policy Design Criteria

Core FDI Policy

Entry and ownership rules

Treatment and protec�on

Promo�on and facilita�on

Dispute se�lement

Incen�ves and SEZs

Linkages and spillovers

Corporate accountability

Performance requirements

Trade policy

Tax policy

Compe��on policy

Intellectual property policy

Labor market regula�ons

Environmental policy

Infrastructure development

Government Procurement

Investment Related Policies

Figure 3 Industrial policy design and investment policy framework.


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sustainable development or revised existing devel-opment plans to reflect the SDGs. Nevertheless, ananalysis by UNCTAD, based on 128 voluntarynational reviews, reveals that although many ofthese strategies highlight the need for additionalfinancial resources, very few contain a concreteroadmap for the promotion of investment in theSDGs (UNCTAD, 2020a).

Existing investment promotion instruments appli-cable to the SDGs are limited in number and follow apiecemeal approach. UNCTAD’s global review ofnational investment policy regimes shows that lessthan half of UN Member States maintain specificpromotion tools for investment in the SDGs for thesecountries, and on average, each targets nomore thanthree SDG-related sectors or activities in its regulatoryframework. Many other countries do not have suchpolicies at all. Countries promote inward investmentin the SDGs primarily through incentive schemes.Several key SDG sectors, such as health, water andsanitation, education, and climate change adapta-tion, are rarely covered by specific incentives.

A more systematic approach is needed for main-streaming SDGs into national investment policyframeworks, and factoring investmentpromotion intonational SDG strategies (Zhan and Paulino, 2021).

3) Reforming the International Investment TreatyRegimeReforming the international investment agreement(IIA) regime is also a top priority. UNCTAD advo-cated the reform of the IIA regime, and drew theroad map for IIA reform, covering in a singlepackage all key aspects of the reform (UNCTAD,2017b; Zhan, Weber & Karl, 2011). It strategizes thereform by three phases, at four levels, in five keyareas, and under six guiding principles (Figure 4).The five core areas for reform include enhancing

systemic consistency, safeguarding the right to reg-ulate while providing investors protection, ensuringresponsible investment, promoting and facilitatinginvestment, and reforming investment dispute set-tlement mechanism. So far, significant progress hasbeen achieved, particularly with respect to the new

Figure 4 Roadmap for reforming international investment treaty regime. Source:UNCTAD (2017b)


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generation of IIAs. Almost all the newly concludedIIAs have factored in the core elements contained inUNCTAD’s reform package. Nevertheless, reform ofthe existing stock of the 2500 old-generation bilat-eral treaties still in force today has not yet taken offon a large scale, while the number of known treaty-based ISDS cases continues to grow. Most of thesecases are triggered by the old-generation treaties,thereby increasing the risk against State measures inpursuit of legitimate public policy objectives. In linewith the Reform Roadmap, UNCTAD has just intro-duced the ‘‘IIA Reform Accelerator’’, focusing onexpediting the modernization of the existing stockof IIAs (UNCTAD, 2020b).

The importance of reforming the stock of old-generation treaties is further highlighted by theCOVID-19 pandemic and the transformation ofGVCs. IIAs can place constraints on the policyresponses taken by governments to address thepandemic and the economic fallout in the shortterm and transformation of GVCs in the longerterm, because these government measures alsoaffect the operations of foreign investors.

Modernizing theexisting2500old-generation IIAsand mainstreaming sustainable development intothe future generation of IIAs remain a daunting taskahead of the international investment community.

4) A Soft Approach to Multilateralismfor InvestmentAt the global level, investment policy making hasbeen handicapped by the absence of a multilateralinvestment system. The global economic gover-nance is organized around several institutionalpillars, including the IMF that oversees the multilat-eralmonetary system, and theWTOthat coordinatesthe multilateral trade system, but there is no equiv-alent for the international governance of invest-ment. The current de facto regime is governed bythousands of bilateral and regional agreements, andother ad hoc treaties and rules. In the absence of amultilateral intergovernmental system for formulat-ing global rules for cross-border investment, amulti-stakeholder consensus-building approach can beeffective and impactful (Zhan 2019a; Zhan, 2020).

The idea is to supersede the conventional approachto global investment policymaking – intergovern-mental negotiations – by providing a platform forinclusive and comprehensive dialogue among thewhole communityof investment-development stake-holders that would gradually lead to consensus on

investment policies and norms. We at UNCTADenvisaged a virtuous cycle of policymaking, fromproposals and policy options by the UNCTAD Invest-ment Division and our global investment network,throughmulti-stakeholder deliberations and consen-sus building at the World Investment Forum, topolicy implementation in the field supported bytechnical assistance, to feeding back lessons learntinto further policy research and formulation.This has proved a viable and pragmatic approach

to shaping a new generation of international invest-mentpolicies – a ‘‘soft approach toglobal investmentpolicymaking’’ as I coined it, as opposed to the hardnegotiations-based approach. Ultimately, multilat-eral rules and principles are meant to be translatedinto national laws, regulations, and policy practicesof individual countries. The ‘‘soft approach’’ canachieve the same objective without hard bargaining,and our experience suggests this is the case, as theexamples below attest. After all, the investmentrelationship is a long-termpartnership, rather than agive-and-take deal. Furthermore, our soft approachrepresents the ‘‘best endeavor’’, while a negotiation-based approach may end with the ‘‘lowest commondenominator’’ in standards (Zhan, 2019a).The ‘‘soft approach’’ has proven successful and can

be more effective than a traditional approach tonegotiations.Concrete examples abound (UNCTAD,2019; Zhan, 2020; Sauvant, 2020). For example,between 2012 and 2016, 148 countries reviewedtheir national and/or international investment poli-cies, with 133 of them using UNCTAD’s policyguidance in the Investment Policy Framework forSustainableDevelopment (UNCTAD, 2015b) for thatpurpose.2 The G20 Guiding Principles for GlobalInvestment Policymaking drew on UNCTAD’sInvestment Policy Framework for Sustainable Devel-opment (Zhan, 2016). The G20 Guiding Principlesare the first multilateral consensus on investmentmatters reached among a group of developed,developing and transition economies, accountingfor over two-thirds of global outward FDI. Otherexamples include the UN Sustainable StockExchange Initiative (UNSSE, 2019), Global CompactInitiative and OECD policy instruments.As multilateralism is further eroded and a multi-

lateral investment system continues to be absent,more ways and means need to be identified tostrengthen multilateral cooperation in investmentfor sustainable development.


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2. Big questions: Policy implications of the fivedriving forcesThe five major driving forces (Table 1) explainedearlier will also reshape the global trade andinvestment policy space, and business ecosystemin general, in terms of norms, strategies, rules andregulations, as well as administrative practices. Newinvestment-development policy implications callfor a new policy analysis agenda. Towards this end,I sketch out a general framework with five sets ofkey questions below (the following issues areillustrative, not exhaustive).

1) Global economic governance realignmentand investment policies

• What are the implications of the GVCs’ transfor-mation for the international trading system andinvestment treaty regime, and how to address theemerging challenges arising from the realign-ment of global economic governance?

• How can we foster policy coherence for cross-border investment in light of the growing frag-mentation in international trade and investmentpolicymaking? What types of multilateral plat-forms and soft instruments can be employed?

• How can we effectively monitor global invest-ment trends and policy development, with par-ticular attention on growing protectionism andconcerns of national security?

• What are the implications of systemic competi-tion between economic powers for FDI flows todeveloping economies?

• How can we safeguard a stable, predictable, andtransparent regulatory framework for cross-bor-der investment in the era of VUCA (volatility,uncertainty, complexity, and ambiguity)?

2) The new industrial revolution and investment-for-development strategy

• How can we address the key emerging challengesand opportunities for countries at a time of trans-formation and re-configuration of GVCs byMNEs?

• What type of new strategies should host coun-tries put in place to promote and facilitateinvestment in new sectors and new businessmodels for growth and prosperity?

• How can we close the technology divide betweenadvanced and the least-developed countries?

• How can we create synergies among industrialpolicy, investment policy, and technologypolicy?

3) The sustainability endeavor and internationalproduction

• How do we mobilize and channel investmentinto the 17 SDG sectors? What should be done toimprove the capacity of developing host coun-tries in preparing bankable project pipelines?

• How can we promote and facilitate internationalinvestment to green and clean traditional valuechains?

• What are the implications of climate changeadaption and mitigation measures for the oper-ations of global value chains and investmentstrategy of developing countries?

• How can we maximize FDI and MNE contribu-tions to inclusive growth, addressing the chal-lenges of poverty and inequality, includinggender and race?

4) Corporate accountability and businessimplications

• How do sustainability-related rules, regulations,and standards impact GVCs and patterns of FDI?

• How can we harmonize the myriad of ESG stan-dards and foster effective sustainability reportingand mobilization of sustainable investment?

• How can business contribute to internationalcooperation in fighting corruption, illicit pay-ments, and tax evasion?

• How can we mainstream ESG into businessmodels and the operation of GVCs?

5) Business restructuring for resilience and policyimplications

• How can countries cope effectively with theimpact of the pending reconfiguration of


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international production, including divestment,diversion, and diversification?

• How can countries shift investment policy direc-tion from a GVC towards an RVC (regional valuechain)-based approach?

• How can developing countries, used to attractingexport-oriented investment, more effectively pro-mote international investment in infrastructure,services, and domestic manufacturing capacity?

3. International Investment and Global CrisisAdditional to the above five sets of big questionsand change processes is the issue of internationalinvestment and global crises – a challenge forbuilding back better. The world has witnessed atleast one major global crisis per decade and amyriad of smaller ones in between. Many more arecoming. It is imperative to learn the lessons fromthe past and current major crises for future businessstrategies and policy responses (Zhan and Ozawa,2001).

Global crises, e.g., food, fuel, financial, pan-demic, or geopolitical, usually create triple shocks,i.e., economic, social, and policy shocks, withsignificant implications for global investment. Inthe current context, fighting the worst economicdownturn in living memory, policymakers aroundthe world have responded forcefully. The fiscalsupport of over $12 trillion has eclipsed previousrecords. Monetary easing, liquidity injections, andasset purchases have helped prevent financialcatastrophe. Nevertheless, they are by no meansthe magic key for a sustainable global recovery. Infact, the world is in a global liquidity trap, whichgovernments and central banks will sooner or laterhave to find a way to climb out of. Debt relief ishelpful for developing countries to reduce thefinancial burdens and unlock some domestic finan-cial potential, but it does not resolve the criticalissue of a grand sustainable recovery. It is time tofocus on the real economy. Restarting the engine ofglobal production and strengthening productivecapacity are key at a time when the world is movingfrom crisis response to sustainable recovery andinclusive growth. All this needs investment in realsectors. Among the key questions are:

• What types of strategies and policy measures arerequired to re-start the engine of internationalproduction for economic recovery andreconstruction?

• For lessons learnt, how do crises impact globalinvestment flows; and how do MNEs react toglobal crises and to the massive policyinterventions?

• How can we promote investment to build backbetter, i.e., towards a resilient and sustainableeconomy?

It is time for a global synchronized push forinvestment in sustainable recovery. Without pro-ductive investment, there will be no building backbetter.The critical policy agenda above presents the

research topics commonly tackled within interna-tional investment law, international economicsand finance, and development studies. Neverthe-less, they are also directly relevant for internationalbusiness (IB) scholars. These issues affect businessand are affected by business. Therefore, tacklingthese issues will enable IB research at the firm andindustry level not only to provide sound advice toMNEs for operating in a rapidly evolving globalbusiness ecosystem, but also to contribute insightsthat are relevant and novel for policymaking in theglobal context (Zhan, 2010; Zhan, 2020).Peter Buckley et al. (2017) called for a redirection

of IB research toward big questions and ‘‘grandchallenges’’ in global business and phenomena-driven perspectives to address those questions.Indeed, IB can and should play a more constructiveand vital role by tackling expansive topics at thebusiness–society interface (Buckley, 2020; Eden,2020; Zhan and Mirza, 2012).

CONCLUSIONThis article has addressed the transformation ofglobal value chains and a new investment land-scape leading to 2030, highlighting five drivingforces and ten broad trends. It provides a frame-work for a forward-looking multi-disciplinary andmulti-dimensional research and policy analysisagenda for the 2020s and beyond. It is meant tohelp in shaping the future research orientation,facilitating cross-disciplinary collaboration, as wellas stimulating dialogues between academia andpolicymakers in line with the objectives of theJournal of International Business Policy (Lundan,2018; Van Assche, 2018), and the journal Transna-tional Corporations (UNCTAD, 2018b).Global value chains will undergo a transforma-

tion in the decade ahead. The evolution will be


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driven by five major forces: Economic governancerealignment, the new technology revolution, thesustainability endeavor, the corporate accountabil-ity push, and resilience-oriented restructuring.These forces impact on the locational determinantsand MNEs’ strategic choices for international oper-ations, and subsequently reshape global investmentlandscape in at least ten broad directions. All thiswill present daunting challenges and ample oppor-tunities for firms and states alike, leading to aninvestment-development paradigm shift.

For the policy agenda, the big question as towhere global trade and investment policy is head-ing in the 2020s is still open, but a new dichotomyin policy direction is emerging: We are entering adecade of de-globalization and the mainstreamingof sustainability. The two policy trends are some-what incompatible. The former leads to furtherfragmentation of the global market and erosion ofmultilateralism, while the latter depends on theestablishment of global standards, global gover-nance, and global partnerships (Zhan, 2019b).

All this implies a change in investment policythinking from the international production net-works that have been the core focus of IB researchtowards the need to attract international invest-ment aligning with the Sustainable DevelopmentGoals. This will further necessitate scholars toengage in inter-disciplinary research, combiningperspectives from international business, interna-tional finance and economics, international invest-ment law and development studies to addressbroader critical challenges for investment andsustainable development. It is also important forscholars to monitor closely the rapid and massivepolicy developments and analyze their implicationsfor MNEs’ international investment and opera-tions. The two academic awards, i.e., UNCTAD-AIB Award3 and UNCTAD-SIEL Award4 for the bestyoung academic research work on investment anddevelopment, which the author initiated in 2019 in

collaboration with AIB and the Society of Interna-tional Economic Law, are aimed at inspiring thenew generation of scholars to direct their researchefforts towards investment and sustainable devel-opment in the 2020s and beyond.

ACKNOWLEDGEMENTSThe author is grateful to Peter Buckley for inspirationand advice, and Lorraine Eden, Karl Sauvant, GaryGereffi, Richard Bolwijn, and Joseph Clements forfeedback and suggestions on an earlier version of thearticle, as well as the anonymous reviewers for theirsuggestions. The author wishes to express his greatappreciation to Sarianna Lundan and Ari Van Asschefor editing the article. Thanks also go to Bruno Casellafor comments and some input to the third section. Theviews expressed in this article are the author’s and donot represent the views of the United Nations.

NOTES

1Author’s opening statement, in his capacity aschairperson of the UN SSE Governing Board, at theConference on the 10th Anniversary of the UNSustainable Stock Exchanges Initiative, 26 Septem-ber 2019, at the New York Stock Exchange. https://sseinitiative.org/wp-content/uploads/2019/12/SSE-10-year-impact-report.pdf.

2See UNCTAD (2019) (and earlier editions) fordocumentation of the results and impact ofUNCTAD’s soft normative work and advisory ser-vices for over 130 countries and regional groupings.

3For UNCTAD-AIB Award, see https://www.aib.world/about/awards/unctad-aib-award-for-research-on-investment-and-development/.

4For UNCTAD-SIEL Award, see https://www.sielnet.org/prizes/siel-unctad/.

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ABOUT THE AUTHORJames X. Zhan is Senior Director of the Investmentand Enterprise Division, United Nations Confer-ence on Trade and Development and Editor-in-Chief of the World Investment Report and Transna-tional Corporations journal.

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Accepted by Sarianna Lundan, Editor-in-Chief, 11 December 2020. This article has been with the author for two revisions and was single-blindreviewed.


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