Luis Felipe Sáenz

Research Summary We analyze how the evolution of the broad institutional environment influences the vertical integration strategy of a multinational corporation (MNC) leading a global value chain (GVC). We develop a history‐to‐theory study based on the evolution of the banana GVC between 1899 and 1991. We argue that when a MNC's bargaining power vis‐à‐vis the host government is strong, it will choose a governance structure that addresses contractual uncertainty. When the MNC's bargaining power declines because of changes in the institutional environment, it will prioritize a governance structure that protects its assets. We analyze the evolution of MNC's bargaining power as a result of the interaction of three levels of the institutional environment: global, home country, and host country. Managerial Summary Our study examines vertical integration decisions in a global value chain (GVC) throughout its historical evolution. Using historical sources, we show that when MNC managers perceive their bargaining power to be sufficient to protect them from hostile government actions in host countries, their main concern is that of governing their activities as efficiently as possible by amongst others vertically integrating asset‐specific transactions. When their bargaining power declines, MNCs become more concerned with shielding their assets and rents from expropriations by host‐country governments, thus retreating from vertical integration. We illustrate that the bargaining power of MNCs changes as events at the global, home, and host country levels unfold. For example, MNCs' bargaining power declines in periods featuring economic nationalism, such as the 1960s–1970s.