Islamophobia amid the Tension between Globalization and Deglobalization: Impact on International Economic and Business Relations

As global governance is increasingly hampered by deglobalisation and geoeconomic fragmentation, this paper analyses the informal barrier that Islamophobia constitutes for international economic relations. Islamophobia is commonly regarded in social and political terms but here it generates cultural and reputational economic risks. While trade and foreign direct investment may continue to flow as globalisation is not abated overnight, these phenomena are increasingly pursued cross-border by businesses and through partnerships with foreign stakeholders. At the same time, consumer activism is on the rise; all of this generates transaction costs. The current literature offers concepts for dealing with transaction costs, legitimacy claims, reputational risks and consumer activism in the context of international business. However, it is missing the crucial element of identity-based hostility to Islam and Muslims for a workable mechanism model of risks in international business. By conducting a synthesis of academic and institutional sources this paper develops a conceptual model which enables us to derive research propositions for future empirical research. The triggers of Islamophobia transmit five channels of negative effects on international business activity and operations. The contracting friction, reputation-shocks, demand-shocks, and investment- and compliance-constraints channel highlight formal and informal barriers to contracting that affect international business negatively in an Islamophobic environment. The labour mobility and human capital effects, and the partner selection or supply-chain reconfiguration channel draw attention to the challenges that affect the actual conduct of cross-border business activities in such an environment. The paper also provides a toolkit for monitoring and response for organisations and institutions involved in governance. The paper contributes in two ways: it identifies Islamophobia-related cultural hostilities and their conversion into economic friction under governance by fragmentation, and it provides a framework for structured monitoring that can be tested in future empirical research.