The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 1

Gloria L. Ge and Daniel Z. Ding

Introduction

In the last three decades, China has proved to be one of the largest and fastest growing transitional economies in the world. China became the world largest recipient of foreign direct investment (FDI) for the first time in 2002 (OECD, 2003). A large number of studies have been conducted on inward FDI in China (e.g., Buckley, Clegg, & Wang, 2002; Chadee, Qiu, & Rose, 2003; Huang, 2003). Growing hand in hand with FDI inflow, China's outward FDI has been steadily increasing. According to the Statistical Bulletin of China (China National Statistic Bureau, 2007), by the end of 2006, the cumulative total of China's outward FDI reached US $90.63 billion, which makes China the largest outward direct foreign investor among all developing countries.

In the most recently released 2008 Fortune Global 500 list, the number of Chinese companies increased to 29 (Fortune, 2008). China now boasts the largest number of companies on the list among emerging economies (surpassing South Korea's 15). According to China's Ministry of Commerce (MOFCOM), in the first half of 2007, China's outward FDI reached US $7.8 billion, which was a 21.1% increase compared with the same period in 2006. US $2.9 billion, about 37.2% of the total US $7.8 billion, was in the form of acquisitions (Chen, 2007).

The phenomenon of the increasing internationalization of firms from China and other emerging economies has attracted a lot of research attention (e.g., Luo & Tung, 2007; Mathews, 2006; Yiu, Lau, & Bruton, 2007). Early studies on multinational corporations (MNCs) from emerging economies (e.g., Kumar & Mcleod, 1981; Lecraw, 1977; Ting, 1985; Wells, 1983) were based on the assumption that traditional internationalization theories could be applied to such firms (Lau, 2006). However, more recent studies on MNCs from emerging economies have generally recognized inevitable and significant gaps in applying traditional internationalization theories to MNCs from emerging economies (Buckley, Clegg, Cross, Liu, Voss, & Zheng, 2007). Researchers have called for new perspectives in analyzing the internationalization of MNCs from emerging economies, such as the latecomer perspective (Child & Rodrigues, 2005; Warner, Ng, & Xu, 2004) and the springboard perspective (Luo & Tung, 2007). Some studies have been devoted to extending and adapting traditional internationalization theories to provide a better understanding of emerging MNCs (e.g., Mathews, 2006).

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