The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 9

The institutional environment is therefore very likely to shape the internationalization decision of Chinese firms (Buckley, et al., 2007). Different from the focus of many previous studies on the institutional differences between home and host countries (e.g., Davis, et al., 2000; Dikova & van Witteloostuijin, 2007; Yiu & Makino, 2002), this study emphasizes the impact of the institutional environment of the home country, China in this study. In the following sections, we propose a three-level analytical framework of the institutional environment and discuss in detail how institutional factors affect the internationalization strategies of Chinese MNCs.

The effects of the institutional environment

The study of institutional underpinnings has largely been ignored in the field of strategic management (Dunning & Lundan, 2008; Lehrer, 2001). A notable exemption is Oliver (1997), in which a process model of sustainable competitive advantages of firms was proposed with the process affected by both resource-based and institutional factors. Inspired by Oliver (1997), our study integrates the institutional perspectives with the newly emerging theories of MNCs from emerging economies to examine the internationalization strategies of Chinese MNCs.

The extant internationalization theories, such as Vernon's Product Life Cycle theory (1966), the internalization process model (Johanson & Wiederheim-Paul, 1975; Johanson & Vahlne, 1977) and Dunning's Eclectic Paradigm (1980) were formulated during the time when outflow of FDI was dominated by MNCs from developed countries. In recent years, the growth of FDI from emerging economies has accelerated, with some high-profile acquisitions by MNCs from emerging economies (e.g., Lenovo from China, the Tata Group from India). The differences between the MNCs from developed countries and those from emerging economies in relation to FDI (i.e., in their motivations, advantages and paths) have pushed researchers to seek extensions of the existing IB theories (Luo & Tung, 2007). One of the most prominent contributions in this development of theory is Mathews' Linkage, Leverage and Learning Model (the LLL model hereafter) (Mathews, 2006).

Adopting Peng's (2001) resource-based view in an international setting, Mathews (2006) argued that the internationalization of MNCs from emerging economies depends on their abilities in linkage, leverage and learning. To acquire competitive advantages externally, MNCs from emerging economies tend to use networks to link up with other firms or institutions.

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