The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 10

Wells (1998) found that developing-country MNCs choose partnerships and joint ventures over wholly owned subsidiaries as a means of gaining entry into foreign markets. After establishing such linkages, MNCs from emerging economies seek ways to leverage the resources. Repeated application of linkage and leverage processes may result in a learning effect whereby the firm performs such operations more effectively. Mathews (2006) argued that the three Ls can be built up in a cumulative fashion and that the emergence and accelerated internationalization of MNCs from emerging economies can be explained well by this model.

In his comments on Mathews's model (2006), Dunning (2006) acknowledged that Mathews made two contributions. First, Mathews (2006) provides an explanation for why and how MNCs from emerging economies achieve internationalization despite their lack of resources and international experience. Second, the LLL model provides a dynamic model of internationalization, which is different from the static points of view in traditional internationalization theories. Dunning (2006) agreed that OLI and LLL might well be complementary to each other and each captures different facets of the features of MNCs. At the end of his paper, Dunning (2006) pointed out that future studies need to incorporate institutional factors in both the OLI and LLL frameworks. In the following section, we examine how the institutional environment in China has impacted the linkage, leverage and learning capabilities of Chinese MNCs and how this impact has further shaped their internationalization strategies.

According to institutional theory, economic actions are embedded in structures of social relations (Granovetter, 1985). Oliver suggested that “institutionalized activities are the result of interrelated processes at the individual, organizational, and interorganizational level of analysis” (1997: 700). Davis, et al. (2000) pointed out that a firm's institutional environment should include other organizations within a firm's industry or peer group. Hall and Soskice (2001) also suggested that differences in corporate strategy can be conditioned by the institutional support available to firms at the regional or sectoral levels, in addition to specific institutional factors on the national level. Therefore, our analyses of the effects of institutions on the internationalization of Chinese MNCs are centered on the institutional environment at multiple levels, that is, the government, the industry, and the corporate level.

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