The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 13

The government's policy orientation toward building world-class Chinese MNCs has strongly motivated Chinese firms to “go out” to obtain scarce resources, advanced technology, and other critical strategic assets. This strong government incentive helps us to understand why and how Chinese MNCs can catch up with their Western counterparts (Warner, et al., 2004). The learning capabilities of Chinese MNCs and the willingness of the Chinese government to adapt their policies (a learning process by the government itself) partially explain the accelerated pace of the internationalization of Chinese firms.

Industry level

Murtha and Lenway (1994) argued that a government's abilities to implement industrial policy would affect firms' international strategies. Governments use industrial policies to allocate resources in an attempt to achieve long-term national economic objectives, including sustained high economic growth and enhanced international competitiveness. Lodge (1990) pointed out that the successful implementation of industrial strategies relies on collaborative interactions between governments and businesses. Murtha and Lenway (1994) proposed a model that highlights the mechanism by which institutions and firms interact to shape industrial policy preferences and their implementation.

Park, Li, and Tse (2006) argued that industrial policy together with the decentralization of political control and ownership reform are the primary institutional changes undertaken to implement market liberalization in China. The Chinese government has played a significant role in shaping its industries and has been using industrial policies to make selective resource allocations, for instance, by providing more financial support to the so-called pillar industries, such as the petroleum, steel, automobile, and telecommunication industries (Park, et al., 2006). The taxation policy is another tool used by the Chinese government to direct industry development. In June 2007, China's Ministry of Finance announced that China cut or eliminated export tax rebates on 2,831 commodities, or about 37% of the total number of items listed in the customs tax regulations (Ministry of Commerce, 2007). The major objectives of this new policy were to discourage the exportation of products that required high energy and resource consumption and caused environmental pollution and to push firms and capital investment to move into high-tech and high value-added industries.

Yiu, et al. (2007) argued that firms in transitional economies are facing an institutional environment with continuous economic liberalization and lower environmental munificence.

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