The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 14

These institutional components have posed special challenges to the firms in transitional economies (Yiu, et al., 2007). This is particularly the case for Chinese MNCs. China's economy has undergone significant changes, since it embarked on its transition from a centrally planned economy to a market-oriented economy in late 1970s. China's formal access to the World Trade Organization (WTO) at the end of 2001 further pushed the liberalization and openness of the economy, and all the transitional protective provisions have now expired. Chinese firms are now facing a much more competitive environment. The intensive competition has driven Chinese firms to go overseas.

Competition pressure from giant Western MNCs has also forced Chinese firms to seek cooperation and linkages and to leverage their combined resources. The various associations at the industry level provide such a platform. The functions of industry associations in China vary widely by industry. Some of them just act as liaisons among firms, while some take a more proactive role, such as to pool resources and capabilities of firms in the industry for overseas investment projects. For example, the Guangdong High-tech Industry Chamber actively built five resource databases, including a government database, an entrepreneur database, a technological experts database, a finance relations database, and a media database. This organization provides information on services to its 6,000 member firms, such as information technology, financing, business, and overseas investment. The Chamber successfully organized around 20 member firms to invest in high-tech development zones in Vietnam via its connections with local chambers of commerce and other organizations for economic cooperation (Guangdong High-tech Industry Chamber, January 2008).

With strong support and assistance from the local Chinese government, numerous economic development zones and high-tech parks have been established in various coastal cities and provinces. Firms in the high-tech parks are clustered in telecommunications, electronics, software engineering, and other high-tech industries. High-tech parks serve as effective incubators for firms actively seeking new technologies and strategic partners from global sources. Many successful firms in these high-tech parks have expanded their businesses abroad and invested aggressively overseas. The support and assistance offered by this unique institutional structure facilitate the building of linkages and leveraging of resources by Chinese firms.

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