The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 15

Corporate level

Due to the weakness in the institutional environment, Chinese firms have had to overcome many institutional restraints and barriers embedded in the Chinese context and they use networks or relational assets to overcome the institutional voids. As such, it is important to examine the institutional environment not just at the government and industry levels, but also at the corporate level.

Dunning (1995) suggested that the ownership advantage in the eclectic paradigm should include relationship assets, which refers to the ability to engage in beneficial relations with other firms or actors to gain access to resources controlled by them. Relational assets, or networking skills, have been recognized in previous studies as important factors in understanding the internationalization strategies of firms from emerging economies (e.g., Buckley, et al., 2007; Child & Rodrigues, 2005; Yiu, et al., 2007).

Studies on emerging economies find that foreign firms introduce new technologies and new management techniques to emerging economies (Meyer, 2004). Establishing relationships with foreign firms provides opportunities for firms in emerging economies to enhance their technological and innovation capabilities, and, hence, to increase their competitiveness (Hitt, Li, & Worthington, 2005). In the international market, partnering with foreign firms also allows firms from emerging economies to have better access to foreign markets (Hout & Hemerling, 2004). Leveraging relationships with foreign firms gives firms from emerging economies opportunities to learn and absorb new knowledge and technologies.

Partnerships with foreign firms have allowed many Chinese manufacturers to grow rapidly, among which many are becoming increasingly important international competitors. One typical example is Galanz, a Chinese firm in the microwave oven industry. Galanz started manufacturing for original equipment manufacturer (OEM) clients in 1993. Up to 2009, Galanz has forged relationships with around 250 MNCs. By acquiring production facilities and the related technologies from MNCs, Galanz expanded its production capacity at a speed unlikely to be achieved by any other means. Within ten years, Galanz increased its annual microwave oven production volume from 10,000 to 12 million and established itself as the largest microwave oven producer in the world. As of the time of writing, about one-third of the world's new microwave ovens are produced by Galanz (Ge and Ding, 2008).

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