The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 16

Yiu, et al. (2007) pointed out that networks in emerging economies are substitutes for undeveloped external markets. Business groups offer a way to alleviate weak institutions in capital, labor, and product markets in emerging economies (Khanna & Palepu, 1997). Business groups are sets of firms bound together by formal and informal ties that take coordinated actions (Khanna & Rivkin, 2001). Giant state-controlled business groups have emerged rapidly since the 1980s in China (Keister, 1999). On the one hand, the rapid growth of business groups in China can be regarded as the firms' responses to market imperfections. On the other hand, their rapid growth can be viewed as a result of the active encouragement and assistance from the state. The Chinese government regards business groups as a quick way for Chinese firms to expand in size and gain market power to ensure better competitive positions in international markets.

There is evidence that the internationalization process of Chinese MNCs has been influenced by prestigious entrepreneurs (Child & Rodrigues, 2005) who provide critical strategic leadership that leads to firm's success. Their capabilities to think strategically and to identify overseas market opportunities proactively, to obtain institutional support from the authorities, and to make use of all personal overseas connections and resources add momentum to firms' internationalization.

Discussion and conclusion

The three-level institutional analysis in this study provides a clear picture of the international strategies and major characteristics of the internationalization of Chinese MNCs. Strong government endorsement leads to the dominance of giant state business groups in Chinese MNCs, and mergers and acquisitions have become the significant means for overseas investments among Chinese firms. Chinese MNCs are primarily driven by market seeking and strategic asset seeking, that is, natural resources and cutting-edge technologies, rather than by asset exploitation. They select investment locations mainly based on the company's strategic objectives, disregarding political risks and psychic distance. In an attempt to catch up with incumbent MNCs from developed economies, Chinese MNCs accelerate their process of internationalization by leaping forward or jumping through traditional stages. They actively seek opportunities to build linkages with foreign strategic collaborators and leverage their resources and capabilities for achieving international objectives.

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