The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 17

Our framework for institutional analysis emphasizes the dynamics of the institutional environment. China's further integration into the global economy and the interactions of the government and firms have led to a highly dynamic and fast changing institutional environment in China. The research bodies under the State Council periodically conducted surveys on Chinese MNCs. The constraints and barriers they encountered and their demands become the subjects of new policy initiatives. For example, the recent abolishment of the quotas on the purchase of foreign exchange for overseas investments reflected the willingness of the government to change its policies to address firms' concerns. On the other hand, Chinese MNCs innovatively leverage supportive institutions for additional resources and new capabilities. They use their linkages with government, industry associations, and other corporations as relational assets to help to achieve objectives that they cannot achieve otherwise.

Although the Chinese institutional environment has fueled great momentum for outward FDI since 1999, there still exist various restraints and barriers to internationalization. Chinese firms have to go through a lengthy, multi-layer approval procedure before they can proceed with any overseas project. The volumes of required documents include a project proposal; a project feasibility report; an overseas investment application; a joint venture intention, contract and constitution; opinions and comments by the industrial bureau; verifications of funding sources and investment risks by the foreign exchange bureau; opinions and comments by the Chinese consulate in the host country; and many others. It is not uncommon that it takes more than eight months for these documents to get approved by multiple government agents at the ministries that are jointly in charge of overseas economic activities. This complex and time-consuming approval procedure frustrates and delays many Chinese firms, and it might cost them valuable market opportunities in the highly dynamic global market. There are loud voices demanding the simplification of the approval procedure and replacement of the restrictive approval system with a voluntary registration system to speed up the overseas investment process (Ge & Ju, 2007).

Hall and Soskice (2001) pointed out that comparative political economy and business studies are two disciplines that are often disconnected. This study contributes to the literature by adopting an institutional perspective to examine the impact of institutions on the internationalization strategies of Chinese MNCs, and it thus has built a connection between the two disciplines.

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