This paper examines the complex relationship between the embeddedness of multinational enterprises (MNEs) in host-country political networks and their long-run competitive positions in host emerging markets. We report the findings of a longitudinal study of the Chinese automobile sector from the early 1980s to the mid 2000s. Using data from 142 interviews over 11 years, and a wide range of secondary sources, we explore the process through which the value of political embeddedness changed over time in the face of profound and rapid changes in host-country business environments. On the basis of this longitudinal study, the paper unravels the underlying mechanisms that lead to the declining, and even negative, value of deep political embeddedness by MNEs in a politically stable emerging economy.
When China acceded to WTO in 2001, there were fears that Chinese firms would lose market share in key sectors to foreign-invested enterprises (FIEs). Although aggregate data often indicate a shift in favour of FIEs, indigenous firms in many cases have slowly increased market share and deepened their technical capabilities. Through an analysis of aggregate industry-level data and interview data from both OEM and key supply firms in three sectors, we show how the dynamics of competition between Chinese and FIEs in China's domestic market enhance the upgrading prospects for Chinese firms. China represents a new development model in which industrial upgrading efforts are domestically-driven and globally integrated and intensely competitive.
Key WordsChina, industrialization, FDI, skills formation, developmental states, transitional economies During the first two decades of the reform period, China's central government struggled to tilt the terms of competition within the domestic marketplace in favour of indigenous Chinese firms. High tariff barriers shielded the market from global competition; foreign firms that sought access to the domestic market were pushed to transfer technology to Chinese partners; strict domestic content requirements were the norm in many sectors. China's leaders were impressed with the developmental success of their neighbours to the East, and a dominant lesson of the East Asian "model" of development was that government should play a role in creating the space for domestic firms to grow and develop the capabilities needed to compete globally.
Contact information for Loren BrandtWhen China finally acceded to the World Trade Organization (WTO) in 2001, there was a widespread fear that liberalization was happening too quickly. Chinese firms were not yet prepared for the rigours of global competition and the critics of the accession agreement feared that as tariff barriers fell, domestic Chinese firms would rapidly lose market share to their global competitors. Although aggregate data on the relative market shares of domestic and foreign firms often indicate a shift in favor of the latter, the worst of the initial fears were not realized. Following entry into WTO, market competition increased dramatically in China, but instead of losing market share to foreign firms, indigenous firms in many sectors have increased market share and, in some cases, deepened their technological capabilities in the course of making the transition into higher-value added parts of the value chain. The purpose of this paper is to provide evidence of this success and to offer an explanation for it.How can we explain the capacity of Chinese firms (or lack thereof) to upgrade their capabilities in certain industrial sectors? We believe the answer to this question lays in an analysis of the competition for the rapidly expanding domestic market in China, and in particular, the middle of this market. Although exports have been critical to China's growth, an important dimension of the competition and the upgrading pr...
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