Host country experience, institutional distance and location choice of Chinese MNEs

Abstract

Purpose The conventional wisdom suggests that the lack of prior host country-specific experience and a higher institutional distance deter multinational enterprises (MNEs) from entering a foreign country. However, past studies report that Chinese MNEs show an unconventional risk-taking behavior choosing foreign locations, where they have no prior experience or there is an increased institutional distance. Drawing on the institutional theory, the purpose of this paper is to argue that Chinese Government official visits to the host country may act as a risk-reduction device, thus providing an explanation for such an unconventional behavior. Design/methodology/approach The authors develop two hypotheses regarding how Chinese Government official visits moderate the impact of host country-specific experience and institutional distance on the location choice of Chinese MNEs. The authors test the hypotheses using a sample of investment location decisions by Chinese MNEs in Latin America. Findings The authors find that government official visits mitigate the lack of firm’s prior host country experience. However, only high-level government visits reduce institutional distance. Originality/value The authors contribute to the international business literature by analyzing how home country government diplomatic activities may pave the way of host country institutional environment for foreign MNEs from that home country. In addition, the authors provide an additional explanation for the unconventional risk-taking behavior of Chinese MNEs. Finally, the authors also contribute to a better understanding of the decision-making process of emerging-market MNEs entering other emerging economies.

Establishment mode choice by Chinese firms in Latin America: The role of host country‐specific experience and government official visits

“…We measured prior local experience through a dummy variable coded one if the Chinese firm already had subsidiaries in the host country before it established the focal subsidiary, and zero otherwise (Estrin, Baghdasaryan, & Meyer, ; Li et al, ; Nagano, ; Quer, Rienda, & Andreu, ; Quer, Rienda, Andreu, & Miao, ; Slangen, ).…”

“…We created a dummy variable equal to one if a Chinese government delegation paid an official visit to the host country in the focal year or in the immediate previous year, and zero otherwise (Quer, Rienda, Andreu, & Miao, ; Voss et al, ). Collecting data from the Ministry of Foreign Affairs of the People's Republic of China website, we included visits by the Chinese President, Prime Minister, Ministers or Vice Ministers of Commerce, Foreign Affairs, Transport, etc., as well as senior officials of other Chinese governmental institutions such as the National People's Congress, the Politburo Standing Committee, and the Chinese People's Political Consultative Conference.…”

“…These positive effects of Chinese government official visits may be even more evident in other emerging economies such as those of Latin America (Quer, Rienda, Andreu, & Miao, ). During high‐profile state visits by China's leaders to developing countries, China has signed wide‐ranging bilateral economic cooperation agreements along with the granting of China's development aids generally allocated to infrastructure projects in the focal host country (Buckley et al, ).…”

Thrown off track? Adjustments of Asian business to shock events

“…By contrast, and at first blush, Chinese approaches to practising uncertainty appear to come with more unconventional risk-taking behaviour. This, however, is accompanied by an understanding of interdependencies of actions, most notably relationship building (Opper et al, 2017 ; Quer et al, 2019 ) while carefully accumulating abroad experience (Liu et al, 2016 ). Extant literature, therefore, suggests flexibility, realism and pragmatism with which Asian organisations handle hard-to-predict and disorientating environments.…”

Institutional Effects on the Internationalization of Entrepreneurial Firms

“…However, other studies show that several mechanisms may influence the choice of a foreign market with high institutional distance. For example, Quer et al (2019) found that Chinese firms enter markets with high institutional distance without having any prior experience, when these countries had been visited by Chinese government officials, indicating that political ties between countries may help overcome institutional distance. From a similar perspective, Kedia and Bilgili (2015) find that historical ties between the home and the host country can reduce institutional distance in terms of market selection.…”