Institutional fragility and outward foreign direct investment from China

Shi, Weichao; Sun, Sunny Li; Yan, Daying; Zhu, Zhu

doi:10.1057/s41267-016-0050-z

Cited by 168 publications

(147 citation statements)

References 111 publications

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“…Further, recent research argues that EMNCs’ internationalization strategy is highly influenced by their home market characteristics (Child & Marinova, ; Cuervo‐Cazurra & Ramamurti, ; Liang, Ren, & Sun, ). In addition to traditionally considered “pull” factors, such as large markets and wealthier consumers in the host, advanced markets, “push” factors such as weak institutions and economic underdevelopment in home countries play an important role in driving EMNCs to invest in developed countries (i.e., the phenomenon of “escape motivation” noted by Cuervo‐Cazurra & Ramamurti, , and Shi, Sun, Yan, & Zhu, ). In particular, plagued by a lack of well‐developed human capital in their home countries, EMNCs may seek internationalization to acquire needed talent to improve their competitive advantage (Yang, Zhou, & Zhang, ).…”

Section: Introductionmentioning

confidence: 99%

Unpacking Institutional Distance: Addressing Human Capital Development and Emerging-Market Firms’ Ownership Strategy in an Advanced Economy

Liou

Chao

Ellstrand

2016

Thunderbird International Business Review

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As latecomers to global business competition, emerging-market multinational companies ( EMNCs ) utilize cross-border mergers and acquisitions (M&As) to quickly acquire strategic assets, resulting in an improved competitive position. Advanced markets with well-established fi rms and well-developed market-supporting institutions become particularly important destinations for EMNCs ' foreign operations. Institutional distance, which represents confl icting legitimacy requirements between the host and FEATURE ARTICLE home institutional environments, is expected to be negatively associated with the foreign acquirer ' s ownership position. The current study examines a sample of EMNCs ' cross-border M&As in the United States between 2005 and 2011 and reveals the unique nature of EMNCs ' ownership strategies. Taking both formal and informal institutions into consideration, our fi ndings suggest that EMNCs originating in countries with lower levels of human capital development may have more urgency in seeking ownership control in advanced markets and are less infl uenced by the negative association of institutional distance in their ownership strategy.

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Section: Introductionmentioning

confidence: 99%

Unpacking Institutional Distance: Addressing Human Capital Development and Emerging-Market Firms’ Ownership Strategy in an Advanced Economy

Liou

Chao

Ellstrand

2016

Thunderbird International Business Review

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“…Our empirical analysis is based on data collected from two sources: the Directory of Chinese Outward Foreign Direct Investment (OFDI) firms compiled by the Ministry of Commerce of the People's Republic of China (Shi et al, 2017), and the annual reports of those Chinese firms listed on the Shanghai or Shenzhen Stock Exchange. The first data source contains the basic information of each OFDI project (e.g., investment location, approval date, industry and business scope) (Lu et al, 2017).…”

Section: Sample and Data Sourcementioning

confidence: 99%

Foreign sequential entry mode choice

Guo

Li³

et al. 2018

BJM

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Purpose-This study aims to use the theoretical perspective of structural inertia as a unique lens to study the foreign sequential entry mode choices of multinational firms. Design/methodology/approach-We adopt a quantitative analysis of a sample of 121Chinese publicly listed firms with 564 foreign entry incidents in the 2001-2012 period to test our hypotheses. Findings-The empirical results show that multinational firms have a tendency to adopt the same mode in the subsequent entry as the number of prior entry mode choices of a given type (joint venture in our study) increases. The results support the theoretical prediction that organizations repeat their past activities due to structural inertia. Moreover, such an inertia effect in foreign sequential entry mode choices becomes stronger for older multinational firms, larger multinational firms and state-owned multinational firms.Research limitations-Consistent with existing research, our study focuses on the entry mode choice between joint ventures and wholly owned subsidiaries. However, it is better to examine the relationship identified in our study for different types of entry mode choices in order to assess result generalizability.Practical implications-It reminds managers of multinational firms that they should be cautious about the influence of structural inertia, which can be a barrier to strategic 2 flexibility, when making entry mode choices.Originality/value-The main contribution of our study resides in introducing a structural inertia perspective to help understand the determinants of foreign sequential entry mode choices of multinational firms.

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“…Although some studies have explored the role of subnational home country institutions in the internationalization of Chinese firms (e.g, Du & Luo, ; Luo & Wang, ; Shi, Sun, Yan, & Zhu, ; Sun, Peng, Lee, & Tan, ), those studies subsume corruption as one element of a composite indicator of institutional weakness that deters firm growth, and they do not focus on the role of corruption.…”

mentioning

confidence: 99%

“…This low incidence is similar to what has been reported in the literature for comparable samples. For instance, the relative occurrence of Chinese outward investments in a sample of 578,360 firm‐year observations is 0.4% (Shi et al , ). In comparison, the occurrence is of 0.5% in our sample.…”

mentioning

confidence: 99%

“…Institutions are the "humanly devised constraints that structure human interactions" (North, 1994, p. 360). They 2 Although some studies have explored the role of subnational home country institutions in the internationalization of Chinese firms (e.g, Du & Luo, 2016;Luo & Wang, 2012;Shi, Sun, Yan, & Zhu, 2017;Sun, Peng, Lee, & Tan, 2015), those studies subsume corruption as one element of a composite indicator of institutional weakness that deters firm growth, and they do not focus on the role of corruption. generate both the formal and informal "rules of the game" that determine economic outcomes.…”

mentioning

confidence: 99%

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Effects of subnational regional corruption on growth strategies in emerging economies: Evidence from Russian domestic and international M&A activity

Bertrand

Betschinger

Laamanen

2018

Global Strategy Journal

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Research Summary This article contributes to an improved understanding of the effects of subnational regional corruption on the external growth strategies of emerging economy firms. We examine the acquisition activity of firms in their home regions, in other parts of the country, and internationally. We consider four mechanisms through which a corrupt regional home context can affect firms’ acquisition behaviors: (a) corrosive deal deterrence, (b) deal facilitation, (c) corruption escape into less corrupt contexts, and (d) enhanced corruption ability to acquire in similarly corrupt environments. Based on an analysis of the acquisition activity of 2,981 Russian firms established in 40 regions in Russia from 2001 to 2008, we find evidence for the existence of both deal facilitating and escaping effects of home region corruption. Managerial Summary Corruption indicators regularly reveal that emerging countries are more corrupt than developed countries. While prior academic research has associated corruption with predominantly negative effects on business activity, an increasing number of globally successful companies have emerged from such corrupt environments. We advocate a more nuanced view of the effects of corruption on the growth strategies of emerging economy firms. We show that home region corruption can have multiple effects on a firm's geographic expansion. Specifically, we find that corruption in the home region helps regional firms expand their business through acquisitions when it is pervasive and nonarbitrary. At the same time, however, when expanding geographically, firms, on average, seem to prefer to diversify their assets in other regions or countries that are less corrupt.

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Institutional fragility and outward foreign direct investment from China

Cited by 168 publications

References 111 publications

Unpacking Institutional Distance: Addressing Human Capital Development and Emerging-Market Firms’ Ownership Strategy in an Advanced Economy

Unpacking Institutional Distance: Addressing Human Capital Development and Emerging-Market Firms’ Ownership Strategy in an Advanced Economy

Foreign sequential entry mode choice

Effects of subnational regional corruption on growth strategies in emerging economies: Evidence from Russian domestic and international M&A activity

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