How foreign firms achieve competitive advantage in the Chinese emerging economy: Managerial ties and market orientation

As China experience unprecedented changes in its social, legal, and economic institutions, on what should foreign firms focus more to overcome this challenge, managerial ties or market orientation? This study investigates how managerial ties and market orientation affect competitive advantage and, consequently, firm performance in China. On the basis of a survey of 179 foreign firms in China, we find that both managerial ties and market orientation can lead to firm success—but in different ways. Market orientation enhances firm performance by providing differentiation and cost advantages, whereas managerial ties improve performance through an institutional advantage (i.e., superiority in securing scarce resources and institutional support). Institutional advantage, in turn, leads to differentiation and cost advantages and consequently superior performance.     

Determinants of Export Performance: An Institutional Approach

This study evaluates the impact of institutional factors and innovation on the export performance of firms, from the assumption that the basic institutional framework of a country affects the export performance of firms through three transmission mechanisms: innovation, modes of entry to foreign markets, and network. The study comprises a qualitative, multicase study of five firms in the metalworking industry in the state of Santa Catarina (southern Brazil). The results of the study show the limitations of the institutional framework of the country of origin, particularly in terms of stimulating innovation in firms. On the other hand, the study points to strong evidence of the role of networking as a critical factor in determining the performance of innovation activities and export performance. Specifically, the findings highlight foreign-established networks, especially in regard to customers to drive innovation, and distributors to expand participation in markets. Finally, in terms of the effect of the institutional framework on the selection of internationalization strategies, for the cases studied, the findings suggest that the institutional frameworks of destination countries seem to exert greater influence than do the institutions of the country of origin.     

The role of corporate governance in FDI decisions: Evidence from Taiwan

There has been a considerable literature on the determinants of why firms undertake foreign direct investment (FDI), but very little on whether firms with different governance characteristics are more or less likely to venture overseas. For example, are family-controlled firms more predisposed to FDI than firms, with similar attributes, but different forms of ownership? Does the presence of institutional shareholders suggest a greater propensity to invest abroad? Does the composition of the Board of Directors have an impact? Most extant studies of corporate governance focus on the impact of governance factors on firm performance. However, these performance outcomes are a function of the strategic decisions made by the firms, which suggests it might be useful to consider the relationship between corporate governance factors and particular strategic decisions. One example is the decision to undertake foreign direct investment. The two main strands of IB literature on the determinants of FDI have little or nothing to say about how corporate governance factors might affect the FDI decision. Both internalisation theory and the resource-based view see FDI primarily as a means by which firms can appropriate rents in overseas markets from the exploitation of their idiosyncratic resources and capabilities. This paper extends this literature by investigating the effects of governance factors on the decision to undertake FDI. In particular, we want to assess the impact upon the FDI decision of (a) the extent of family control, (b) the presence of domestic and foreign institutional shareholders, and (c) the composition of the Board of Directors. We investigate these effects using a sample of 228 publicly listed firms in Taiwan, and our results clearly indicate that family control and share ownership by domestic financial institutions in Taiwanese firms are associated with the decision to undertake FDI. We also find that corporate governance impacts in different ways with regard to Taiwanese FDI in China in comparison to Taiwanese FDI in the rest of the world.     

Export strategy,export intensity and learning: Integrating the resource perspective and institutional perspective

Export intensity (EI) has been widely examined as a performance outcome of exporting firms. To date, studies on the determinants of EI have generated mixed and even contradictory results. To reconcile such inconsistencies, this study dichotomizes export strategy in emerging economies into two distinctive types, expansion-oriented vs. escape-oriented, with the former inspired by exploiting firm-specific competencies as portrayed by the RBV and the latter motivated by avoiding the domestic institutional deficiencies as informed by the institutional perspective. Different from prior findings in the International Business literature, this research finds that a firm’s extremely high EI might not result from their superior competencies. Instead, high EI firms might focus on export mainly for the purpose of escaping from their home country’s deficient institutional environment that places extra burdens in terms of costs of doing business. Such escape-oriented exporters are more sensitive and responsive to changes in the environment while they do not enhance their learning as much as those expansion-oriented exporters. Furthermore, institutional environment has heterogeneous impacts on firms with different ownership types. Our study helps integrate the insights from both the RBV and the institutional perspective, and our dichotomization of export strategy adds precision and sophistication to the understanding of EI and export performance. Our hypotheses are supported by an empirical study based on a sample of exporting firms in China between 1998 and 2007.     

Home country institutional environments and foreign expansion of emerging market firms

We propose that home country institutional environment shapes emerging market firms’ foreign expansion. We argue that better-developed home country institutional environment promotes emerging market firms’ expansion to foreign markets more advanced than the home country, while institutional instability in the home country reduces this propensity. We further hypothesize that the effects of home country institutional environment are contingent on firm-specific government ownership. Data on the foreign expansion of 921 Chinese firms in the period of 1996–2000 provide strong support for the effects of home country's institutional development and institutional instability. We also find that a high degree of government ownership weakens the positive effect of home country's institutional development on emerging market firms’ propensity to expansion to more advanced markets.     

Institutional conditions,economic policy uncertainty and foreign institutional investment in China

This paper investigates the influence of host and home country institutional conditions on foreign institutional investment. Utilizing longitudinal and multilevel data on foreign institutional investment in Chinese listed firms between 2004 and 2017, we document that foreign institutional investment decreases with increasing economic policy uncertainty in the host nation. We also find that foreign institutional investors respond more strongly to local economic policy uncertainty when their home nations are closer to China, are culturally and administratively similar to China, operate a smaller domestic stock market, and have weaker minority shareholder protection. The impact of economic policy uncertainty on foreign institutional investment is also stronger when the host nation institution is more developed and open.. Moreover, we reveal the mediating role of stock market volatility on this relationship. Overall, we document that foreign institutional investment is not only shaped by institutional conditions in the host country but also influenced by home country characteristics that define geographical and institutional distance between home and host nations.     

Organizational Expansion to Underserved Markets: Insights from African Firms

Although scholars have highlighted the need for firms to explore and exploit market opportunities in underserved markets to achieve superior performance, emerging‐market firms’ strategic choices and constraints in such environments remains an underexplored area. Drawing on insights from the intra‐Africa air travel sector, we uncovered that the intense competitive pressures on inter‐African routes has intensified both exploration and exploitation activities on the intra‐African market as firms seek to mitigate the competitive effects. We also found that the firms’ exploitation activities have been punctuated by a number of firm‐specific and institutional factors. The theoretical and managerial implications of these findings are discussed. © 2014 Wiley Periodicals, Inc.     

Institutional Ownership and Private Equity Placements: Evidence from Chinese Listed Firms

This paper examines the impact of institutional ownership on the performance of private equity placements (PEPs) for listed firms in China. We find that the presence of institutional investors can alleviate the information asymmetries between listed firms and the market. The market reaction to PEP announcements is significantly smaller if there is a higher portion of institutional shareholdings. Long‐term firm operational performance after PEPs is positively correlated with institutional shareholdings. Moreover, we find that the relationship between institutional shareholdings and PEP performance is mainly driven by nonlisted corporate investors and mutual funds. Finally, the relationship between PEP performance and institutional shareholdings is stronger in smaller PEP issuers.     

Corporate fraud as a negative signal: Implications for firms’ innovation performance

Based on signaling theory, we explore the impact of corporate fraud on firms’ innovation performance. First, we propose that corporate fraud harms firms’ innovation performance. This is because, as a negative signal, fraud makes it difficult for firms to obtain the policy, funding, and human resources needed for outstanding innovation performance. We further argue that the institutional aspects of the signaling environment (e.g., industrial competition, regional institutional development, and social trust) will influence core stakeholders’ reception and interpretation of fraud signals. These factors, in turn, moderate the signaling effect of corporate fraud on firms’ innovation performance. Our views are supported by empirical and robustness tests using Chinese A-share listed firms from 2010 to 2019.     

What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks

This study examines the forces driving outward FDI of emerging-market firms. Its contribution lies in integrating and testing insights from institutional theory, industrial organization economics and the resource-based view of the firm. This approach enables us to consider three different levels of analysis – firm, industry and country – and, thus, to distinguish between different sources of variation. Using a large firm-level Chinese dataset, we offer new evidence indicating that government support and the industrial structure of the home country of the investing firm play a crucial role in explaining outward FDI. By contrast, technological and advertising resources tend to be less important. The findings have important implications for theorizing. Although some firm-specific idiosyncrasies still play a role in explaining variations across firms in the same industry, the theoretical analysis and empirical results consistently indicate that foreign investment of Chinese firms is largely driven by their distinctive institutional and industrial environment.     

Subnational institutions,political capital,and the internationalization of entrepreneurial firms in emerging economies

This study advances the institution-based view of strategy by integrating it with firm-specific capability considerations. In particular, we investigate the integrative influence of subnational-level home country institutional environments and firm-level political capital, as an important way to seek resources, on emerging economy entrepreneurial firms’ internationalization. With data from Chinese entrepreneurial firms, we find that the development of subnational institutional environments in the home country is related to firms’ degree of internationalization. Furthermore, while political capital with low-level governments enhances the effect of subnational institutions on internationalization, political capital with high levels of government has no such moderation effect. Theoretical and empirical contributions and implications are discussed.     

An Empirical Investigation on Firms’ Proactive and Passive Motivation for Bribery in China

This research investigates firms’ bribery motivations in China. Based on resource dependence theory and anomie theory, we identify resource conditions as firms’ proactive motivation to bribe and firms’ perceived institutional environment as their passive motivation to bribe. We use the data from 2002 World Business Environment Survey, collected by the World Bank, to investigate firms’ bribery in the world’s largest emerging market, China. We employ a multi-level logistic model to test our hypotheses. The results show that unsatisfactory general and task environmental conditions may trigger firms to bribe in order to compete for better resources and opportunities; institutional conditions such as the security expenditure and anomie climate may make firms perceive bribery as a common phenomenon and thus induce firms to bribe. This research provides some insights to understand business bribery behaviors in emerging market. It also discusses some managerial implications and guidelines for policy-making from the findings.     

Institutional duality and political strategies of foreign-invested firms in an emerging economy

This study investigates how the complex institutional environment surrounding foreign-invested firms (FIEs) affects their corporate political strategies (CPS) in China. Analyses of data on 442 FIEs operating in China show that the relative potency of dual institutional pressure from FIEs’ home and host countries shapes their strategic choices. Institutional factors at the country, region, and firm levels not only affect firms’ adoption of multiple firm-based tactics but also shape their collective-oriented associational activities. Moreover, participation in both foreign and domestic business associations enhances an FIE's adoption of firm-based political tactics, but joining domestic business associations has a stronger effect.     

Home country uncertainty and the internationalization-performance relationship: Building an uncertainty management capability

We analyze the impact of home country uncertainty on the internationalization-performance relationship of emerging market firms. Building on organizational learning theory and the institutional approach, we argue that internationalization has a positive impact on the performance of emerging market firms, and that this relationship is strengthened for firms based in emerging countries with higher corruption and political risk. The reason is that by being exposed to high levels of home country uncertainty in the form of political risk and corruption, firms develop an uncertainty management capability at home that helps them face the challenges of internationalization better. We also propose that this uncertainty management capability helps emerging market firms perform better outside of their home region. We test our arguments on a sample of 536 firms from Argentina, Brazil, Chile, and Peru.     

Do Chinese firms benefit from government ownership following cross-border acquisitions?

Chinese firms’ increasing cross-border acquisitions (CBAs) in recent years seem to challenge the explanatory power of received theories of multinational enterprise (MNE) due to their relatively unique characteristics and the active role of the Chinese government. In this study, we seek to revisit and contextualize the OLI paradigm in conjunction with the institution-based view and examine how Chinese firms’ post-CBA long term performance is associated with government ownership. Our study shows that Chinese firms with more government ownership demonstrate better post-CBA long term performance. However, the above relationship is differentially moderated by such firm-level boundary conditions as political connections and financial slack, and the country-level institutional boundary conditions (i.e., the host country formal institutions and the home-host country cultural distance). We discuss our findings in detail and explore theoretical and practical implications for both Chinese firms and other emerging economy (EE) firms.     

The Internationalization of Service Firms in China: A Comparative Analysis with Manufacturing Firms

In this article, we expand upon the springboard perspective of emerging markets in the service sector. We investigate the phenomenon of service firm internationalization in China and the distinct differences between service and manufacturing firms during international expansion. Using dynamic analysis of historical data for 363 service firms and 569 manufacturing firms from 2001 to 2007, we find that the internationalization of service firms in China is different from that of manufacturing firms in terms of resource requirement and experience exploitation. The internationalization of service firms relies more on international experience than corporate resources. Furthermore, we also identify the structural differences between hard and soft service industries. In China, identifiable intangible assets are found to be more important for the international expansion of hard service firms than they are for soft service firms. © 2013 Wiley Periodicals, Inc.     

A double-edged sword? The antipodal effects of institutional distance on partner selection in cross-border alliances

Careful partner selection is a prerequisite for successful alliances. I posit that institutional distance will influence partner selection in international technological alliances negatively for exploitation, and positively for exploration alliances. A longitudinal dataset of firms in the global tire industry confirms firms’ preference for similar cognitive, normative, and regulatory partners in exploitation alliances, and a preference for dissimilar partners in exploration alliances. However, the latter is true for differences across the regulative and cognitive pillars rather than for normative differences. These findings attest to the antipodal role of institutional differences in the selection of prospective partners for cross-border technological alliances.     

Acquisitions by emerging market multinationals: Implications for firm performance

This study develops and tests a framework about the resource- and context-specificity of prior experience in acquisitions. Although extant research has explained why multinational companies from emerging countries (EMNCs) acquire companies in developed countries, we have an incomplete and inconsistent understanding of the consequences of such acquisitions for the performance of target firms. First, we show that despite the concerns raised by politicians and the general public in developed countries, the acquisitions made by EMNCs often enhance the performance of target firms. Second, we examine whether the role of EMNCs' idiosyncratic resources (such as access to new markets and cheap production facilities) and investment experience in enhancing the performance of target firms differs across acquisition contexts. We demonstrate that not all types of resources and investment experience are equally beneficial and, in fact, some types of experience even have a negative effect on the performance of target firms. By contrast, other types of experience that EMNCs accumulate from prior investment enhance the performance of target firms by facilitating resource redeployment and the exploitation of complementarities.     

Sub-national institutions,firm strategies,and firm performance: A multilevel study of private manufacturing firms in Vietnam

Some private small and medium sized enterprises (SMEs) in transition economies have actively internationalized. This decision needs to accommodate institutional conditions that vary, not only between countries, but also within an individual country. Our paper examines the relationship between export strategy and firm performance, and the extent that sub-national institutional factors moderate this relationship. Using multilevel data analysis techniques with a sample of private manufacturing firms in Vietnam, we find institutional factors moderate export strategy and firm performance's relationship.     

Host country’s environmental uncertainty,technological capability,and foreign market entry mode: Evidence from high-end equipment manufacturing MNEs in emerging markets

The paper investigates the impact of the host country’s environmental uncertainty on the choice of entry mode and also discusses the moderating role of technological heterogeneity in this relationship. Based on the resource-based view and institutional theory framework, we first analyze the investment motivation of emerging industries in emerging markets and evaluate the environmental uncertainty from two dimensions, including the institutional environment (country level) and industry environment (market level). Then, the theoretical predictions are empirically tested using 173 overseas investment events in China’s high-end equipment sector from 2010-2018. Our findings suggest that when the uncertainty of the industry environment is low, no matter how uncertain is the institutional environment, most firms tend to choose a cooperative strategy. Once the industry environment indicators become turbulent, a high degree of institutional environment uncertainty causes firms to evade trade barriers by choosing a new plant. Alternatively, choosing a relatively conservative mode, such as export. Meanwhile, technological capability weakens the influence of environmental uncertainty on entry mode.