Internationalization of China's private‐sector MNEs: An analysis of the motivations for foreign affiliate formation

China's private‐sector multinational enterprises (MNEs) are often owned and controlled via offshore holding companies in tax havens. As such, their foreign affiliates are often difficult to identify, and their activities are also not captured in official Chinese outward foreign direct investment data. To date, therefore, there has been comparatively little systematic analysis of these affiliates as they internationalize. Here we address this gap by developing a method that allows us to identify 104 privately owned Chinese MNEs owned via offshore holding companies, as well as their 227 foreign affiliates. We analyze and discuss the motivations for the formation of their foreign affiliates in light of current theory. © 2012 Wiley Periodicals, Inc.     

The effect of non-conventional outbound foreign direct investment (FDI) on the domestic employment of multinational enterprises (MNEs)

Using a sample of 787 Japanese MNEs operating in 60 countries from 1996 to 2010, this study examines the impacts of MNEs’ three most commonly observed forms of non-conventional outbound FDI (i.e., as a means to counter trade barriers, to achieve a financial hedge, or to obtain tax breaks) on domestic employment levels of MNEs at home. We build on a conceptual classification of ‘motivation-activity’ of MNEs as a theoretical framework, and evaluate the impacts of MNEs’ non-conventional outbound FDI on their domestic employment levels in relation to the MNEs’ specific combination of ‘motivation’ and ‘activity’ as they conduct outbound FDI in host countries. The 3SLS regression results show strong evidence that non-conventional outbound FDI in core business activities reduces MNEs’ domestic employment levels when the investment is primarily for responding to country-specific conditions, such as circumventing host country restrictions (e.g., FDI to counter trade barriers) or escaping from home country restrictions (e.g., FDI for tax incentive packages), while FDI in non-core business activities (e.g., FDI for financial hedging or FDI in tax havens) has either a positive or insignificant effect on MNEs’ domestic employment levels depending on whether it aims to develop FSAs or not. We conclude the study with public policy implications from these findings.     

Why does MNE performance vary across countries?: An inquiry into the competitive value of MNE assets

Variations in MNEs’ competitive positions across countries are a prevalent phenomenon in the business landscape, but are not fully explained by MNE theory. Building on competition theories and applying them to the context of MNEs, we hypothesize that the value of MNEs’ assets varies in relation to competitors of different nationalities and geographic scope, as well as across locations. These predictions are tested on US legal-services MNEs in competition with US domestic firms and non-US MNEs in the US and abroad. We find support for the hypothesized variations, particularly with reference to competitors’ location and nationality. These variations suggest that the value of MNE assets is relative, and that their varying market positions across countries are an inherent feature of international competition, calling for corresponding positioning and strategies.     

The determinants of tax haven FDI

This paper examines the determinants of a multinational enterprise's (MNEs) decision to set up tax haven subsidiaries. We adapt the firm-specific advantage–country-specific advantage (FSA–CSA) framework and construct a number of empirically testable hypotheses. The analysis is based on a database covering 14,209 MNEs in twelve OECD countries. We find that the variety of capitalism of a MNEs home location and the level of technological intensity has a strong impact on this decision. We also find that the home country corporate tax rate has a minimal impact. This suggests that corporate tax liberalisation is unlikely to deter MNEs from undertaking this activity.     

Talent management motives and practices in an emerging market: A comparison between MNEs and local firms

This paper compares the differences in talent management motivations and practices between MNEs and local firms in the emerging market of Turkey. It uses institutional theory and the resource based view of the firm to explain these differences. Examining data from 201 firms the findings show significant differences between the talent management motives of MNEs and local firms, with MNEs having more tactical motivations for their talent management systems. The study also shows significant differences in the talent management practices between MNEs and local firms, with MNEs implementing more robust systems of talent management overall. The findings indicate that the motives for TM and the practices that are pursued by organizations are society-bound. The study of TM motives and practices has to be framed within the context of the institution as this shapes the way in which actors perceive and respond to environmental and organizational stimuli and the extent to which they seek to protect the rules that shape and structure their environments.     

Corporate taxation and the choice of patent location within multinational firms

Corporate patents are important assets in the modern economy, where knowledge is highly valued. In many multinational enterprises (MNEs), they constitute a major portion of the business's value. The intra-firm transfer pricing process for patent-related royalty payments is moreover often highly intransparent and patents thus represent a major source of profit shifting opportunities between multinational entities. For both reasons, MNEs have an incentive to locate their patents at low-tax affiliates to minimize the corporate tax burden. The purpose of our paper is to empirically test for this relationship by exploiting a unique dataset that links information on patent applications to micro panel data for European MNEs. Our results suggest that the corporate tax rate (differential to other group members) exerts a negative effect on the number of patent applications filed by a multinational affiliate. The effect is quantitatively large and robust to controlling for firm size and unobserved heterogeneity between the entities. The findings moreover prevail if we account for royalty withholding taxes and binding ‘Controlled Foreign Company’ rules.     

Is there an advantage of emergingness? A politico-regulatory perspective

The source(s) of competitive advantage of emerging-economy multinational enterprises (MNEs) remains a puzzle in international strategy scholarship, with some arguing that such firms are at a disadvantage compared to developed-economy rivals. Drawing on the concept of institutional advantage and using a sample of 233 foreign subsidiaries operating in 25 emerging economies over the period of 2000–2017, we find that foreign subsidiaries of emerging-economy MNEs are more adept than foreign subsidiaries of developed-economy MNEs at deploying their fixed asset management capabilities in emerging-economy host countries, especially when host-country politico-regulatory institutions are underdeveloped. Likewise, we find that subsidiaries of emerging-economy MNEs are more adept at deploying their tax planning capabilities when host-country politico-regulatory institutions become increasingly volatile. We discuss how these findings contribute to scholarly thought regarding the performance of emerging-economy MNEs.     

Tax haven networks and the role of the Big 4 accountancy firms

This paper investigates the association between the Big 4 accountancy firms and the extent to which multinational enterprises build, manage and maintain their networks of tax haven subsidiaries. We extend internalisation theory and derive a number of hypotheses that are tested using count models on firm-level data. Our key findings demonstrate that there is a strong correlation and causal link between the size of an MNE’s tax haven network and their use of the Big 4. We therefore argue that public policy related to the role of auditors can have a significant impact on the tax avoidance behaviour of MNEs.     

The emergence of multi-sided platform MNEs: Internalization theory and networks

The rise of the digital economy provides firms across the globe with unique business opportunities. Companies such as Facebook, Alibaba, and Uber are competing in a new multi-sided platform world; the primary focus of these firms, from their inception, is to provide digital infrastructure, information and technology—intangible assets that enable direct interaction or value creation across platforms by linking different user group and complementors, often at the international level. Building on data drawn from multinational multisided Platform corporations (MMPCs) operating in China, we combine insights from internalization theory and network effects in understanding the value creation of such firms. We explore the boundaries of these new “breed” of MNEs in exploiting firm-specific advantages (FSAs) and in creating new knowledge between headquarters and subsidiaries. The findings suggest that internalization theory needs to shift its focus from the ‘boundaries of the firm’ to the ‘boundaries of the local network’. By integrating their internal and external networks of knowledge in adapting their business models in host markets, this new breed of MNEs is more likely than the traditional one to gain a sustainable competitive advantage in the new information age.     

Foreign direct investment motivations and knowledge acquisition from MNEs in overseas subsidiaries

Despite studies exploring factors affecting knowledge acquisition from multinational enterprises in subsidiaries, what accounts for a successful acquisition is unresolved. We argue that such disparity may stem from inattention to investment motivations of multinational enterprises (MNEs) in foreign markets and to the fact that learning patterns of subsidiaries can be influenced by foreign firms' market‐seeking or efficiency‐seeking behaviors. We find that absorptive capacity in learning organizations and daily interactions with knowledge possessors are essential to learning from parent firms. In addition, active support from parent firms is particularly crucial for subsidiaries seeking to improve operational efficiency of MNEs. We also suggest that potential absorptive capacity plays a catalyst role in initiating knowledge acquisition, particularly in cases where MNEs have market‐seeking motivations. Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd.     

Internationalization of Chinese and Korean firms

This article compares and contrasts the growth of Chinese and Korean multinational enterprises (MNEs). The article identifies the similarities and differences between Chinese and Korean MNEs in terms of motivations for internationalization, expansion strategies, and paths. The goal of this article is to contribute to the literature by shifting focus on host‐country conditions to home‐country conditions in explaining the drivers for firms' internationalization. We conclude that firms are motivated to expand abroad when faced with domestic competitive disadvantages resulting from absence or deficiency of one or more of Porter's Diamond attributes in their domestic market. Implications for further studies are also explored. © 2009 Wiley Periodicals, Inc.     

The role of MNEs’ internationalization patterns in their regional integration of FDI locations

Multinational enterprises (MNEs) use the regional aggregation and integration of their foreign direct investments as an important part of their internationalization. Internationalization decisions are integrated at the region level; however, little work has focused on explaining the extent of this regional integration. We develop theoretical arguments and test new hypotheses about MNEs’ general international experience and international geographic scope (i.e., institutional diversity and international dispersion) as predictors of their extent of regional integration. The results from a sample of Japanese MNEs validate these different effects, suggesting these MNE level variables are important for regional influences on their internationalization decisions. The results further our understanding of how MNEs organize their internationalization and strategic geographic foci.     

The investment-divestment relationship: Resource shifts and intersubsidiary competition within MNEs

This paper examines the interdependencies between MNE investment and divestment decisions. We derive a conceptual framework of “segmented intersubsidiary competition” and hypothesize that the competitive pressure of new investments on existing subsidiaries varies by regional dimension. Based on a database of 3524 French MNEs, we analyse intersubsidiary competition and intertemporal adjustment processes of the investment-divestment relationship between 2002 and 2010. Our empirical findings support the theoretical notion of segmented intersubsidiary competition within MNEs: Foreign investments create competitive pressure for foreign subsidiaries to be divested in subsequent periods, where domestic investments spur divestment at home. Inversely, foreign divestments are more likely to create new investment opportunities in the foreign than in the domestic arena. Our differentiations between investments/divestments in EU countries and in non-EU countries shows that the competitive pressure of new investments on existing subsidiaries is mainly limited to the same region.     

Morphing: The Linkage of Inward Private Equity and Outward Ventures

Private equity is impacting the global economy and competitive landscape of multinational enterprises (MNEs) worldwide. In this pioneering study, we find an important new pattern for global interfirm connections: an inward private equity investment is inductive for emerging MNEs to conduct an outward venture. This inward‐outward linkage implies that emerging MNEs are more likely to undergo a series of organizational changes after receiving private equity investments. These changes include restructuring their boards of directors, rebuilding their top management teams, reconfiguring their corporate resources, reframing the industry structure, and altering competitive dynamics. These organizational changes induce emerging MNEs to modify their strategies such as speeding up the internationalization process, locating additional outward ventures in advanced economies, and choosing more complex entry modes, particularly cross‐border mergers and acquisitions (M&As). We describe this type of evolving internationalization of emerging MNEs as a “morphing” process with in‐depth case studies on emerging Chinese MNEs including Lenovo, Zoomlion, Geely, Alibaba.com, Huawei, NVC Lighting, and BYD. © 2014 Wiley Periodicals, Inc.     

Multinational family firms’ internationalization depth and breadth following the global financial crisis

This study examines how large family firms react to a macroeconomic shock in terms of their internationalization depth and breadth. Building on new internalization theory and acknowledging the dysfunctional manifestations of bifurcation bias in large family-owned MNEs, we argue that an unexpected shock induces family firms to recombine their family firm-specific resources with their thus far underutilized or unequally treated nonfamily resources. This recombination allows most family firms to economize on bifurcation bias and leverage their resources as firm-specific advantages (FSAs) resulting in an increased depth and breadth of internationalization post shock (while some of them may continue to suffer from bifurcation bias). Testing our theory on a panel dataset incorporating large family-owned (compared to nonfamily-owned) MNEs headquartered in Germany before and after the global financial crisis lends support to our theory. We discuss how our study contributes to new internalization theory, to the broader IB literature on MNEs’ unexpected shock response, and to family firm internationalization research.     

Human resource management in multinational and domestic enterprises: A comparative institutional analysis in Southeast Asia

This article looks at the relative impact of context on the role of senior managers. It compares HR directors of domestic enterprises (DEs) with those of multinational enterprises (MNEs), within an emerging market setting, based on a survey of HR directors in Brunei. We found that, with the exception of some aspects of selection and recruitment, HR directors of MNEs accorded a higher priority to strategic tasks but were more reluctant to delegate. This study confirms the importance of MNEs in pioneering more modern and integrated approaches to people management but also demonstrates the limitations to the extent where they might act as evangelists of new practices that are adopted by their local peers. In contrast, local firms were more likely to concentrate their attention on administrative, rather than strategic, issues. We draw out the implications of our findings for theory and practice.     

Heterogeneity in OFDI by EMNEs: Drivers and trends of Chinese and Indian firms

Previous research has identified a distinction between the internationalization of emerging market multinational enterprises (EMNEs) and their advanced-economy counterparts. However, the question as to whether EMNEs conduct outward foreign direct investment (OFDI) in a uniform manner remains under-studied. Prior studies have grouped together all emerging markets but have ignored the essential heterogeneity of EMNEs that leads to their diverse OFDI patterns and behaviours. In this study, we illustrate the drivers and related phenomena of heterogeneity by exploring differences and similarities between Chinese and Indian MNEs’ OFDI activities, namely, investment destinations (i.e., advanced vs. emerging economies), the level of political relationships with host countries, industry sectors supported by institutional patronage, and the primary motivations of investment projects. We suggest that the heterogeneity in OFDI is the result of the institutional environment and the strategic priorities of the industry sector.     

Strategic investment flexibility for MNE success in Russia: Evolving beyond entry modes

Many American multinational enterprises (MNEs) are currently active in Russia despite the turbulence encountered in that transitional economy. Most seem to have entered as an extension of their global strategies with a long-term horizon. While some entered with considerable involvement and substantial investment, others followed a more cautious or incremental path. This article focuses on how MNE strategies have evolved after entry and describes six strategic approaches. Strategic investment flexibility is found to depend upon a company 's original entry strategy and tolerance for risk, as well as its assessment of the legal and political environment, industry conditions, market readiness for its products or services, competition, and the investment required to establish a sustainable competitive position. Keys to successful strategy development are drawn from the experiences of US MNEs which have established growing businesses in the vast Russian market. The strategies of such successful MNEs, however initiated upon entry, usually evolved to a relatively heavy investment position.     

Environmental risks,localization and the overseas subsidiary performance of MNEs from an emerging economy

Despite the fact that multinational enterprises (MNEs) from emerging economies invest actively in host countries with substantial risks, we have limited understanding of how they manage environmental risks to achieve desirable performance in their overseas subsidiaries. Drawing on resource dependence theory, we argue that different localization strategies serve as a mediating mechanism linking environmental risks and overseas subsidiary performance. Our findings based on a sample of Chinese MNEs show that industry risks significantly reduce the levels of input localization and marketing localization of Chinese MNEs’ subsidiaries, and thus negatively affect subsidiary performance. Political risks have an insignificant impact on input localization and marketing localization, but a positive direct impact on Chinese MNEs’ overseas subsidiary performance. We also find that state-owned MNEs’ localization strategies are more sensitive to industry risks compared with privately owned MNEs.     

Multinationals in the Middle East: Challenges and opportunities

This introduction to the special issue on Multinationals in the Middle East first reviews the historical growth and development of multinational enterprises (MNEs) in the territory extending from Morocco to Turkey alongside the southern and eastern shores of the Mediterranean as far east as Iran, and south to Sudan and Yemen. Then, several opportunities and challenges affecting MNEs in the region are discussed, including economic and social diversity, non-market strategies and entry-mode choices, and animosity toward MNEs. The seven papers featured in the special issue that address these topics are then discussed.