Overcoming distrust: How state-owned enterprises adapt their foreign entries to institutional pressures abroad
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State-owned (SO) enterprises are subject to more complex institutional pressures in host countries than private firms. These institutional pressures arise from a weak legitimacy of “state ownership” in some countries, which arises from a combination of ideological conflicts, perceived threats to national security, and claimed unfair competitive advantage due to support by the home country government. These institutional pressures directed specifically at SO firms induce them to adapt their foreign entry strategies to reduce potential conflicts and to enhance their legitimacy. Testing hypotheses derived from this theoretical argument for subsidiaries of listed Chinese firms, we find that SO firms adapt mode and control decisions differently from private firms to the conditions in host countries, and these differences are larger where pressures for legitimacy on SO firms are stronger. These findings not only extend institutional theory to better explain differential effects on different entrants to an organizational field, but demonstrate how foreign investors of idiosyncratic origins may proactively build legitimacy in host societies.
Keywordsstate-owned enterprises institutional theory foreign market entry establishment mode control mode Chinese multinationals
We thank JIBS Special Issue Editors and three anonymous reviewers for their insightful comments and suggestions. We also appreciate the helpful comments on earlier versions of this work from Lin Cui and Larissa Rabbiosi, seminar participants at Copenhagen Business School, University of St. Gallen, George Mason University and HEC Lausanne as well as conference participants at COST workshop “The Impact of Emerging Multinationals on Global Development” (May 2013, Milan), 7th China Goes Global Conference (September 2013, Bremen), and Conference on “Governments as Owners: Globalizing State Owned Enterprises” (September 2013, Boston). Financial support is gratefully appreciated by Yuan Ding from the CEIBS Research Center on Globalization of Chinese Firms, by Klaus Meyer from CEIBS Research Centre for Emerging Market Studies, and by Jing Li from the Social Sciences and Humanities Research Council of Canada and from the National Science Foundation of China (project 71132002). The research assistance of Ellen Jiang Xiaochu (Ophelia) Yu is greatly appreciated.
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