Journal of International Business Studies

, Volume 45, Issue 8, pp 1005–1028 | Cite as

Overcoming distrust: How state-owned enterprises adapt their foreign entries to institutional pressures abroad

  • Klaus E Meyer
  • Yuan Ding
  • Jing Li
  • Hua Zhang
Article

Abstract

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.

Keywords

state-owned enterprises institutional theory foreign market entry establishment mode control mode Chinese multinationals 

Notes

Acknowledgements

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.

References

  1. Anand, J., & Delios, A. 2002. Absolute and relative resources as determinants of international acquisitions. Strategic Management Journal, 23 (2): 119.CrossRefGoogle Scholar
  2. Anderson, E., & Gatignon, H. 1986. Modes of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies, 17 (3): 1–26.CrossRefGoogle Scholar
  3. Asiedu, E., Jin, Y., & Nandwa, B. 2009. Does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment? Journal of International Economics, 78 (2): 268–275.CrossRefGoogle Scholar
  4. Aybar, B., & Ficici, A. 2009. Cross-border acquisitions and firm value: An analysis of emerging-market multinationals. Journal of International Business Studies, 40 (8): 1317–1338.CrossRefGoogle Scholar
  5. Boning, O. 2013. Nobody trusted us at the time (interview with Zhang Min). Unternehmer edition, August: 42–43.Google Scholar
  6. Brouthers, K. D. 2002. Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 33 (2): 203–221.CrossRefGoogle Scholar
  7. Brouthers, K. D. 2013. A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 44 (1): 14–22.CrossRefGoogle Scholar
  8. Bruner, R., & Spekman, R. 1998. The dark side of alliances: Lessons from Volvo–Renault. European Management Journal, 16 (2): 136–150.CrossRefGoogle Scholar
  9. Buckley, P. J., Clegg, J., Cross, A., Liu, X., Voss, H., & Zheng, P. 2007. The determinants of Chinese outward FDI. Journal of International Business Studies, 38 (4): 499–518.CrossRefGoogle Scholar
  10. Chan, C. M., & Makino, S. 2007. Legitimacy and multi-level institutional environments: Implications for foreign subsidiary ownership structure. Journal of International Business Studies, 38 (4): 621–638.CrossRefGoogle Scholar
  11. Chatterjee, S., Hadi, A., & Price, B. 2000. Regression analysis by example. New York: Wiley Series in Probability and Statistics, 3rd edn. New York: Wiley Series in Probability and Statistics.Google Scholar
  12. Chen, V. Z., Li, J., & Shapiro, D. M. 2012. International reverse spillover effects on parent firms: Evidences from emerging-market MNEs in developed markets. European Management Journal, 30 (3): 204–218.CrossRefGoogle Scholar
  13. Chen, Y. Y., & Young, M. N. 2010. Cross-border mergers and acquisitions by Chinese listed companies: A principal–principal perspective. Asia Pacific Journal of Management, 27 (3): 523–539.CrossRefGoogle Scholar
  14. Child, J., & Marinova, S. T. forthcoming. The role of contextual combinations in the globalization of Chinese firms. Management and Organization Review, accepted.Google Scholar
  15. Clifton, J., & Diaz-Fuentes, D. 2010. Is the European Union ready for foreign direct investment from emerging markets? In K. P. Sauvant, W. A. Maschek, & G. McAllister (Eds), Foreign direct investments from emerging markets. New York: Palgrave Macmillan.Google Scholar
  16. Cui, L., & Jiang, F. 2012. State ownership effect on firms’ FDI ownership decisions under institutional pressure: A study of Chinese outward-investing firms. Journal of International Business Studies, 43 (3): 264–284.CrossRefGoogle Scholar
  17. Cui, L., Meyer, K. E., & Hu, H. 2013. What drives firms’ intent to seek strategic assets by foreign direct investment? A study of emerging economy firms. Journal of World Business, 49(4): 488–501.Google Scholar
  18. Deng, P. 2009. Why do Chinese firms tend to acquire strategic assets in international expansion? Journal of World Business, 44 (1): 74–84.CrossRefGoogle Scholar
  19. Ding, Y., Nowak, E., & Zhang, H. 2010. Foreign vs. domestic listing: An entrepreneurial decision. Journal of Business Venturing, 25 (2): 175–191.CrossRefGoogle Scholar
  20. Ding, Y., Zhang, H., & Zhang, J. X. 2008. The financial and operating performance of Chinese family-owned listed firms. Management International Review, 48 (3): 1–22.Google Scholar
  21. Djankov, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. 2008. The law and economics of self-dealing. Journal of Financial Economics, 88 (3): 430–465.CrossRefGoogle Scholar
  22. Dow, D., & Karunaratna, A. 2006. Developing a multidimensional instrument to measure psychic distance stimuli. Journal of International Business Studies, 37 (5): 578–602.CrossRefGoogle Scholar
  23. Eden, L., & Miller, S. R. 2004. Distance matters: Liability of foreignness, institutional distance and ownership strategy. Advances in International Management, 16: 187–228.CrossRefGoogle Scholar
  24. Estrin, S., Baghdasaryan, D., & Meyer, K. E. 2009. The impact of institutional and human resource distance on international entry strategies. Journal of Management Studies, 46 (7): 1171–1196.CrossRefGoogle Scholar
  25. Globerman, S., & Shapiro, D. 2009. Economic and strategic considerations surrounding Chinese FDI in the United States. Asia Pacific Journal of Management, 26 (1): 163–183.CrossRefGoogle Scholar
  26. Grant. 2012. Fear the dragon? Chinese foreign direct investment in Canada, Conference Board of Canada, http://www.conferenceboard.ca/e-library/abstract.aspx?did=4884, accessed September 2012.
  27. Hall, R. E., & Jones, C. I. 1999. Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics, 114 (1): 83–116.CrossRefGoogle Scholar
  28. Hennart, J. F. 2009. Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets. Journal of International Business Studies, 40 (9): 1432–1454.CrossRefGoogle Scholar
  29. Hennart, J. F., & Park, Y. R. 1993. Greenfield vs. acquisition: The strategy of Japanese investors in the United States. Management Science, 39 (9): 1054–1070.CrossRefGoogle Scholar
  30. Hoffman, A. J. 1999. Institutional evolution and change: Environmentalism and the US chemical industry. Academy of Management Journal, 42 (4): 351–371.CrossRefGoogle Scholar
  31. Hong, E., & Sun, L. 2006. Dynamics of internationalization and outward investment: Chinese corporations’ strategies. China Quarterly, 187 (September): 610–634.CrossRefGoogle Scholar
  32. Hope, O. K., Thomas, W., & Vyas, D. 2011. The cost of pride: Why do firms from developing countries bid higher? Journal of International Business Studies, 42 (1): 936–957.CrossRefGoogle Scholar
  33. Investment Canada Act. 2013. http://laws-lois.justice.gc.ca/eng/acts/I-21.8/, accessed March 2014.
  34. Jones, D. C., & Mygind, N. 1999. The nature and determinants of ownership changes after privatization: Evidence from Estonia. Journal of Comparative Economics, 27 (3): 422–441.CrossRefGoogle Scholar
  35. Jungbluth, C. 2013. Aufbruch nach Westen: Chinesische direktinvestitionen in deutschland. Gütersloh: Bertelsmann Foundation.Google Scholar
  36. Klöckner, J. 2013. Chinesische Investoren: Freunde in der Krise. Die Zeit, 3 March, http://www.zeit.de/2013/09/Chinesen-Unternehmen-Duerkopp-Adler, accessed March 2014.
  37. Knutsen, C. H., Rygh, A., & Hveem, H. 2011. Does state ownership matter? Institutions’ effect on foreign direct investment revisited. Business & Politics, 13 (1): article 2.Google Scholar
  38. Kogut, B., & Chang, S. 1991. Technological capabilities and Japanese foreign direct investment in the United States. Review of Economics & Statistics, 73 (3): 401–413.CrossRefGoogle Scholar
  39. Kogut, B., & Singh, H. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19 (3): 411–432.CrossRefGoogle Scholar
  40. Kostova, T. 1999. Transnational transfer of strategic organizational practices: A contextual perspective. Academy of Management Review, 24 (2): 308–324.Google Scholar
  41. Kostova, T., & Roth, K. 2002. Adoption of an organizational practice by subsidiaries of multinational corporations: Institutional and relational effects. Academy of Management Journal, 45 (1): 215–233.CrossRefGoogle Scholar
  42. Kostova, T., Roth, K., & Dacin, M. T. 2008. Institutional theory in the study of multinational corporations: A critique and new directions. Academy of Management Review, 33 (4): 994–1006.CrossRefGoogle Scholar
  43. Kulawczuk, P. 2007. The purchase of a monopoly: France telecom acquires TPSA. In K. E. Meyer, & S. Estrin (Eds), Acquisition strategies in European emerging markets. Basingstoke: Palgrave Macmillan.Google Scholar
  44. La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. 2008. The economic consequences of legal origins. Journal of Economic Literature, 46 (2): 285–332.CrossRefGoogle Scholar
  45. Li, J., Li, Y., & Shapiro, D. M. 2012. Knowledge seeking and outward FDI of emerging market firms: The moderating effect of inward FDI. Global Strategy Journal, 2 (4): 277–295.CrossRefGoogle Scholar
  46. Li, J., Newenham-Kahindi, A., Shapiro, D. M., & Chen, V. Z. 2013. The two-tier bargaining model revisited: Theory and evidence from China’s natural resource investments in Africa. Global Strategy Journal, 3 (4): 300–321.CrossRefGoogle Scholar
  47. Li, M. H., Cui, L., & Lu, J. Y. 2014. Varieties in state capitalism: Outward FDI strategies of central and local state-owned enterprises from emerging economy countries. Journal of International Business Studies, 45 (8): 980–1004.CrossRefGoogle Scholar
  48. Lin, N. 2011. Capitalism in China: A centrally managed capitalism (CMC) and its future. Management and Organization Review, 7 (10): 63–96.CrossRefGoogle Scholar
  49. Liu, Y. P., & Woywode, M. 2013. Light-touch integration of Chinese cross-border M&A: The influences of culture and absorptive capacity. Thunderbird International Business Review, 55 (4): 469–483.CrossRefGoogle Scholar
  50. Lopez-de-Silanes, F., La Porta, R., Shleifer, A., & Vishny, R. 1998. Law and finance. Journal of Political Economy, 106 (6): 1113–1155.CrossRefGoogle Scholar
  51. Lu, J. W., & Xu, D. 2006. Growth and survival of international joint ventures: An external–internal legitimacy perspective. Journal of Management, 32 (3): 426–448.CrossRefGoogle Scholar
  52. Lu, J. Y., Liu, X. H., Wright, M., & Filatotchev, I. 2014. International experience and FDI location choices of Chinese firms: The moderating effects of home country government support and host country institutions. Journal of International Business Studies, 45 (4): 428–449.CrossRefGoogle Scholar
  53. Luo, Y. D., Xue, Q., & Han, B. 2010. How emerging market governments promote outward FDI: Experience from China. Journal of World Business, 45 (1): 68–79.CrossRefGoogle Scholar
  54. Meyer, J. W., & Rowan, B. 1977. Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology, 83 (2): 340–363.CrossRefGoogle Scholar
  55. Meyer, K. E. 2001. Institutions, transaction costs and entry mode choice in Eastern Europe. Journal of International Business Studies, 31 (2): 357–367.CrossRefGoogle Scholar
  56. Meyer, K. E. 2004. Perspectives on multinational enterprises in emerging economies. Journal of International Business Studies, 35 (4): 259–276.CrossRefGoogle Scholar
  57. Meyer, K. E. 2013. What is and why do we study international business? AIB Insights, 13 (1): 10–13.Google Scholar
  58. Meyer, K. E., & Thein, H. H. 2014. Business under adverse home country institutions: The case of international sanctions against Myanmar. Journal of World Business, 49 (1): 156–171.CrossRefGoogle Scholar
  59. Meyer, K. E., Estrin, S., Bhaumik, S. K., & Peng, M. W. 2009a. Institutions, resources, and entry strategies in emerging economies. Strategic Management Journal, 30 (1): 61–80.CrossRefGoogle Scholar
  60. Meyer, K. E., Wright, M., & Pruthi, S. 2009b. Managing knowledge in foreign entry strategies: A resource-based analysis. Strategic Management Journal, 30 (5): 557–574.CrossRefGoogle Scholar
  61. Morck, R., Yeung, B., & Zhao, M. 2008. Perspectives on China’s outward foreign direct investment. Journal of International Business Studies, 39 (3): 337–350.CrossRefGoogle Scholar
  62. Morgan, E. J. 2009. Controlling cartels – Implications of the EU policy reforms. European Management Journal, 27 (1): 1–12.CrossRefGoogle Scholar
  63. Musacchio, A., & Lazzarini, S. G. 2012. Leviathan in business: Varieties of state capitalism and their implications for economic performance. SSRN Working Paper #20709042.Google Scholar
  64. Naughton, B. 1994. Chinese institutional innovation and privatization from below. American Economic Review, 84 (2): 266–270.Google Scholar
  65. Nyland, C., Forbes-Mewett, H., & Thomson, S. B. 2011. Sinophobia as corporate tactic and the response of host communities. Journal of Contemporary Asia, 41 (4): 610–631.CrossRefGoogle Scholar
  66. Ramasamy, B., Yeung, M., & Laforet, S. 2012. China’s outward foreign direct investment: Location choice and firm ownership. Journal of World Business, 47 (1): 17–25.CrossRefGoogle Scholar
  67. Regnér, P., & Edman, J. 2014. MNE institutional advantage: How subunits shape, transpose and evade host country institutions. Journal of International Business Studies, 45 (3): 275–302.CrossRefGoogle Scholar
  68. Rui, H., & Yip, G. S. 2008. Foreign acquisitions by Chinese firms: A strategic intent perspective. Journal of World Business, 43 (2): 213–226.CrossRefGoogle Scholar
  69. Sauvant, K. P. 2010. Is the United States ready for foreign direct investment from emerging markets? The case of China. In K. P. Sauvant, W. A. Maschek, & G. McAllister (Eds), Foreign direct investments from emerging markets. New York: Palgrave Macmillan.CrossRefGoogle Scholar
  70. Schütte, H., & Chen, S. E. 2013. Reaching high: Sany’s internationalization (B). Shanghai, China: China Europe International Business School, case number CEIBS CC-312-019.Google Scholar
  71. Scissors, D. 2012. Chinese outward investment: Acceleration features the US. Washington DC: The Heritage Foundation, No. 3656.Google Scholar
  72. Scott, W. R. 2001. Institutions and organizations. Thousand Oaks, CA: Sage.Google Scholar
  73. Slangen, A., & Hennart, J. F. 2007. Greenfield or acquisition entry: A review of the empirical foreign establishment mode literature. Journal of International Management, 13 (4): 403–429.CrossRefGoogle Scholar
  74. Spamann, H. 2010. The “Antidirector Rights Index” revisited. Review of Financial Studies, 23 (2): 467–486.CrossRefGoogle Scholar
  75. Stevenson, R. W. 1993. Volvo abandons Renault merger. New York Times, December 3, http://www.nytimes.com/1993/12/03/business/volvo-abandons-renault-merger.html, accessed November 2013.
  76. Sun, Q., & Tong, W. H. S. 2003. China share issue privatization: The extent of its success. Journal of Financial Economics, 70 (2): 183–222.CrossRefGoogle Scholar
  77. Tihanyi, L., Griffith, D. A., & Russell, C. J. 2005. The effect of cultural distance on entry mode choice, international diversification, and MNE performance: A meta-analysis. Journal of International Business Studies, 36 (3): 270–283.CrossRefGoogle Scholar
  78. Tipton, F. B. 2009. Southeast Asian capitalism: History, institutions, states, and firms. Asia Pacific Journal of Management, 26 (3): 401–434.CrossRefGoogle Scholar
  79. Tobin, J. 1958. Estimation of relationships for limited dependent variables. Econometrica, 26 (1): 24–36.CrossRefGoogle Scholar
  80. Tsui, A. S. 2007. From homogenization to pluralism: International management research in the academy and beyond. Academy of Management Journal, 50 (6): 1353–1364.CrossRefGoogle Scholar
  81. Wang, C. Q., Hong, J. J., Kafouros, M., & Wright, M. 2012. Exploring the role of government involvement in outward FDI from emerging economies. Journal of International Business Studies, 43 (7): 655–676.CrossRefGoogle Scholar
  82. Westney, E. 1993. Institutionalization theory and the multinational corporation. In S. Ghoshal, & E. Westney (Eds), Organization theory and the multinational corporation. Basingstoke: Palgrave Macmillan.Google Scholar
  83. Wiersema, M. F., & Bowen, H. P. 2009. The use of limited dependent variable techniques in strategy research: Issues and methods. Strategic Management Journal, 30 (6): 679–692.CrossRefGoogle Scholar
  84. Wong, L. 2013. The “Liability of Foreignness”: Chinese investment in Australia. Mimeo. Perth, Australia: Murdoch University.Google Scholar
  85. Wooldridge, J. M. 2002. Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.Google Scholar
  86. Xinhua. 2011. Outlines of China’s 12th five-year national economic and social development plan [in Chinese], http://news.xinhuanet.com/politics/2011-03/16/c_121193916.htm, accessed September 2012.
  87. Xu, D., & Shenkar, O. 2002. Institutional distance and the multinational enterprise. Academy of Management Review, 27 (4): 608–618.Google Scholar
  88. Yiu, D. W. 2011. Multinational advantages of Chinese business groups: A theoretical exploration. Management International Review, 7 (2): 249–278.Google Scholar
  89. Yiu, D., & Makino, S. 2002. The choice between joint venture and wholly owned subsidiary: An institutional perspective. Organization Science, 13 (6): 667–683.CrossRefGoogle Scholar
  90. Zhang, J., Zhou, C., & Ebbers, H. 2010. Completion of Chinese overseas acquisitions: Institutional perspectives and evidence. International Business Review, 20 (2): 226–238.CrossRefGoogle Scholar
  91. Zhao, H. X., Luo, Y. D., & Suh, T. W. 2004. Transaction cost determinants and ownership-based entry mode choice: A meta-analytical review. Journal of International Business Studies, 35 (6): 524–544.CrossRefGoogle Scholar
  92. Zhao, M., Park, S. H. S., & Zhou, N. 2014. MNC strategy and social adaptation in emerging markets. Journal of Internatinal Business Studies, 45 (7): 842–861.CrossRefGoogle Scholar
  93. Zou, H., & Adams, M. B. 2008. Corporate ownership, equity risk and returns in the People’s Republic of China. Journal of International Business Studies, 39 (7): 1149–1168.CrossRefGoogle Scholar

Copyright information

© Academy of International Business 2014

Authors and Affiliations

  • Klaus E Meyer
    • 1
  • Yuan Ding
    • 2
  • Jing Li
    • 3
  • Hua Zhang
    • 2
  1. 1.Department of Management, China Europe International Business School (CEIBS)China Europe International Business School (CEIBS)ShanghaiChina
  2. 2.Department of Finance and Accounting, China Europe International Business School (CEIBS)China Europe International Business School (CEIBS)ShanghaiChina
  3. 3.Beedie School of Business, Simon Fraser UniversityBurnabyCanada

Personalised recommendations