Advertisement

Journal of International Business Studies

, Volume 49, Issue 3, pp 324–345 | Cite as

Home country supportiveness/unfavorableness and outward foreign direct investment from China

  • Ajai S Gaur
  • Xufei Ma
  • Zhujun Ding
Article

Abstract

What drives the outward foreign direct investments (OFDIs) by emerging market firms (EMFs)? Drawing on a strategy tripod framework, this article proposes a theoretical model to predict OFDI by EMFs from China. Specifically, we use institution- and industry-based views to examine two facets of home country environment, namely, the supportiveness from home government and unfavorableness from home industry, as important determinants of OFDI, and compare the relative strength of these effects. Further, we use the resource-based view to argue that the effect of the home country environment is contingent on the international experience portfolios of EMFs.

Keywords

home country environment outward FDI emerging market firms international experience 

Résumé

Qu’est-ce qui motive les investissements directs étrangers sortants (IDES) des entreprises issues des marchés émergents (EME) ? S’appuyant sur un cadre stratégique à trois pieds, cet article propose un modèle théorique pour prédire les IDES des EME de Chine. Plus précisément, nous utilisons des perspectives institutionnelles et industrielles pour étudier deux facettes de l’environnement du pays d’origine, à savoir le soutien du gouvernement domestique et le caractère défavorable de l’industrie domestique, comme déterminants importants des IDES ; et nous comparons le poids relatif de ces effets. En outre, nous utilisons l’approche fondée sur les ressources pour argumenter que l’effet de l’environnement du pays d’origine dépend des portefeuilles d’expériences internationales des EME.

Resumen

¿Qué impulsa las inversiones extranjeras directas hacia afuera de las empresas de mercados emergentes? Basándonos en el marco del trípode de estrategia, este artículo propone un modelo teórico para predecir que impulsa la inversión extranjera directa hacia afuera de las empresas de China. Específicamente usamos puntos de vista basados en la institución y la industria para examinar dos facetas del entorno del país de origen, es decir, el apoyo del gobierno del país anfitrión y lo desfavorable de la industria doméstica, como determinantes importantes de la inversión extranjera directa hacia fuera y comparar las fortalezas relativas de estos efectos. Además, usamos la perspectiva basada en recursos para argumentar que los efectos del entorno del país de origen está supeditado a los portafolios de experiencia internacional de las inversiones extranjeras directas.

Resumo

O que define os investimentos estrangeiros diretos externos (OFDIs) por empresas de mercados emergentes (EMFs)? Com base em um modelo de estratégia trípede, este artigo propõe um modelo teórico para prever o OFDI por EMFs da China. Especificamente, utilizamos visões baseadas em instituições e na indústria para examinar duas facetas do ambiente do país de origem, ou seja, o apoio do governo doméstico e a desfavorabilidade da indústria doméstica, como determinantes importantes do OFDI e comparamos a força relativa desses efeitos. Além disso, usamos a visão baseada em recursos para argumentar que o efeito do ambiente do país de origem depende do portfólio de experiências internacionais de EMFs.

摘要

新兴市场公司(EMFs)对外直接投资(OFDI)的驱动力是什么?借鉴战略三脚架框架,本文提出了一个预测来自中国的EMFs的OFDI的理论模型。具体地说,我们运用制度基础观和产业基础观来考察本国环境的两个方面,即本国政府的支持和本国产业的不利性,作为OFDI的重要决定因素,并比较这些影响的相对力度。进一步,我们运用资源基础观认为,本国环境的影响取决于EMFs的国际经验组合。

Notes

Acknowledgements

We are grateful to the area editor Professor Mariko Sakakibara and the anonymous reviewers for their constructive comments and suggestions that have helped significantly improve the article. We also acknowledge support from the GRF Grants by HKSAR (Nos. 14501714, 14504715).

References

  1. Anderson, J. C., & Gerbing, D. W. 1988. Structural equation modeling in practice: A review and recommended two-step approach. Psychological Bulletin, 103(3): 411.CrossRefGoogle Scholar
  2. Ang, S. H., Benischke, M. H., & Doh, J. P. 2014. The interactions of institutions on foreign market entry mode. Strategic Management Journal, 36(10): 1536–1553.CrossRefGoogle Scholar
  3. Athanassiou, N., & Nigh, D. 2000. Internationalization, tacit knowledge and the top management teams of MNCs. Journal of International Business Studies, 31(3): 471–487.CrossRefGoogle Scholar
  4. Barney, J. B. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99–121.CrossRefGoogle Scholar
  5. Boddewyn, J. J. 1988. Political aspects of MNE theory. Journal of International Business Studies, 18(3): 341–363.CrossRefGoogle Scholar
  6. Bhaumik, S. K., Driffield, N., & Pal, S. 2010. Does ownership structure of emerging-market firms affect their outward FDI? The case of the Indian automotive and pharmaceutical sectors. Journal of International Business Studies, 41(3): 437–450.CrossRefGoogle Scholar
  7. Birkinshaw, J., Brannen, M., & Tung, R. 2011. From a distance and generalizable to up close and grounded: Reclaiming a place for qualitative methods in international business research. Journal of International Business Studies, 42(5): 573–581.CrossRefGoogle Scholar
  8. Boisot, M., & Meyer, M. W. 2008. Which way through the open door? Reflections on the internationalization of Chinese firms. Management and Organization Review, 4(3): 349–365.CrossRefGoogle Scholar
  9. Buckley, P. J. 2009. The impact of global factory on economic development. Journal of World Business, 44(2): 131–143.CrossRefGoogle Scholar
  10. Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Zheng, P. 2007. The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38: 499–518.CrossRefGoogle Scholar
  11. Buckley, P. J., Clegg, J. L., Cross, A. R., & Voss, H. 2010. What can emerging markets learn from the outward direct investment policies of advanced economies? In K. Sauvant, W. Maschek, & G. McAllister (Eds), Foreign direct investment from emerging markets: The challenges ahead. London: Palgrave Macmillan.Google Scholar
  12. Cantwell, J. 2009. Location and the multinational enterprise. Journal of International Business Studies, 40(1): 35–41.CrossRefGoogle Scholar
  13. Castrogiovanni, G. J. 1991. Environmental munificence: A theoretical assessment. Academy of Management Review, 16: 542–563.Google Scholar
  14. Child, J., & Rodrigues, S. B. 2005. The internationalization of Chinese firms: A case for theoretical extension? Management and Organization Review, 1(3): 381–410.CrossRefGoogle Scholar
  15. Churchill, G. A., Jr. 1979. A paradigm for developing better measures of marketing constructs. Journal of Marketing Research, 16(February): 64–73.CrossRefGoogle Scholar
  16. Creswell, J. W., & Clark, V. L. P. 2011. Designing and conducting mixed methods research (2nd edn). Los Angeles: Sage Publications.Google Scholar
  17. Cuervo-Cazurra, A. 2012. Extending theory by analyzing developing country multinational companies: Solving the Goldilocks debate. Global Strategy Journal, 2: 153–167.CrossRefGoogle Scholar
  18. 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
  19. Daft, R. L., & Weick, K. E. 1984. Toward a model of organizations as interpretation systems. Academy of Management Review, 9(2): 284–295.Google Scholar
  20. Deng, P. 2009. Why do Chinese firms tend to acquire strategic assets in international expansion? Journal of World Business, 44: 74–84.CrossRefGoogle Scholar
  21. Dierickx, I, & Cool, K. 1989. Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12): 1504–1511.CrossRefGoogle Scholar
  22. Dunning, J. H. 1993. Multinational enterprises and the global economy. Wokingham, Berkshire: Addison Wesley.Google Scholar
  23. Economist. 2012. The Visible Hand. http://www.economist.com/node/21542931. Accessed December 25, 2013.
  24. Edwards, J. R. 2010. Reconsidering theoretical progress in organization and management research. Organizational Research Methods, 13(4): 615–619.CrossRefGoogle Scholar
  25. Fan, G., Wang, X., & Zhang, L. 2001. Annual report 2000: Marketization index for China’s provinces. China & World Economy, 5.Google Scholar
  26. Felin, T., Foss, N. J., Heimeriks, K. H., & Madsen, T. L. 2012. Microfoundations of routines and capabilities: Individuals, processes, and structure. Journal of Management Studies, 49(8): 1351–1374.CrossRefGoogle Scholar
  27. Gao, G. Y., Murray, J., Kotabe, M., & Lu, J. 2010. A ‘strategy tripod’ perspective on export behaviors: Evidence from firms based in an emerging economy. Journal of International Business Studies, 41(3): 377–396.CrossRefGoogle Scholar
  28. Gaur, A. S. & Delios, A. 2015. International diversification of emerging market firms: The role of ownership structure and group affiliation. Management International Review, 55(2): 235–253.CrossRefGoogle Scholar
  29. Gaur, A. S., & Kumar, M. 2018. A systematic approach to conducting review studies: An assessment of content analysis in 25 years of IB research. Journal of World Business,  https://doi.org/10.1016/j.jwb.2017.11.003.Google Scholar
  30. Gaur, A. S., Kumar, V., & Singh, D. 2014. Institutions, resources, and internationalization of emerging economy firms. Journal of World Business, 49(1): 12–20.CrossRefGoogle Scholar
  31. Gaur, A. S., & Lu, J. W. 2007. Ownership strategies and survival of foreign subsidiaries: Impacts of institutional distance and experience. Journal of Management, 33: 84–110.CrossRefGoogle Scholar
  32. Gaur, A. S., Malhotra, S., & Zhu, P. 2013. Acquisition announcements and stock market valuations of acquiring firms’ rivals: A test of the growth probability hypothesis in china. Strategic Management Journal, 34(2): 215–232.CrossRefGoogle Scholar
  33. Gaur, A. S., & Mudambi, R. 2016. Four fallacies about trade and globalization. YaleGlobal Online, Oct 27, 2016. https://yaleglobal.yale.edu/content/four-fallacies-about-trade-and-globalization. Accessed August 23, 2017.
  34. Ghemawat, P. 2007. Redefining global strategy. Boston: Harvard Business School Publishing.Google Scholar
  35. Gu, Q., & Lu, J. W. 2011. Effects of inward investment on outward investment: The venture capital industry worldwide 1985–2007. Journal of International Business Studies, 42(2): 263–284.CrossRefGoogle Scholar
  36. Heckman, J. J. 1979. Sample selection bias as a specification error. Econometrica: Journal of the Econometric Society, 153–161.Google Scholar
  37. Hitt, M., Hoskisson, R., & Kim, H. 1997. International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4): 767–798.CrossRefGoogle Scholar
  38. Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. 2000. Strategy in emerging economies. Academy of Management Journal, 43(3): 249–267.CrossRefGoogle Scholar
  39. Johanson, J. & Vahlne, J. E. 2009. The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40(9): 1411–1431.CrossRefGoogle Scholar
  40. Kang, Y., & Jiang, F. 2012. FDI location choice of Chinese multinationals in East and Southeast Asia: Traditional economic factors and institutional perspective. Journal of World Business, 47: 45–53.CrossRefGoogle Scholar
  41. Kedia, B.L., Mukherjee, D. 2009. Understanding offshoring: A research framework based on disintegration, location and externalization advantages. Journal of World Business, 44(3): 250–261.CrossRefGoogle Scholar
  42. Khanna, T., & Palepu, K. G. 1997. Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4): 41–51.Google Scholar
  43. Knight, G. A., & Cavusgil, S. T. 2004. Innovation, organizational capabilities, and the born-global firm. Journal of International Business Studies, 35(2): 124–141.CrossRefGoogle Scholar
  44. Kosova, R. 2010. Do foreign firms crowd out domestic firms? Evidence from the Czech Republic. The Review of Economics and Statistics, 92(4): 861–881.CrossRefGoogle Scholar
  45. Lecraw, D. J. 1993. Outward direct investment by Indonesian firms: Motivation and effects. Journal of International Business Studies, 24(3): 589–600.CrossRefGoogle Scholar
  46. Lewin, A. Y., & Witt, M. A. 2007. Outward foreign direct investment as escape response to home country institutional constraints. Journal of International Business Studies, 38(4): 579–594.CrossRefGoogle Scholar
  47. Li, J., Li, Y., & Shapiro, D. 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
  48. Lu, J., Liu, X., 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
  49. Lu, W. J., & Ma, X. F. 2008. The contingent value of local partner’s business group affiliation. Academy of Management Journal, 51(2): 295–314.CrossRefGoogle Scholar
  50. Luo, Y. D. 2005. Transactional characteristics, institutional environment and joint venture contracts. Journal of International Business Studies, 36(2): 209–230.CrossRefGoogle Scholar
  51. Luo, Y., & Tung, R. 2007. International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4): 481–498.CrossRefGoogle Scholar
  52. Luo, Y., & Tung, R. 2017. A general theory of springboard MNEs. Journal of International Business Studies,  https://doi.org/10.1057/s41267-017-0114-8.Google Scholar
  53. Luo, Y., & Wang, S. L. 2012. Foreign direct investment strategies by developing country multinationals: A diagnostic model for home country effects. Global Strategy Journal, 2(3): 244–261.CrossRefGoogle Scholar
  54. Luo, Y., Xue, Q., & Han, B. 2010. How emerging market governments promote outward FDI: Experience from China. Journal of World Business, 45: 68–79.CrossRefGoogle Scholar
  55. Ma, X., Ding, Z., & Yuan, L. 2016. Subnational institutions, political capital, and the internationalization of entrepreneurial firms in emerging economies. Journal of World Business, 51(5): 843–854.CrossRefGoogle Scholar
  56. Ma, X., Tong, T. W., & Fitza, M. 2013. How much does subnational region matter to foreign subsidiary performance: Evidence from Fortune Global 500 corporations’ investment in China. Journal of International Business Studies, 44(1): 66–87.CrossRefGoogle Scholar
  57. Makino, S., Lau, C. M., & Yip, R. S. 2002. Asset-exploitation versus asset-seeking: Implications for location choice of foreign direct investment from newly industrialized economies. Journal of International Business Studies, 33(3): 403–421.CrossRefGoogle Scholar
  58. Mathews, J. A. 2006. Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(1): 5–27.CrossRefGoogle Scholar
  59. Mathews, J. A. & Zander, I. 2007. The international entrepreneurial dynamics of accelerated internationalization. Journal of International Business Studies, 38(3): 387–403.CrossRefGoogle Scholar
  60. Mukherjee, D., Gaur, A. S., & Dutta, A. 2013. Creating value through offshore outsourcing: A resource management framework. Journal of International Management, 19(4): 377-389.CrossRefGoogle Scholar
  61. North, D. C. 1990. Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  62. Nuruzzaman, N., Gaur, A. S., & Sambharya, R. 2018. A micro-foundations approach to studying innovation in multinational subsidiaries. Global Strategy Journal.  https://doi.org/10.1002/gsj.1202 Google Scholar
  63. Ocasio, W. 1997. Towards an attention-based view of the firm. Strategic Management Journal, 18: 187–206.CrossRefGoogle Scholar
  64. Peng, M. W., Wang, D. Y. L. & Jiang, Y. 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of International Business Studies, 39(5): 920–936.CrossRefGoogle Scholar
  65. Podsakoff, P. M., & Organ, D. W. 1986. Self reports in organizational research: Problems and prospects. Journal of Management, 12: 531–544.CrossRefGoogle Scholar
  66. Porter, M. E. 1990. The competitive advantage of nation. New York, NY: Free Press.CrossRefGoogle Scholar
  67. Qian, L., & Delios, A. 2008. Internalization and experience: Japanese banks’ international expansion, 1980–1998. Journal of International Business Studies, 39(2): 231–248.CrossRefGoogle Scholar
  68. Ramamurti, R. 2012. What is really different about emerging market multinationals? Global Strategy Journal, 2(1): 41–47.CrossRefGoogle Scholar
  69. Reuber, A. & Fischer, E. 1997. The influence of top management team’s international experience on international behaviors of SMES. Journal of International Business Studies, 28: 807–825.CrossRefGoogle Scholar
  70. Rugman, A. M., & Verbeke, A. 1992. A note on the transnational solution and the transaction cost theory of multinational strategic management. Journal of International Business Studies, 23(4): 761–771.CrossRefGoogle Scholar
  71. 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
  72. Sauvant, K. P., & Chen, H. 2013. A China–US bilateral investment treaty: A template for a multilateral framework for investment? Transnational Corporations Review, 5(1): 1–3.CrossRefGoogle Scholar
  73. Scott, W. R. 2001. Institutions and organizations: Ideas and interests. Los Angeles: Sage Publications.Google Scholar
  74. Singh, D. 2009. Export performance of emerging market firms. International Business Review, 18(4): 321–330.CrossRefGoogle Scholar
  75. Singh, D., Gaur, A. S., & Schmid, F. P. 2010. Corporate diversification, TMT experience, and performance. Management International Review, 50: 35–56.CrossRefGoogle Scholar
  76. Singh, D., Pattnaik, C., Gaur, A. S., & Ketencioglu, E. 2018. Corporate expansion during pro-market reforms in emerging markets: The contingent value of group affiliation and unrelated diversification. Journal of Business Research, 82: 220–229.CrossRefGoogle Scholar
  77. Sullivan, D. 1994. Measuring the degree of internationalization of a firm. Journal of International Business Studies, 25(2): 325–342.CrossRefGoogle Scholar
  78. Tang, F. 2007. China’s top 10 mergers and acquisitions revealed. http://www.china.org.cn/english/BAT/195761.htm. Accessed January 11, 2015.
  79. Tihanyi, L., Ellstrand, A. E., Daily, C. M., & Dalton, D. R. 2000. Composition of the top management team and firm international diversification. Journal of Management, 26(6): 1157–1177.CrossRefGoogle Scholar
  80. UNCTAD. 2015. World investment report 2015: Global value chains: Investment and trade for development. New York and Geneva: United Nations Publications.Google Scholar
  81. Voss, H., Buckley, P. J., & Cross, A. R. 2010. The impact of home country institutional effects on internationalization. Multinational Business Review, 18(3): 25–48.CrossRefGoogle Scholar
  82. Wan, W. P., & Hoskisson, R. E. 2003. Home country environments, corporate diversification strategies, and firm performance. Academy of Management Journal, 46(1): 27–45.CrossRefGoogle Scholar
  83. Wang, C., Hong, 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
  84. Weick, K. 1979. The social psychology of organizing (2nd edn). Reading, MA: Addison-Wesley.Google Scholar
  85. Welch, L. S., & Luostarinen, R. 1993. Inward-outward connections in internationalization. Journal of International Marketing, 1(1): 44–56.Google Scholar
  86. Wiersema, M. F., & Bowen., H. P. 2008. Corporate international diversification: The impact of foreign competition, industry globalization and firm diversification. Strategic Management Journal, 22: 115–132.CrossRefGoogle Scholar
  87. Wong, C. S., & Law, K. S. 1999. Testing reciprocal relations by nonrecursive structural equation models using cross- sectional data. Organizational Research Methods, 2(1): 69–87.CrossRefGoogle Scholar
  88. Xia, J., Ma, X., Lu, J. W., & Yiu, D. W. 2014. Outward foreign direct investment by emerging market firms: A resource dependence logic. Strategic Management Journal, 35(9): 1343–1363.CrossRefGoogle Scholar
  89. Yiu, D. W., Lau, C. M., & Bruton, G. 2007. International venturing by emerging economy firms: The effects of firm capabilities, home country networks, and corporate entrepreneurship. Journal of International Business Studies, 38: 519–540.CrossRefGoogle Scholar
  90. Yu, J., Engleman, R. M., & Van de Ven, A. H. 2005. The integration journey: An attention-based view of the merger and acquisition integration process. Organization Studies, 26(10): 1501–1528.CrossRefGoogle Scholar
  91. Zhou, K. Z., Yim, C. K., & Tse, D. K. 2005. The effects of strategic orientations on technology-and market-based breakthrough innovations. Journal of Marketing, 69(2): 42–60.CrossRefGoogle Scholar
  92. Zhou, L., Wu, W. P., & Luo, X. 2007. Internationalization and the performance of born-global SMEs: The mediating role of social networks. Journal of International Business Studies, 38(4): 673–690.CrossRefGoogle Scholar

Copyright information

© Academy of International Business 2018

Authors and Affiliations

  1. 1.Rutgers Business SchoolRutgers UniversityNewarkUSA
  2. 2.Department of Management, CUHK Business SchoolThe Chinese University of Hong KongShatinHong Kong SAR
  3. 3.Henley Business SchoolUniversity of ReadingReadingUK

Personalised recommendations