Our study reveals the financial performance implications of the speed at which Chinese multinational enterprises (CMNEs) expand into intra-regional versus inter-regional host countries. In doing so, we propose a framework that integrates internationalization speed and home regionalization literatures. Using data from 767 publicly listed CMNEs from the years 2002 to 2014, we discover that the faster the intra-regional internationalization, the better the firm’s financial performance, whereas faster inter-regional internationalization demonstrates a poorer financial performance. We also find that fast-mover CMNEs’ technological and marketing resources are valuable in intra-regional host countries, but vulnerable in inter-regional host countries. We discuss the implications of these findings for studies of the Uppsala internationalization process model and regional MNEs.
Notre étude révèle les conséquences en termes de performance financière de la vitesse à laquelle les entreprises multinationales chinoises (EMNC) se développent dans les pays hôtes intrarégionaux et interrégionaux. Ce faisant, nous proposons un cadre intégrant les littératures sur la vitesse d’internationalisation et la régionalisation d’origine. En utilisant les données de 767 EMNC cotées en bourse de 2002 à 2014, nous découvrons que plus l’internationalisation intrarégionale est rapide, meilleure est la performance financière de la firme, alors que l’internationalisation interrégionale rapide démontre une performance financière plus modeste. Nous constatons également que les ressources technologiques et marketing des EMNC très mobiles sont utiles dans les pays hôtes intrarégionaux, mais vulnérables dans les pays hôtes interrégionaux. Nous discutons des implications de ces résultats pour les études du modèle processuel d’internationalisation d’Uppsala et des EMN régionales.
Nuestro estudio revela las repercusiones del desempeño financiero en la velocidad a la cual las empresas multinacionales chinas (CMNEs por sus iniciales en inglés) se expanden entre regiones versus entre países anfitriones de la misma región. Al hacerlo, proponemos un marco que integra las literaturas de velocidad de internacionalización y regionalización del origen. Usando datos de 767 las empresas multinacionales chinas que cotizan en bolsa de los años 2002 al 2014, descubrimos que cuanto más rápida sea la internacionalización intrarregional, menor es el desempeño financiero de la empresa, mientras que una internacionalización interregional demuestra un desempeño financiero más pobre. Encontramos también que los recursos tecnológicos y de mercadeo de rápido movimiento de las empresas multinacionales chinas son valiosos en países anfitriones de la misma región, pero son vulnerables en países anfitriones de otras regiones. Discutimos las implicaciones estos hallazgos para los estudios del modelo del proceso de internacionalización de Uppsala y las EMN regionales.
Nosso estudo revela as implicações no desempenho financeiro da velocidade com que as empresas multinacionais chinesas (CMNEs) se expandem para países anfitriões intraregionais versus inter-regionais. Ao fazê-lo, propomos um modelo que integra as literaturas sobre velocidade da internacionalização e regionalização doméstica. Usando dados de 767 CMNEs listadas de 2002 a 2014, descobrimos que quanto mais rápida a internacionalização intraregional, melhor o desempenho financeiro da empresa, enquanto a rápida internacionalização inter-regional apresenta um desempenho financeiro mais baixo. Também descobrimos que ágeis recursos tecnológicos e de marketing das CMNEs são valiosos nos países anfitriões intraregionais, mas vulneráveis nos países anfitriões inter-regionais. Discutimos as implicações dessas descobertas para estudos do modelo de processo de internacionalização de Uppsala e de MNEs regionais.
我们的研究揭示了中国跨国企业 (CMNEs) 向区域内与区域间东道国扩张的速度对财务绩效的影响。我们就此提出了一个框架来整合国际化速度和本国区域化文献。使用2002至2014年间767家公开上市的CMNE的数据, 我们发现区域内国际化越快, 公司的财务业绩就越好; 而区域间国际化越快, 则财务业绩就越差。我们还发现, 快速行动的CMNEs的技术和市场营销资源在区域内的东道国里很有价值, 但在区域间的东道国里则很脆弱。我们讨论了这些发现对乌普萨拉国际化进程模型和区域跨国企业 (MNEs) 研究的意义。
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Aguilera, R. V., Ciravegna, L., Cuervo-Cazurra, A., & Gonzalez-Perez, M. A. 2017. Multilatinas and the internationalization of Latin American firms. Journal of World Business, 52(4): 447–460.
Aguilera, R. V., Flores, R., & Kim, J. U. 2015. Re-examining regional borders and the multinational enterprise. Multinational Business Review, 23(4): 374–394.
Almeida, H., Campello, M., & Weisbach, M. S. 2004. The cash flow sensitivity of cash. Journal of Finance, 59(4): 1777–1804.
Ambos, T. C., Ambos, B., & Schlegelmilch, B. B. 2006. Learning from foreign subsidiaries: An empirical investigation of headquarters’ benefits from reverse knowledge transfers. International Business Review, 15(3): 294–312.
Arregle, J. L., Miller, T. L., Hitt, M. A., & Beamish, P. W. 2013. Do regions matter? An integrated institutional and semiglobalization perspective on the internationalization of MNEs. Strategic Management Journal, 34(8): 910–934.
Autio, E., Sapienza, H. J., & Almeida, J. G. 2000. Effects of age at entry, knowledge intensity, and imitability on international growth. Academy of Management Journal, 43(5): 909–924.
Banalieva, E. R., & Dhanaraj, C. 2013. Home-region orientation in international expansion strategies. Journal of International Business Studies, 44(2): 89–116.
Barkema, H. G., & Drogendijk, R. 2007. Internationalising in small, incremental or larger steps? Journal of International Business Studies, 38(7): 1132–1148.
Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of Management, 17(1): 99–120.
Bartlett, C. A., & Ghoshal, S. 1989. Managing across borders: The transnational solution. Boston, MA: Harvard Business School Press.
Bascle, G. 2008. Controlling for endogeneity with instrumental variables in strategic management research. Strategic Organization, 6(3): 285–327.
Berry, H., Guillén, M. F., & Zhou, N. 2010. An institutional approach to cross-national distance. Journal of International Business Studies, 41(9): 1460–1480.
Bettis, R. A., & Prahalad, C. K. 1995. The dominant logic: Retrospective and extension. Strategic Management Journal, 16(1): 916–930.
Birkinshaw, J., & Ridderstråle, J. 1999. Fighting the corporate immune system: A process study of subsidiary initiatives in multinational corporations. International Business Review, 8(2): 149–180.
Buckley, P. J., & Casson, M. C. 1976. The future of the multinational enterprise. London: Macmillan.
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(4): 499–518.
Buckley, P. J., Doh, J. P., & Benischke, M. H. 2017. Towards a renaissance in international business research? Big questions, grand challenges, and the future of IB scholarship. Journal of International Business Studies, 48(9): 1045–1064.
Buckley, P. J., & Ghauri, P. N. 2004. Globalisation, economic geography and the strategy of multinational enterprises. Journal of International Business Studies, 35(2): 81–98.
Casillas, J. C., & Moreno-Menéndez, A. M. 2014. Speed of the internationalization process: The role of diversity and depth in experiential learning. Journal of International Business Studies, 45(1): 85–101.
Casson, M. 1987. The firm and the market: Studies on the multinational enterprise and the scope of the firm. Cambridge, MA: MIT Press.
Caves, R. E. 1971. International corporations: The industrial economics of foreign investment. Economica, 38(149): 1–27.
Cavusgil, T. S., & Knight, G. A. 2015. The born global firm: An entrepreneurial and capabilities perspective on early and rapid internationalization. Journal of International Business Studies, 46(1): 3–16.
Certo, S. T., Busenbark, J. R., Woo, H.-S., & Semadeni, M. 2016. Sample selection bias and Heckman models in strategic management research. Strategic Management Journal, 37(13): 2639–2657.
Chang, S. J., & Rhee, J. H. 2011. Rapid FDI expansion and firm performance. Journal of International Business Studies, 42(8): 979–994.
Chetty, S., Johanson, M., & Martín, O. S. 2014. Speed of internationalization: Conceptualization, measurement and validation. Journal of World Business, 49(4): 633–650.
Child, J., & Rodrigues, S. B. 2005. The internationalization of Chinese firms: A case for theoretical extension? Management and Organization Review, 1(3): 381–410.
Cohen, W. M., & Levinthal, D. A. 1990. Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1): 128–152.
Collinson, S., & Rugman, A. M. 2008. The regional nature of Japanese multinational business. Journal of International Business Studies, 39(2): 215–230.
Collis, D. J. 1991. A resource-based analysis of global competition: The case of the bearings industry. Strategic Management Journal, 12(S1): 49–68.
Cuervo-Cazurra, A., & Genc, M. 2008. Transforming disadvantages into advantages: Developing-country MNEs in the least developed countries. Journal of International Business Studies, 39(6): 957–979.
Cuervo-Cazurra, A., Newburry, W., & Park, S. H. 2016. Emerging market multinationals: Managing operational challenges for sustained international growth. Cambridge: Cambridge University Press.
Cyert, R. M., & March, J. G. 1963. A Behavioral theory of the firm. Englewood Cliffs, NJ: Prentice-Hall.
Delios, A., & Beamish, P. W. 2005. Regional and global strategies of Japanese firms. Management International Review, 45(1): 19–36.
Deng, P. 2007. Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies. Business Horizons, 50(1): 71–81.
Dierickx, I., & Cool, K. 1989. Asset stock accumulation and sustainability of competitive advantage. Management Science, 35(12): 1504–1514.
Estrin, S., Meyer, K. E., & Pelletier, A. 2018. Emerging economy MNEs: How does home country munificence matter? Journal of World Business, 53(4): 514–528.
Fan, J. P., Wong, T. J., & Zhang, T. 2007. Politically connected CEOs, corporate governance, and Post-IPO performance of China’s newly partially privatized firms. Journal of Financial Economics, 84(2): 330–357.
Figueira-de-Lemos, F., Johanson, J., & Vahlne, J.-E. 2011. Risk management in the internationalization process of the firm: A note on the Uppsala model. Journal of World Business, 46(2): 143–153.
Flores, R., Aguilera, R. V., Mahdian, A., & Vaaler, P. M. 2013. How well do supranational regional grouping schemes fit international business research models. Journal of International Business Studies, 44(5): 451–474.
García-García, R., García-Canal, E., & Guillén, M. F. 2017. Rapid internationalization and long-term performance: The knowledge link. Journal of World Business, 52(1): 97–110.
Ghemawat, P. 2007. Redefining global strategy: Crossing borders in a world where differences still matter. Boston, MA: Harvard Business School Press.
Goerzen, A., & Asmussen, C. G. 2007. The geographic orientation of multinational enterprises and its implications for performance. Research in Global Strategic Management, 13, 65–83.
Greene, W. H. 2003. Econometric analysis. Upper Saddle River, NJ: Prentice Hall.
Guillén, M. F., & García-Canal, E. 2009. The American model of the multinational firm and the “new” multinationals from emerging economies. Academy of Management Perspectives, 23(2): 23–35.
Guillén, M. F., & García-Canal, E. 2010. How to conquer new markets with old skills. Harvard Business Review, 88(11): 118–122.
Gul, F. A., Kim, J. B., & Qiu, A. A. 2010. Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China. Journal of Financial Economics, 95(3): 425–442.
Hamilton, B. H., & Nickerson, J. A. 2003. Correcting for endogeneity in strategic management research. Strategic Organization, 1(1): 51–78.
Hastings, D. F. 1999. Lincoln Electric’s harsh lessons from international expansion. Harvard Business Review, 77(3): 162–178.
Hawk, A., Pacheco-de-Almeida, G., & Yeung, B. 2013. Fast-mover advantages: Speed capabilities and entry into the emerging submarket of Atlantic Basin LNG. Strategic Management Journal, 34(13): 1531–1550.
Heckman, J. J. 1979. Sample selection bias as a specification error. Econometrica, 47(1): 153–161.
Hennart, J.-F. 2007. The theoretical rationale for a multinationality-performance relationship. Management International Review, 47(3): 423–452.
Himmelberg, C. P., Hubbard, G., & Palia, D. 1999. Understanding the determinants of managerial ownership and the link between ownership and performance. Journal of Financial Economics, 53(3): 353–384.
Hitt, M. A., Hoskisson, R. E., & Kim, H. 1997. International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4): 767–798.
Hitt, M. A., Li, H., & Worthington, W. 2005. Emerging markets as learning laboratories: Learning behaviors of local firms and foreign entrants in different institutional contexts. Management and Organization Review, 1(3): 353–380.
Hoskisson, R. E., Eden, L., Lau, C. M., & Wright, M. 2000. Strategy in emerging economies. Academy of Management Journal, 43(3): 249–267.
Immelt, J. R., Govindarajan, V., & Trimble, C. 2009. How GE is disrupting itself. Harvard Business Review, 87(10): 56–65.
Jiang, R. J., Beamish, P. W., & Makino, S. 2014. Time compression diseconomies in foreign expansion. Journal of World Business, 49(1): 114–121.
Johanson, J., & Vahlne, J.-E. 1977. The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1): 23–32.
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.
Jones, G., Kanno, A., & Egawa, M. 2013. Making China beautiful: Shiseido and the China market. Harvard Business School Case No. 9–805–003.
Ketchen, D. J., Jr., Ireland, R. D., & Baker, L. T. 2013. The use of archival proxies in strategic management studies: Castles made of sand? Organizational Research Methods, 16(1): 32–42.
Kim, J. U., & Aguilera, R. V. 2015. The world is spiky: An internationalization framework for a semi-globalized world. Global Strategy Journal, 5(2): 113–132.
Kim, H., Hoskisson, R. E., & Lee, S. H. 2015. Why strategic factor markets matter: “New” multinationals’ geographic diversification and firm profitability. Strategic Management Journal, 36(4): 518–536.
La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. 1999. Corporate ownership around the world. Journal of Finance, 54(2): 471–517.
Le Breton-Miller, I., & Miller, D. 2015. The paradox of resource vulnerability: Considerations for organizational curatorship. Strategic Management Journal, 36(3): 397–415.
Leonard-Barton, D. 1992. Core capabilities and core rigidities: A paradox in managing new product development. Strategic Management Journal, 13(Summer Special Issue): 111–125.
Levinthal, D. A., & March, J. G. 1993. The myopia of learning. Strategic Management Journal, 13(Winter Special Issue): 95–112.
Levitt, B., & March, J. G. 1988. Organizational learning. Annual Review of Sociology, 14, 319–340.
Li, H., & Zhou, L.-A. 2005. Political turnover and economic performance: The incentive role of personnel control in China. Journal of Public Economics, 89(9/10): 1743–1762.
Lopez, L. E., Kundu, S. K., & Ciravegna, L. 2009. Born global or born regional? Evidence from an exploratory study in the Costa Rican software industry. Journal of International Business Studies, 40(7): 1228–1238.
Lu, J. W., & Beamish, P. W. 2004. International diversification and firm performance: The S-curve hypothesis. Academy of Management Journal, 47(4): 598–609.
Luo, Y., & Tung, R. L. 2007. International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4): 481–498.
Luo, Y., & Tung, R. L. 2018. A general theory of springboard MNEs. Journal of International Business Studies, 49(2): 129–152.
Luo, Y., Xue, Q., & Han, B. 2010. How emerging market governments promote outward FDI: Experience from China. Journal of World Business, 45(1): 68–79.
Madhok, A., & Keyhani, M. 2012. Acquisitions as entrepreneurship: Asymmetries, opportunities, and the internationalization of multinationals from emerging economies. Global Strategy Journal, 47(4): 598–609.
March, J. G. 1991. Exploration and exploitation in organizational learning. Organization Science, 2(1): 71–87.
Mathews, J. A. 2006. Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(1): 5–27.
Melewar, T. C., Meadows, M., Zheng, W., & Rickards, R. 2004. The influence of culture on brand building in the Chinese market: A brief insight. Brand Management, 11(6): 449–461.
Meyer, K. E. 2004. Perspectives on multinational enterprises in emerging economies. Journal of International Business Studies, 35(4): 259–276.
Meyer, K. E. 2005. What is “strategic asset seeking FDI”? Multinational Business Review, 23(1): 57–66.
Meyer, K. E. 2009. Motivating, testing, and publishing curvilinear effects in management research. Asia Pacific Journal of Management, 26(2): 187–193.
Meyer, K., van Witteloostuijn, A., & Beugelsdijk, S. 2017. What’s in a p? Reassessing best practices for conducting and reporting hypothesis-testing research. Journal of International Business Studies, 48(5): 535–551.
Miller, D., & Shamsie, J. 1996. The resource-based view of the firm in two environments: The Hollywood film studios from 1936 to 1965. Academy of Management Journal, 39(3): 519–543.
Monteiro, L. F. 2015. Selective attention and the initiation of the global knowledge-sourcing process in multinational corporations. Journal of International Business Studies, 46(5): 505–527.
Morales-Raya, M., & Bansal, P. 2015. Racing to the bottom: The negative consequences of organizational speed. Organizational Dynamics, 44(3): 226–235.
Morck, R., & Yeung, B. 1991. Why investors value multinationality. Journal of Business, 64(2): 165–187.
Mudambi, R., Li, L., Ma, X., Makino, S., Qian, G., & Boschma, R. 2018. Zoom in, zoom out: Geographic scale and multinational activity. Journal of International Business Studies, 49(8): 929–941.
Nelson, R., & Winter, S. 1982. An evolutionary theory of economic change. Cambridge, MA: Harvard University Press.
Osegowitsch, T., & Sammartino, A. 2008. Reassessing (home-)regionalisation. Journal of International Business Studies, 39(2): 184–196.
Oviatt, B. M., & McDougall, P. P. 1994. Toward a theory of international new ventures. Journal of International Business Studies, 25(1): 45–64.
Patel, P. C., Criaco, G., & Naldi, L. 2018. Geographic diversification and the survival of born-globals. Journal of Management, 44(5): 2008–2036.
Penrose, E. T. 1959. The theory of the growth of the firm. New York: Wiley.
Piotroski, J. D., & Zhang, T. 2014. Politicians and the IPO decision: The impact of impending political promotions on IPO activity in China. Journal of Financial Economics, 111(1): 111–136.
Priem, R. L., & Butler, J. E. 2001. Is the resource-based “view” a useful perspective for strategic management research? Academy of Management Review, 26(1): 22–40.
Qian, G., Khoury, T. A., Peng, M. W., & Qian, Z. 2010. The performance implications of intra- and inter-regional geographic diversification. Strategic Management Journal, 31(9): 1018–1030.
Ramamurti, R., & Hillemann, J. 2018. What is “Chinese” about Chinese multinationals? Journal of International Business Studies, 49(1): 34–48.
Rhyne, R. 1974. Technological forecasting within alternative whole futures projections. Technological Forecasting and Social Change, 6, 146–151.
Ronen, S., & Shenkar, O. 1985. Clustering countries on attitudinal dimensions: A review and synthesis. Academy of Management Review, 10(3): 435–454.
Rugman, A. M. 2005. The regional multinationals: MNEs and global strategic management. Cambridge: Cambridge University Press.
Rugman, A. M., & Verbeke, A. 2004. A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35(1): 3–18.
Rugman, A. M., & Verbeke, A. 2007. Liabilities of regional foreignness and the use of firm-level versus country-level data: A response to Dunning et al. (2007). Journal of International Business Studies, 38(1): 200–205.
Rui, H., & Yip, G. S. 2008. Foreign acquisitions by Chinese firms: A strategic intent perspective. Journal of World Business, 43(2): 213–226.
Sartori, A. E. 2003. An estimator for some binary-outcome selection models without exclusion restrictions. Political Analysis, 11(2): 111–138.
Sauvant, K. P., Pradhan, J. P., Chatterjee, A., & Harley, B. 2010. The rise of Indian multinationals. New York: Palgrave Macmillan.
Scherer, F. M. 1967. Research and development resource allocation under rivalry. Quarterly Journal of Economics, 81(3): 359–394.
Schoonhoven, C. B., Eisenhardt, K. M., & Lyman, K. 1990. Speeding products to market: Waiting time to first product introduction in new firms. Administrative Science Quarterly, 35(1): 177–207.
Sőlvell, Ő. 2006. Volvo trucks (A): Penetrating the U.S. market. Harvard Business School Case No. 7–702–418.
Song, J., & Shin, J. 2008. The paradox of technological capabilities: A study of knowledge sourcing from host countries of overseas R&D operations. Journal of International Business Studies, 39(2): 291–303.
Stadler, C., Mayer, M., & Hautz, J. 2015. Global growth, paltry returns. Harvard Business Review, 93(6): 28.
Stalk, G. 1988. Time: The next source of competitive advantage. Harvard Business Review, 66(4): 41–51.
Szulanski, G., & Jensen, R. J. 2006. Presumptive adaptation and the effectiveness of knowledge transfer. Strategic Management Journal, 27(10): 937–957.
Teece, D. J. 2014. A dynamic capabilities-based entrepreneurial theory of the multinational enterprise. Journal of International Business Studies, 45(1): 8–37.
Vahlne, J.-E., & Johanson, J. 2017. From internationalization to evolution: The Uppsala model at 40 years. Journal of International Business Studies, 48(9): 1087–1102.
Verbeke, A., & Asmussen, C. G. 2016. Global, local, or regional? The locus of MNE strategies. Journal of Management Studies, 53(6): 1051–1075.
Verbeke, A., & Kano, L. 2015. The new internalization theory and multinational enterprises from emerging economies: A business history perspective. Business History Review, 89(3): 415–445.
Vermeulen, F., & Barkema, H. 2002. Pace, rhythm, and scope: Process dependence in building a profitable multinational corporation. Strategic Management Journal, 23(7): 637–653.
Vesey, J. T. 1991. The new competitors: They think in terms of ‘speed-to-market’. Academy of Management Executive, 5(2): 23–33.
Walder, A. G. 1995. Local governments as industrial firms: An organizational analysis of China’s transitional economy. American Journal of Sociology, 101(2): 263–301.
Whitler, K. A. 2019. What Western markets can learn from China. Harvard Business Review, 97(3): 74–82.
Williamson, P. J. 2016. Building and leveraging dynamic capabilities: Insights from accelerated innovation in China. Global Strategy Journal, 6(3): 197–210.
Wooldridge, J. M. 2009. Introductory econometrics: A modern approach (4th ed.). Mason, OH: South-Western.
Yang, J. Y., Lu, J., & Jiang, R. 2017. Too slow or too fast? Speed of FDI expansions, industry globalization, and firm performance. Long Range Planning, 50(1): 74–92.
Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38(2): 341–363.
Zahra, S. A., Ireland, R. D., & Hitt, M. A. 2000. International expansion by new venture firms: International diversity, mode of market entry, technological learning, and performance. Academy of Management Journal, 43(5): 925–950.
Zahra, S. A., Zheng, C., & Yu, J. 2018. Learning advantages of newness: A reconceptualization and contingent framework. Journal of International Entrepreneurship, 16(1): 12–37.
Zheng, W., Singh, K., & Mitchell, W. 2015. Buffering and enabling: The impact of interlocking political ties on firm survival and sales growth. Strategic Management Journal, 36(11): 1615–1636.
Zhong, W., Lin, Y., Gao, D., & Yang, H. 2019. Does politician turnover affect foreign subsidiary performance? Evidence in China. Journal of International Business Studies, 50(7): 1184–1212.
We thank Area Editor Klaus Meyer and three anonymous reviewers for their insightful and constructive comments on earlier drafts. This research was supported by grants from National Natural Science Foundation of China (No. 71728003) and University of Macau MYRG (No. MYRG 2016-00207-FBA/MYRG2018-00171-FBA) to the second author.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Accepted by Klaus Meyer, Area Editor, 30 September 2019. This article has been with the authors for three revisions.
Heckman-Type Two-Stage Estimation Procedure
The endogeneity of internationalization speed per se may not be a serious problem partly because predetermined variables are used to operationalize this construct and partly because our analyses use a time lag structure (Wooldridge, 2009). As the denominator of the independent variable in all analyses, international experience partially resolves reverse causality and corrects for omitted variables. The reason is that it is unlikely that firm performance or any omitted variable of importance causes changes in international experience, which automatically accumulates over time. In addition, as the denominator of the independent variable, the cumulative number of a focal MNE’s foreign subsidiaries may be less influenced by firm performance. Specifically, the number of foreign subsidiaries established in the past cannot be the result of any change in firm performance in the current year, meaning that this number will not be correlated with the error term at time t. In fact, García-García et al. (2017) empirically confirm that internationalization speed is not endogenous to firm performance.
However, sample selection bias can occur when firms in our sample can be endogenously self-selected. Accordingly, our study runs the ordered probit regression in Heckman’s first-stage selection model, where purely domestic firms (i.e., firms competing at home only) are coded 0, CMNEs expanding within the home region only are coded 1, and CMNEs expanding outside the home region are coded 2. We rank these three decisions alternatives based on their performance implications. Compared to CMNEs, purely domestic Chinese firms are unlikely to face the liability of foreignness, that is, incur the costs of doing business abroad (Zaheer, 1995), thereby avoiding all flawed and ill-fated globalization strategies in the first place. In fact, Stadler, Mayer and Hautz (2015), analyzing 20 years’ worth of financial results for 20,000 firms headquartered in 30 countries, document that firms staying at home see bigger profits than firms going global. Of course, in reality, many Chinese firms ultimately engage in the race to globalize and develop gradually, especially from domestic firms to CMNEs. As Rugman and Verbeke (2007) point out, however, not all CMNEs are affected by the same liabilities of regional foreignness. CMNEs expanding within the home region only are likely to face the liability of intra-regional foreignness, whereas CMNEs expanding outside the home region are likely to face the liability of inter-regional foreignness; accordingly, the latter are likely to incur the greater costs of doing business abroad and hence yield lower performance at least in the short run than are the former. Taken together, all other things being equal, the managerial decisions to become purely domestic firms relative to CMNEs to expand intra-regionally versus inter-regionally may not be made randomly because of the performance implications of these decisions.
The first-stage selection model requires at least one exclusion restriction to improve the validity of the results of the Heckman models (Sartori, 2003). The exclusion restriction, which is conceptually similar to an instrumental variable, appears in the first-stage selection model, only to predict whether an observation appears in a sample so that it should be highly correlated with the dependent variable in the first-stage selection model, but uncorrelated with the second-stage error term. In our study, we use a provincial governor’s tenure, measured as the number of years since the provincial governor was inaugurated, as an exclusion restriction.
In China, provincial governors, who are not elected but appointed by the central government, may have political incentives to exert a significant influence on the investment location decisions of Chinese firms, as they are held responsible for provincial economic performance. It is important to note that Chinese provincial governors generally retire from their positions unless they are promoted to higher positions such as central government ministry-level positions and provincial party secretaries. In particular, previous research has found that provincial governors with shorter tenures are more likely than their counterparts with longer tenures to be promoted based largely on local economic performance (Li & Zhou, 2005). Hence, a newly appointed governor might aggressively pursue new initiatives and policies that foster local economic growth and market development activities in the province in which he or she governs so that he or she is rewarded in advance of the promotion events (Piotroski & Zhang, 2014). Additionally, the newly appointed politician is willing to protect his or her local Chinese firms’ interests, while also preventing all firms, Chinese and foreign, transferring profits away from his or her jurisdictional control. In such politically uncertain situations, foreign firms indeed suffer a severe decline in performance as their liability of foreignness is heightened (Zhong, Lin, Gao, & Yang, 2019). It is then in the best interest of the Chinese firm to invest for growth at home rather than abroad.
While provincial governors have increasing autonomy in using their power, it does not mean that they shall adamantly refuse to implement national policies (Walder, 1995). Most prominent may be the central government-led “go global” policy formally declared in 2000 (Luo, Xue, & Han, 2010). This policy requires that provincial governors transform Chinese firms, many of which are SOEs controlled by provincial governments, into global champions by assisting their internationalization efforts and foreign market development activities (Deng, 2007; Luo & Tung, 2007). In fact, the extent to which Chinese firms are internationalized during a governor’s tenure can be used as an indicator of the province’s economic openness and globalization (Buckley et al., 2007; Luo et al., 2010). It is therefore important that provincial governors embrace outward FDI, especially strategic asset-seeking FDI, during their tenures. In this regard, Chinese provincial governors with longer tenure in their positions may develop the tenacity and risk control ability to facilitate strategic asset-seeking inter-regional internationalization relative to asset-exploitation intra-regional internationalization. It is also critical for CMNEs to receive stronger support, both politically and financially, from a provincial governor with tenure power, for their inter-regional internationalization that is in and of itself complex, uncertain, and expensive (Deng, 2007).
Taken together, we predict that as the tenure of a provincial governor continues, some Chinese firms operating in the governor’s province have heightened incentives to transform themselves from predominantly domestic firms into CMNEs, some of which in turn decide to operate outside the home region. However, the provincial governor’s tenure per se is not likely to have a direct effect on financial performance, thereby becoming valid, or exogenous, and satisfying the exclusion restriction.
About this article
Cite this article
Kim, H., Wu, J., Schuler, D.A. et al. Chinese multinationals’ fast internationalization: Financial performance advantage in one region, disadvantage in another. J Int Bus Stud 51, 1076–1106 (2020). https://doi.org/10.1057/s41267-019-00279-9
- internationalization speed
- fast-mover (dis)advantages
- home regionalization
- financial performance
- Chinese multinational enterprises