518 P.Deng addition,RBTpredictive power may depend on the comparative resource endow- ments of Chinese investors at home and their adaptive capabilities in host country environments,so that some researchers empirically examine the boundaries,allow- ing RBT to predict catch-up strategies (Liang,L,Wang,2012;L,Zhou Bruton,&Li,2010).Finally,international acquisition may have become more prevalent for Chinese firms to strengthen their domestic competitive bases(Luo Wang,2012;Williamson Raman,2011).To the extent that Chinese firms acquire to catch up with well-established competitors,they have the incentive to preserve the target to learn from it.Yet,research is minimal applying the relevan theories of organizational learning for knowledge transfer and capability enhance- ment,which creates opportunities to further refine the latecomer perspective. In short,the lateco mer logic claiming that Chinese firms inte tionalize to address their competitive weaknesses has become so accepted that it is less rigor ously explored and tested than it could be.Thus,a large gap remains in under- standing Chinese strategies in seeking assets and the implications for theoretical perspective has failed to fully predict or explain Chinese OFDI and the Role of Government and State Multinationals from emerging economies are constrained by institutional contexts of state interference,piecemeal economic reform,and gradual institutional evolu- tion (Tsui,Schoonhoven,Meyer,Lau,Milkovich,2004).The process of inter- nationalization of Chinese firms 'strongly suggests that international business theory needs to take fuller account of the potential relevance of domestic institu- tional factors'(Child Rodrigues,2005:404).However,government's institu- tional role does not differentiate clearly the relation of entrepreneurs and does theoretical and emprical works Thi article reconfigures the role of government more broadly to include state owner- ship and influence as the second stream of research to better account for the publications in area study and international journals focusing on the global rel evance of outward investment,particularly by Chinese state-owned enterprises (SOEs). Articles published in the past 12 years have regarded government support as a main driver of Chinese OFDI Using the political economy perspectiv scholars examine why and how Chinese government stimulates OFDI(Deng,2004;Luo. Xue,Han,2010).They argue that OFDI promotion policies are economically imperative and institutionally complementary to offsetting the competitive weak- ness of Chinese MNCs in global competition.Chinese acquiring firms differed in ownership but all benefited significantly from government support at critical stages in their international efforts and their asset acquisition(Wang,2002;Warner et al.,2004).China's huge foreign exchange reserves,which by the end of 2012 had 2013 The International Asociation for Chinese Management Research
addition, RBT predictive power may depend on the comparative resource endowments of Chinese investors at home and their adaptive capabilities in host country environments, so that some researchers empirically examine the boundaries, allowing RBT to predict catch-up strategies (Liang, Lu, & Wang, 2012; Lu, Zhou, Bruton, & Li, 2010). Finally, international acquisition may have become more prevalent for Chinese firms to strengthen their domestic competitive bases (Luo & Wang, 2012; Williamson & Raman, 2011). To the extent that Chinese firms acquire to catch up with well-established competitors, they have the incentive to preserve the target to learn from it. Yet, research is minimal applying the relevant theories of organizational learning for knowledge transfer and capability enhancement, which creates opportunities to further refine the latecomer perspective. In short, the latecomer logic claiming that Chinese firms internationalize to address their competitive weaknesses has become so accepted that it is less rigorously explored and tested than it could be. Thus, a large gap remains in understanding Chinese strategies in seeking assets and the implications for theoretical extensions. After all, the latecomer perspective has failed to fully predict or explain Chinese MNC international activities. Chinese OFDI and the Role of Government and State Multinationals from emerging economies are constrained by institutional contexts of state interference, piecemeal economic reform, and gradual institutional evolution (Tsui, Schoonhoven, Meyer, Lau, & Milkovich, 2004). The process of internationalization of Chinese firms ‘strongly suggests that international business theory needs to take fuller account of the potential relevance of domestic institutional factors’ (Child & Rodrigues, 2005: 404). However, government’s institutional role does not differentiate clearly the relation of entrepreneurs and institutions, nor does it account for recent theoretical and empirical works. This article reconfigures the role of government more broadly to include state ownership and influence as the second stream of research to better account for the publications in area study and international journals focusing on the global relevance of outward investment, particularly by Chinese state-owned enterprises (SOEs). Articles published in the past 12 years have regarded government support as a main driver of Chinese OFDI. Using the political economy perspective, scholars examine why and how Chinese government stimulates OFDI (Deng, 2004; Luo, Xue, & Han, 2010). They argue that OFDI promotion policies are economically imperative and institutionally complementary to offsetting the competitive weakness of Chinese MNCs in global competition. Chinese acquiring firms differed in ownership but all benefited significantly from government support at critical stages in their international efforts and their asset acquisition (Wang, 2002; Warner et al., 2004). China’s huge foreign exchange reserves, which by the end of 2012 had 518 P. Deng © 2013 The International Association for Chinese Management Research
Advancing Theories from Chinese OFDI 519 surged to $3.5 trillion,also facilitate government support,leading to rising state- controlled investments(Cheung Qian,2009).The state influence is evident in that the majority of China's OFDI is conducted by SOEs,accou ng for approxi- mately 80%of Chinese cumulative investment stock (UNCTAD.2013).State dominance means that a mix of political and commercial interests governs Chinese investment decisions,thus fuelling concern about national security risks for host countries. The dramatic rise in Chinese FDI has sparked intense political,economic,and developmental debates in the global community regarding active state involvement by the thesis of state corp ratism (Sauvant,McAllisteer,&Maschek, 2010:Yeung&Liu,2008).Some scholars argue that the sharp growth of Chinese investment is the outcome of the Chinese state's 'going-out'strategy to serve its national development priorities (Song,Yang,Zhang,2011).Empirical studies show that the Chin nt tend to use its tments as the main channels of commercial and political interactions to build diplomatic bridges across countries and secure goodwill for other projects that might be in China's national interests (Brautigam Tang,2011;Jiang,2009).By analyzing cross- border FDI in the Great Mekong subregion,Su (2012)explores how the Chines state rescales to implement the go-out strategy and provides a good example of the political-economic restructuring of national states in producing new spaces of development for its landlocked Yunnan Province.Most researchers argue that investment by Chinese firms with support and subsidies from theirdevelopmental state'provides a promising new approach to sustainable industrialization,particu- larly in Africa(see,e.g.,Biggeri Sanfilippo,2009;Brautigam,2009).On the other hand,som scholars ntend that the economic and political context sur- rounding Chinese FDI undermines the effectiveness of environmental and social regulation in the host countries(see,e.g.,Haglund,2008;Sautman Yan,2008). China's OFDI is a complex phenomenon incorporating numerous economic and political dimensions,thereby generating location patt erns that are not neces sarily for profit maximization (Kang Jiang,2012;Liou,2009;Ramasamy, Yeung,Laforet,2012).Chinese SOEs are often attracted to countries with great natural resources (Duanmu,2012;Kolstad Wiig,2012).Compared with peers who lack controlling state equity,Chinese SOEs are less concerned about the political risk of the host country and are more responsive to favourable exchange rates(Voss,Buckley,Cross,2010).As SOEs appear to pursue complex and costly in explaining Chinese OFDI with strong state ownership and involvement(Al Chang,Fetscherin,Lattemann,McIntyre,2009;Quer,Claver,Rienda,2012). In considering the government's role in Chinese internationalization,institu- tional theory dominates.The role of the Chinese government in promoting and enabling OFDI essentially reflects institutional entrepreneurship.To expand current theorizing,institutional studies could incorporate the political-economic 2013 The International Association for Chinese Management Research
surged to $3.5 trillion, also facilitate government support, leading to rising statecontrolled investments (Cheung & Qian, 2009). The state influence is evident in that the majority of China’s OFDI is conducted by SOEs, accounting for approximately 80% of Chinese cumulative investment stock (UNCTAD, 2013). State dominance means that a mix of political and commercial interests governs Chinese investment decisions, thus fuelling concern about national security risks for host countries. The dramatic rise in Chinese FDI has sparked intense political, economic, and developmental debates in the global community regarding active state involvement envisioned by the thesis of state corporatism (Sauvant, McAllisteer, & Maschek, 2010; Yeung & Liu, 2008). Some scholars argue that the sharp growth of Chinese investment is the outcome of the Chinese state’s ‘going-out’ strategy to serve its national development priorities (Song, Yang, & Zhang, 2011). Empirical studies show that the Chinese government tends to use its investments as the main channels of commercial and political interactions to build diplomatic bridges across countries and secure goodwill for other projects that might be in China’s national interests (Brautigam & Tang, 2011; Jiang, 2009). By analyzing crossborder FDI in the Great Mekong subregion, Su (2012) explores how the Chinese state rescales to implement the go-out strategy and provides a good example of the political–economic restructuring of national states in producing new spaces of development for its landlocked Yunnan Province. Most researchers argue that investment by Chinese firms with support and subsidies from their ‘developmental state’ provides a promising new approach to sustainable industrialization, particularly in Africa (see, e.g., Biggeri & Sanfilippo, 2009; Brautigam, 2009). On the other hand, some scholars contend that the economic and political context surrounding Chinese FDI undermines the effectiveness of environmental and social regulation in the host countries (see, e.g., Haglund, 2008; Sautman & Yan, 2008). China’s OFDI is a complex phenomenon incorporating numerous economic and political dimensions, thereby generating location patterns that are not necessarily for profit maximization (Kang & Jiang, 2012; Liou, 2009; Ramasamy, Yeung, & Laforet, 2012). Chinese SOEs are often attracted to countries with great natural resources (Duanmu, 2012; Kolstad & Wiig, 2012). Compared with peers who lack controlling state equity, Chinese SOEs are less concerned about the political risk of the host country and are more responsive to favourable exchange rates (Voss, Buckley, & Cross, 2010). As SOEs appear to pursue complex and costly investment initiatives and frequently make risky acquisitions, theories are limited in explaining Chinese OFDI with strong state ownership and involvement (Alon, Chang, Fetscherin, Lattemann, & McIntyre, 2009; Quer, Claver, & Rienda, 2012). In considering the government’s role in Chinese internationalization, institutional theory dominates. The role of the Chinese government in promoting and enabling OFDI essentially reflects institutional entrepreneurship. To expand current theorizing, institutional studies could incorporate the political–economic Advancing Theories from Chinese OFDI 519 © 2013 The International Association for Chinese Management Research
520 P.Deng approach.For a multi-theoretic view of Chinese government and state,researchers need to incorporate resource dependence theory(RDT)to understand the role of government (Hillman,Withers,Collins,2009).State ownership creates the political affiliation of Chinese MNCs with their home country government which increases firms'resource dependence on home country institutions,whil influencing their images as perceived by host country institutional constituents Such resource dependence and political perception could fundamentally shape the investment patterns and motives of Chinese SOEs.Because the prevailing theories focus on privately owned organizations,a fruitful research stream might be to consider how and to what extent Chinese state ownership might advance theories of FDI and firm conduct in the global landscape. Chinese OFDI and the Dynamics of Firms and Institutions Scholars also examine interactions between firms and institutions in shaping the nvesting firms.At this micro eent ho advnc n based arguments with respect to strategic options (see,e.g.,Luo Rui,2009) From this perspective,although the same strategic factors that apply to Western companies may explain the motivation for OFDI by Chinese MNC their strateg choices regarding the pattern of internationalization will be institutionally embed ded (Child Rodrigues,2005). In examining the dynamic interaction between firms and institutions driving Chinese OFDI,scholars have adopted the strategy tripod'framework,whic considers the strategic choices of Chinese MNCs as the outcome of the interplay between institutions and organizations(Peng,2012;Yamakawa,Peng,Deeds 2008).A number of studies e mpirically supp port the s tripod perspective(see egLu,Liu,&Wang,2011;Yang,Jiang,Kang&Ke,2009a)A major advantage of the strategic tripod is that researchers may consider different analysis levels firm,industry,and country-and distinguish among different sources.However, different meas ments of dependent,independent,and gene conflicting empirical findings.Additionally,scholars adopting the strategic tripod lens tend to overemphasize the institutional elements,so the complex interplay between dimensions of strategic choices has been rarely tested rigorously.Without a balanced consideration of the three components,the explanatory power of the strategy tripod perspective could be another version of institutional theory. Responding to domestic market failure in various forms.several scholars have investigated Chinese MNCs for strategic options at the micro firm-level,based on resource e,institution,and transaction cost considerations.For example forma institutional constraints,such as weak intellectual property rights(IPR)and ineffi- cient legal frameworks discourage Chinese firms from pursuing R&D and innova- tion in China.Unable to domestically develop technology,they use OFDI as an 2013 The International Asociation for Chinese Management Research
approach. For a multi-theoretic view of Chinese government and state, researchers need to incorporate resource dependence theory (RDT) to understand the role of government (Hillman, Withers, & Collins, 2009). State ownership creates the political affiliation of Chinese MNCs with their home country government, which increases firms’ resource dependence on home country institutions, while influencing their images as perceived by host country institutional constituents. Such resource dependence and political perception could fundamentally shape the investment patterns and motives of Chinese SOEs. Because the prevailing theories focus on privately owned organizations, a fruitful research stream might be to consider how and to what extent Chinese state ownership might advance theories of FDI and firm conduct in the global landscape. Chinese OFDI and the Dynamics of Firms and Institutions Scholars also examine interactions between firms and institutions in shaping the behaviour, organization, and strategies of Chinese investing firms. At this micro firm-level analysis, management scholars advance both institutional and resourcebased arguments with respect to strategic options (see, e.g., Luo & Rui, 2009). From this perspective, although the same strategic factors that apply to Western companies may explain the motivation for OFDI by Chinese MNCs, their strategic choices regarding the pattern of internationalization will be institutionally embedded (Child & Rodrigues, 2005). In examining the dynamic interaction between firms and institutions driving Chinese OFDI, scholars have adopted the ‘strategy tripod’ framework, which considers the strategic choices of Chinese MNCs as the outcome of the interplay between institutions and organizations (Peng, 2012; Yamakawa, Peng, & Deeds, 2008). A number of studies empirically support the strategy tripod perspective (see, e.g., Lu, Liu, & Wang, 2011; Yang, Jiang, Kang, & Ke, 2009a). A major advantage of the strategic tripod is that researchers may consider different analysis levels – firm, industry, and country – and distinguish among different sources. However, different measurements of dependent, independent, and control variables generate conflicting empirical findings. Additionally, scholars adopting the strategic tripod lens tend to overemphasize the institutional elements, so the complex interplay between dimensions of strategic choices has been rarely tested rigorously. Without a balanced consideration of the three components, the explanatory power of the strategy tripod perspective could be another version of institutional theory. Responding to domestic market failure in various forms, several scholars have investigated Chinese MNCs for strategic options at the micro firm-level, based on resource, institution, and transaction cost considerations. For example, formal institutional constraints, such as weak intellectual property rights (IPR) and ineffi- cient legal frameworks discourage Chinese firms from pursuing R&D and innovation in China. Unable to domestically develop technology, they use OFDI as an 520 P. Deng © 2013 The International Association for Chinese Management Research
Advancing Theories from Chinese OFDI 521 alternative to acquire strategic resources not easily developed in China (Deng, 2009).From this apect,Chinese OFDI may be from perceived misalignment between firms (Luo et al..2010).In addition,fragmentation of the Chinese economy at provincial and city levels has imposed substantial costs on domestic firms so that they prefer investing overseas if it is more expensive to do business across local boundaries than to go abroad (Boisot&Meyer,2008).Similarly,international expansion may signify that more Chinese MNCs are determined to escape domestic limita- tions and competitive disadvantages incurred by operating exclusively at home (Gao,Liu,Zou,2013;Liu,Wen,Huans 2008).Further more. several researchers found that large,well-connected Chinese firms benefit most from institutional advantages (see,e.g.,Voss et al.,2010),but smaller firms appear to rely more heavily on overseas networks because of institutional constraints (Lin. 2010:Zhou,2007) Although research has added considerable understanding of how Chinese inves- tors actively respond to different insttutional constraints,research is lacking on corporate political activities for Chinese firms,and understanding business- political linkages is limited:how do Chinese firms shape or reshape government policies toward OFDI,and how do they subsequently respond or react to them once the policies are formulated?Additionally,knowing the concurrent process of policymaking is important because it helps firms identify the political,institu- tional,or process areas they can influence.Currently,work has failed toexamine the reciprocal nature of interdependency that may jointly influence Chinese OFDI and ongoing corporate political activities.Therefore,scholars may use a co-evolutionar perspective(Lewin Volberda,1999)as an effective framework for analyzing Chinese cross-border acquisitions as it allows for entrepreneurial initiative in the negotiation of evolving policies that change both contexts and firms.As the specificities of Chinese environments may generate institutionally distinct MNCs that follow different evolutionary tra ries from developed MNCs,scholars may find it productive to conceptualize the co-evolution lens as multilateral and socially constructed(Child,Rodrigues,Tse,2012;Krug Hendrischke,2008),thereby enabling a better understanding of how this o-evolution affects the growth and expansion of Chinese MNCs In sum,as with other research streams,this paper augments one theory with other theoretical approaches to explain the dynamic nature of Chinese firms and institutions.Moreov er,the strategic tripod lens is a multilevel analysis considering three analysis levels;however,the critical micro-level variables-individual and groups-have been ignored.To look more closely at the interactions of institu- tional and strategic choices of Chinese firms at truly multiple levels,we must (Buckley et al.,2007). 2013 The International Association for Chinese Management Research
alternative to acquire strategic resources not easily developed in China (Deng, 2009). From this aspect, Chinese OFDI may be from perceived misalignment between firms’ needs and the home country institutional and market conditions (Luo et al., 2010). In addition, fragmentation of the Chinese economy at provincial and city levels has imposed substantial costs on domestic firms so that they prefer investing overseas if it is more expensive to do business across local boundaries than to go abroad (Boisot & Meyer, 2008). Similarly, international expansion may signify that more Chinese MNCs are determined to escape domestic limitations and competitive disadvantages incurred by operating exclusively at home (Gao, Liu, & Zou, 2013; Liu, Wen, & Huang, 2008). Furthermore, several researchers found that large, well-connected Chinese firms benefit most from institutional advantages (see, e.g., Voss et al., 2010), but smaller firms appear to rely more heavily on overseas networks because of institutional constraints (Lin, 2010; Zhou, 2007). Although research has added considerable understanding of how Chinese investors actively respond to different institutional constraints, research is lacking on corporate political activities for Chinese firms, and understanding business– political linkages is limited: how do Chinese firms shape or reshape government policies toward OFDI, and how do they subsequently respond or react to them once the policies are formulated? Additionally, knowing the concurrent process of policymaking is important because it helps firms identify the political, institutional, or process areas they can influence. Currently, work has failed to examine the reciprocal nature of interdependency that may jointly influence Chinese OFDI and ongoing corporate political activities. Therefore, scholars may use a co-evolutionary perspective (Lewin & Volberda, 1999) as an effective framework for analyzing Chinese cross-border acquisitions as it allows for entrepreneurial initiative in the negotiation of evolving policies that change both contexts and firms. As the specificities of Chinese environments may generate institutionally distinct MNCs that follow different evolutionary trajectories from developed MNCs, scholars may find it productive to conceptualize the co-evolution lens as multilateral and socially constructed (Child, Rodrigues, & Tse, 2012; Krug & Hendrischke, 2008), thereby enabling a better understanding of how this co-evolution affects the growth and expansion of Chinese MNCs. In sum, as with other research streams, this paper augments one theory with other theoretical approaches to explain the dynamic nature of Chinese firms and institutions. Moreover, the strategic tripod lens is a multilevel analysis considering three analysis levels; however, the critical micro-level variables – individuals and groups – have been ignored. To look more closely at the interactions of institutional and strategic choices of Chinese firms at truly multiple levels, we must incorporate micro-level managerial intentionality and organization decisionmaking processes, logically extending general FDI theory to a specific context (Buckley et al., 2007). Advancing Theories from Chinese OFDI 521 © 2013 The International Association for Chinese Management Research