Journal of International Business Studies
Firms and governments operate in broad networks in which the home government and its diplomatic service are a critical node – or a “referral point” – between firms and potential partners in foreign locations. Thus diplomatic relations between countries matter for the choice of foreign investment location. Using a network perspective, we argue that the extent to which good diplomatic relations induce firms to invest in friendly host countries depends on their political connections to home governments. Those with stronger ties to home governments can better access and leverage intergovernmental diplomatic connections, thus benefiting potentially from enhanced access to information, reduced political risks, and increased legitimacy. Such ability of politically connected firms is more useful where weak institutional impartiality in the host country inhibits neutral treatment of foreign investors. Empirically, using overseas investment location decisions by Chinese firms, we find that the types of home government ties (i.e., whether they are organizational or personal and whether those relationships are with central or local goverments) and the impartiality of host institutions are both important contingencies affecting firms’ utilization of diplomatic relations. We discuss the implications of our study to research on network theory, political ties, and internationalization of emerging market firms.
foreign location choice
CEIBS Vice President and Dean Yuan Ding gives a sneak preview of his keynote speech at the upcoming 2nd CEIBS Hong Kong Forum. He will provide tips and suggestions on how businesses can benefit from Chinese mergers and acquisitions and the general flow of capital out of the country.
International Journal of Emerging Markets
The purpose of this paper is to contribute to the literature on institutional complexity by highlighting patterns of strategic behaviors of SMEs in institutional environments undergoing large scale transitions.
The paper uses five in-depth case studies of medium-sized enterprises in the Yangtze River Delta region to study their behaviors over the 2000-2012 period during which the institutional landscape in China underwent major changes.
The authors find that when institutional complexity is high, i.e., when neither the planned economy nor the market economy logic dominates, the role of organizational filters is more pronounced. In this situation, firm-level characteristics – its revenues and profitability, its competitive position and future prospects – play a dominant role in determining the nature of the strategic decisions and actions the firm undertakes.
The findings provide a nuanced perspective on strategic behaviors under institutional complexity. The qualitative research design offers rich insights but limited generalizability.
The findings offer practical insights to SME leaders in terms of exercising caution in undertaking unrelated diversification during periods of transition from planned to market economies.
The authors apply the concepts of institutional complexity and organizational filters in a context of large scale institutional transitions to study the strategic behaviors of SMEs over a 12 year period.