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THE PUSH AND PULL EFFECTS OF GOVERNMENT POLICIES ON CHINESE OUTWARD FOREIGN DIRECT

INVESTMENT – A LITERATURE REVIEW

Dirk HOLTBRÜGGE University of Erlangen-Nürnberg, Germany

[email protected]

Sue Claire BERNING University of Erlangen-Nürnberg, Germany

[email protected]

ABSTRACT

In this paper we explore the relevance of government support research for outward foreign direct investment (OFDI) of Chinese firms. A literature review of 67 articles in 16 international peer-reviewed academic journals published between 1986 and 2012 finds that government poli12cies have a strong impact on the amount, direction and form of Chinese OFDI. We identify two forces of government support, namely institutional escapism and government promotion, and discuss their relevance for pri-vate and state-owned firms. The paper ends with a summary of its main contributions, limitations and directions for future research. Keywords: Relevance, institutionalism, literature review, institutional escapism, gov-ernment promotion, Chinese MNEs

The Push and Pull Effects of Government Policies on Chinese OFDI 2

1. INTRODUCTION

In addition to the vast amount of foreign firms’ activities in China, which has made the country the world´s second largest recipient of foreign direct investment (FDI) since 1992, Chinese outward foreign direct investment (OFDI) has become an im-portant phenomenon in recent years. While in the 1990s, China annually attracted FDI inflows of USD 29 billion on average, but contributed less than USD 2.5 billion to global outflows (UNCTAD, 2011), the announcement of the ‘Go Global’ policy in 2000 marked a significant turning point in the development of Chinese OFDI. Once former Premier Wen Jaibao declared the explicit encouragement of the Chinese gov-ernment for more enterprises to internationalize, the pace of Chinese OFDI began to rise, with foreign acquisitions doubling from 40 in 2003 to 82 in 2006 and reaching a high of 298 in 2009 or some USD 73.2 billion (Alon, et al. 2011). In 2010, Chinese OFDI reached 68.81 billion, which meant an increase of 21.7% compared to the previous year. By the end of 2010, more than 13,000 Chinese firms had established around 16,000 foreign subsidiaries, spreading globally to 178 coun-tries. Figure 1 illustrates China's OFDI flows and stock since the establishment of the OFDI Statistics System in 2002.

Figure 1. Chinese OFDI flows and stock (Source: 2010 Statistical Bulletin of China’s

Outward Foreign Direct Investment) Parallel to the globalization of Chinese enterprises, the academic literature relating to the phenomenon of accelerating Chinese OFDI grew considerably. While comparing the internationalization of Chinese firms and that of firms from other countries, some authors outline unique Chinese characteristics concerning the determinants and moti-vations for OFDI (e.g., Ramasamy, et al. 2012; Buckley, et al. 2008; He & Lyles, 2008). In particular, the active role of the Chinese government is often mentioned as a decisive factor (e.g., Wei, 2010; Luo, et al. 2009). However, existing research of the role of the Chinese government for Chinese OFDI is ambiguous. While some authors conclude that government support is only relevant for a minority of Chinese firms, others regard this as the major difference between Chinese OFDI and the internation-alization patterns of Western firms (e.g., Alon, et al. 2011; Barney & Zhang, 2009; Dunning & Lundan, 2008; Luo & Tung, 2007; Peng, 2012). The aim of this literature review is to analyze existing studies of Chinese OFDI and to explore whether and how government support impacts the internationalization deci-

3 Holtbrügge / Berning

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sions of Chinese firms. The reference date of our search is December 30, 2012. After a systematic assessment of 355 articles published between 1986 and 2012, we identi-fied 67 studies in peer-reviewed academic journals and examined Chinese OFDI over a 27 year time span, thus covering, in large part, the time of China’s overall rapid and remarkable economic development. As our literature analysis shows, more than 88% of these 67 articles have been published within the last eight years. We analyze these studies with regard to the institutional variables, investment motives, and relevance of government support of Chinese OFDI. The remainder of this paper is organized as follows. In the next section, we outline the research methodology and explain the process of selecting relevant management jour-nals and journal articles that deal with Chinese OFDI. This is followed by the presen-tation and discussion of our main results. In the last section we summarize our find-ings, outline some limitations, and conclude with implications for international man-agement theory, research and practice.

2. METHODOLOGY

2.1. Identification and selection of relevant journals and articles To analyze the relevance of government support for Chinese OFDI, we conducted a literature review in international peer-reviewed management journals. The first choice was to use the EBSCO host and JSTOR databases as search engines. The keywords ‘Chinese outward FDI’ and ‘internationalization of Chinese firms’ produced over 1,000 articles in both EBSCO host and JSTOR. In order to eliminate non-relevant articles that were not pertinent to the task at hand, eight additional keywords were used for the second step: ‘Chinese outbound foreign direct investment’, ‘Chinese for-eign direct investment outflows’, ‘Chinese investment motives’, ‘Chinese government support of OFDI’, ‘Chinese institutional variables of OFDI’, ‘Chinese MNEs’, ‘emerging market firms’ and ‘Go Global’. In the following, at least one of these addi-tional keywords was required, along with ‘China’ to be in the article’s entry. This helped us to concentrate on substantive relevance. Moreover, we excluded mainly journalist articles without a sound theoretical and methodological basis. The search resulted in 355 articles. The next choice we made was to consider only published articles. We excluded books (e.g., Voss, 2011; Khanna & Palepu, 2010), book chapters (e.g., Huang, 2003; Sauvant, 2011) and unpublished work like conference or working papers (e.g., Aykut & Goldstein, 2006; Filippov & Saebi, 2008; Fortanier & van Tulder, 2008). Articles in published journals have gone through a review process that reflects certain condi-tions for quality, allowing us to filter studies that meet a high level of methodological and conceptual rigor (David & Han, 2004). Our sample contained 153 unpublished and 202 published articles. In the next step we selected only those studies that deal exclusively with China. All articles examining the four BRIC countries (Brazil, Russia, India and China), other emerging economies (like Indonesia, Malaysia or South Africa), as well as articles containing country comparisons (such as China and India) were excluded (e.g., Holtbrügge & Kreppel, 2012; Cuervo-Cazurra & Genc, 2008; Hoskisson, et al. 2000). We found 174 articles which exclusively examined Chinese OFDI behavior and pat-terns that were considered for further analysis. We then refined the selection by setting a criterion based on the frequency of journal appearances. Articles that were the lone representative from their journals at this stage of the search were dropped from the set. Based on David and Han (2004), we rea-


soned that single-journal hits were less likely to be both substantively and methodo-logically relevant than those that were published in journals with multiple articles identified. Adding the criterion that articles had to be from journals that yielded more than one hit reduced our sample to 122 articles. Then we read the abstracts of these 122 articles. In order to be retained, an abstract had to satisfy two main criteria. First, it had to give an indication of theoretical analy-sis, such as a mention of management research, international business research, or internationalization theories. Second, an abstract had to use ‘Chinese OFDI’ in the substantive context of core internationalization theory (see also Berning & Holtbrügge, 2012). This step reduced the number of articles to 67. The 67 articles appeared in 16 international journals that have their origin in eight countries, covering Africa, Europe, Asia and the USA. The number of articles per journal is shown in Figure 2.

Figure 2. Distribution of articles according to journals

2.2. Categorization of journal articles The final step in our selection process was to retrieve and read the selected 67 articles in their entirety in order to classify them. The goal of categorizing the articles was to break down the filtered studies to the essential aspects to gain a meaningful and solid insight into the status quo of Chinese OFDI research with regard to government sup-port. To reach this aim, we developed nine criteria for the evaluation and categorization of the articles, reflecting our research goals and providing a framework to classify them accordingly. First, we analyzed the determinants and motives of Chinese OFDI and the referring explanatory variables on the macro-level and on the firm-level. Next, we looked at the source of data (if primary or secondary) as well as the sample size. Then, we established three evaluation criteria that should lead to evidence of potential differences between the results regarding the host countries of Chinese OFDI (devel-oped or developing country), the targeted industries (or a cross-industry perspective), and the period of observation (with the announcement of the Go Global policy of the Chinese government in the year 2001 representing a turning point). An overview of the resulting categorization can be found in the appendix.

3. RESULTS

3.1. Investment determinants In a first step, we examined the determinants of Chinese OFDI at the macro- and the micro-level. 36 articles (54%) rely on macro-level explanatory variables, ten articles (15%) on micro-level variables, and 21 articles (31%) refer to both levels. The majori-ty, 54 articles (81%), draw on at least two explanatory variables. Twelve articles (19%) use solely one macro-level variable (namely government policies), and two


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articles (3%) utilize relational assets as the single explanatory variable on the firm-level. Figure 3 gives an overview of the determinants in detail. On the macro-level, institutional variables, namely government policies (29%), insti-tutional frameworks (15%) and contextual factors (20%) are the three most commonly employed variables. The first covers government support (e.g., Ning, 2009; Liu & Li, 2002) as well as state intervention (e.g., Duanmu, 2012; Wang, et al. 2012; Deng, 2004), while institutional frameworks are dealing with formal and informal institu-tions (e.g., Child, 2009; Dunning & Lundan, 2008; Rui & Yip, 2008). The influence of the government is a crucial impact affecting the traits and outcomes of Chinese multinational enterprises (MNEs) international expansion strategies (Yang, 2009). All OFDI projects are subject to government approval, and annual reporting of the over-seas operational matters is mandatory (Cui & Jiang, 2010). The government role on OFDI regulations has continuously been adjusted during the past three decades from very tight control to the promotion of incentives and direct financial support (Bellabona & Spigarelli, 2007; Ding, et al. 2009). To achieve the ‘Go Global’ mis-sion, the central government provides strong incentives to firms that are in the process of investing abroad and makes policy changes, including streamlining administrative procedures, easing capital controls, providing information and guidance on investment opportunities, as well as reducing political and investment risks (Child & Rodrigues, 2005; Luo, et al. 2009). Financial support from the government implies credit funds with low lending rates, tax exemptions, double taxation avoidance treaties, and free-dom from foreign exchange controls (Wei, 2010). The allocation of the Chinese gov-ernment’s financial support which increased tangible assets of Chinese firms and eased the constraint of resource commitment depended on the industry of the firm, the function of the investment, and its target location (Cui & Jiang, 2010). Since the formal implementation of the ‘Go Global’ strategy, the Chinese government has established a clear direction for the types of OFDI it would like to encourage. The ‘Outbound Catalogue Guidance’, first issued in 2004, lists the government’s preferred host countries and industries and contains a referential list for foreign economic coop-eration departments, an assessment of overseas investment for Chinese companies, and offers guidelines for investors to enjoy preferential policies. In accordance with China’s long-term strategies, the central priority of the government has been to en-courage its firms to achieve a higher global market share and to gain access to capital, technology and know-how (Wang, 2002). The active involvement of the Chinese gov-ernment led to distortive policies and gave rise to institutional-specific advantages for state-owned enterprises (SOEs) through financial incentives, privileged access to gov-ernment networks, preferential treatment, and monopoly production rights (Alon, 2010; Ning & Sutherland, 2012; Rui & Yip, 2008). In this context, Yiu (2010) focuses on Chinese business groups which are also re-ferred to as ‘national teams’. They serve as the primary economic engine for the de-velopment of the Chinese economy. Over the past two decades business groups have grown from being non-existent, to a point where the revenues of the largest 500 busi-ness groups contributed 62–69 % of the nation’s industrial output in 2004–2006 (Sutherland, 2009). Moreover, the 10th Five-Year Plan of China’s Economic and Country Development in 2001 stated that large business groups shall be developed to multinational corporations with their own property rights, strong global brands, and global competitiveness. Herbert et al. (2007) highlight that the institutional environment in China is both dy-namic and influential and in consequence, working with local, regional and national governments is crucial for Chinese firms. Most Chinese companies have a govern-


ment relations officer who is responsible for monitoring, responding proactively, and managing relations with government agencies and individuals. The OFDI policy mechanisms of the Chinese government constitute strong state control and institution-al constraints which require Chinese firms to adjust their internationalization strategy accordingly. Based on a political economy perspective, Luo et al. (2009) develop the logic that OFDI promotion policies set by the Chinese government are economically imperative and institutionally complementary to offsetting competitive disadvantages of Chinese MNEs in global competition. From the perspective of institutional embeddedness, Peng et al. (2008), Buckley et al. (2008) and Voss et al. (2010) conclude that the in-stitutional environment in the home country is significantly shaping Chinese firms’ OFDI behavior and accelerating the internationalization process in order to catch up with MNEs from developed countries (Kang & Jiang, 2012). Derived from institu-tional theory, Cui and Jiang (2010) propose an institutional construct that focuses on firms making their strategic choices based on the dynamic interaction between institu-tion and organization (Dunning & Lundan, 2008). Wei (2010) summarizes that Chinese OFDI is providing a good opportunity to expand international business, reflecting the political and social factors of institutional theory (e.g., Child and Tse, 2001; Buckley, et al. 2007; Morck, et al 2008). From a macro-economic perspective, the effect of the home country institution on the investment behavior of Chinese MNEs has been demonstrated by a correlation between key poli-cy change and the change in the amount of OFDI flow (Deng, 2007; Buckley, et al. 2007). At a micro-economic level, the institution-based view of strategy research ar-gues that variations in national institutional environments both enable and constrain different strategic choices (Peng, et al. 2008). The significant influence of government is also visible in terms of ownership type. The biggest sources of OFDI are from state-controlled companies and the largest OFDI players highly overlap with the most profitable SOEs (Morck, et al. 2008). Wang et al. (2012) examine different types and levels of government ownership and conclude that this government involvement produces strong effects on OFDI, but based on different objectives not all types of government involvement are equally beneficial to all Chinese firms and not all firms possess a similar ability to internalize such advantages. Kang and Jiang’s (2012) study is quite unconventional because it contrasts the im-pacts of two regulative institutional variables (economic freedom and political influ-ence), and the changes in impact directions for economic freedom, OFDI restriction and cultural distance. The findings provide strong support for the notion that the dis-tinctive and highly dynamic institutional forces in China contribute to the OFDI loca-tion choice decisions of Chinese firms. Contextual factors refer to the context-bound approach and include political, cultural and complex aspects (e.g., Buckley, et al. 2007; Quer, et al. 2012; Sun, 2009; Li, 1993). Referring to context, catch-up strategies of Chinese firms were particularly examined. While international exploiting investments aim to generate rents out of firm-specific advantages, international exploration is a more proactive and aggressive strategy which includes enhancement of competitive positions and closely resembles catching-up strategies, which account for the rapid upsurge of many Chinese MNEs (Boateng, et al. 2008; Mathews, 2006). International exploration should be considered as a part of an overall catching-up strategy that assists Chinese firms to build global competi-tive positions. For example, Rui and Yip’s (2008) strategic intent perspective on


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M&As argues that the ultimate strategic goal of Chinese firms is to gain sustainable competitive advantage and become a global player. Moreover, several scholars (e.g., Deng, 2004; He & Lyles, 2008) provide institutional and cultural evidence for the argument that Chinese firms go abroad primarily to enhance their critical competen-cies rather than to exploit existing firm-specific assets (Child & Rodrigues, 2005; Luo & Tung, 2007). On the firm-level, the scope of explanatory variables is broader, and encompasses firm capabilities (11%), relational assets (10%), inward internationalization (7%) and ownership advantages (6%). Chinese firms enjoy ownership advantages which are network-based, can explain OFDI patterns and account for their intra-regional expan-sion strategy (Rugman & Li, 2007). Some authors (e.g., Alon, 2010; Peng, et al. 2008; Yin & Choi, 2005) highlight the important role of home-country network ties in facili-tating firms to pursue international venturing, and others (e.g., Luo, et al. 2009; Yiu, et al. 2007) verify that institutional networks help Chinese firms to cope better with the transitioning institutional environment. This kind of institutional relatedness is an essential asset of Chinese firms to mitigate information asymmetry overseas, and therefore, provide additional ownership advantages that help, particularly for small- and medium-sized, Chinese firms to successfully venture abroad early or at a rapid pace (Zhang, et al. 2012). Moreover, ownership type is an important determinant of Chinese OFDI. Based on ownership and the level of international diversification, Luo and Tung (2007) catego-rize Chinese MNEs into SOEs and non-SOEs, and show how each group has found a unique way to internationalize. Some scholars (e.g., Cui & Jiang, 2009; Voss, et al. 2010) reveal that host country regulative institutional barriers are higher for SOEs than for non-SOEs. State ownership can also be considered a firm-specific advantage for Chinese SOEs, since they are most likely to get speedy government approval for OFDI and favorable state incentives and support (Morck, et al. 2008). Private and non-SOEs are more likely to experience domestic limits to growth as they face the monopolistic presence of large SOEs in certain sectors and state intervention in indus-trial policy (Ning & Sutherland, 2012; Voss, et al. 2010).

Figure 3. Determinants of Chinese OFDI

3.2. Host countries Concerning the geographical distribution of Chinese OFDI, the studies do not present a clear picture. Only nine out of 67 articles (13%) explicitly focus on developed or developing host countries while 87% cover both regions. Overall, the Chinese gov-ernment maintains a strong influence on directing OFDI to specific host countries (Blomkvist & Drogendijk, 2012; Deng, 2004; Morck, et al. 2008). Peng et al. (2008)


even state that a distinctive and highly dynamic home-country institutional environ-ment in this regard contributes to the uniqueness of Chinese OFDI. By collecting data on problems investors face and by publishing annual reports, such as the ‘‘Report on the Trade and Investment Environment in Different Countries’’ or the ‘‘Obstacle Re-port Rules on the Investment to Different Countries’’, the government provides active support and influence for further OFDI (Wei, 2010). Furthermore, the Chinese gov-ernment aims to direct OFDI with specific guidelines for many regions and industries. For example, the ‘‘Guiding Catalogue on Investment in Processing Trade of Textiles and Clothing in Some Latin-America Countries’’ was issued to encourage Chinese firms to invest abroad (Luo, et al. 2009). Chinese firms have to adjust their interna-tionalization strategies both to comply with the rules set by the Chinese government, which provide incentives and impose restrictions, and to attain regulative and norma-tive institutional legitimacy in host countries (Rui & Yip, 2008; Cui & Jiang, 2010). Chinese government policies vary in their significance and shape in accordance with the different goals that Chinese firms shall achieve in the specific host country (Blomkvist & Drogendijk, 2012). Thus the process of internationalization by Chinese firms is strongly impacted by institutional factors and different government policies (Child & Rodrigues, 2005). Taking a closer look, Schueller and Turner (2005) demonstrate that market-seeking investments of Chinese firms occur in some countries in order to benefit from quota rights or other anti-dumping measures. This accounts for much of Chinese OFDI in Southeast Asian countries, including Cambodia (where Chinese clothes manufacturers enjoy fewer quota restrictions), Thailand (where access is quota-free for exports to the United States and the European Union in the textile industry), Mauritius (where ex-port quota restrictions are mostly absent), Jamaica, and Fiji (Wei, 2010). Buckley et al. (2008) report that the Chinese TCL company acquired the German television mak-er Schneider Electronics AG at least partly to negate potential accusations of product dumping in Europe. Therefore, one consideration of the Chinese government has been the need to respond to high overseas tariffs and the formation of trading blocks. Off-shore plants that use Chinese-made materials can escape the stiff import quotas im-posed on finished goods (Wang, 2002). Chinese OFDI in offshore plants is also motivated by the potential access to technolo-gy. OFDI in industrialized countries is crucial for China's access to new technology and patent information because of a limited transfer of technology from foreign joint ventures in China. Developing countries, however, are mainly viewed as markets for China's technology-products (He & Lyles, 2008; Wang, 2002). Until 2000, developing countries in Africa, Southeast Asia and Latin America have been the main target regions of Chinese OFDI. The Chinese government's motivations of securing supplies of natural resources as well as taking over overseas markets ap-pear to combine Japan's major motivations in both the 1960s and 1990s, but also re-flect purely Chinese strategic considerations (Wei, 2010). The dual objective of secur-ing and further improving the supply of natural resources from abroad while amelio-rating at a national level the exposure to political and commercial risk directed Chi-nese firms to natural resources-oriented projects across a broad range of resource-rich countries. Leading recipients are Zambia (for copper), Peru (iron ore), and western and central Asian countries like Kazakhstan (oil exploration and extraction). Most investors are SOEs which enjoy strong support from the Chinese government in the form of direct financial assistance, negotiation of bilateral investment treaties and trade agreements, and close inter-governmental relations (Luo, et al. 2011). Examples are China Natural Petroleum Corporation, the joint owner of a Sudanese oil produc-


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tion plant, or Shanghai Baosteel (the owner of six joint ventures in Australia, Brazil and South Africa in iron-ore mining and steel trading) (Buckley, et al. 2008; Kolstad & Wiig, 2012). Exploring how political goals attached to SOEs affect their location decisions, Duanmu (2012) reports that the Chinese authorities have been aggressively courting the governments of host countries by strengthening bilateral trade relations, awarding aid, and providing much-needed transport and communications infrastructure to ena-ble Chinese firms to access the strategically important raw materials. In Africa, offi-cial development aid provided by China concerning telecommunications and transpor-tation infrastructure development, project-specific inter-governmental loans, educa-tion packages and so forth, is predicated upon market access or exploitation and ex-traction rights being granted to Chinese MNEs (Buckley, et al. 2008; Luo & Tung, 2007). As part of its overall strategy in Africa, the Chinese government strategically links its aid flows with fostering recipients to use the funds to attract Chinese inves-tors (Sanfilippo, 2010). Finally, in developing countries particularly in Africa, Southeast Asia and South America, some OFDI is associated with political goals. For example, China has suc-cessfully used economic and diplomatic tools to secure African and other developing countries' support for its UN permanent membership in the early 1970s and to mobi-lize against American politicization of human rights issues in the 1990s (Wang, 2002). 3.3. Industries State influence as one of the main drivers of the internationalization of Chinese firms is also obvious in different enhancements of industry-related government policies (Buckley, et al. 2007; Child & Rodrigues, 2005). In not allowing unregulated invest-ment in every sector and in every country, the Chinese government follows the aim to carry out OFDI in targeted sectors and industries in accordance with China's long-term strategies (Wang, 2002). This involves seeking strategic resources of capital, know-how, raw materials, and information. The priority of the Chinese government is to encourage its firms to acquire a larger global market share and to gain access to capital, technology and know-how from the outside world. Thus firms are encouraged to invest particularly in state-selected priority sectors (Cui & Jiang, 2010). The State Development and Reform Commission (SDRC) is the preeminent body which sets China’s overall economic and industrial policies as well as reform plans for the State Council. The SDRC publicly lists which industries and which countries the Chinese government encourages Chinese firms to invest in and what measures, including financial incentives, the government can assist Chinese firms’ OFDI with. Large scale OFDI projects in industries like natural resources and infrastructure de-velopment and those involving large amounts of money (30 million dollars for re-source-oriented investments and 10 million dollars for others) require prior approval from the SDRC (Luo, et al. 2009). These national industrial policies together with state development initiatives reflect the strong government support in selected industries (Sutherland, 2005; Alon, 2010). OFDI in specific industries is actively encouraged with export tax reductions, foreign exchange assistance and direct financial support, notably in trade-related activities that promote Chinese exports of raw materials, parts and machinery and those in light industry sectors like textiles, machinery and electrical equipment. In 2001, this en-couragement was formalized in the 10th five-year plan which explicitly outlines the Go Global directive (Buckley, et al. 2007). The Chinese government particularly sup-


ports OFDI in the energy and material sectors in order to secure the supply of natural resources and to provide stability for the domestic economic growth (Wei, 2010). Natural resource-seeking has been one of the key strategic considerations for China’s OFDI since the late 1970s (Hong & Sun, 2006). At the macro level, Chinese OFDI has been found to be positively related to host-country endowment of natural re-sources. Additionally, Kolstad and Wiig (2012) find a relationship between natural resource-seeking and the institutions of the host country: the worse the institutional condition in the host country, the more Chinese OFDI is attracted by natural re-sources. Securing access to natural resources and turning the country into a global player are goals that are closely related to the self-perception of the Chinese govern-ment and its role in the international economy as one of the leading powers of the world (Schueller & Turner, 2005). Therefore, government support of Chinese firms’ OFDI in oil, gas and mining activities is part of China’s national energy strategy. Another important instrument of industry policy is state ownership in large compa-nies. Despite the legal restructuring of Chinese firms, SOEs still play an important role in key industries such as energy, natural resources, transport, heavy industry, avi-ation, and telecommunications. SOEs focus not entirely on economic objectives, but also on policy support for the government, particularly in terms of its long-range de-velopment plans. Accordingly, the Chinese government adopts a selective support strategy and particularly encourages large Chinese SOEs which are involved in ag-gressive industries (e.g., household appliances, consumer electronics, PCs) to engage in OFDI (Deng, 2007). Regarding industry concentration it can be stated that a small number of SOEs mo-nopolize strategically vital and governmentally regulated pillar industries, such as telecommunication services, banking and insurance, natural resources sectors or transportation (Ramasamy, et al. 2012). In industries, such as consumer electronics, processed foods and beverages, skin care products, and even PCs and automobiles, competition has intensified considerably in the domestic market (Luo, et al. 2011). A large number of industries (e.g. utilities and mining) operate under oligopoly condi-tions with companies owned by the central and provincial governments vying against each other to attract the domestic business. In some resource-seeking OFDI, the political background of Chinese firms has raised the host nation security considerations (He & Lyles, 2008). For instance, although the bid offered by China National Offshore Oil Corporation (CNOOC) to acquire the American oil company UNOCAL was US$6 per share higher than that of Chevron Corporation, the deal was blocked by the US Congress due to fears of Chinese control of American corporate interests, which was perceived as a threat to US national secu-rity (Chen & Young, 2010). 3.4. Periods of observation The selected articles dealing with Chinese OFDI were published between 1986 and 2012. The number of articles per year is illustrated in Figure 4. We examined if the announcement of the ‘Go Global’ policy in the year 2001 resulted in significant changes in terms of OFDI studies. We found 13 articles (19%) that focus on the time span from 1979 until 2001, 13 articles (19%) on the period from 2001 to 2009, and a majority of 41 articles (61%) with a period of observation that starts before 2001 and ends after 2001.


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Figure 4. Distribution of articles according to year of publication

The government focus on OFDI regulations has been continuously evolving during the past three decades from tight control to actively sponsoring and even to direct funding (Buckley, et al. 2007). In more recent years, the domestic institutions strongly supported Chinese MNEs, facilitating their desire to accelerate the internationalization process and to catch up with MNEs from developed countries (Voss, et al. 2010). As a consequence, not considering the influence of China’s institutions will undermine the robustness of any meaningful attempt in seeking to understand the internationali-zation of Chinese MNEs (Kang & Jiang, 2012). Due to a host of bureaucratic obstacles and barriers for internationalization which were installed by the Chinese government, until the middle of the 1980s the number of OFDI was rather small and the average investment level less than US$ 1 million. Most OFDI was done through SOEs in the area of trade and transport. At the begin-ning of the 1990s, Chinese economic policy liberalization allowed private firms to invest offshore as well (Schueller & Turner, 2005). In the following years up until 2001, besides investment by manufacturing companies, many local and provincial firms started to establish overseas offices in the property sector and for speculative purposes. However, some industries such as textiles, machinery and electronics, con-tinued to receive government support for their overseas expansion. The average in-vestment size grew further and amounted to US$ 2.6 million by 2001. In the late 1990s, firms in certain industries, especially electronic appliances and machinery, started to expand their overseas market presence. Prominent examples of companies that have acquired stakes in foreign companies or set up productions sites are Konka Electronics, Skyworth, Chonghong Electronic Group, Guangdong Midea Group, Huayi Shanghai, TCL, Huawei Technologies and Haier. Since 2001, access to overseas natural resources, China’s geopolitical positioning, and the strengthening of its national competitiveness count as basic motives for the Chi-nese government which explain selective government policy support. With closer in-tegration into the global economy and China’s accession to the WTO, the government realized that economic power and international competitiveness are the most im-portant sources of international influence, and that globally operating firms are of cru-cial importance in achieving those goals. Another reason for the Chinese government to change its restrictive OFDI policy was the growing number of anti-dumping com-plaints from its major trading partners. Therefore, OFDI and the support of the global expansion of large SOEs were added to the overall program of foreign economy poli-cy. Changes in the degree of political interference are also reflected in the spatial pattern of China's OFDI. Until 2000, China has targeted Australia, Canada, the USA, and Hong Kong as the main host countries for OFDI. In particular, Australia's natural re-sources attracted the largest share of China's OFDI projects in the 1980s (30.1 percent


over 1978-1990). In the 1990s, Canada became the single most important target coun-try. Many Chinese firms set up representative offices to seek investment projects in Canada, particularly in the oil and gas, mineral, forestry and hotel sectors. China's investment strategy in Canada has been to secure long-term stable supplies of the raw materials it lacks (Wang, 2002). In the 1990s, Canada, the U.S. and Australia hosted about 40% of Chinese OFDI, but by 2005, the proportion had reduced to 10%. In contrast, developing countries, partic-ularly in Asia and South America, accounted for nearly 90% in 2005. In 2008, Asia continues to dominate (mainly due to flows to Hong Kong), while African countries counted for nearly 10% of investment flows. OFDI tends to flow to tax havens like Cayman Islands, neighboring territories like Hong Kong as well as destinations like Laos, Nigeria, and Mali. The change in the industrial distribution of OFDI in recent years is also significant. Manufacturing accounted for nearly 60% of OFDI in the 1990s, but had dropped to a mere 3% by 2008. Despite sensational media reports, the mining sector accounted for only about 10% of OFDI in 2008. Sectors that seem to be gaining momentum are business services, finance and retail (Ramasamy, et al. 2012). In 2006, China was the 17th largest country in terms of OFDI flows. According to the data from UNCTAD, 142 countries received investment from China between 2003 and 2006. Total OFDI from China has increased more than six times in current terms in this period. With more than 80 percent, the bulk of the investment went to offshore financial centers such as the Cayman Islands and the British Virgin Islands, and to Hong Kong. Interestingly, though receiving a small share of the total, Africa is host to more Chinese OFDI than Europe, North America or Oceania (Kolstad & Wiig, 2012). Chinese firms began their cross-border mergers and acquisitions (CBMA) activities in the 1980s. However, before the ‘Go Global’ policy was launched, international mer-ger deals were mainly undertaken by large SOEs, were relatively small and concen-trated in monopoly industries, such as aviation and mineral resources. After the im-plementation of the ‘Go Global’ policy in 2001, and China’s entry into the World Trade Organization (WTO) in 2001, CBMA were larger (many deals accounted for more than US$100 million), more diverse in terms of acquiring firms and in terms of host countries (from Asia and North America to Europe, Australia, and Africa). Most CBMA were horizontal acquisitions (the acquired firms were in the same industry as the acquiring firms), and the typical target industry shifted from traditional manufac-turing to high-technology. Due to the changes in government policy and institutional environments, the nature and characteristics of China’s CBMA changed dramatically after 1999 (Boateng, et al. 2008; Chen & Young, 2010).

4. DISCUSSION

Chinese government policies and regulations promote investment both directly and indirectly (Alon, et al. 2011). As economic growth in China continued over the past three decades, a hugh demand for natural resources arose. Backward integration to acquire and/or secure the supply of specific location-bound natural resources and commodities has been the predominant driver of Chinese OFDI since the late 1970s. Government policies have explicitly identified natural resource acquisition as a key strategic objective of internationalization (Alon, 2010). Exploiting abundant endow-ments of natural resources, energy, or other inputs in foreign countries enables China to reduce the costs for its domestic manufacturing and export industries (Deng, 2004). The Chinese government has used OFDI to gain security over access to domestically scarce factor inputs. Key sectors include minerals, petroleum, copper, timber and iron


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ore (Buckley, et al. 2007; Cai, 1999). In some countries, the political background of natural resource-seeking OFDI has raised the host nation’s security considerations, as for example in the United States (Wei, 2010). Market-seeking motives of Chinese OFDI are both defensive and offensive. Defensive market seeking OFDI relates to factors that limit growth opportunities at home, like the increased competitive pressures in domestic markets through the WTO accession obligating further opening to imports and FDI, or to supply-chain bottlenecks, re-stricted demand, fragmented national markets and excess capacity (Buckely, et al. 2008; Voss, et al. 2010). Motives for offensive market-seeking OFDI are developing new markets, creating brand awareness, bypassing trade barriers and using preferen-tial treatment of host countries. Many Chinese firms established overseas operations in North America, Europe, and other countries whose exports are not restricted. This market-seeking OFDI is government-led and protected and occurring in industries in which Chinese firms possess a competitive edge (Deng, 2004; Sanfilippo, 2010). Asset-seeking and strategic asset-seeking Chinese OFDI has also been directed and controlled by the Chinese government. A variety of foreign-owned assets, both tangi-ble and intangible, are of interest to the Chinese state: information about successful internationalization, management know how, advanced proprietary technology, inter-nationally known brands, local distribution networks, R&D facilities, consumer bases and human capital (Schueller & Turner, 2005; Buckley, et al. 2007). Chinese MNEs seek these assets in developed countries which are necessary to meet the needs for bolstering economic and social development, and for compensating firm-level com-petitive disadvantages. Because of strong governmental involvement, these two objec-tives are sometimes interconnected (Kang & Jiang, 2012; Deng, 2004). Some Chinese OFDI is directly associated with political goals. By targeting specific host countries, industries and sectors, the Chinese government is guiding investment projects in its preferred directions (Wang, 2002). The Chinese government always keeps political control and maintains its ability to reward and discipline firms for their adherence to its directives (Wei, 2010). China is actively undertaking negotiations of bilateral investment treaties and trade agreements with host countries and establishing close intergovernmental relationships. In Africa, for instance, Chinese OFDI is aimed at strengthening economic and political ties with host countries. Tied to official de-velopment aid and technical assistance programs, the bulk of Chinese OFDI in the infrastructure sector is directed to the construction of transport routes for the export of natural resources and is made in return for market access or for exploitation and ex-traction rights of natural resources (Sanfilippo, 2010; Buckley, et al. 2008; Cai, 1999). Only SOEs that can leverage governmental sponsorship and financial support are able to succeed in international operations (Ramasamy, 2012; Child & Rodrigues, 2005). Furthermore, most OFDI is undertaken by SOEs, and the shares of most Chinese MNEs are held by a mix of the state, legal persons, foreign financial institutions, and individual investors. The State Council owns shares in most cases, and legal personal shares are mainly controlled by the regional and central government and their minis-tries. Consequently, the business operations of Chinese MNEs engaged in OFDI are largely controlled by the government (Kolstad & Wiig, 2009; Ning, 2009). Given that almost all Chinese firms that undertake CBMA have the government as the dominant owner, political motivation is the main driver for these activities (Yang, 2009; Luo & Tung, 2007). Government ownership which allows the pursuit of non-commercial objectives is often perceived negatively and as unfair due to subsidies and low capital costs. For example, in the US complaints about predatory pricing and dumping exist. A linkage between acquisitions of US companies by Chinese MNEs and the openness


of China’s domestic economy to US trade and capital exports means that imposing additional restrictions on OFDI from China heightens the risk that US firms will be subject to reciprocal increases in restrictions on investments in China (Chen & Young, 2010; Zhang & Ebbers, 2010; Globerman & Shapiro, 2009). To summarize, there are push and pull elements of the institutional environment that prompt Chinese MNEs to expand globally: one involves institutionally embedded constraints such as limited property rights protection, weak judicial and legal systems, capital market imperfections, corruption and red tape, and policy changes; and on the other hand favorable government policies exist that encourage Chinese firms to invest globally (Luo & Tung, 2007). Institutional escapism as a push factor, leads to interna-tionalization as a mechanism for Chinese firms to overcome domestic institutional disadvantages (Rui & Yip, 2008). Therefore, China provides new insights regarding the relevance for firm internationalization in the interplay between government and entrepreneurship (Zhang, et al. 2012). The extent to which the pattern of Chinese firm internationalization is institutionally embedded rather than reflecting a strategic choice is considerable (Child & Rodrigues, 2005). It can even be concluded that Chi-nese OFDI has been driven much more by national interests and governmental inter-vention compensating for market and institutional imperfections than resulting from strategic planning processes of individual firms (Morck, et al. 2008). These home country impediments and market imperfections affect entry decisions (Luo, et al. 2011), as well as investment opportunities decisions for free capital (Klossek, et al. 2012). At the same time, preferential incentives and promotional policies enacted by the Chinese government are an active force pulling Chinese firms to invest overseas. These dual forces – institutional escapism and governmental promotion – co-exist and have strong impacts on the internationalization of Chinese MNEs (Lattemann, et al. 2012). The institutional environment which includes government support and regula-tions affects the investment motives of Chinese firms both directly and indirectly through its interactions with internal factors. 5. CONTRIBUTIONS, LIMITATIONS AND IMPLICATIONS FOR

FURTHER RESEARCH

The aim of this paper was to explore the relevance of government support for OFDI of Chinese firms. A literature review identified 67 articles in 16 peer-reviewed academic journals that were published between 1986 and 2012 and found that the impact of government policies on the amount, direction and form of Chinese OFDI is signifi-cant. In particular, studies that take into account the development after the announce-ment of the ‘Go Global’ policy of the Chinese government in 2001 find this factor to be of major relevance. This comprehensive literature review enhances the state of knowledge in Chinese OFDI in numerous ways. We were able to identify the main motives and determinants of Chinese OFDI, show how they differ from OFDI of firms from developed countries and highlight the interactions of government policies and investment motives. In do-ing so, we contribute to the growing literature on the internationalization of Chinese firms which is often driven by nationalist considerations and negative country-of-origin perceptions rather than based on sound analyze. Thus, by providing a detailed overview of the determinants and the consequences of government support on Chi-nese OFDI, our literature review is not only relevant for policy makers, but also for


15

managers of firms which cooperate with Chinese firms or who may be acquired by them. A second major contribution relates to theories of FDI. Most internationalization theo-ries such as Dunning’s eclectic theory of international production (1980) or the learn-ing theory of Johanson and Vahlne (1977, 1990) do not explicitly focus on the role of the home government. As this literature review shows, however, this has a strong im-pact on FDI of Chinese firms, and it may also be relevant for OFDI of firms from oth-er former socialist countries such as India and Russia. Thus, traditional internationali-zation theories should integrate potential roles of governments in the internationaliza-tion process of firms. A promising approach in this context may be the institutional theory and its extension by a political perspective as suggested, for example, by Cui and Jiang (2012), Sanfilippo (2010) and Luo et al. (2009). Like any research, this study has some limitations that should be considered when interpreting its results. First, only six articles (9%) examined the performance of Chi-nese OFDI. Thus, we were not able to analyze whether government support also has positive financial and non-financial outcomes. While the results of several case stud-ies may suggest this, our analysis has revealed a potential selection bias towards suc-cessful internationalizers, such as Haier, Huawei and Lenovo. Thus, it would be inter-esting to include performance measures in quantitative studies of Chinese OFDI and to consider the effects of governmental policy on internationalization success. Another limitation is the restriction on articles written in English. In particular, we did not include Chinese articles or those written in languages of the main host countries of Chinese OFDI. While host countries often have a negative perspective of Chinese OFDI (e.g., Zhang & Ebbers, 2010; Globerman & Shapiro, 2009), it would be particu-larly interesting to analyze whether this depends on the degree of government support and involvement. One promising avenue for future research would be, for example, to analyze whether host country perceptions of Chinese OFDI differ between private and state-owned enterprises, and between industries where government support is particu-larly strong (such as the automotive industry) and those where internationalization is predominantly motivated by institutional escapism. Finally, the focus of our literature review is on articles that were published in re-viewed journals. While this decision was justified by a number of reasons, it has to be considered that leading management journals are often characterized by long review processes and publication times. In top-tier journals the review process lasts, on aver-age, two years (Phelan, et al 2002). Thus, recent trends in Chinese OFDI, such as the impact of the global financial crisis, are not very well reflected in our literature re-view, and the analysis of working papers and conference presentations would reveal a more up-to-date picture. On the one hand, the global financial crisis and the increasing relevance of China in the world economy may further increase the impact of the gov-ernment on Chinese OFDI. On the other hand, the growing number of large and inter-nationally competitive Chinese MNEs may find it easier today to further international-ize without government support than five or ten years ago.


Appendix: Categorization of articles

Authors Year Journal Period of Observa-tion

Host Countries

Industries Sample Size

Determinants of OFDI

Main Results

Blom-kvist & Drogen-dijk

2012 MIR 2003- 2009

Developed and devel-oping countries

Cross- industry

Annual OFDI stock

Macro-level: psychic dis-tance

The institutional setting and strong role of the state strongly influence Chinese OFDI; more than psychic distance and its stimuli do. The home country context is crucial for the develop-ment of Chinese OFDI.

Cui & Jiang

2012 JIBS 2000-2006


Cross- industry

132 Chinese firms

Macro-level: home + host regulatory, host normative pressures

Chinese firms pursue commercial and political objectives abroad. State ownership creates resource dependence and political perception. Institutional theory should be extended by a political perspective.

Duanmu

2012

JWB 1999-2008


Cross- industry

189 Chinese firms from Jiangsu province

Macro-level: state interven-tion, exchange rate, political + economic risk. Firm-level: strategic intent

Economic risk is unim-portant for SOE due to financial support and easy access to foreign reserves granted by the Chinese government. SOEs respond more positively to favora-ble exchange rates than non-SOEs. Political goals also influence SOEs’ location decisions, e.g. strategically important raw materials. There is a large proportion of government-backed OFDI.

Fan, Zhu & Nyland

2012 IBR

1979-2009

Australia Cross- industry

9 Chi-nese firms

Macro-level: Contextual factors. Firm-level: management capabilities

Financial support from the Chinese government and preferential treatment affect OFDI decisions. Environmental, industrial and organizational factors are considered to be im-portant for internationali-zation processes.

Kang & Jiang

2012 JWB 1995-2000, 2001-2007

Asian developed and devel-oping countries

Cross- industry

Annual OFDI stock

Macro-level: government policies. Firm-level: state-ownership

Institutional factors, like complexity and diversity have a higher level of significance in determining OFDI location choices in comparison with economic factors, but both types of factors influence Chinese MNEs location choices.

Klossek, Linke & Nippa

2012 JWB 1980-2008

Germany Cross- industry

7 Chi-nese firms

Firm-level: Management capabilities, ownership advantages

Chinese firms’ internation-alization behavior is still primarily driven by the government and not by strategic firm-specific reasons. But due to chal-lenges and problems faced in the past, some Chinese firms try to adapt to for-eign environments.

Kolstad & Wiig

2012 JWB 2003-2006


Cross- industry

Annual OFDI flows

Macro-level: Natural re-source en-dowment, institutional framework

Institutions and natural resources have an interac-tive effect on Chinese OFDI. Chinese OFDI is attracted to large markets in OECD countries, and to countries with large natural resources and poor institu-tions in non-OECD coun-tries.


17

Ning & Suther-land

2012 TIBR 2008- 2010


Cross-industry

104 public listed Chinese firms

Macro-level: Government policies Firm-level: ownership advantages

The internationalization strategies from China´s private-sector MNEs differ from those of state-sector MNEs. State intervention creates disequilibrium that favors SOEs and at the same time gives strict guidelines for their Go Global mission.

Ramasamy, Yeung & Laforet

2012 JWB 2006-2008


Cross- industry

63 public listed Chinese firms

Macro-level: Natural re-source en-dowment. Firm-level: ownership advantages

Determinants of interna-tionalization differ based on ownership. SOEs are attracted to countries with large natural resources and a risky political environ-ment. Private firms are more market seekers.

Wang, Hong, Kafouros & Wright

2012 JIBS 2006- 2007


Cross- industry

626 Chinese firms

Macro-level: government policies, state ownership, government affiliation level

Government involvement influences the level of Chinese OFDI, its location and its motive. Interactions between institutions and organizations are of great importance. Government policies exert institutional pressure and impact the willingness and ability to internationalize.

Zhang & Ma & Wang

2012 TIBR 2005-2006


Cross-industry

117 Chinese SMEs

Firm-level: entrepreneuri-al orientation, social capital

Social capital generated through political ties may be an important condition for the international expan-sion of Chinese MNEs. Government support plays a stronger role for large MNEs than for SMEs.

Alon, Child, Li & McIntyre

2011 MOR 1990-2009


Cross- industry

Annual OFDI flows and stocks

Macro-level: context, institutions, government policy. Firm-level: ownership advantages

There is a considerable involvement of Chinese governmental and party organs in business policy decisions. This institutional support can compensate for the ownership and loca-tional disadvantages of Chinese firms when invest-ing overseas. Chinese firms have to respond to government policies.

Luo, Zhao, Wang & Xi

2011 MIR 2000-2004


Cross- industry

1355 Chinese private firms

Firm-level: governance advantage, institutional advantage, networking advantage

Chinese SOEs benefit from institutional advantages like access to local re-sources, government support, loan access, network ties. They are also less affected by home market imperfections compared to private firms.

Alon

2010 MBR 2003-2007


Cross- industry


Macro-level: government policies, institutional context. Firm-level: ownership type, relational assets

Distortive government policies act upon existing firm- and country-specific advantages and give rise to institutional-specific (dis)advantages. Institu-tional discrimination creates relative advantages for SOEs at the cost of private firms.

Chen & Young

2010 APJM 2000-2008


Cross- industry

39 CBMAs by 32 publicly listed Chinese firms

Macro-level: Government involvement / ownership, environmental complexity

In most M&A deals, the Chinese government is the largest shareholder of the acquiring firms. As such, the government pursues its own interests. State owner-ship and political motiva-


tions lead to principal-principal conflicts.

Cui & Jiang

2010 APJM 1980-2007


Cross- industry

10 Chinese firms

Macro-level: government policies, institutional legitimacy

Chinese firms must comply with the rules set by the Chinese government, which provide incentives to and impose restrictions on Chinese firms’ OFDI decisions.

Lau, Ngo & Yiu

2010 CMS 2000 Developed and devel-oping countries

1079 Chinese firms

Firm-level: management capability, core compe-tencies

At the early stage of Go Global there has not been much government support. Chinese firms chose export as the easiest way, and used manufacturing com-petence for internationali-zation.

Lu, Liu & Wang

2010 MOR 2004-2007


Manufac-turing industry

198 Chinese private firms

Macro-level: government policies, industry dynamics. Firm-level: firm resources

Supportive Chinese gov-ernment policies are im-portant motivators for both strategic asset-seeking and market-seeking OFDI. Economic behavior of Chinese firms is still fundamentally shaped by government policies. The role of the institutional framework created by the government in the interna-tionalization strategies of Chinese firms is crucial.

San-filippo

2010 ADR 1998-2007

41 African countries

Cross- industry

Annual OFDI

Macro-level: government policies, development aid links, trade nexus

Chinese OFDI in Africa is highly politically motivat-ed. Strong interrelation-ships between Chinese OFDI and economic cooperation exist, as well as a national overall strate-gy of China to invest in Africa.

Schiere

2010 ADR 1999-2008

Africa Cross- industry

Annual OFDI

Macro-level: government policies, trade agreements

In Africa, the pattern of Chinese OFDI is not the same as in Western host countries. Political goals are a main driver. Based on trade access agreements preferentially natural resource and infrastructure investments are conducted.

Voss, Buckely & Cross

2010 MBR 1979-2006


Cross- industry

9 Chi-nese firms

Macro-level: institutional environment, market imper-fections. Firm-level: net-works

SOEs and large private firms benefit most from institutional advantages, smaller firms are driven by institutional escapism. The institutional differences within China mean a new dimension, a sub-national contextualization is re-quired.

Wei

2010 MBR 1979-2006


Cross- industry

Macro-level: strong CSA. Firm-level: weak FSA

Home country constraints and institutional disad-vantages pushed Chinese firms to invest abroad. On the other hand, government support has been one of the main drivers for Chinese OFDI.

Yiu

2010 MOR 2003-2008


Cross- industry


Macro-level: institutional support, domestic market. Firm-level: inward linkag-es

Chinese business groups as new organizational forms that substitute market imperfections and consti-tute a micro-institutional environment for new OLI-advantages and LLL opportunities are state-


19

controlled and key players of OFDI. Asset-exploitation is pursued in other emerging countries, asset-augmentation in advanced countries.

Zhang & Ebbers

2010 JCCA 1982-2009


Cross- industry

1324 acquisi-tion attempts

Macro-level: Social + economic context. Firm-level: owner-ship, competi-tiveness, lack of experience

Strong political opposition hamper Chinese acquisi-tion deals because of strong government support, state-ownership and indus-try sensitiveness. In Africa and South America the success rate was highest (57%), in Asia the lowest (49%).

Child

2009 MOR 1979-2009


Cross- industry

Macro-level: institutional outcomes, contextual systems

The institutional context in China and changes regard-ing governmental owner-ship and regulation of business shape Chinese OFDI in terms of devel-opment and strength.

Cui & Jiang

2009 JWB 1992-2008


Cross- industry

138 Chinese firms

Firm-level: firm specific advantages

Government support is giving strong advantages to Chinese firms that invest overseas. Chinese firms chose an entry mode that improves the effectiveness of assets acquisitions, knowledge learning and global strategy develop-ment.

Deng

2009 JWB 1993-2006


Cross- industry

3 Chi-nese firms

Macro-level: institutional escapism, governmental promotion. Firm-level: inward inter-nationalization

China has unique institu-tional characteristics. Chinese firms tend to conform to legitimating requirements. Acquisitions are used as escape re-sponses. The effective integration of acquired assets is a key challenge for creating a sustainable competitive advantage.

Ding, Akoorie & Pavlovich

2009 IBR 1990-2006


Cross- industry

Macro-level: government policies

Government support is one key factor for the interna-tionalization of Chinese firms. There is active government policy interest to build up competitive Chinese companies through OFDI.

Globerman & Shapiro

2009 APJM 1990-2006

United States

Cross- industry


Chinese OFDI in the US is more likely in the form of M&As than greenfield investments. Non-commercial objectives are important drivers. There is no empirical evidence of host country economic benefits from Chinese M&As yet.

Luo, Xue & Han

2009 JWB 1982-2006


Cross- industry

Macro-level: institutional escapism, governmental promotion

Governmental support is a legitimate political action which helps compensate competitive disadvantages and organizational defi-ciencies of Chinese firms. OFDI is a strategic reac-tion to institutional con-straints at home.

Ning

2009 PA 1993-2005


Information & commu-nication techno-logy

Annual OFDI

Macro-level: government involvement

Strong political interrela-tions between Chinese enterprises and the gov-ernment exist. A successful


inward internationalization laid the ground for leap-frogging outward interna-tionalization stages.

Schueler-Zhou & Schueller

2009 CMS 1999-2007


Cross- industry

342 cross border mergers and acquisi-tions (CBMA)


Institutional constraints and government policies are substantially influenc-ing Chinese firms’ strategy decisions, regarding the financing of Chinese OFDI, and the promotion of specific objectives, industries and host coun-tries.

Sun

2009 MBR 1999-2008


Telecomm- unications industry

1 Chi-nese firm (Huawei)

Macro-level: cultural, technological, economic, institutional distance

Compared with govern-ment-supported state-owned rivals, Huawei is private-owned and has to develop competitive skills in order to be successful in the market.

Suther-land

2009 CMS 1997-2006


Cross- industry



Large state-controlled business groups play a significant part in Chinese OFDI. Many studies rely on a few high- profile, but unrepresentative cases.

Yang

2009 CMS 1985-2006


43.2% financial, 20.2% manufac-turing, rest services & utility industries

1004 CBMA by 671 Chinese firms

Macro-level: regulatory changes, WTO entry. Firm-level: experi-ences of failure of other firms

The 3 isomorph mecha-nisms (mimetic, coercive, normative) are supported. Degree of conformity in CBMA decreases over time, not all strategic choices react to conformity in same way. Most CBMA are undertaken by SOEs. 1994 (enactment of first foreign trade law) and 2001 (WTO entry) mark significant regulatory changes.

Boateng, Wang & Yang

2008 TIBR 2000-2004

Developed countries

Cross-industry

27 CBMA


Chinese CBMA are moti-vated by strategic objec-tives (overcome trade barriers, acquire strategic assets, catch-up, avoid imperfections at domestic product, factor and capital market).

Boisot & Meyer

2008 MOR 1983-2005


Cross- industry

Macro-level: government policies, institutional escapism

Strategic exit from the home country rather than strategic entry into foreign markets explain Chinese OFDI. Driven by high transaction costs of cross-ing domestic provincial borders, Chinese firms internationalize at earlier stages.

Buckley, Cross, Tan, Xin & Voss

2008 MIR 1991-2005


Cross- industry


Macro-level: institutional framework, government policies

Chinese OFDI is distinc-tive and not like the stand-ard model. The incremen-tal internationalization regarding distance and entry mode choice can-not be observed. National economic goals officially set must be followed.

Dunning & Lundan

2008 APJM 1990-2006


Cross- industry

Macro-level: Formal and informal institutions, rules and constraints

Country specific institu-tions affect the attitudes and actions of Chinese MNEs. Different institu-tions influence Chinese firms internally as well as the external environment.


21

Formal institutions cannot be studied apart from motivations and belief systems that underlie them.

He & Lyles

2008 BH 1981-2006

United States

Cross- industry


In the US Chinese OFDI face challenges by its liability of foreignness in political, cultural, market-ing, technological aspects. Chinese OFDI is more economically than politi-cally driven.

Morck, Yeung, & Zhao

2008 JIBS 1979-2006


Cross- industry

Firm-level: ownership form, internal-ization. Macro-level: high savings rate, capital allocation

China’s unique characteris-tics regarding state owner-ship, financial support and funding are representing new phenomena. China sends flagship companies abroad. Main players are large SOEs with lucrative state-enforced monopolies.

Peng, Wang & Jiang

2008 JIBS 1980-2005


Cross- industry

Firm-level: Interorganiza-tional net-works and relationships

Formal and informal institutions significantly shape the strategy and performance of Chinese firms that invest abroad. Political, legal and societal aspects of institutions are crucial.

Rui & Yip

2008 JWB 1984-2007

Developed countries

Auto-mobile, IT industry, Telecom equipment

Three Chinese firms

Macro-level: institutional rules. Firm-level: corporate entrepreneur-ship, man-agement skills

Chinese firms use M&As to overcome institutional constraints, to compensate competitive disadvantage, and to leverage their competitive advantages. For latecomer MNEs, acquiring is an important alternative. For Chinese firms, M&As are the preferred internationaliza-tion method.

Bellabona & Spigarelli

2007 IJCCM 1985-2006


Cross- industry

Annual OFDI flows and stock

Macro-level: open door and go global policy

Chinese OFDI is a too-recent phenomenon to be comprehended in its com-plexity. Chinese govern-ment policies are actively supporting internationali-zation and determining the direction and amount of Chinese OFDI.

Buckley et al.

2007 JIBS 1984-2001

49 coun-tries (22 OECD-, 27 non-OECD countries)

Cross- industry

Annual OFDI stock

Macro-level: institutional environment, cultural prox-imity, political risk

Chinese OFDI has both a conventional and an idio-syncratic dimension. Capital market imperfec-tions, special ownership advantages, and institu-tional factors must be nested within general theories to explain the behavior of Chinese MNEs.

Deng

2007 BH 1990-2005


Cross- industry


Chinese OFDI is signifi-cantly characterized by the critical role of the govern-ment by giving encour-agement and support for key firms to globalize in strategic sectors. China remains a political econo-my with active governmen-tal involvement in busi-ness.

Herbert, Alon & Munoz

2007 IJCCM Developed and devel-oping

Cross- industry

Macro-level: Institutional and cultural

China is still a socialist market economy. Chinese firms must identify defi-


countries factors ciencies in their resources and capabilities to find appropriate strategic responses in investing abroad. Institutional escap-ism is an important driver for Chinese OFDI.

Luo & Tung

2007 JIBS 1980-2005


Cross- industry


Macro-level and firm-level variables in combination

Chinese firms use OFDI as a springboard to acquire strategic assets to over-come their latecomer disadvantages. This com-pensatory strategy repre-sents a significant organi-zational innovation and a departure from conven-tional theories.

Rugman & Li

2007 EMJ 1990-2003

North America, Europe, Asia

Cross- industry

16 Chinese firms

Macro-level and firm-level variables in combination

Since Chinese MNEs have very few advantages, they do not conform to tradi-tional theories. Chinese firms have to improve absorptive capacity and managerial capabilities.

Yiu, Lau & Bruton

2007 JIBS 2003-2004


Cross- industry

274 Chinese firms

Macro-level: Home industry competition, export intensi-ty. Firm-level: relational assets

Institutional network ties provide critical advantages for Chinese firms. Institu-tional links are crucial for the approval process and financial support for OFDI projects. Thus institutional components and relational assets from business network ties are signifi-cantly influencing Chinese OFDI.

Hong & Sun

2006 TCQ 1979-2003


Cross- industry

Annual OFDI flows

Macro-level: government policies; Firm-level: corpo-rate en-trepreneurhip

The evolution of govern-ment policies became the most significant explanato-ry factor for the interna-tionalization of Chinese firms in general and for the shifts in overseas invest-ment strategies in particu-lar.

Mathews

2006 APJM 1980-2004


Cross- industry

Macro-level: government policies, institutional setting

The rise of Chinese OFDI is due to push and pull factors, institutional escap-ism at home and govern-mental support to go abroad. As latecomers, the internationalization of Chinese firms has its own patterns.

Child & Ro-drigues

2005 MOR 1990-2005


Cross- industry

8 Chi-nese firms

Macro-level: government policies, institutional influences. Firm-level: OLI disad-vantages

The impact of domestic conditions in China is very strong. China remains a political economy where national champions are greatly supported by the government. Chinese OFDI offers an opportunity to extend present theories (latecomer perspective, catch-up strategies, institu-tional analysis, liability of foreignness).

Erdener & Shapiro

2005 MOR 1993-2000


Cross- industry

Firm-level: Relational contracting, uncertain environment, hierarchical control

Guanxi and relational assets are unique Chinese characteristics which are also crucial for OFDI projects. Good relations to local and central govern-ments provide advantages.

Liu, 2005 IBR 1979- Developed Cross- Annual Macro-level: Chinese OFDI can be seen


23

Buck & Shu

2002 and devel-oping countries

industry OFDI Inward FDI, exporting rate, GDP per capita

as one result of China’s institutions and economic reforms. Unique features of Chinese institutions influenced the develop-ment and forms of Chinese OFDI.

Schueller & Turner

2005 JCCA 1985-2005


Cross- industry


Government policies supporting the Go Global strategy of Chinese firms shaped Chinese OFDI heavily. Specific expecta-tions and strategies led to strong government inter-ventions.

Yin & Choi

2005 MIR 1995-2002


Cross- industry

Relational assets

Chinese OFDI is regionally highly concentrated (Asia-based) due to strong net-work ties and guanxi. China extends the triad; U.S., EU and Asia.

Deng

2004 BH 1982-2001


Cross- industry

Annual OFDI

Macro-level: government involvement, market imper-fections

The Chinese government is encouraging MNEs to expand abroad modeled on the examples of Japanese and Korean trading houses. Via big SOEs internation-alization is pushed in selected areas.

Li

2003 APJM 1976-2002


PC 1 Chi-nese firm (Acer)

Contextual and cultural factors

As latecomers, Chinese firms tend to explore ownership advantages to catch up. Government support can be seen as one specific ownership ad-vantage in terms of Chi-nese OFDI.

Liu & Li

2002 EMJ 1984-2001


Manufac-turing

1 Chi-nese firm (Haier)

Macro-level: government support, tariffs. Firm-level: transportation costs

Haier`s initiative in inter-nationalization was en-couraged and supported by the Chinese government. This support and financial backing was crucial for the firm’s success.

Wang

2002 PA 1978-1997


Cross- industry

Annual OFDI

Macro-level: role of gov-ernment, import quotas, trade barriers

The Chinese government directs large SOEs location and sector choice in ac-cordance with its long-term national strategies. Sectori-al and spatial pattern reflect the strong degree of political interference.

Child & Tse

2001 JIBS 1979-1998


Cross- industry

Macro-level: Government, industries- and firms-structure, intermediate institutions

Unique Chinese institu-tions call for theoretical incorporation of specific socio-economic contexts and institutional perspec-tives. China is under transition: marketization, decentralization, and privatization.

Cai

1999 TCQ 1979-1996


Cross- industry


Macro-level: government policies, link to official de-velopment aid

Many of the early Chinese OFDI were conducted by SOEs and were motivated by the government’s political interests. This was particularly evident in China’s heavy investment in Hong Kong.

Oviatt & Mc Dougall

1997 MIR 1985-1997


Cross- industry

Firm-level: links between inward and outward internationali-zation

Chinese OFDI is character-ized by an accelerated internationalization pace, static equilibrium-base, risk-averse attitude, and incremental progress.


Young, Huang & Mc Dermott

1996 MIR 1979-1992


Cross- industry

Firm-level: links between inward and outward internationali-zation

The role of the home government in supporting Chinese OFDI projects is crucial and interconnected with the motivations of the internationalization of Chinese firms.

Li

1993 PA 1980-1990

Canada Cross- industry


Contextual and cultural factors

Conventional explanations of ethnic entrepreneurship help to understand Chinese OFDI before World War II, but are inadequate to explain recent OFDI.

Mon-kiewicz

1986 MIR 1978-1986


Cross- industry

Annual OFDI flows


Government policies and intergovernmental agree-ments are strongly influ-encing OFDI. Differences between MNEs from developed and MNEs from developing countries might be over-stated and attributed to the relatively young age of the latter.

ADR (African Development Review), APJM (Asia Pacific Journal of Management), BH (Business Horizons), CMS (Chinese Management Studies), EMJ (European Management Journal), IBR (International Business Review), IJCCM (International Journal of Chinese Culture and Management), JCCA (Journal of Current Chinese Affairs), JIBS (Journal of International Business Studies), JWB (Journal of World Business), MBR (Multinational Business Review), MIR (Management Interna-tional Review), MOR (Management and Organization Review), PA (Pacific Affairs), TCQ (The China Quarterly), TIBR (Thunderbird International Business Review).


25

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