YangStoltenberg

Growth of Made-in-China Multinationals: An Institutional and Historical Perspective: 

Growth of Made-in-China Multinationals: An Institutional and Historical Perspective Xiaohua Yang School of Management Queensland University of Technology Clyde Stoltenberg College of Business Administration California State University-Long Beach November 30, 2006

Introduction: Some Facts: 

Introduction: Some Facts China is the largest outward investor among emerging countries. The 8th largest supplier of outward investment among all countries. Chinese multinationals (MNEs) have FDI in virtually every country in the world. The largest 12 Chinese multinationals now control over $30 billion in foreign assets across the whole spectrum of business activities

Overseas Acquisitions by Chinese MNEs in 2004: 

Overseas Acquisitions by Chinese MNEs in 2004 Source: Kang and He, 2005.

Tentative Conclusions: 

Tentative Conclusions Institutional theory can explain the growth of Chinese firms. Chinese government’s industrial policy has been the driving force in the rise of made-in-China MNEs. How did we reach these conclusions?

Slide5: 

Growth Stages of Chinese MNEs: A Historical Perspective

Institutional Theory: 

Institutional Theory Institutions are “rules of the game” by which firms act and compete. The three pillars of regulative, normative and cognitive structures comprise the forces that result in the intangible organizational dimension. This paper focuses on the regulative pillar which provides explicit guidance to organizational members, usually through rules, control, reward, and sanctions.

Institutional Theorists Argue that…: 

Institutional Theorists Argue that… Organizations enhance their legitimacy by “acting on collectively valued purposes in a proper and adequate manner” & exchanging possibilities with other organizations, thereby increasing their likelihood for survival. Government can provide coercive influence on firms to comply with relevant laws and regulations.

Slide8: 

Institution-based View of Chinese MNEs Government as both an enabler and a controller in the Rise of Made-in China MNEs Diplomacy Inward FDI Policies Outward FDI Policies Policies on securing vital resources abroad

Diplomacy in Southeast Asia and the Rise of Chinese MNEs: 

Diplomacy in Southeast Asia and the Rise of Chinese MNEs Short cultural distance Slide down the learning curve more quickly Low risk training base for Chinese Management

Inward FDI Policies and the Rise of Chinese MNEs: 

Inward FDI Policies and the Rise of Chinese MNEs Infusion of foreign capital (through JVs) Overhaul of archaic technology Import of western management system Export to foreign markets

Slide11: 

Outward FDI

Table 1. Chinese Firms’ Initial Overseas Ventures: 

Table 1. Chinese Firms’ Initial Overseas Ventures

Impact of Outward FDI Policies : 

Impact of Outward FDI Policies Both explicit and implicit government policies acted as driving force for international expansion

Wu Banguo, Chinese State Council, Stated in August 1998:: 

Wu Banguo, Chinese State Council, Stated in August 1998: In our world today economic competition between nations is in fact between each nation’s large enterprises and enterprise groups. A nation’s economic might is concentrated and manifested in the economic power and international competitiveness of its large enterprises and groups… Our nation’s position in the international economic order will be to a large extent determined by the position of our nation’s large enterprises and groups.

Bai Rongchun, Director General, Industrial Planning Department, State Economic and Trade Commission, stated in July 2001:: 

Bai Rongchun, Director General, Industrial Planning Department, State Economic and Trade Commission, stated in July 2001: The state will encourage big state-owned businesses to become internationally competitive corporations by listing on domestic and overseas stock markets, increasing research and development expenditure, and acquiring other businesses. The country will develop thirty to fifty large SOEs in the next five years through public offerings, mergers and acquisitions, restructuring and co-operation.

OFDI as part of Policies on Securing Vital  Resources Abroad: 

OFDI as part of Policies on Securing Vital Resources Abroad Incentive to take on risky projects Incentive to beat other Chinese competitors Incentive to avoid being downsized

Recent policies relating to OFDI: 

Recent policies relating to OFDI The 2006 M&A Rules expressly allow (for the first time) the use of a foreign publicly listed company’s shares as consideration for the exchange of Chinese equity securities Ministry of Finance has issued a series of new and revised Accounting Standards for Business Enterprises China Securities Regulatory Commission has been promoting since April 2005 a share liquidity reform program under which listed companies are being restructured to convert almost all non-tradable legal person shares into freely tradable A shares within two years.

Lessons we have learned from this research: 

Lessons we have learned from this research Institutions do matter in the rise of Chinese MNEs. Institutions act both as enablers and controllers to Chinese firms in their international expansion. Chinese SCEs are motivated to expand abroad due to the need to legitimize their existence. Inward FDI policies can strategically steer indigenous firms toward the direction of outward FDI. Government’s diplomacy can play an important role firms’ international expansion.

Where do we go from here? : 

Where do we go from here? Empirical studies on the behavior of Chinese firms abroad. Compare and contrast SOEs and private firms in China Compare and contrast firms’ internationalization process in China and other emerging economies.

Slide20: 

Any Suggestions?

Growth of Made-in-China Multinationals: An Institutional and Historical Perspective: 

Growth of Made-in-China Multinationals: An Institutional and Historical Perspective Xiaohua Yang School of Management Queensland University of Technology Clyde Stoltenberg College of Business Administration California State University-Long Beach November 30, 2006