Chinese multinationals’ fast internationalization: Financial performance advantage in one region, disadvantage in another

Abstract

Our study reveals the financial performance implications of the speed at which Chinese multinational enterprises (CMNEs) expand into intra-regional versus inter-regional host countries. In doing so, we propose a framework that integrates internationalization speed and home regionalization literatures. Using data from 767 publicly listed CMNEs from the years 2002 to 2014, we discover that the faster the intra-regional internationalization, the better the firm’s financial performance, whereas faster inter-regional internationalization demonstrates a poorer financial performance. We also find that fast-mover CMNEs’ technological and marketing resources are valuable in intra-regional host countries, but vulnerable in inter-regional host countries. We discuss the implications of these findings for studies of the Uppsala internationalization process model and regional MNEs.

French

Notre étude révèle les conséquences en termes de performance financière de la vitesse à laquelle les entreprises multinationales chinoises (EMNC) se développent dans les pays hôtes intrarégionaux et interrégionaux. Ce faisant, nous proposons un cadre intégrant les littératures sur la vitesse d’internationalisation et la régionalisation d’origine. En utilisant les données de 767 EMNC cotées en bourse de 2002 à 2014, nous découvrons que plus l’internationalisation intrarégionale est rapide, meilleure est la performance financière de la firme, alors que l’internationalisation interrégionale rapide démontre une performance financière plus modeste. Nous constatons également que les ressources technologiques et marketing des EMNC très mobiles sont utiles dans les pays hôtes intrarégionaux, mais vulnérables dans les pays hôtes interrégionaux. Nous discutons des implications de ces résultats pour les études du modèle processuel d’internationalisation d’Uppsala et des EMN régionales.

Spanish

Nuestro estudio revela las repercusiones del desempeño financiero en la velocidad a la cual las empresas multinacionales chinas (CMNEs por sus iniciales en inglés) se expanden entre regiones versus entre países anfitriones de la misma región. Al hacerlo, proponemos un marco que integra las literaturas de velocidad de internacionalización y regionalización del origen. Usando datos de 767 las empresas multinacionales chinas que cotizan en bolsa de los años 2002 al 2014, descubrimos que cuanto más rápida sea la internacionalización intrarregional, menor es el desempeño financiero de la empresa, mientras que una internacionalización interregional demuestra un desempeño financiero más pobre. Encontramos también que los recursos tecnológicos y de mercadeo de rápido movimiento de las empresas multinacionales chinas son valiosos en países anfitriones de la misma región, pero son vulnerables en países anfitriones de otras regiones. Discutimos las implicaciones estos hallazgos para los estudios del modelo del proceso de internacionalización de Uppsala y las EMN regionales.

Portuguese

Nosso estudo revela as implicações no desempenho financeiro da velocidade com que as empresas multinacionais chinesas (CMNEs) se expandem para países anfitriões intraregionais versus inter-regionais. Ao fazê-lo, propomos um modelo que integra as literaturas sobre velocidade da internacionalização e regionalização doméstica. Usando dados de 767 CMNEs listadas de 2002 a 2014, descobrimos que quanto mais rápida a internacionalização intraregional, melhor o desempenho financeiro da empresa, enquanto a rápida internacionalização inter-regional apresenta um desempenho financeiro mais baixo. Também descobrimos que ágeis recursos tecnológicos e de marketing das CMNEs são valiosos nos países anfitriões intraregionais, mas vulneráveis nos países anfitriões inter-regionais. Discutimos as implicações dessas descobertas para estudos do modelo de processo de internacionalização de Uppsala e de MNEs regionais.

Chinese

我们的研究揭示了中国跨国企业 (CMNEs) 向区域内与区域间东道国扩张的速度对财务绩效的影响。我们就此提出了一个框架来整合国际化速度和本国区域化文献。使用2002至2014年间767家公开上市的CMNE的数据, 我们发现区域内国际化越快, 公司的财务业绩就越好; 而区域间国际化越快, 则财务业绩就越差。我们还发现, 快速行动的CMNEs的技术和市场营销资源在区域内的东道国里很有价值, 但在区域间的东道国里则很脆弱。我们讨论了这些发现对乌普萨拉国际化进程模型和区域跨国企业 (MNEs) 研究的意义。

APPENDIX

Heckman-Type Two-Stage Estimation Procedure

The endogeneity of internationalization speed per se may not be a serious problem partly because predetermined variables are used to operationalize this construct and partly because our analyses use a time lag structure (Wooldridge, 2009). As the denominator of the independent variable in all analyses, international experience partially resolves reverse causality and corrects for omitted variables. The reason is that it is unlikely that firm performance or any omitted variable of importance causes changes in international experience, which automatically accumulates over time. In addition, as the denominator of the independent variable, the cumulative number of a focal MNE’s foreign subsidiaries may be less influenced by firm performance. Specifically, the number of foreign subsidiaries established in the past cannot be the result of any change in firm performance in the current year, meaning that this number will not be correlated with the error term at time t. In fact, García-García et al. (2017) empirically confirm that internationalization speed is not endogenous to firm performance.

However, sample selection bias can occur when firms in our sample can be endogenously self-selected. Accordingly, our study runs the ordered probit regression in Heckman’s first-stage selection model, where purely domestic firms (i.e., firms competing at home only) are coded 0, CMNEs expanding within the home region only are coded 1, and CMNEs expanding outside the home region are coded 2. We rank these three decisions alternatives based on their performance implications. Compared to CMNEs, purely domestic Chinese firms are unlikely to face the liability of foreignness, that is, incur the costs of doing business abroad (Zaheer, 1995), thereby avoiding all flawed and ill-fated globalization strategies in the first place. In fact, Stadler, Mayer and Hautz (2015), analyzing 20 years’ worth of financial results for 20,000 firms headquartered in 30 countries, document that firms staying at home see bigger profits than firms going global. Of course, in reality, many Chinese firms ultimately engage in the race to globalize and develop gradually, especially from domestic firms to CMNEs. As Rugman and Verbeke (2007) point out, however, not all CMNEs are affected by the same liabilities of regional foreignness. CMNEs expanding within the home region only are likely to face the liability of intra-regional foreignness, whereas CMNEs expanding outside the home region are likely to face the liability of inter-regional foreignness; accordingly, the latter are likely to incur the greater costs of doing business abroad and hence yield lower performance at least in the short run than are the former. Taken together, all other things being equal, the managerial decisions to become purely domestic firms relative to CMNEs to expand intra-regionally versus inter-regionally may not be made randomly because of the performance implications of these decisions.

The first-stage selection model requires at least one exclusion restriction to improve the validity of the results of the Heckman models (Sartori, 2003). The exclusion restriction, which is conceptually similar to an instrumental variable, appears in the first-stage selection model, only to predict whether an observation appears in a sample so that it should be highly correlated with the dependent variable in the first-stage selection model, but uncorrelated with the second-stage error term. In our study, we use a provincial governor’s tenure, measured as the number of years since the provincial governor was inaugurated, as an exclusion restriction.

In China, provincial governors, who are not elected but appointed by the central government, may have political incentives to exert a significant influence on the investment location decisions of Chinese firms, as they are held responsible for provincial economic performance. It is important to note that Chinese provincial governors generally retire from their positions unless they are promoted to higher positions such as central government ministry-level positions and provincial party secretaries. In particular, previous research has found that provincial governors with shorter tenures are more likely than their counterparts with longer tenures to be promoted based largely on local economic performance (Li & Zhou, 2005). Hence, a newly appointed governor might aggressively pursue new initiatives and policies that foster local economic growth and market development activities in the province in which he or she governs so that he or she is rewarded in advance of the promotion events (Piotroski & Zhang, 2014). Additionally, the newly appointed politician is willing to protect his or her local Chinese firms’ interests, while also preventing all firms, Chinese and foreign, transferring profits away from his or her jurisdictional control. In such politically uncertain situations, foreign firms indeed suffer a severe decline in performance as their liability of foreignness is heightened (Zhong, Lin, Gao, & Yang, 2019). It is then in the best interest of the Chinese firm to invest for growth at home rather than abroad.

While provincial governors have increasing autonomy in using their power, it does not mean that they shall adamantly refuse to implement national policies (Walder, 1995). Most prominent may be the central government-led “go global” policy formally declared in 2000 (Luo, Xue, & Han, 2010). This policy requires that provincial governors transform Chinese firms, many of which are SOEs controlled by provincial governments, into global champions by assisting their internationalization efforts and foreign market development activities (Deng, 2007; Luo & Tung, 2007). In fact, the extent to which Chinese firms are internationalized during a governor’s tenure can be used as an indicator of the province’s economic openness and globalization (Buckley et al., 2007; Luo et al., 2010). It is therefore important that provincial governors embrace outward FDI, especially strategic asset-seeking FDI, during their tenures. In this regard, Chinese provincial governors with longer tenure in their positions may develop the tenacity and risk control ability to facilitate strategic asset-seeking inter-regional internationalization relative to asset-exploitation intra-regional internationalization. It is also critical for CMNEs to receive stronger support, both politically and financially, from a provincial governor with tenure power, for their inter-regional internationalization that is in and of itself complex, uncertain, and expensive (Deng, 2007).

Taken together, we predict that as the tenure of a provincial governor continues, some Chinese firms operating in the governor’s province have heightened incentives to transform themselves from predominantly domestic firms into CMNEs, some of which in turn decide to operate outside the home region. However, the provincial governor’s tenure per se is not likely to have a direct effect on financial performance, thereby becoming valid, or exogenous, and satisfying the exclusion restriction.