Abstract
This chapter seeks to define and elucidate the most challenging new frontier in understanding international business (IB), the pervasive rise of Chinese and other emerging market multinationals enterprises (EM-MNEs). This is seen to challenge the expectations of established IB theorising since these EM-MNEs are perceived as internationalising much earlier in their formulation as firms and much earlier in the development of their home countries than expected. The core of the analysis we offer is to see the emergence of such firms as MNEs as being integral to the processes of their home-country development in ways that were not relevant to the comparable growth of traditional ‘Western’ MNEs. The home-country (macro-level) part of the framework we offer suggests that these countries’ development not only generates resources (e.g. capital and foreign exchange) that can be leveraged to support foreign direct investment (FDI) but also creates imbalances (resource shortages and knowledge constraints) that provide motivations for FDI. At the micro firm-level, we suggest this places EM-MNEs’ growth within the institutions of national development and thereby indicates the need for relationship building competences to secure this position.
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Notes
- 1.
This is not to claim, of course, that developed industrialised economies never had policies towards outward foreign direct investment (OFDI). But, as argued in detail by Buckley et al. ( 2010</CitationRef>), these were predominantly articulated as macro-level capital controls and often based on neo-classical frameworks that denied the micro-level understandings of MNEs generated in IB theorising.
- 2.
Recently, Meyer (2014) has refocused an ‘internationalisation process’ model towards the specific context of EM-MNEs. Thus the emphasis is placed much more decisively on institutional, rather than mainly economic, similarities in determining plausible locations for early international expansions. This encompasses experience in operating in (and from) institutionally uncertain and volatile environments. This coalesces with our conceptualisation of relationship firm-specific advantages as distinctive attributes of potential EM-MNEs, enabling them to operate flexibly and responsibly within opaque and incoherent institutions of planning and regulation.
- 3.
These have been manifest in the expansion of decentralised and internationalized RandD programmes in MNEs and its interrelations with globalised approaches to innovation (Papanastassiou and Pearce 2009, Chap. 8).
- 4.
Aharoni (2014) has drawn attention to similar lines of argument in very early thinking on MNEs. Thus he notes how Aliber (1970, 1971) suggested that a competitive advantage available to an MNE ‘was its access to hard currencies and lower financial costs … [so that] one reason why some countries may spawn more MNEs than others is that their firms have access to hard currencies and can use that advantage to acquire other firms in other countries’ (Aharoni 2014, p. 24).
- 5.
Strictly speaking we should here refer to primary resource seeking (to parallel level-1 resources), rather than the broader, but simpler resource seeking. Thus our RS excludes, by comparison with Dunning and Lundan (2008a, p. 68), ‘cheap and well-motivated unskilled or semi-skilled labour’. This latter becomes a key element of our level-2 resources.
- 6.
We refer here to ‘energy’ in terms of a national generation and distribution system, which can be improved and upgraded through time; rather than non-renewable fossil-fuel primary sources.
- 7.
Where EM-MNEs have genuine FSA-A likely to contribute positively to host-country development they may face less resistance than where there is a clear perception of their dependence on home-country CSA-D support mediated by home-country CSA-I.
- 8.
Some of the lines of argument developed here in relation to ‘South–South’ RS investments may be transferable to the emerging stages of Chinese MS and ES in Africa and other developing countries. For instance goods and services created to be competitive in the Chinese market (including the ability to produce them cheaply) through the early stages of its development may transfer logically and effectively into competitiveness in other emerging markets.
- 9.
This positions these early KS investments of Chinese MNEs in two analytical contexts. Firstly, in line with now-established understanding of KS in the mature ‘traditional’ MNEs, it may generate new firm-level attributes that can be applied anywhere in an expanding and diversifying MNE’s global operations (multidirectional technology transfers), that is, non-location-bound subsidiary-specific advantages (Rugman and Verbeke 2001). But in the EM-MNE case it may more resemble the, now mainly superseded, concept of ‘reverse technology transfer’ in which a prioritised flow of new technology and similarly competitive attributes goes from an overseas facility specifically back to the parent and home-country operations.
- 10.
- 11.
Rugman (2010, p. 84) suggests ‘MNEs from emerging markets [need] to develop FSA-A in business-government relations’.
- 12.
In an analysis of the determinants of Chinese outward FDI Wang et al. (2012a, p. 672) argue that firm-level resources (our FSA-A) only trigger foreign expansion ‘when firms are strongly supported by government’, so that an emerging economy MNE’s ‘ability to employ its resources and internationalize depends on its effectiveness in managing government ties’ (our FSA-R).
- 13.
Of course the extent to which FSA-R learnt in a home-country context can transfer to building relationships with host countries’ agencies and policy makers is uncertain. In fact, differences in the types of FSA-R that are most viable for effective positioning in terms of home- and host-country institutions will be a significant influence in determining the extent and implications of the cultural and institutional distance often modelled into analysis of determinants of FDI.
- 14.
Emphasis has also been placed on the level (state; province; city and county) at which the governmental affiliation of a possible MNE is activated (Wang et al. 2012a; Child and Rodrigues 2005; Sun et al. 2010). This is likely to affect institutional openness to persuasion through FSA-R. Thus Wang et al. (2012a, p. 660) argue that whereas at the city or county level local performance is likely to pre-occupy bureaucratic decision makers, at the state or provincial level they may be ‘more concerned with globalisation, openness and integration of the country into the World economy [the Go-Global policy]’ and thus more amenable to firms’ FSA-R.
- 15.
The alternative negative substitution effect is, of course, one where the ideal FSA-A are not applied because the firm’s weak FSA-R are beaten by those of another enterprise with less appropriate FSA-A.
- 16.
From her wide-ranging review of China’s resource policy Moyo (2012, p. 14) indicates that in the context of emerging global resource shortages ‘China seems to be the only country that is preparing for this eventuality in a sustainable and deliberately constructive way’ through an entry into international resource markets that involves ‘a comprehensive three pronged approach: via financial transfers (be it aid or commercial loans), through trade and by means of investment’ (Mayo 2012, pp. 75–76).
- 17.
Biggeri and Sanfilippo (2009) also found a significant positive relationship between African countries’ level of production of crude oil and a measure of its bilateral cooperation (the Aid relationship) with China. Thus it is suggested (Biggeri and Sanfilippo 2009, p. 45) that ‘Chinese economic cooperation … is driven by the opportunity to establish deeper relations with oil producing countries’.
- 18.
A number of studies of leading MNEs’ operations in China have illustrated extensive knowledge spillovers into the wider economy, through joint ventures, subcontracting relationships, University R&D partnerships and so on. This can also be interpreted as a contribution of IB to the Chinese NSI and its generation of level-3 resource capacities. It can be argued, however, that this is qualitatively different from outward KS by Chinese MNEs. The driving imperative of the foreign MNEs in China is usually to transfer and/or evolve their own knowledge base towards innovation that is driven by and for the local market. Its core is the established capacities of the MNEs as evolved towards the distinctive local needs. It certainly adds to knowledge-driven enhancement of competitiveness in China, including elements that also add dimensions to international competitiveness. But it does not impart the types of uniquely local distinctiveness sought by the NSI. The KS of Chinese MNEs may still be contributing to this in a more individual manner.
- 19.
Luo et al. (2010, p. 68) also endorse the need to examine ‘the regulatory pillar of the home country’s institutional environment [and its attention to] policies enacted by home-country governments’ as central to the twin objectives of nurturing the growth of their MNEs alongside promotion of specific motivations for FDI. Thus ‘the Chinese government specifically promotes OFDI for the interest of national economic development’ (2010, p. 60) through support of individual firms. In our terms the institutional/policy environment (CSA-I) is placed clearly in the context of CSA-D. Later (2010, p. 78) Luo et al. argue that to operate positively in this environment, EM-MNEs ‘need to familiarise with government policies, constantly communicate with government agencies, join government-sponsored initiatives, and actively influence new policies and measures’. They need to possess and exercise FSA-R. Empirically, Lu et al. (2014) showed that ‘home-country supportive’ policy was a consistently significant determinant of new Chinese investments in samples of both developed and developing host countries for 2002/2009.
- 20.
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Tang, Y., Pearce, R. (2017). The Growth of Chinese Multinationals: A Micro–Macro, FSA–CSA Framework. In: Ibeh, K., Tolentino, P., Janne, O., Liu, X. (eds) Growth Frontiers in International Business. The Academy of International Business. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-48851-6_5
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