Subnational institutions and outward FDI by Chinese firms: The mediating role of firm-specific advantages
Abstract
Purpose
The purpose of this study is to extend the classic country-specific advantage (CSA) – firm-specific advantage (FSA) framework by integrating an institution-based view of CSAs into the discussion of FSAs. In his classic CSA – FSA framework, Rugman suggests that successful multi-national enterprises (MNEs) are often built on the interaction between strong FSAs and strong CSAs at home. In the case of emerging market multi-nationals (EMNEs), he argued that strong CSAs were of particular importance in allowing EMNEs to develop FSAs. In particular, we examine CSAs at the sub-national level.
Design/methodology/approach
The authors suggest that sub-national heterogeneity in market-supporting institutions is an important feature of emerging market economies, and that consideration of such heterogeneity contributes to our understanding of firm capabilities and overseas investment behavior of emerging market firms. The authors also identify explicitly the mechanisms through which sub-national institutions at home affect FSAs and, subsequently, the ability of emerging market firms’ entry into developed markets. Specifically, the authors argue that strong local institutions that support effective and well-functioning markets create the conditions that induce firms in that location to develop market-related capabilities in R & D and marketing, which, in turn, enable them to expand into developed countries.
Findings
Using a unique data set on overseas investment by Chinese firms and causal mediation analysis, the authors find strong evidence in support of the view that strong sub-national institutions help emerging market firms develop the capabilities to enter developed country markets.
Originality/value
This study extends the classic CSA–FSA framework by integrating an institution-based view of CSAs into the discussion of FSAs. In particular, the authors examine CSAs at the sub-national level.
Keywords
Acknowledgements
The authors gratefully acknowledge the helpful comments of Saul Estrin, Steven Globerman, Bersant Hobdari, Yadong Luo, Rajneesh Narula, Karl Sauvant, Michael Witt, the participants at the “Write Club” at Beedie School of Business, Simon Fraser University and the anonymous reviewers for this special issue. The authors acknowledge the financial support from the Social Science and Humanities Research Council of Canada. The authors also thank the Asia Pacific Foundation of Canada and the China Council for the Promotion of International Trade for sharing their data and Lynn Huang for her research assistance.
Citation
Chen, V.Z., Li, J. and Shapiro, D.M. (2015), "Subnational institutions and outward FDI by Chinese firms: The mediating role of firm-specific advantages", Multinational Business Review, Vol. 23 No. 4, pp. 254-276. https://doi.org/10.1108/MBR-07-2015-0029
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited