Chinese Firms’ Internationalization

In 1999, the Chinese central government introduced and started to promote a

“going out strategy” (zouchuqu zhanlue) to encourage local Chinese enter-prises’ internationalization, in particular innovation and technology-intensive firms. This strategy supports advanced Chinese firms to go global with the major purposes of upgrading their technology, establishing global brands and increasing their global market share. In the case of low-tech firms, this strategy guides local manufacturers’ exporting (OECD 2008) (Luo et al. 2010). During the last two decades, academic attention to Chinese firms’ internationalization has been increasing, yet it is still extremely limited considering the number and scale of Chinese firms (Wong 1999; Taylor 2002; Fan 2006; Gao et al. 2007;

Deng 2007). Research on internationalization of Chinese firms (see Appendix 1) has been conducted on a piecemeal basis (Deng 2012).

According to the studies of Child and Rodrigues (2005), Chinese firms mainly follow three internationalization routes: 1) the contract manufacturer/

joint-venture (JV) route, where local Chinese firms export their products globally via contracting, JV or licensing. This route is mainly followed by medium and low-tech manufacturers; 2) the mergers and acquisitions (M&A) route, through which Chinese firms can gain access to better raw materials, natural resources, technologies and foreign-market know-how. Some larger-sized firms also acquire global brands, for example in the cases of Lenovo vs.

IBM, Geely vs. Volvo and Dalian Wanda vs. AMG; and 3) the greenfield investment route, which allows Chinese firms to exploit technology and better integrate their global management. For instance, ZTE entered Sweden in 2002

and JAC Motors entered Italy in 2005. Due to the fact that the Chinese central government started its “Opening up and Reform Policy” in 1978, which allowed private enterprises to conduct business in mainland China, Chinese firms started their internationalization rather late, mainly from the 1990s onwards, in the shadow of their lack of knowledge and experience. Hence, most Chinese firms have followed the first route, and are gradually moving up in the value chain in terms of upgrading themselves from original equipment manufacturers (OEM) to original design manufacturers (ODM) and original brand manufacturers (OBM) or original idea manufacturers (OIM) (Hobday 1995; Child and Rodrigues 2005; Deng 2007; Bonaglia et al. 2009).

Previous studies on Chinese firms’ internationalization have mainly focused on large SOEs, and relatively little research has been conducted on privately owned SMEs (Hong and Sun 2006; Deng 2009; Cui and Jiang 2010). Due to the low transparency of information and difficulties in collecting firm-level data in China, previous studies have mainly used secondary statistical data or case-based evidence to illustrate Chinese firms’ internationalization paths (Liu et al.

2008; Yang et al. 2009a; Cui and Jiang 2010). Hence, research on Chinese private SMEs’ internationalization that has been based on first-hand data is extremely limited (Zhou 2007). Therefore, this thesis, which is based on first-hand, firm-level data, is of high value.

As suggested by Song et al. (2011), in order to study Chinese firms’ inter-nationalization and foreign expansion patterns, it is necessary to distinguish between SOEs and privately owned enterprises (POEs). This is because: 1) SOEs have different motivations for internationalization as they have much better access to governmental financial and political support, while POEs can rarely access these advantages (Sutherland and Ning 2011); 2) the Chinese government has strong control over SOEs; as a result, their internationalization objectives are mainly political, rather than economic. Child and Rodrigues (2005) suggested that Chinese SOEs’ outward internationalization decisions are often made according to political objectives, while those of Chinese POEs follow profit-maximizing objectives. Buckley et al. (2007), as well as Kolstad and Wiig (2012), discovered that in OECD countries, Chinese firms’ inter-nationalization decisions are driven by market-seeking motivations, while in non-OECD countries they are motivated by resource requirements. Recent work by Amighini et al. (2013) compared the differences in internationalization strategies between Chinese SOEs and POEs. They realized that Chinese POEs are attracted to large markets and host-country strategic assets, while SOEs follow their home country’s strategic needs.

Regarding Chinese firms’ foreign market strategies, based on data from 63 Chinese firms, Ramasamy et al. (2012) and Duanmu (2012) found that SOEs choose locations that have rich natural resources and high political risks. This does not necessarily mean that Chinese firms have a high-risk-seeking mindset, but rather that they are attracted to areas that offer political benefits (Li and Liang 2012). When POEs enter these locations, they are often following SOEs

and act as their suppliers of products and related services. Ramasamy et al.

(2012) and Lu et al. (2011) studied Chinese exporting companies, and con-cluded that exporting companies’ foreign market strategies are driven by market motives. Furthermore, Chinese firms are more willing to enter markets that have larger Chinese communities. These communities usually give firms fo-reign market information, connections, access to networks, and other know-ledge. This is also supported by the quantitative findings of Gu (2009) and Song (2011).

Based on survey data on 607 Chinese firms, Liu et al. (2011) studied the relationships between Chinese firms’ internationalization and their ownership structure and strategic orientations, and found that entrepreneurial orientation is positively related to internationalization, while the relationship between market orientation and firms’ internationalization is “U-shaped.” Scholars such as Nummela et al. (2004) and Knight and Cavusgil (2004) also agreed that entrepreneurial orientation is important for BG SMEs. Using primary data from 210 Chinese SMEs from Beijing and Hong Kong, Tang’s (2011) recent work on the influence of networking on internationalization discovered that the availability of foreign business resources is positively related to Chinese SMEs’

success in terms of rapid internationalization, while the availability of general organization resources does not have a similar association.

Tseng (1994), Cui (1998), Warner et al. (2004), and Yang et al. (2009b) argued that Chinese firms use their internationalization in foreign markets as a springboard to gain resources, with the result that they may become more competitive, both in the home market and abroad. Boisot and Meyer (2008) found that many Chinese firms enter foreign markets in order to avoid the risks and disadvantages associated with operating only in their home market. Psychic distance is an important term in the Uppsala model, with firms entering psychically close and familiar countries first. However, in Chinese cases, firms tend to look at ethnically based social networks than psychic distance (Sim and Pandian 2003). Cai’s (1999) and Deng’s (2004) early studies show that Chinese firms prefer to enter foreign markets that contain Chinese social networks which they can benefit from (Zhou et al. 2007). From data on 887 publicly listed Chinese firms, Chen and Tan (2010) discovered that location within internationalization strongly impacts Chinese firms’ internationalization-per-formance relationships. Regarding the speed of Chinese firms’ internationa-lization, Zou and Ghauri’s (2010) multi-case studies found that Chinese high-tech firms internationalize much faster than the gradual internationalization model predicts, but slower than BGs.

To summarize (see Figure 4), the literature on internationalization regarding Chinese firms has increased in the past decade, yet there has been an extreme lack of theoretical development and empirical evidence. Scholars have looked at SOEs, but POEs have been studied to a much lesser extent.

In fact, in order for this thesis to make a comprehensive theoretical contribution, its study of the internationalization of Chinese firms will be

conducted with the following distinctions: 1) ownership. SOEs, POEs, JVs with foreign ownership, and mixtures of any of these two or three types of ownership may result in different firm characteristics, which will stimulate unique internationalization behavior in the Chinese context; 2) size. MNEs and SMEs receive different types of support during their initial stages of internationa-lization, and different financial, personal and production capabilities cause firms to follow very different internationalization paths; 3) advancement of technology. Chinese high-tech and low-tech firms internationalize according to various motives and drivers.

Figure 4. Previous research on Chinese firms’ internationalization

Source: compiled by the author based on Kling and Weitzel 2010; Zou and Ghauri 2010;

Chen and Tan 2010; Tang 2011; Liu et al. 2011; Ramasamy et al. 2012; Minin et al.

2012; Amighini et al. 2013.

Deng (2012) collected literature on the internationalization of Chinese firms published in major journals in the past two decades (from 1991 to 2011). His study applied content analysis and illustrated the antecedents, processes and outcomes of Chinese firms’ internationalization. Deng (2012) concluded that the previous research on Chinese firms’ internationalization is piecemeal, and numerous issues have been under-investigated. Thus, more studies should be conducted in order to continue to examine and model the antecedents, processes and outcomes of the internationalization of Chinese firms. Hence, Chinese low- and medium-tech SMEs, which are all privately owned, shall be studied further here. From a methodological point of view, comparative studies of slower and faster Chinese internationalizers are still missing, as is longitudinal study of Chinese firms’ global expansion. Therefore, in order to provide a comprehen-sive picture of Chinese firms’ internationalization, both qualitative and quanti-tative methods shall be applied in this thesis, and a longitudinal approach used to conduct the comparative studies (Werner 2002; Newman et al. 2003;

Hurmerinta-Peltomäki and Nummela 2006).