The conscious and unconscious facilitating role of the Chinese government in shaping the internationalization of Chinese MNCs

International Business Review 24 (2015) 331–343

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The conscious and unconscious facilitating role of the Chinese government in shaping the internationalization of Chinese MNCs Tian Wei a,*, Jeremy Clegg b,1, Lei Ma c a

Department of Business Administration School of Management Fudan University, Siyuan Building, 670 Guoshun Road, Shanghai 200433, PR China Leeds University Business School, Maurice Keyworth Building, University of Leeds, Leeds LS2 9JT, UK c School of Humanities and Social Sciences, Nanjing University of Science & Technology, Nanjing 210094, Jiangsu Province, PR China b

A R T I C L E I N F O

A B S T R A C T

Article history: Received 12 June 2013 Received in revised form 15 June 2014 Accepted 12 August 2014 Available online 8 September 2014

The main focus of this study is the contrasting mechanisms through which the Chinese government influences the internationalization of Chinese state-owned enterprises (SOEs) and of privately owned enterprises (POEs). The different circumstances created by the Chinese government at the outset of internationalization are found to affect the speed of internationalization and the network positions of the internationalizing firms. The research design is an in-depth multiple-case study comprising two SOEs and two POEs in the process of entering into both developed and developing host countries. The value of this study lies in its identification, theorization and analysis of, on the one hand, the Chinese governmental promotion of SOEs and, on the other hand, the institutional escapism on the part of the POEs. This contributes to a new understanding of the process through which the government takes on the role of ecological management, to which is applied self-theory. This study also identifies the limits of the Uppsala model with regard to the paths to internationalization and proposes a mechanism to explain why these limits exist. The four network positions identified in the study indicate how firms are embedded in the network of the foreign markets and in so doing contributes to filling a gap in the research on the concept of network position as outlined in the revised Uppsala model (of 2009). ß 2014 Elsevier Ltd. All rights reserved.

Keywords: Chinese firms’ internationalization Chinese government role State-owned enterprises Privately owned enterprises Host institutional context

1. Introduction The rapid pace of economic development at home and the liberal market policies implemented by the Chinese government have contributed to the internationalization of Chinese firms (Deng, 2012; Luo & Tung, 2007; Rui & Yip, 2008). Apart from policy initiatives, institutional factors in China have played an important role in shaping internationalization behaviour and in encouraging local firms to ‘‘go global’’ (Ramasamy, Yeung, & Laforet, 2012). According to some, the differential depth and nature of the involvement by the Chinese government in the businesses of Chinese SOEs as opposed to POEs makes their internationalization processes distinct (Luo, Xue, & Han, 2010). On the other hand, a number of recent empirical studies suggest that Chinese SOEs and POEs respond differently when faced with

* Corresponding author. Tel.: +86 0 21 25011125; fax: +86 0 21 65643920. E-mail addresses: [email protected], [email protected] (T. Wei), [email protected] (J. Clegg), [email protected] (L. Ma). 1 Tel.: + 44 (0) 113 3434512. http://dx.doi.org/10.1016/j.ibusrev.2014.08.008 0969-5931/ß 2014 Elsevier Ltd. All rights reserved.

the institutional environments of host countries (Blonigen, 2005; Gani, 2007; Kolstad & Wiig, 2012; Wei, 2000). At the aggregate level, total FDI flows have been found to exhibit a positive relationship with the level of development of host-country institutions (Asiedu, 2006; Globerman & Shapiro, 2002; Harms & Ursprung, 2002). It has been recently documented that both the Chinese government and host-country institutional environments affect the internationalization of Chinese firms, but none of these studies take into account the role of the Chinese government in the internationalization of Chinese firms in the presence of different host institutional environments (Cui & Jiang, 2012; Luo et al., 2010). This is a significant omission, given the extent of the Chinese government’s role and the external institutional pressures from host countries. This study aims to explore the contrasting mechanisms through which the Chinese government influences the internationalization of Chinese state-owned enterprises (SOEs) and of privately owned enterprises (POEs). Specifically, we investigate the differences in the internationalization process between the Chinese SOEs and POEs with regard to the various levels of support from the governments for three essential decisions: incentives, paths, and

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approaches; these decisions consist of different strategies in the host countries and have various levels of development. Our research question therefore is: ‘‘How does the Chinese government affect the internationalization of Chinese SOEs and POEs?’’ Four Chinese MNCs were selected to explore the motives and details of each international activity. These firms are commonly viewed as the leading Chinese MNCs in the representative industrial sector in Chinese outward FDI. Two of them are SOEs, and two are POEs. Significant access to the staff and records allowed the detailed capture and tracking of the strategies and their corresponding approaches for implementation in each case. 2. Internationalization of Chinese SOEs and POEs 2.1. Home-country institutional context and the role of the Chinese government The field of political economy has long maintained that the interaction between business and government is dynamic, complex, and interdependent (Boddewyn, 1988; Knutsen, Rygh, & Hveem, 2011; Kofele-Kale, 1992; Moran, 1985). Governments create systems of regulation for businesses to follow, while businesses have a degree of scope to influence the policies via representation and lobbying (Boddewyn, 1988). In China, the interdependence between government and business has been noted as particularly strong. Accordingly, government has the latitude to play a more significant role in the development and implementation of business strategies (Meyer & Peng, 2005; Wright, Filatotchev, Hoskisson, & Peng, 2005; Santangelo & Meyer, 2011). The different ownership structures of Chinese SOEs and POEs are a determinant of this degree of interdependence (Amighini, Rabellotti, & Sanfilippo, 2013). The higher degree of interdependence between the SOEs and government is a strong reason to differentiate them from POEs with respect to the implementation of (national and ownership-neutral) policy toward internationalization (Song, Yang, & Zhang, 2011). First, SOEs face different business and economic conditions in the domestic market, regardless of the industry of activity. Governments provide SOEs with access to strategic resources such as political support and capital from state-owned banks, and SOEs often enjoy a legacy monopolistic or dominant incumbent position at home (Amighini et al., 2013; Zou & Adams, 2008). It has been argued that these conferred access advantages compensate for the lack of firmspecific advantages of SOEs in internationalization (Luo et al., 2010; Rugman & Li, 2007). Second, due to strong ties with the government, when making decisions, managers in SOEs are mindful of the possibility that further support will be either formally or informally available in contingencies (Cui & Jiang, 2012). Such managerial cognition leads managers to underestimate the risks in internationalization and induces a bias towards outward FDI (Buckley et al., 2007). Third, SOEs have the scope to pursue a broader set of objectives in their international expansion, including both economic and political ones (Cui & Jiang, 2012; Globerman & Shapiro, 2009; Zhang, Zhou, & Ebbers, 2011). It follows that with actual and anticipated governmental promotion, SOEs are able to bear short-term losses and can afford to take greater risks in the internationalization process. In contrast, POEs are largely motivated by commercial objectives alone in internationalization due to the lower degree of interdependence with the government (Child & Rodrigues, 2005; Luo et al., 2010). First, POEs are typically constrained by limited capital, explaining the recourse to devices such as ‘‘round tripping’’ and tax havens to overcome their financial shortcomings (Sutherland & Ning, 2011). In addition, prior to 2004, POEs were not encouraged to invest overseas, so any investments had to be

circuitous by their nature (Ramasamy et al., 2012). Second, due to questions over legitimacy, POEs have experienced discriminatory policies in the domestic market and with regard to the access to natural resources (Kolstad & Wiig, 2012; McMillan & Woodruff, 2002). As a result, they may be prompted to seek out foreign markets where policy discrimination against POEs and the institutions of discrimination are absent (Ramasamy et al., 2012). The majority of studies on the impact of the Chinese government on the internationalization of Chinese firms focus on the incentives per se for internationalization (Deng, 2012). Generally, due to the governmental promotion afforded to SOEs and the institutional escapism driving the POEs, the strategic assetseeking motive is more important for SOEs, while the technical superiority of host-country industries is less of an attraction for POEs (Luo et al., 2010; Ramasamy et al., 2012). However, there has been little research that places emphasis on the processes involved compared with the preponderance of studies aimed at better understanding the role of internal resources and capabilities and the impact of the external institutional environment on the implementation of the internationalization of Chinese firms (Deng, 2009; Oliver, 1997). Many important processual and implementation elements – including, for example, the speed of internationalization and the network position in host countries – which are critical within the Uppsala Model (Johanson & Vahlne, 1977; Johanson & Vahlne, 2009), are ignored by a large number of studies (Deng, 2012). 2.2. Host country institutional context: Overcoming institutional legitimacy The influence of the Chinese government on internationalization is also apparent in the variation in investment by SOEs and POEs across the host countries. First, once abroad, Chinese firms are subject to the regulatory provisions of host-country governments (Gome-Casseres, 1990; Kesternich & Schnitzer, 2010). Various host-country discriminatory and restrictive policies create difficulties for (inward) internationalization, for example, limiting foreign investors’ access to local resources, requiring mandatory exporting, and interfering with other operational matters (Meyer, Estrin, Bhaumik, & Peng, 2009). In addition to this, Chinese SOEs are suspected of having political objectives that substitute for the commercial benefits to their shareholders (the Chinese state), therefore reducing or eliminating by implication the potential for direct and indirect economic benefits to the host economy (Chen & Young, 2010; Zou & Adam, 2008). The political dimension associated with Chinese SOEs can induce political sensitivities and public concern within the host countries (Cui & Jiang, 2012). In contrast, Chinese POEs are more at liberty to obtain institutional legitimacy in terms of local regulations due to their relatively weak political associations. Second, the internationalization of Chinese firms should take into consideration the social expectations within host countries. These are the normative systems comprised of the shared norms, values, beliefs, and cultures of a country (DiMaggio & Powell, 1983; Francis, Zheng, & Mukherji, 2009). The level of normative pressure exerted varies with the degree to which foreign cultures and practices are embraced or, indeed, resisted by inward investors (Francis et al., 2009; Ghemawat, 2001). Chinese SOEs are associated with the state power of China and carry an image of bureaucratic practices and inefficiency in the mind of host-country societies (Cui & Jiang, 2012; Zou & Adams, 2008). The bureaucratic stereotype connotes a lack of transparency and codified information, making the operations of Chinese SOEs difficult to understand and to be appreciated by individuals and organizations within host countries (Zhang et al., 2011; Zou & Sun, 1996). By comparison, Chinese POEs are more likely to conform to host-country

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that is encouraged by the MOFCOM, all of the OFDI industrial sectors can be categorized into three tiers: top, medium and low. We then select three industrial sectors in each tier: TV, communication equipment, computers and other electronic equipment manufacturing are selected for the top tier; R&D for the medium tier; and automobile parts manufacturing for the low tier. Level 3 discusses the selection of MNCs. To provide compelling evidence, at least two firms are selected with each type of ownership, and the selected MNCs cover a wide range of ownership structure, for example, 100% owned by the government, state-controlled enterprises, privately controlled enterprises, and 100% privately owned. This wide range indicates that we should select four enterprises, i.e., one for each type. To be representative, each of the selected case firms should be at the top of their industry sector. In total, four Chinese MNCs were chosen from the three selected industrial sectors (Table 1). Level 4 describes the selection of MNC subsidiaries, including the subsidiaries of each MNC. Level 5 presents the selection of the sources of evidence. Multiple data sources are adopted in this study, which is described in detail in the section addressing data collection.

normative pressures and be amenable to diluting their foreign image by adopting the local norms (Cui & Jiang, 2012). From this review, it is apparent that the internationalization of Chinese firms responds to the external institutional pressure exerted by the host country. It follows that the incentives, development paths, and processes facing Chinese firms with differences in ownership should be explored by including the institutional environment of the host country. Furthermore, the studies that focus on the incentives, entry mode, and psychic distance are too narrow, as these are only a few of the elements of internationalization strategy and cannot provide a systematic view (Deng, 2012). As a means of addressing these shortcomings, this paper develops a model of the internationalization of Chinese SOEs and POEs in host countries with different levels of development. It emphasizes the impact of government on the Chinese MNCs and addresses the two main types of ownership structure—stateowned and privately owned. To reveal the theoretical mechanisms involved, we comprehensively examine why Chinese SOEs and POEs behave differently in the internationalization process and explore the role of governments in determining these firms’ network positions. 3. Case study approach

3.3. Data collection 3.1. Case study method Our data collection includes two stages. The first stage was primarily from 2008 to 2011. The data were collected from MNCs. The second stage was from 2013 to 2014. The data were collected from the Chinese local governments to confirm that the findings were derived from the firm data and to further explore the role of the Chinese government in internationalization. Multiple data sources were adopted in each stage. The first stage includes archival data, semi-structured interviews, participant observation and written communication. The second stage includes archival data and semi-structured interviews (Table 2). The semi-structured interview is the primary method of data collection, with other methods employed to provide complementary sources.

A multiple-case approach was selected for this research. China’s various institutional constraints create obstacles for scholars who seek to identify the patterns and rules without studying the complexity within a natural setting. Therefore, multiple cases are necessary to illustrate the comparative nature of this topic. The unit of analysis is a Chinese MNC, as can be easily identified from the research focus and objective. 3.2. Case selection The purposive sampling method dramatically improves the efficiency and effectiveness of a multiple-case study (King, Keohane, & Verba, 1994). We employed a ‘‘multilevel approach’’ for our case sampling, which has been suggested for international business research by Fletcher and Plakoyiannaki (2011). Level 1 refers to the selection of country. All of the case firms originated in mainland China, excluding Hong Kong, Taiwan, and Macau. Level 2 indicates the selection of industrial sectors. We select the industrial sectors based on the 1st, 2nd, and 3rd guidance of Outward Foreign Direct Investment (OFDI), developed by the Ministry of Commerce of the People’s Republic of China (MOFCOM) in 2004, 2005, and 2007. In terms of the number of host countries

3.3.1. Archival data We made efforts to collect both the public and private archival data. Public archival data are collected from the government statistical reports, third-party publications and firm annual reports, with the aim of gaining an overview of the case firm and then tailoring the conceptual framework appropriately. Private archival data were collected during the interview period. Due to sensitivity and confidentiality issues, only two case firms granted access to their archival records (Company A and Company B). Both

Table 1 Description of selected Chinese MNCs as samples. Chinese MNCs

Ownership

Province

Company A

SOE

Shandong

Company B

SOE

Guangdong

Company C

POE

Zhejiang

Company D

POE

Jiangsu

Main Industry

TV, communication equipment, computers and other electronic equipment manufacturing TV, communication equipment, computers and other electronic equipment manufacturing Auto parts manufacturing R&D services

First FDI

Host countries

Regions

Greenfield

South Africa, Hungary, and France

Africa, and Europe

Asia

Joint venture

Vietnam, Thailand, Poland, and Mexico

Asia, Europe and South America

United States

North America

Acquisition

United States

North America

United States

North America

Acquisition

United States

North America

Year

Country

Region

Entry mode

1996

South Africa

Africa

1999

Vietnam

2000 2008

T. Wei et al. / International Business Review 24 (2015) 331–343 Face-to-face interview followed by phone interview 2014 Director of overseas Investment in Jiangsu MDRC 2010–2011

Jiangsu MDRC

Interview/archives on the website of the government

Face-to-face interview followed by phone interview 2014 Director of overseas Investment in Zhejiang MDRC

Interview/annual reports/ internal documents

Interview/annual reports/ internal documents/direct observation

Interview/annual reports

Interview/annual reports

Company A

Company B

Company C

Company D

Face-to-face/ Phone

2009 Face–to-face/ phone

Zhejiang MDRC

2008-2010 Face–to-face/ phone

Various functions and levels, primarily in business development and operations President of America Corporation; Vice President in Global Concept Development Senior Vice President

Guangdong MDRC

Interview/archives on the website of the government

Face-to-face interview followed by phone interview Face-to-face interview followed by phone interview 2014

Director of overseas investment in Shandong MDRC Director of overseas Investment in Guangdong MDRC 2009 Face-to-face/ phone Director in Strategic Programmes

Shandong MDRC

Interview/archives on the website of the government Interview/archives on the website of the government

2014

Interview process Time period Mode of contact Interviewee Data collection methods Case firms

Table 2 Data collection methods for each case firm and their corresponding local government.

Time period

Local MDRC

Data collection methods

Interviewee

334

public and private archival data were used for refinement of the interview questions and triangulation. 3.3.2. Semi-structured interviews Semi-structured interviews were conducted together with field visits to collect the primary case data. In the first stage, our principal informants were the directors of the strategic programmes departments, the president or vice president of the firm, and/or other senior people with various functions. They were chosen because they have direct experience and first-hand knowledge of internationalization. We held at least two face-toface interviews with each of the principal informants. Afterward, we held several telephone interviews to confirm the existing data and collect further data, each lasting from 30 min to an hour. The data in this stage were collected in two parts. First, we mapped the internationalization process of each case firm, from its initiation to the current stage. The mapping of the process predicts the internationalization paths and approaches for each case. Second, for each of these activities, the rationale behind it was explored to establish the internationalization approaches. The rationale underlying the first activity is examined in particular, as it is also the incentive for internationalization. A brief summary of the primary data is presented in Table 3. In the second stage, our principal informants were the senior officers from the Municipal Development and Reform Commission (MDRC) in the regions where the MNCs originated. The local MDRC is responsible for studying and initiating the economic and social development policies of the city, creating a comprehensive balance between them and directing the reform work of the overall economic system of the city. Although every MDRC is part of the municipal government body, they are different in terms of the execution and development details for the policies from the National Development and Reform Commission as a consequence of the local context. Due to the direct impact of the local MDRC, the selected four informants hold the post of Director of Overseas Investment in the local MDRC of each of the four provinces where the case companies are from, that is, Guangdong, Zhejiang, JiangSu and Shandong. They have all been in the position for more than five years and are familiar with the policies and regulations related to the internationalization of Chinese firms. Our aim is to confirm the findings and explore the exercise of influence from the government perspective. We first develop a list of questions based on the findings from the firm data generated in the first stage, to which we add questions regarding the control mechanism of governments over the internationalization of Chinese firms. In the face-to-face interviews we posed the questions so produced to the informants. Based on their answers, we identified further relevant questions, which were then covered in the subsequent telephone interviews. Due to the nature of the confirmation of the data collected in the first stage, the face-to-face interviews were not long, ranging from 20 to 30 min. As further data collection, the telephone interviews lasted from 5 to 10 min. During the interviews, there were certain policies that were frequently referred to by the informants. We further investigated these policies at their official websites,1 of which only Zhejiang has an English version. We present the key data collected from the MNCs and confirmed by the governments in the data presentation in Section 4. The interviews were recorded and transcribed after the permission of the informants was granted. The transcript for each case is used as a basis to develop a case report, and each report was 1 The official website of the Zhejiang MDRC (English): http://english.zjdpc.gov.cn; The official website of the Jiangsu MDRC (Chinese): http://www.jsdpc.gov.cn; The official website of the Shandong MDRC (Chinese): http://www.sdfgw.gov.cn; The official website of the Guangdong MDRC (Chinese): http://www.gddpc.gov.cn.

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Table 3 A brief of the primary data for each case firm. Region

Country

Year

Major activity

Primary motive

Company A Africa

South Africa

1996

First overseas plant was established in South Africa, to explore 210 CRT televisions

2003

Acquired Daewoo’s factory in South Africa

Hungary

2004

France

2004

Cooperated with Flextronics on assembling LCD televisions in Hungary, with 300,000 annual capacity; Company A provided production lines, technology, and semi-knocked-down (SKD) parts; Flextronics offered land, facilities, warehouse, and labour Assembled plasma display panel (PDP) televisions by a contractual manufacturer with its own brand Established PDP television factory in France.

Follow the government direction; Obtain financial support from the government; Benefit from the leverage of production; Access to the market of South Africa. Meet dramatically increased customer demands in South Africa; Obtain a better price: the factory was nearly bankrupt; Integrate with the greenfield plant to build a production site to serve the African market Escape from trade barriers: the import tariff on flat panel television sets in Europe is approximately 14%; Exploit in-house technology; Access to local market

Europe

2005

Middle Asia

Multiple sites

2005

America Australasia Company B North America Southeast Asia

United States Australia

2000 2001

United States Multiple sites Vietnam

1997 1997 1998

1999

Europe

Multiple sites

1999

Germany

2002

France

2003

Middle Asian markets were served by established CRT television plant in Sinkiang Set up a trading company in the United States Set up a sales agent in Australia Exported cathode ray tube (CRT) television sets Exported cathode ray tube (CRT) television sets Set up a sales subsidiary in Vietnam, and then several small sales affiliates were set up throughout Asia Acquired Luk’s factory to fulfil local demands and further access to the new market

Set up sales subsidiaries in each country (Indonesia, Philippines, Thailand, Malaysia, and India) Acquired Schneider (7th largest television producer in Germany) to avoid the EU’s anti-dumping penalty against television makers from China. However, they did not renew the lease on Schneider’s facilities and the production in Germany was stopped in 2005 because the high production costs and rapid growth of flat panel television industry Joint venture with Thomson to create TTE

2004

Joint venture with Alcatel in mobile phone manufacturing

2005

Acquired Thomson’s factories in Thailand, Poland, and Mexico.

Africa Company C North America (export)

Multiple sites

2000s

Set up sales subsidiaries in Algeria and South Africa

United States

1984

Exported cardan universal joints to the U.S. as a contractual manufacturer for Zeller Corporation

North America, Europe, South America and Japan (export)

Multiple countries

1991

Exported drive shafts

1993 2001

Exported bearings and constant velocity shafts Exported ball bearings, suspension products, and brake components

Access to local market Meet the dramatically increased customer demands; Become a leading seller of flat panel televisions in France. Access to the market Access to the market Access to the market Access to the market Access to the market Access to the market

Reduce import barrier (television sets should not be sold without a local production facility in Vietnam); Offset the disadvantage that Company E did not have differentiated products and competitive prices; Get the government support Access to the market Escape from the EU’s anti-dumping penalty against Chinese television makers; Increase production capacity: three CRT television production lines; Acquire patents; Acquire distribution channels; Acquire two brands Become the largest CRT television producer in the world Expand geographical reach; Complete product portfolio; Achieve economies of scale Gain production footprints in the three main continents—Asia, Europe, and America; Meet all overseas demands; Consolidation Access to the market To avoid the highly protected SOE-dominated domestic market (At that time, China was in planned economy and the orders primarily went to SOEs) Enlarge its export product category and market coverage (the orders from Zeller had declined); Enter a more profitable market-assembly parts market, including North America, Europe, South America and Japan; Complete its export product portfolio

T. Wei et al. / International Business Review 24 (2015) 331–343

336 Table 3 (Continued ) Region

Country

Year

Major activity

Primary motive

North America (export)

United States

1997

Became a supplier of General Motors in the U.S.

Dominate the market: to become a top supplier to leading companies: General Motors and Ford

1999 1993

Became a supplier of Ford in the U.S. A sales subsidiary was established in Kentucky and then relocated to Chicago in 1994 A sales subsidiary was established in South America

North America (sales subsidiary) South America (sales subsidiary) Europe (sales subsidiary) North America (acquisition)

Brazil

1997

United Kingdom

1997

United States

2000

2001

2003 2007

Company D North America

United States

2000 2007 2008

Acquired 60% of the shares of the AS Company, a sales company Acquired the Zeller Corporation, a ‘‘Top 3’’ automotive parts supplier in the U.S. Acquired 35% of shares of the LT Company (a leading supplier of hub units in America) and became the largest shareholder Acquired 21% of shares of the UAI Company to become its largest shareholder, to produce brake components in the U.S.

Acquired 33.5% of shares of Rockford Powertrain to become its largest shareholder Acquired the pro-shaft plant from Ford Motor’s automotive components holdings in Michigan

The primary business is R&D outsourcing for large international corporations IPO (NYSE) Acquired Apptec

returned to the informants for verification to increase the research validity. 3.3.3. Participant observation The researchers observe the internationalization activities to acquire an understanding of the real business, which is only allowed by Company B. One of the authors stayed there for six months in 2008 to collect the first-hand data. During that period, she had frequent opportunities to talk with the informants, review the private archives and validate the collected data. 3.4. Data analysis Thematic analysis has been used in this study to summarize the data, identify constructs and investigate relationships (Miles & Huberman, 1994; Strauss & Corbin, 2007). The process of coding the data and deriving the themes is presented in Fig. 1. Three coders were involved in the analysis. A comparison of the coding indicated a high and satisfying inter-coder rate (k = 0.84). Disagreements were resolved through extensive discussions between the authors and the two additional coders. As is generally the case, the process of coding has three steps, as illustrated by Pratt and his colleagues (Pratt, 2000, 2008; Pratt, Rockmann, & Kaufmann, 2006), and presented in Fig. 1. In the first step, open coding is used to better understand the internationalization process, from incentives to activities. We made common statements into first-order constructs, which are refined by the iterative process. The iteration process was undertaken in this manner until the three coders were unable to ascertain any further distinct and meaningful constructs. In the second step, our work turned to axial coding to consolidate the first-order constructs and to make them more abstract and thematic (Strauss & Corbin, 2007). In the third step, we developed the dimensions that are aggregated

Expand the market

Establish its European bearing company; Sell all types of bearings in the European market Gain equipment, brand, technology patents, and distribution channels Have manufacturing and assembly capabilities in the U.S.; Acquire a new type of product: hub units Provide a good technology platform to transfer technology capability to the newly launched brake system line in its business in China; UAI’s global distribution networks facilitated its China business to export brake products to the global market Enhance its drive shaft business in North America (70% market share) Acquire new types of products: shafts, halfshafts, driveline products, and catalytic converters (complete the product portfolio) Serve the international market once it was set up (customers are in the developed countries) More financial support Build up manufacturing capabilities for certain products; Acquire expertise in medical devices and biopharmaceuticals

by theoretical themes. It appears that the second-order themes can be categorized into three groups.

4. The facilitating role of the Chinese government in the internationalization of Chinese MNCs 4.1. The facilitating role in incentives: Conscious vs. unconscious 4.1.1. Conscious Company A’s internationalization began with exporting in 1999, having already established a television plant to produce 21in. cathode ray tube (CRT) televisions in South Africa. Undoubtedly, the firm encountered many unexpected challenges in South Africa. However, with strong government support, Company A survived to become the second largest television producer and seller in South Africa since 2003 due to its early presence in the market. The Director of Strategic Programming of Company A emphasized the strong ‘‘financial support’’ from the Chinese government: Our internationalization was initiated by the government. Before our first export to South Africa, we had no experience of international trading and experience, even though we were quite successful in China. The government felt that internationalization was a trend and then supported us to globalize. . .We benefited a lot from their financial support. Company B’s internationalization started in 1997 with the exportation of CRT television sets to the U.S. and then Southeast Asia, and it set up a sales subsidiary in Vietnam in 1998. In 1999, with government support, it acquired a CRT television plant in Vietnam from Luk Industrial. Its presence in Vietnam enhanced its brand awareness and sales volume in every Southeast Asian market. From that point forward, it has continuously established

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First-order constructs Statements on “financial support” and “regulatory privilege” Statements on overprotection of SOEs: “orders distributed to SOEs” Statements on unbalanced support for the development of industries: “do not have customers” and “lag behind those in developed countries” Statements on radical growth of SOEs (e.g., “acquisition”, “merger”, “joint venture”, and “greenfield”)

Second-order themes

The facilitating role of government with regard to incentives Unconscious

Aggressive Internationalization paths Cautious

Statements on competition: “strong competitor”, “stable position” Statements on rival removal: “acquiring a leading company”

Market competitor

Statements on market domination: “control the market”, “more than 50% market and “top positions in the market” Statements on technology exploitation: “technology leader”, and “technology advantages”

Market dominator

Statements on export: “sales subsidiaries”.

Aggregate dimensions

Conscious

Statements on incremental growth of POEs at the first stage (e.g., “sales subsidiary”, “export”, and “supplier”) Statements on radical growth of POEs at the later stage (e.g., “acquisition”)

Statements on: “sales subsidiaries”, “suppliers”, “outsourcing” and “export” Statements on “acquisitions”

337

Internationalization approaches

Market seeker

Market explorer

Fig. 1. The structure of developing internationalization strategies for Chinese MNCs.

sales subsidiaries in Thailand, Indonesia, the Philippines and Malaysia. The Director of Business Development of Company B viewed the impact of ‘‘regulatory privilege’’ on their motive for internationalization:

Proposition 1a. Conscious Chinese government suasion through financial support and regulatory privilege is the dominant motive force in facilitating the internationalization of SOE MNCs.

At that time, we faced a sales reduction in the domestic market. . .We cannot sell at a relatively low price for new products. Luckily, we got reimbursement from the government, and they helped us to build relationships with the local government to sell in Vietnam and then bought a CRT television plant there.

4.1.2. Unconscious Company C was established as a village firm in 1969 to supply low value-added automotive parts. In 1984, orders for automotive components were centrally planned and primarily distributed to SOEs. It was very difficult for Company C, a village enterprise, to compete in the domestic market. Facing this tough situation, it took the first step toward internationalization by exporting cardan universal joints to the U.S. as a contractual manufacturer for the Zeller Corporation. The Chinese government did not play a role in pushing the internationalization but created an institutional environment that hindered the normal development of Company C and thus naturally forced it to go abroad. The Vice President of Global Concept Development of Company B described the overprotection of SOEs in terms of the ‘‘orders distributed to SOEs’’ before their internationalization:

The consciousness of the government suasion and the two approaches (financial support and regulatory privilege) are validated by the directors of overseas investment from the local MDRCs. The Director of Overseas Investment in the Shandong MDRC, the province where Company A is located, states: ‘‘We have detailed policies for supporting internationalization. For example, credit loans and regulatory approval assistance. All of these policies are based on Decree No. 21 of the National Development and Reform Commission. Specifically with regard to Company A, we helped them submit their tax return in China and obtain bank loans.’’

In 1984, although the reform of the economy in China had been implemented for six years, the automotive industry was still

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centrally planned. Most orders were distributed to SOEs. It was impossible for us to compete with them. In order to survive, we moved to the overseas market. Established in 2000, Company D is a leading global pharmaceutical, biopharmaceutical, and medical device outsourcing company. Its customers are large corporations in developed countries. Its unique customer base means that it was inevitable that Company C would be an international firm. Even after economic reform, Chinese firms have been controlled under the planned system for an extended time, and innovation remains far below the average level worldwide. It is impossible for Company D to explore customers in the domestic market. The Senior Vice President of Company D stated the unbalanced support for the development of industries in terms of ‘‘do not have customers’’ and ‘‘lag behind those in developed countries’’: Chinese pharmaceutical firms do not have a huge desire for cutting-edge technologies compared with their international competitors and therefore do not need our services. It is because they have been under the control of the government for many years and only recently started to invest in new patents and technologies. These two cases began the internationalization process before 2001, the year that China joined the WTO. At that time, the Chinese government had their preferences regarding SOE internationalization. The Director of Overseas Investment of the MDRC of Zhejiang, which is the province where Company C is located, reflected on the policies 20 years ago: ‘‘We treat SOEs and POEs equally now, but in the 1990s, we protected the business of SOEs through organizing domestic and foreign orders for them. We did not have a policy of helping POEs to go abroad.’’ Similarly, the Director of Overseas Investment of the MDRC of Jiangsu stated, ‘‘Company D is engaged in R&D outsourcing. It cannot find clients in China because the pharmaceutical and medical device industries are less well developed than in western countries.’’ Proposition 1b. Unconscious Chinese government suasion through overprotection of SOEs and unbalanced support for the development of industries is the dominant motive force in facilitating the internationalization of POE MNCs. 4.2. Internationalization path: Aggressive vs. cautious 4.2.1. Aggressive From 2003 to 2005, Company A invested in Hungary and France to enter the European market by joint venture and by greenfield investment. At the same time, in 2003, it acquired Daewoo’s production facility. Obviously, after testing the water in 1996, Company A largely increased its footprint in Asia and Europe in the early twenty-first century. Benefiting from a large increase over a three-year period, its internationalization process was not incremental in the long run but boomed within a short period. The Director of Strategic Programming of Company A reflected on their rapid expansion through ‘‘joint venture’’ and ‘‘greenfield’’ in a forthright statement: With government support, we quickly expanded our business in Africa and Europe from 2003 to 2005. For example, we cooperated with Flextronics over assembling LCD televisions in Hungary in 2004. A year later, we established a PDP televisions factory in France. Company B has dramatically developed its footprint in both developing (Asia) and developed countries (Europe). Its expansion in Asia occurred two years after its first sales subsidiary was

established in Vietnam in 1998. In Europe in 2002, it entered the market by acquiring Schneider (Germany), then merged with Thomson’s television business and co-founded the TTE Corporation with Thomson. This merger not only made Company B the largest CRT television producer in the world but also created production footprints in three main continents—Asia, Europe, and North America. Therefore, the internationalization of Company B occurred primarily between 1999 and 2004, with radical expansion occurring in 2004. The Director of Business Development of Company B candidly referred to the importance of ‘‘acquisition’’ and ‘‘merger’’ and their speed of expansion: We acquired Schneider in 2002, and the geographical footprint was built by co-founding the TTE Corporation with Thomson in 2004. We had already stepped into several overseas markets from 1998. . .That was quick. The internationalization speed of the SOEs has been demonstrated by the archival data from both the case firms and governments. Company B received a large loan from the China Development Bank and the Export–Import Bank of China. For its acquisition of Thomson, 10% of the funding was supported by the government. With this intensive endorsement, the potential of Company B has largely been increased, and the rate of their internationalization has increased as well. Proposition 2a. Conscious Chinese government suasion encourages SOE MNCs to pursue internationalization aggressively. 4.2.2. Cautious The internationalization process of Company C was much longer and far more tortuous. After entering the U.S. in 1984, it started to expand its export product category and geographical footprint seven years later. First, it gradually established five sales subsidiaries across North America, South America and Europe after 1993 and subsequently attempted to supply large corporations. Second, only after the year 2000, sixteen years after internationalization, did it begin to acquire manufacturing companies, making five acquisitions in eight years; this time frame was much longer than was necessary for Companies A and B for their radical expansion. The first incremental expansion stage is evident from the ‘‘sales subsidiaries’’, ‘‘export’’, and ‘‘supplier’’. The second radical expansion stage is evident from ‘‘acquisitions’’. The Vice President of Global Concept Development of Company B described their long process of internationalization: It took a long time for our internationalization. It started with our first export to the Zeller Corporation in the U.S. in 1991. . .We gradually grew our business in the overseas market. . .We became really strong after we did five acquisitions after 2000. Similar to Company C, Company D started its internationalization from its initiation, as all of its customers were in developed countries. Following an eight-year development period, it has been listed on the New York Stock Exchange (NYSE) since 2007. With the capital derived from being a publicly traded firm, it merged with a Minnesota company founded in 2001. After nearly ten years of international experience, it started to invest in the foreign market. The Senior Vice President of Company D addressed the path of their international growth first by ‘‘supplier’’ and then by ‘‘acquisitions’’: Although our internationalization started when we were born, it did not grow as rapidly as those that have strong government support. . .We only made that investment after we were listed on the NYSE in 2007, but we expanded quickly after that by acquiring a Minnesota company.

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The internationalization speed of POEs is demonstrated by the archival data and interviews from both the case firms and the governments. The director of overseas investment from the Zhejiang MDRC stated, ‘‘At that time, the development of private firms was not included in the government plans, especially the automobile part industry’’; however, after 2005, under a directive (‘‘Opinions on how to guide individuals to support private and other non-public economic development’’), Chinese governments had to support private firms to go global and treat the private firms the same as SOEs in terms of foreign investment, export-import debt, export insurance, etc. This indicates that POEs had to be cautious in the early stages of internationalization due to the lack of support from the Chinese government but experienced treatment similar to that of the SOEs after the announcement of new policies. Proposition 2b. Unconscious Chinese government suasion makes POE MNCs’ pursue internationalization cautiously and to achieve incremental growth through exports in the first stages and radical growth through FDI in the later stages. 4.3. Internationalization approach: Market competitor, market dominator, market seeker and market explorer 4.3.1. Market competitor The objective of internationalization is to be a strong competitor in the new market. With this strategy, the Chinese MNCs acquire the existing market players and/or establish plants within a short period to demonstrate their capabilities. It is derived from the statements in the transcripts in two categories: competition (‘‘strong competitor’’ and ‘‘stable position’’) and rival removal (‘‘acquiring a leading company’’). When Company A entered the European market, it cooperated with Flextronics. After a short time, it set up an assembly plant in France to meet the increasing customer demand before becoming the leading seller of flat panel televisions in France. As its image quickly grew in strength, Company A became a strong competitor in Europe. The Director of Strategic Programming of Company A said, ‘‘We now have a relatively stable position in the European market and are a strong competitor for local companies.’’ Company B competed in the European market through a series of aggressive acquisitions and joint ventures. Its targets were all leading firms in the local or global market, for example, Schneider (Germany), Thomson SA, and Alcatel. Through these activities, Company B removed its rivals while building up its own capabilities. The Director of Business Development of Company B described the outcomes of internationalization in developed countries, ‘‘We became a strong competitor after a series of acquisitions of leading local companies in Europe.’’ The directors of overseas investment from the Shandong MDRC and Guangdong MDRC validated the network position of SOEs in their developed host markets. The director of overseas investment from the Guangdong MDRC candidly said, ‘‘Company B is a strong player in Europe now. It competes with the local players regarding prices in the low-median market.’’ Proposition 3a. Conscious Chinese government suasion makes an SOE MNC become a ‘‘market competitor’’ in their network position in the developed countries. 4.3.2. Market dominator The objective of internationalization is to dominate the market in the host countries. Similar to the strategy of a market competitor, this strategy also requires firms to establish their presence in the market rapidly, but it also requires the firm to build

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a large manufacturing capacity to serve the dramatically increased customer demand. It refers to the statements in the transcripts in two categories: market domination (‘‘control the market’’, ‘‘more than 50% market share’’, and ‘‘Top positions in the market’’) and technology exploitation (‘‘technology leader’’ and ‘‘technology advantages’’). Since 2003, Company A has been the second largest television producer and seller with advanced technology in South Africa and has quickly assumed a leading role in the developing market. The Director of Business Development of Company B said, ‘‘We benefited from our technology advantages and quickly had more than 50% of the market share.’’ The internationalization of Company B in developing countries started by establishing a sales subsidiary in Vietnam and then making an acquisition there to exploit its technology and build its capacity in the following year. Since that time, it has successfully entered the CRT television market in Southeast Asia as one of the leading firms and taken control of the market to a certain degree. The Director of Business Development of Company B said, ‘‘We have been very successful and control the CRT television market in Southeast Asia now.’’ The directors of overseas investment from the Shandong MDRC and Guangdong MDRC validated the network position of SOEs in their developed host markets. The Director of Overseas Investment from Guangdong MDRC said, ‘‘Compared with the local players, Company B has superior technology but sells at a relatively low price. Its products are welcomed by the locals. With the support of the government, it quickly seized the foreign market and became No. 1 in the emerging market.’’ Proposition 3b. Conscious Chinese government suasion makes an SOE MNC become a ‘‘market dominator’’ in their network position in developing countries.

4.3.3. Market seeker The objective of internationalization is to seek a new market either to escape from the highly constrained domestic market with the same products or to seek customers in a global market due to the limited number in the domestic market. Internationalization usually involves an extensive period of time compared with that of the SOEs. It is synthesized from the statements on ‘‘sales subsidiaries’’, ‘‘suppliers’’, ‘‘outsourcing’’ and ‘‘export’’ when first internationalizing in the host country and then from ‘‘acquisition’’ after a certain period. Company C expanded its business in the developed world in two stages. First, it exported its products to large corporations in the U.S. due to the centrally planned domestic market and simultaneously aimed to open the market with its own products. In the second stage, it has made a series of aggressive acquisitions to expand its product portfolio since 2000. Similarly, Company D went through two stages. First, it entered the market to create a geographical footprint with its own services. Second, it completed its service portfolio to enhance its offering to its existing customers and also to gain new ones. The aim of these two POEs was to continually seek markets for their products or services. The President of the U.S. subsidiary of Company B said, ‘‘We first went overseas because of the constraints in the domestic market. We could not get orders. We only had a hope of seeking customers internationally.’’ Although they completed the acquisition stage, the motive of these two POEs was to expand their product portfolio but not to have a strong image or to remove their rivals, as is the case with the SOEs. The empirical findings from these two cases were validated by the Directors of Overseas Investment from the Zhejiang and Jiangsu MDRC. For example, the Director of Overseas Investment from the Zhejiang MDRC stated, ‘‘It should be said that Company C

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is competitive in the U.S. market. For example, it is now acquiring a U.S. company in the area of new energy. Although it has been in this area for more than 15 years, Company C still feels great pressure from the competition. It is well prepared with the aim of getting into the market. It is a better platform for their growth.’’ Proposition 3c. Unconscious Chinese government suasion makes a POE MNC become a ‘‘market seeker’’ in their network position in the developed countries. 4.3.4. Market explorer The objective of the internationalization process is to explore the potential market to identify the uncertainties and risks related to further expansion. The only task under this strategy is to access the local market without further, greater investment. It starts at the later stage of the internationalization of a POE. The statement, which indicates this pattern, is simple: ‘‘sales subsidiary’’ as a form of export. In this study, two POEs are considered, but only Company C operates its business in developing countries. Company D’s customers are for the most part in developed countries. Though Company C rarely conducts business in the developing countries and has only a few sales subsidiaries in South America, after nearly 30 years of internationalization, it remains cautious about expanding its business into developing countries. There might be two reasons for this. First, the majority of developing countries have high import tariffs and policies to protect their domestic companies. Second, as the market in developing countries is poorly regulated, there are more risks for foreign firms. The President of the America Corporation of Company C said, ‘‘We are not sure about our expansion in developing countries, lots of uncertainties. . .As a foreign company, we are not sure if we can survive the unregulated market there and satisfy local customers’ needs.’’ Apparently, if the Chinese government does not directly support internationalization, the Chinese POEs remain in an early stage of internationalization in developing countries and encounter uncertainty and unexpected difficulties. This argument was validated by the Director of Overseas Investment from Zhejiang MDRC, ‘‘Company C has not outlined their intention to expand into

developing countries. Generally, we do not seek to force companies to go global. The companies that are confident and strong enough in their internationalization submit a proposal to us, and then we decide whether to approve their internationalization.’’ Proposition 3d. Unconscious Chinese government suasion makes a POE MNC become a ‘‘market explorer’’ in their network position in the developing countries. In summary, Chinese SOEs and POEs appear to have different relationships with the government, which explains their distinct internationalization paths and network positions in the host countries. During the interviews, all of the government officials indicated that the governments do not have any mechanisms in terms of allocating resources among the SOEs and POEs currently but that there was a time when the government allocated resources only to the SOEs, neglecting the demands of POEs. Currently, the Chinese government views these two types of firm equally, but they do have a system for coordinating the resources among all Chinese firms, which is the ‘‘joint conference system.’’ The Director of Overseas Investment from Shandong MDRC candidly said, ‘‘The joint conference system is based on global projects. For each global project, we hold a meeting with firms that intend to bid for this project. Government officials from various departments attend the meeting to provide information on the policies and answer related questions. The aim of this system is to share information and reduce the hostile competition among firms.’’ 5. Discussion A developing grounded theory must specify not only the constituent constructs but also the linkages or relationships among those constructs in describing a phenomenon (Dubin, 1978; Suddaby, 2006). By assimilating the propositions and identified constructs in a cross-case analysis of the conceptual framework in Fig. 2, the major constructs and relationships are displayed in a general form. The essence of this framework is to indicate the role of the Chinese government in the internationalization of Chinese MNCs. Specifically, we investigate the role of the Chinese government in

Radical growth Market competitor Conscious SOEs

Aggressive SOEs

Market dominator SOEs

The facilitating role of government on incentives POEs

Unconscious

Internationalization path POEs

Cautious

Incremental growth

Internationalization approach POEs

Market seeker Market explorer

Fig. 2. The role of the Chinese government in the internationalization of Chinese MNCs.

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incentives, internationalization speed, and network positions, which are presented in the grey box in the centre of Fig. 2. The framework reflects the role of the Chinese government in the internationalization process of Chinese MNCs. It presents the facilitating role of Chinese governments in the incentives, internationalization paths and internationalization approaches of Chinese SOEs and POEs separately. 5.1. Implications for theoretical development This study contributes to the internationalization literature in several important ways. First, our study answers the call for the exploration of the underlying reasons for the different roles of the Chinese government in facilitating the internationalization of Chinese SOEs and POEs (Luo et al., 2010). It can be explained by the closeness of their linkages to governments. Analogous to the theories in ecology, every firm faces the evolutionary selection pressure in the market. Self-theory views that human beings have a fundamental need to maintain or enhance the phenomenal self (Jensen, Huber, Cundick, & Carlson, 1991; Snyder & Williams, 1982; Sullivan, 1989). It explains the governmental support for SOEs and the institutional escapism to POEs. Closer linkages indicate that the firm is part of the family of the government. As a family member and beneficiary of the assistance of the government, Chinese SOEs establish relationships and networks in foreign markets through financial support and regulatory privilege, which are the two primary approaches identified in this study. In contrast, Chinese POEs generally do not have such close linkage to the government. Two institutional hazards, the overprotection of SOEs and the unbalanced development of industries, largely reduce the domestic market of POEs and therefore force them to internationalize. Therefore, the seemingly paradoxical views, i.e., Chinese governmental promotion as intended government suasion of SOEs (Child & Rodrigues, 2005; Cui & Jiang, 2009; Rui & Yip, 2008) and institutional escapism as unintended Chinese government suasion of POEs (Witt & Lewin, 2008; Yamakawa, Peng, & Deeds, 2008), are explained by the self-theory that government assumes the role of selection in the ecological management of firms. Second, an additional core contribution is that our study has identified the limits of the Uppsala model in the internationalization paths and proposes a mechanism as to why this exists. One of the core concepts of the Uppsala model is the establishment chain, which indicates the internationalization process is incremental in nature, starting from the market, which has shortest psychic distance, and then proliferating to larger ones (Johnson & Wiedersheim-Paul, 1975; Johanson & Vahlne, 1977; Johanson & Vahlne, 2009). However, due to its closer linkages with government, the Chinese SOEs in our study tend to engage in acquisitions at an earlier stage to rapidly learn during the process of internationalization, as they are provided with ample resources from the governments to overcome risks. The knowledge given and the financial capital invested by the government accelerate the speed of internationalization. Conversely, the Chinese POEs, which are for the most part unable to be a family member of the government, tend to follow the Uppsala style by learning incrementally and starting acquisitions at a later stage of internationalization. Apparently, we have identified that acquisitions are a hallmark according to the learning mechanism. The role of governmental relationships in the paths to internationalization of Chinese SOEs and POEs is indicated by the dynamic order of acquisitions. Self-theory explains the limits of psychic distance, which is derived from the Uppsala model in the internationalization of the Chinese SOEs. Third, the last contribution is the identification of four patterns of network embedding that are responsive to the institutional

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environments of the host countries. As a primary model for the internationalization process, the revised Uppsala model in 2009 emphasizes the influence of the business network in internationalization (Johanson & Vahlne, 2009). The firm moves from outsidership to insidership in the foreign network through internationalization. However, the model does not explicitly indicate how firms are embedded in the network of the foreign market. Our study recognizes that a natural difference in the internationalization path of the two types of firms affects the scheduling of the activities in acquisitions. Two dimensions, the ownership types of Chinese firms and the institutional development of the host country, are explicitly developed to present the four distinct network positions by addressing how Chinese SOEs and POEs respond differently to the host institutional environment. On the basis of self-theory, SOEs are closely embedded in the foreign network and possess key roles in the foreign market (either as a market competitor or a market dominator). However, the institutional development in the host country has an effect by virtue of the advantages of conducting business as an SOE in developing countries rather than in developed countries. Correspondingly, not being a family member of the government, the POEs do not possess key network positions in foreign markets (i.e., market seeker in developed countries and market explorer in developing countries). However, the effects of institutional development in the host country create more advantages for internationalization in developed countries. The ownership structure of Chinese firms and the external pressure from the institutional environment of the host country form the rationale of the four internationalization approaches identified here, which address the gap found with respect to the role of the network position in the revised Uppsala model. 5.2. Implications for managerial practices The findings on the internationalization process provide guidelines for practitioners engaging in international business. SOEs in emerging economies should build good relationships with governments, which provide strong support for internationalization. SOEs should have confidence in their expansion to compete or dominate the overseas market. In contrast, POEs in emerging economies should be aware of the changing institutional regulations, as these may constrain their development in the home countries and can be a motive for their international expansion. During the process of internationalization, POEs should have the patience to experience any difficulties, overcome any obstacles and await long-term future growth. They should be cautious and diligent about seeking or exploring the foreign market with the aim of facing uncertainties and risks. 5.3. Implications for future research As is the case for every multiple-case study, our investigation has limitations. Due to its exploratory nature, further work is undoubtedly needed to offer more comprehensive evidence and details that will validate the propositions and the integrated framework. The sample size in this study was too small to permit us to draw statistically robust conclusions. A quantitative study is therefore required to test the propositions and thus develop more solid results. Further research might also extend our conceptual model to advance internationalization theories. First, scholars may investigate the importance of institutional factors compared with other factors and the level of incentives or constraints regarding the internationalization of Chinese MNCs. Second, in terms of the path to internationalization, our findings focus on describing the phenomenon rather than exploring how the government mediates

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the internationalization process, so the latter would be a good subject to address in future research. Third, although we have identified four network positions, we have not noted the difficulties involved in achieving these positions. It would be interesting to investigate such an evolution in a longitudinal study, which would involve multiple observations of subsidiaries at multiple sites over a period of time. 6. Conclusion This paper explores the role of the Chinese government in the internationalization process of Chinese SOEs and POEs. Specifically, it identifies the different circumstances provided by the government at the beginning of the internationalization, the speed of internationalization, and the network positions in developed and developing host countries. Our study first explains the governmental promotion of SOEs and the institutional escapism regarding the POEs. The nature of the seemingly paradoxical views is the different ownership structure, which can be explained in terms of the self-theory, whereby the government assumes the role of selecting in the ecological management of firms. Second, our study has identified the limits of the Uppsala model with regard to the path to internationalization and proposes a mechanism explaining the existence of these limits. The path to internationalization of Chinese SOEs does not follow the rule of psychic distance, which is proposed in the Uppsala model, as indicated by the dynamic order of acquisitions and explained by self-theory. Third, the four network positions identified in this study define how the Chinese SOEs and POEs respond to different institutional host-country environments. They indicate how firms are embedded in the network of the foreign market and fill the gap in the network position in the revised Uppsala model of 2009. The managerial implications and future research were also discussed in this paper. Acknowledgments This research is supported by the National Natural Science Foundation of China (Grant No. 71302006), Specialized Research Fund for the Doctoral Program of Higher Education (Grant No. 20130071120018), Shanghai Pujiang Program (Grant No. 13PJC017), and National Natural Science Foundation of China (Grant No. 71272164). References Amighini, A. A., Rabellotti, R., & Sanfilippo, M. (2013). Do Chinese state-owned and private enterprises differ in their internationalization strategies? China Economic Review, 27, 312–325. Asiedu, E. (2006). Foreign direct investment in Africa: The role of natural resources, market size, government policy, institutions and political instability. World Economy, 29(1), 63–77. Blonigen, B. A. (2005). A review of the empirical literature on FDI determinants. Altantic Economic Journal, 33, 383–403. Boddewyn, J. (1988). Political aspects of MNE theory. Journal of International Business Studies, 19(3), 341–363. Buckley, P. J., Clegg, J., Cross, A. R., Liu, X., Voss, H., & Zheng, P. (2007). The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38, 499–518. Chen, Y., & Young, M. (2010). Cross-border mergers and acquisitions by Chinese listed companies: A principal–principal perspective. Asia Pacific Journal of Management, 27(3), 523–539. Child, J., & Rodriguez, S. B. (2005). The internationalization of Chinese firms: A case for theoretical extension? Management and Organization Review, 1(3), 381–410. Cui, L., & Jiang, F. (2009). FDI entry mode choice of Chinese firms: A strategic behavior perspective. Journal of World Business, 44(4), 434–444. Cui, L., & Jiang, F. (2012). State ownership effect on firms’ FDI ownership decisions under institutional pressure: A study of Chinese outward-investing firms. Journal of International Business Studies, 43, 264–284. Deng, P. (2009). Why do Chinese firms tend to acquire strategic assets in international expansion? Journal of World Business, 44, 74–84.

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