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Article
Publication date: 12 December 2016

Victor Zitian Chen, Yuanyuan Li and Sara Hambright

This paper aims to review the effects of home regulatory institutions on outward foreign direct investment (OFDI) in the context of China and discuss the extent to which they can…

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Abstract

Purpose

This paper aims to review the effects of home regulatory institutions on outward foreign direct investment (OFDI) in the context of China and discuss the extent to which they can be extended to other emerging markets. The authors especially compare these empirical studies with theoretical discussions in each category, identify research gaps and suggest future research ideas. Practical implications are discussed.

Design/methodology/approach

It focuses specifically on three categories of regulatory institutions, including overall institutional development, liberalization of OFDI policies and state ownership (and its closely approximate forms). Using a systematic review, this paper has reviewed 26 empirical studies (23 quantitative and 3 qualitative studies) published in peer-reviewed journals.

Findings

These studies suggest that overall institutional development toward a market economy in general leads to increased OFDI, but this effect is contingent on the stage of such development and the capabilities of Chinese multinationals. Liberalized and supportive OFDI policies also facilitate OFDI activities but only into selective areas. Findings on state ownership have been mixed.

Originality/value

This review offers a full picture of empirical evidence on how multiple levels of regulatory institutions affect OFDI from China. In this way, the authors can identify the research gaps between theoretical discussions on home institutions and OFDI and empirical evidence. Thus, they make suggestions for future directions of studies.

Details

Multinational Business Review, vol. 24 no. 4
Type: Research Article
ISSN: 1525-383X

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Article
Publication date: 16 November 2015

Victor Zitian Chen, Jing Li and Daniel M. Shapiro

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…

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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.

Details

The Multinational Business Review, vol. 23 no. 4
Type: Research Article
ISSN: 1525-383X

Keywords

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Article
Publication date: 7 September 2020

Rishika Nayyar and Shameen Prashantham

The purpose of this paper is to examine whether subnational market-supporting institutions in Indian states affect the likelihood of Indian multinational enterprises (MNEs) to…

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Abstract

Purpose

The purpose of this paper is to examine whether subnational market-supporting institutions in Indian states affect the likelihood of Indian multinational enterprises (MNEs) to undertake acquisitions in advanced economies (AEs) rather than emerging economies (EEs) and, if so, which mechanism – institutional fostering or escapism – underlies the phenomenon.

Design/methodology/approach

The paper uses a logistic regression model on a dataset of 647 firm-level cross-border acquisitions (CBAs) undertaken by Indian MNEs during the period 2010–2016.

Findings

The paper finds support for the institutional escapism mechanism, as opposed to the institutional fostering mechanism, underlying Indian MNEs’ acquisitions in AEs (rather than EEs). That is, firms headquartered in Indian states where market-supporting institutions (such as economic liberalization and efficiency of legal systems) are weak are more likely to undertake CBAs in AEs than in EEs as an escapist response to weak subnational institutions at home.

Originality/value

The paper highlights the relevance of the mainstream international business (IB) concept of emerging market multinational enterprises (EMNEs) internationalization to critical IB scholarship by examining subnational institutional influences on EMNEs’ foreign market choice between AEs and EEs. In particular, by providing evidence for the institutional escapism mechanism which has potential negative socioeconomic consequences in the region of the investing firm, the paper adds to critical IB research which places great emphasis on the examination of inequalities and draws attention to the EMNE context as a suitable setting for further research on internationalization from a critical perspective.

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