Chinese Outward FDI as a Stimulus to Research in International Business.

VerfasserClegg, L. Jeremy
PostenEDITORIAL - Foreign direct investment - European Union - Editorial

Within the field of study of international business (IB) theoretical development typically proceeds through the fine-tuning and adjustment of existing theory, falling short of original and fresh theorisation around a novel phenomenon. As a result, our theory building overlooks challenging and significant events, which would take us closer to a deeper understanding of real-world phenomena (Delios 2017; Buckley et al. 2017b). Chinese outward foreign direct investment (OFDI) is just such a novel phenomenon and an opportunity for the development of theory, not just to explain what is new, but to better explain what we think we already know. Within IB we are continually at risk of neglecting things that cannot be explained, simply because the preoccupation of scientific research is to seek what can be explained. As a general rule, a new phenomenon can be explained passably enough through an existing theoretical lens, with some measure of adjustment (Buckley 2017). While this adds to the weight of empirical research, it extends--but does not challenge--existing theory. When a phenomenon is truly new, existing theory may well not be the most appropriate way of investigating it. And while the extension of existing theory might be sufficient for academic publication, it fails to add to theoretical understanding and to deepen our ability to explain phenomena with the greatest generality. A consequence of this is ever decreasing usefulness for managers and policy makers (Delios 2017).

The validity of this criticism of theoretical innovation within the domain of IB is clear. For example, the Triple-L framework (Mathews 2002) was an attempt to look afresh at the phenomenon of OFDI from developing economies, especially by emerging market multinational enterprises (EMNEs), using new and more appropriate theorisation. Emerging market firms have linkages with foreign firms, from whom they learn, and then leverage what they have learnt to become MNEs themselves. Although fresh and commendable, this approach is more of a description rather than an explanation. Indeed, it can be better--but far from completely--explained using known theories of knowledge transfer, knowledge diffusion, positive spillovers from inbound advanced economy FDI, coupled with innocent and strategic behaviour on the part of EMNEs both to learn, to innovate around and to exploit new knowledge (Narula 2006, 2012). The context of Chinese OFDI into the European Union (EU) represents the ideal nursery for theory. It epitomises the inversion in FDI flows that is underway in the world economy, as emerging economies such as China spawn a growing cohort of firms internationalising via FDI.

Why should an enquiry into Chinese OFDI in the EU be able to tell us something important that we did not know before? The EU focus of this Focused Issue brings together another strand of special conditions that test existing theory. The field of research of international business needs a new approach to EMNEs, to use these firms' behaviour to challenge the standard model of IB theory, rather than endeavouring to substantiate the status quo, and demonstrate that known theory still works--not least because existing theory already does not enjoy universal applicability. In what ways the standard theoretical model does not work remains a potent question. The answer will have implications not only for EMNEs, but for all multinationals, and for the standard model itself, which must be capable of explaining multinational behaviour from emerging and advanced economies alike (see for example, Luo and Tung 2017). In what follows we illustrate some of the tensions that have arisen in IB theory because of the emergence of EMNEs and OFDI from developing countries, and that underline why Chinese OFDI in the EU is today such a fruitful research ground and an ideal context for theory development.

Chinese firms which enter advanced economies like the EU may face backlashes of various types. First, there may be resentment by domestic industry similar to that experienced by US firms in Europe in the 1950s and 1960s and by Japanese investors in the 1980s (Mason 1994; Pokarier 2004; Vernon 1971). Domestic firms eye the new, unknown, entrants with caution and suspect them of being unfairly supported by their home government. But second, and potentially more important for the development of EMNEs, firms entering under some measure of encouragement by home government action may be inadequately prepared for competition, both within the developing economies, but also for further internationalisation in other economies. The government-led internationalisation process may result in firms that do not comprehend the necessity of learning about their host country environment, and therefore do not develop the necessary capabilities for operation within competitive markets. Although international, a consequence is that these firms are only able to survive in host markets and industry sectors in which their home government is able to offer them support. And, if that support is withdrawn, then these firms would inevitably struggle.

Instances of this suggest that the internationalisation success of EMNEs may be especially variable, and particularly liable to falter where their initial investments took place in markets in which they had enjoyed home country patronage. This can be seen as a special case of the more general situation of investment preferentially directed towards markets that are more familiar, building upon the concept of psychic distance (Johanson and Vahlne...

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