Hybrid State-Owned Enterprises and Internationalization: Evidence from Emerging Market Multinationals.
| Verfasser | Zhou, Nan |
| Posten | RESEARCH ARTICLE - Report |
1 Introduction
State-owned enterprises (SOEs), especially those from emerging markets such as China and Russia, are becoming important contributors to the world economy. SOEs generate around 10% of world gross domestic product and amount to about 20% of the world's capital market value (Economist 2012). Of the Fortune 500 list in 2017, around 30% of the top 100 firms were SOEs, from both emerging markets and developed countries (Fortune 2017).
Despite the prominence of SOEs in the global economy, scholarly attention to SOEs has been relatively scarce. A review of the Financial Times' top 45 journals list from 2000 to 2014 reveals only 39 articles on the issue of SOE management during that 15-year period (Bruton et al. 2015), i.e., only 2.6 articles per year for these 45 journals. Our understanding of SOEs, especially those that have thrived in the past two decades, is still limited. For instance, scholars disagree on the impact of state ownership on firm performance. The conventional wisdom is that SOEs under-perform private firms due to agency problems and bureaucracy (Bai and Xu 2005). However, nowadays, SOEs are performing at least equal to if not better than private firms (Cuervo-Cazurra et al. 2014; Musacchio et al. 2015).
Perhaps one important reason to explain the continued thriving of SOEs in recent years is that they have evolved to become a type of hybrid organization (Bruton et al. 2015; Diefenbach and Sillince 2011; Inoue et al. 2013). Although privatization in many emerging markets creates a large number of SOEs with mixed state and private ownership (Boubakri and Cosset 1998; Gupta 2005), existing studies on SOEs rarely focus on the competing institutional forces behind different types of shareholders.
Ignoring the hybrid nature of SOEs hinders our understanding of SOEs, because hybrid organizations incorporate elements from different stakeholders (Pache and Santos 2013), and thus their strategy is influenced by different institutional forces. State and private ownership represent different strategic priorities and preferences (Bruton et al. 2010), making SOEs hybrid organizations. The hybrid nature of SOEs complicates their strategic decision process, highlighting the uniqueness of hybrid SOEs' strategy, which deserves further investigation.
In this study, we focus on hybrid SOEs from emerging markets and examine how they react under the institutional pressure of internationalization. Hybrid SOEs have not only thrived in their domestic markets but also become active players in the global market during the past two decades, both selling products worldwide and establishing subsidiaries or acquiring companies to conduct foreign direct investment (FDI). Examples of state-owned multinationals include CITIC Group from China, Oil & Natural Gas Corporation from India, and Companhia Vale do Rio Doce from Brazil (UNCTAD 2009).
Scholars interested in understanding emerging market multinationals have already begun to pay attention to the role of government in globalization. Current studies on this topic usually focus on the impact of state ownership and the level of affiliation with the government on globalization and have found that these factors influence various aspects of internationalization, such as the location of foreign entry, entry mode, and type of FDI (Li et al. 2014; Wang et al. 2012). However, these studies do not consider the hybrid nature of state-owned multinationals. On one hand, they are subject to a certain level of government influence through the remaining state ownership; on the other hand, they are under great pressure to improve firm performance since one of the primary goals of private ownership is to improve firm efficiency (Greve and Zhang 2017). Such conflicting institutional pressures complicate the internationalization strategy of hybrid SOEs.
In this study, we fill in this gap by investigating hybrid SOEs' strategic choices under the institutional pressure of going abroad. Since firms with different levels of state ownership are different in their goals as well as their dependence on government for resources, we distinguish between majority and minority SOEs. We argue that majority and minority SOEs' response strategies differ in two ways in the context of internationalization. First, we examine the moderating role of majority SOEs on the impact of the government's advocacy for investing abroad: Majority SOEs are more likely than minority SOEs to react favorably to the government's advocacy of going abroad. Second, we examine the moderating role of majority SOEs on the relationship between internal/external resources and firms' propensity to invest abroad. Majority and minority SOEs rely on different types of resources when they go abroad: While the positive impact of external resources, such as debts, on a firm's propensity to go abroad is stronger for majority SOEs than minority SOEs, the positive impact of internal resources, such as intangible assets, on a firm's propensity to go abroad is stronger for minority SOEs than majority SOEs.
We tested these ideas among Chinese-listed hybrid SOEs from 1991 to 2016. The empirical evidence generally supports the hypotheses, and in turn, this study makes two important contributions. First, this study enriches the literature on SOEs by considering its hybrid nature and how it influences their strategy. Firms have been viewed dichotomously as either state owned or privately owned (Bruton et al. 2015) despite the fact that privatization creates many firms with mixed state and private ownership. A more nuanced view of SOEs, which allows the level of state ownership to vary, helps us better understand the strategy of such hybrid SOEs (Musacchio et al. 2015). We highlight the hybrid nature and examine the differences between majority and minority SOEs in reacting to conflicting institutional pressures in the context of internationalization. Second, it contributes to the literature on FDI in general. The internalization theory has been widely accepted in explaining how internal firm-specific resources influence outward FDI (Buckley and Casson 1976; Tallman 1991). However, how resources interfere with home country government to influence globalization has been largely ignored. Wang et al. (2012) argued that government involvement through ownership and affiliation interacted with emerging market multinationals' intangible assets positively to affect their overseas investments. However, we argue in this paper that government involvement indeed has a substitute effect for intangible assets. When firms such as hybrid SOEs have access to external resources through government support, they tend to rely on external resources rather than internally generated resources such as intangible assets. Our arguments and findings show the complexity of the relationship between firm resources and institutional forces by highlighting the importance of external resources in explaining the internationalization of hybrid SOEs. The findings of this study, therefore, clarify the strategy of hybrid SOEs in general and the internationalization of state-owned multinationals from emerging markets in particular.
2 Government, Privatization, and Internationalization
2.1 Privatization and Hybrid SOEs
The concept of hybridity has been applied in many different areas such as nonprofit organizations (Skelcher and Smith 2015). In this study, hybrid SOEs refer to firms with mixed state and private ownership, which is the result of privatization. Privatization can be defined as the deliberate sale of an SOE to private economic agents by a government (Boubakri et al. 2011). The wave of privatization began in developed countries such as the UK in the 1980s and spread across the globe during the 1990s (Bortolotti and Faccio 2009). The wave of privatization produced the greatest transfer of ownership in the history of corporation. It has become a popular strategy to promote economic growth in emerging markets (Zahra et al. 2000) because state ownership results in many problems, such as agency problem (Jensen 1986; Jensen and Meckling 1976) and bureaucracy, which harm firm performance and create the so-called 'liability of stateness' (Musacchio et al. 2015).
Although a rapid transfer of ownership and control along with full privatization is desirable in theory, privatization evolves differently in practice. Most governments in emerging markets divest slowly and partially (Boubakri et al. 2008). Boubakri et al. (2008) examined the evolution of post-privatization ownership structure in a sample of 209 firms from many emerging markets and found that privatization was conducted through partial sales of state ownership. Similar findings were discovered in emerging markets such as India (Gupta 2005) and China (Fan et al. 2007).
The slow and gradual privatization process in many emerging markets creates hybrid SOEs with a mixture of state and private ownership (Cuervo-Cazurra et al. 2014). Hybrid SOEs are exposed to multiple institutional pressures (Pache and Santos 2013), and a central feature of hybrid organization is that the institutional pressures they face are not always compatible (Greenwood et al. 2011). It is exactly the situation faced by hybrid SOEs. Due to partial privatization, hybrid SOEs face two opposite institutional pressures. On the one hand, since one of the primary objectives for private ownership is to pursue profit, hybrid SOEs are under institutional pressure to maximize profit. On the other hand, governments may require hybrid SOEs to pursue nonprofit maximization goals, such as maintaining low price or high employment (Cauley and Sandler 2001).
Despite the prevalence of hybrid SOEs around the world, scholars have not paid much attention to understanding their strategic responses to different institutional pressures. Most existing studies still view SOEs as either completely state owned or not and compare strategies and performance between SOEs...
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