Is the Strategic Asset Seeking Investment Proclivity of Chinese MNEs Different to that of Developed Market MNEs? A Comparative Analysis of Location Choice and Orientation.
| Verfasser | Sutherland, Dylan |
| Posten | RESEARCH ARTICLE - Multinational Enterprises - Report |
1 Introduction
Extant theory on the internationalization strategies of MNEs suggests they invest abroad in order to exploit pre-existing firm-specific advantages (FSAs) in new markets. This idea, however, has, been questioned owing to the rise of emerging market (E)MNEs, especially those from China. Chinese (C)MNEs, some argue, are not typically seen to possess traditional ownership advantages, ones that may be meaningfully exploited in developed markets (Deng 2009; Rugman and Li 2007). Their outward FDI strategies are therefore considered poorly explained by existing theory, prompting calls for new or revised theoretical contributions to explain their behaviors (Buckley et al. 2007; Child and Rodrigues 2005; Luo and Tung 2007; Mathews 2006). The enigmatic situation of FDI flows from CMNEs to developed markets has now spurred significant amounts of research on the topic (Sutherland and Anderson 2015). Many of these comment upon the nature of CMNEs' strategic asset seeking (SAS) orientation.
SAS FDI is generally considered to involve processes that augment areas of perceived competitive disadvantages in CMNEs. This is done through the acquisition of a variety of (often intangible) assets, such as brand names, technologies and managerial competencies (Dunning 2009; Mathews 2006; Sun et al. 2012). CMNE SAS strategies are thought to be driven by their comparatively low levels of strategic assets in comparison to their developed market (D)MNE competitors (Luo and Tung 2007; Rui and Yip 2008). Some argue SAS investments are especially common among CMNEs, as they look to rapidly catch-up with their DMNE counterparts (Rui and Yip 2008), aided at times by state support (Wang et al. 2012) and a number of other favorable domestic home market conditions. This includes: access to complementary local resources (Hennart 2012); asymmetries in liabilities of foreignness (Petersen and Seifert 2014); business group affiliation (Yiu 2011); and the imperative to catch-up and learn from foreign rivals (Child and Rodrigues 2005; Mathews 2006). Much research has thus highlighted CMNE FDI behavior as being characterized by comparatively rapid, high risk investments, often to psychically distant developed markets. Many of these investments seem to be undertaken with a view to acquiring the strategic assets CMNEs lack for the purposes of firm-level catch-up (Luo and Tung 2007; Mathews 2006). This 'asset augmentation' approach in CMNEs, undertaken to develop firm-specific advantages (FSAs), is considered distinct from the more traditional type of FSA 'exploitation' strategies seen in DMNEs (Kedia et al. 2012).
We contend the mooted SAS FDI orientation of CMNEs in developed markets has gained particular prominence in academic circles because of its important implications for theory (Hennart 2012; Luo and Tung 2007; Mathews 2002; Ramamurti 2012; Rui and Yip 2008). Interestingly, however, discussion and reflection upon the type of systematic empirical evidence required to support the SAS thesis, as well as detailed and rigorous testing of the actual claim, is still very limited. Here, therefore, we look to directly explore this issue. To this end, we first summarize the empirical evidence related to the CMNE SAS claim, focusing particularly on the dominant location choice type studies. Second, we develop several hypotheses related to the SAS orientation of CMNEs as well as two tests of CMNE SAS. One test uses comparative location choice methodologies, the other an alternative, more direct approach using firm-level data. As well as some differences between CMNEs and DMNEs, we interestingly also find strong similarities. Thus, contrary to much previous research, we are reluctant to conclude that CMNEs are truly different because of their SAS orientation or the role of underlying FSAs driving such strategies. Our discussion further reflects upon the challenges involved in testing the SAS thesis with regards to CMNEs and DMNEs as distinct groups and capturing the role of underlying FSAs as drivers of SAS activity.
2 Literature Review and Hypothesis Development
2.1 Strategic Asset Seeking and CMNEs: Theoretical Perspectives
The question of whether CMNEs acquire strategic assets in psychically distant developed markets to augment the FSAs they lack is central to current conceptual discussion and empirical investigation of EMNE FDI strategies (Cuervo-Cazurra 2012; Hennart 2012; Narula 2012; Ramamurti 2012). It is hypothesized EMNEs may try to 'springboard' to the technological frontier using non-incremental learning processes by directly acquiring cutting edge capabilities from their developed market counterparts (Luo and Tung 2007). This behavior, it is pointed out, seems at odds with traditional theories of the MNE, which start from the premise that firms internationalize using FSAs (Hennart 2012; Mathews 2006; Ramamurti 2012). Much of the literature on CMNEs, therefore, emphasizes differences, not similarities, between DMNEs and CMNEs. Luo and Tung (2007), for example, advocate the 'springboard perspective', arguing CMNEs investing in developed countries:
seek sophisticated technology or advanced manufacturing know-how by acquiring foreign companies or their subunits that possess such proprietary technology. They differ sharply from advanced market MNEs, which generally leverage and exploit their ownership specific competitive advantages in foreign countries (Luo and Tung 2007, p. 485) (emphasis added). Why else might CMNEs look to acquire strategic assets in psychically distant developed markets? Based on the growing belief EMNEs do undertake SAS to augment their FSAs, a considerable number of plausible conceptual arguments have been developed. These can be grouped into two main categories. The first, which focuses mainly on the nature of the domestic home market, puts forward reasons for forces that may encourage SAS in all emerging market businesses. This includes; the 'link-leverage-learn' (LLL) argument (Mathews 2006); the 'institutional perspective' and so called 'home country effects' (Anderson and Sutherland 2015a; Hertenstein et al. 2017); the impact of 'complementary local resources' (Hennart 2012); asymmetries in liabilities of foreignness (Petersen and Seifert 2014); and related to domestic market institutional voids, the important role of business group affiliation (Yiu 2011). All of these arguments can and have been applied to the case of CMNEs.
The second category relates directly to the nature and role of state led institutional support (Yao et al. 2010; Yiu 2011). In this argument, particularly relevant to the Chinese case, EMNEs have strong relationships with domestic state institutions which support their growth, via such things as domestic imperfect capital markets. CMNEs, in particular, are thought to frequently have close affiliation to the state and its institutions and are encouraged to internationalize by their home country governments (Wang et al. 2012). This includes active industrial policies to promote nascent CMNEs to engage in cross-border SAS (Cui and Jiang 2012; Deng 2009; Luo et al. 2010; Wang et al. 2012). As Deng (2009) notes, 'Chinese firms are expected to respond to government's development plan by building and/or acquiring strategic assets in order to compete successfully in the global landscape' (p. 75). Luo and Tung (2007) and others (Deng 2009; Lu et al. 2011; Wang et al. 2012) echo this view, arguing that the asset seeking behaviors of CMNEs in general are supported 'by several critical forces, including: home government support for going global' (Luo and Tung 2007, p. 491). These arguments stress the exclusive nature of state-business relationships in emerging markets such as China, where state ownership remains pervasive in its largest MNEs.
In short, a variety of arguments emphasizing differences, not similarities, between CMNEs and DMNEs, have been put forward to explain why CMNEs may engage intensively in SAS FDI. The need for accelerated internationalization supported by idiosyncratic domestic market institutions has led to the general acknowledgement that CMNEs are different to their DMNE counterparts with regards to their SAS orientation for FSA augmentation purposes.
2.2 Empirical Support for the SAS Hypothesis: Evidence from Location Choice Studies
At an empirical level, location choice methodologies are among the most commonly used approach to test whether CMNEs undertake SAS. For example, Buckley et al. (2007) and Ramasamy et al. (2012), in widely cited papers, looked at CMNE location choices. Both include SAS proxies as key explanatory variables in their cross-country studies. A prediction in the literature is that CMNEs may be different to DMNEs, in so far as their investment location choices, driven by asset seeking orientations, would gravitate to locations rich in such assets. The empirical evidence for the asset seeking hypothesis, despite the large volumes of conceptual discussion of SAS in CMNEs, is, however, actually rather mixed (see Table 1). Early studies, like that of Buckley et al. (2007), found no such evidence. Later works, like that of Rodriguez and Bustillo (2011) (which also used patents as a proxy for strategic assets) and Wang and Yu (2012) (using high tech exports), found similar results--no significant attraction of Chinese FDI to asset rich locations. In total four studies, all using aggregated national level OFDI flow and stock data, have found no evidence of SAS in CMNEs. By contrast, five other studies, all using firm-level data (though different methodologies, incorporating count and continuous (i.e. FDI volume) data), do find evidence of SAS, albeit predominantly in state-owned CMNEs.
One possibility for the clear and noticeable discrepancy in findings between the firm-level and official FDI stock and flow data might be that the firm-level data is better at capturing the actual locations (and volumes) in which CMNEs invest. Official data...
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