Research on Chinese Multinationals:
The Road Ahead
YADONG LUO
Harvard University Kennedy School
Boston, October 3, 2011
1
Global Fortune 500:
Chinese firms are clearly growing
180
160
140
120
2005
100
2006
2007
80
2008
2009
60
40
20
0
Brazil
Russia
India
China
BRIC
USA
EU
Japan
2
Understanding Competitive (Dis)Advantages of Chinese MNEs
SAC & CHINA Framework 基本框架
Combinative
Capability
组合/集成能力
Absorptive
Capability
吸收/消化能力
Chinese MNEs’
Competitive
Advantages
• Speed Advantage
Hardship-Surviving
Capability
• Ambidextrous Adv.
• Cost Advantage
艰苦生存能力
三大竞争优势：
•速度优势
•双元优势
•成本优势
Networking
Capability
业务网络能力
Intelligence
Capability
商情征析能力
3
Understanding Competitive (Dis)Advantages of Chinese MNEs
What
• What competitive (dis)advantages do Chinese MNEs possess?
• Comparing Chinese MNEs’ competitive advantages with others, including (1)
advanced country MNEs (2) other emerging economy MNEs and (3) newly
industrialized country MNEs
• Comparative strategic management – emerging field
• How to capitalize on competitive advantages or compensate competitive
disadvantages (in core or key technologies, brands, experience, managerial
brainpower, organizational skills, professional talents) through:
How
Who
• Entry mode selection (e.g., M&A, alliance, greenfield, equity participation)
• FDI diversification (horizontal or vertical FDI)
• Location strategies and geographic diversification
• Timing and scale of FDI
• Chi- Liabilities (stereotype, newness, emergingness, foreignness, etc)
• When will Chi-liabilities increase or decrease?
• Do such liabilities lead to serious consequences for Chinese MNEs?
4
Solving Puzzle: Exploiting Competitive Advantages or
Compensating Competitive Disadvantages?
Contingencies
• When exploiting advantages & when
compensating disadvantages
• Where exploiting advantages &
where compensating disadvantages
• How to use advantages to
circumspect disadvantages
Intertwinement
Institutional arbitrage
• Concurrent processes and
channels
• Conditions and outcomes
• Or institutional escape?
• Role of firm attributes in such
arbitrage
• Opportunity & exit costs
• Host country effects
• Comparative institutional analysis
5
Assessing Evolution of Chinese MNEs
•
Most Chinese MNEs remain in an early stage of international expansion
大多数进军国际的中国企业尚处在国际化早期阶段,少数已进入中期阶段
•
Three essential components of internationalization for Chinese firms
国际化三大核心要素（VCR）
– International Vision 国际视野
– International Competitiveness 国际竞争力
– International Resources 充分利用国际资源
•
Five stages of Internationalization for Chinese firms
国际化五阶段：
Export
Inward
Internationalization
Outward FDI
Insiderization
Truly global
出口贸易
内向国际化
对外直接投资
高度本土化
真正全球化
6
Assessing Evolution of Chinese MNEs
Process
view
• Evolutionary overall but radical only in some steps?
• What are common and what are not concerning the evolutionary process of
international expansion between Chinese MNEs and advance country MNEs (unlikely
to follow the traditional path in Stage Three)
• Examine how Chinese MNEs’ unique endowments and conditions they face
determines their peculiar path – contextualized evolution research
Springboard
view
• Market arbitrage, resource arbitrage, trade barrier arbitrage, identity arbitrage (round
trip) & institutional arbitrage – holistic motivational analysis
• Duality of strategic entry and strategic exit for internationally diversified CMNEs
• How ownership type, stage of internationalization, and other firm traits affect springboarding behavior
• How home country operational characteristics are linked with their international
strategies
LLL view
• Differential effect of learning, linkage and location advantages
• Missing 4th L – Locus?
• Unique means and processes of organizational learning by CMNEs
7
Probing Home Country-Host Country Links
HEAD Model
Inward Internationalization
内向国际化
Diversification
Export Growth
出
口
增
长
Alliance Building
Home Base
立
足
国
内
Outward Investment
对外投资
Transnational Operations
跨国经营
建
立
联
盟
多
样
经
营
Home Development
国内发展
Probing Home Country-Host Country Links
Why
How
Where
• Unique importance of home base for CMNEs
• Pattern of these links
• Variations of home base dependence for different CMNEs
• How home country operations are interlinked with host country operations
• What are critical mechanisms that coordinate and bridge these links
• Do these links bear performance repercussions
• Moderating effects of firm strategies, riskiness, I-R dynamics
• Differentiation of such links among different host countries within the firm
• How such links evolve with a firm’s stage of internationalization and
China’s stage of economic and social development
9
FDI Strategies by CMNEs: Toward Home Country Effects
Home Country Environment
Competitive Pressure
OFDI Strategies of
DMNCs
OFDI Strategies (Firm-Level)
Home Country Operations
Inward Internationalization
Investment Strategies
(Province) Economic
Growth
Business (Stage)
Development
Operational strategies
Institutional Hardship
Innovation Orientation
Integration Strategies
Political Support
Geo-Diversification
10
Examining Compositionary Cooperation by CMNEs
With foreign
(including
inward
stretch)
With banking
& financial
institutions
Compositionary
Cooperation
Between
private and
stateowned
(Alliance, JV, equity
sharing)
Between
manufacturing
& services
Between
upstream
and
downstream
11
Examining Compositionary Cooperation by CMNEs
Overseas
industrial parks,
clustering
manufacturing
bases
Industrial
associations,
transportation &
logistics,
governments,
insurance, VC,
intermediaries
海外工贸园、工
业园、集群化生
产基地
Building Clustering FDI & Federation Forces
重视集群投资、利用集体力量
12
Examining Compositionary Cooperation by CMNEs
• Federation and constellation structure
• A multitude of partner type, role and contribution
Forms
Reasons
• Kinship network advantage
• Complementarity advantage
• Solidarity advantage
•
•
•
Mechanism •
Outcomes
Contractual norms
Social exchange norms
Administrative norms
Informational norms
• Group-level outcome
• Individual firm-level outcome (competitiveness, legitimacy, liability reduction, etc)
• Host country-level outcome
13
Evaluating Operational Strategies
Mid- to high-end
markets in Tiers 1
& 2 Emerging
Markets
Target
markets
中国国际化企
业的主阵地
Low-mid to uppermid markets in
developed
countries
14
Evaluating Corporate and Business Strategies
• When vertical, when horizontal
• Focused vs. diversified business
Corporate- • Regionalized vs. globalized integration
• Going public by parent vs. by subsidiary
level
• Determinants of partial vs. complete acquisition
• Determinants of equity participation
Corporate- • Evolution of equity increase and control
level
• Unique links existing in parent-subsidiary relationships
• Subsidiary autonomy allocation and determination
Corporate- • Study on unique roles played by Chinese MNE subsidiaries
level
15
Evaluating Corporate and Business Strategies
• Positioning strategy (price, product, customer, etc)
• Competitive strategy (integrated low cost & differentiation)
Business- • Strategic and tactical responses to competition
level
• Interaction and cooperation between different value chain activities
undertaking in different foreign countries and between home and
foreign countries
Business• Upstream and downstream integration between inshore and offshore
level
• How different life cycle stages (industry and product) between home
and foreign countries affect business-level strategy
Business- • When business-level strategies tend to be convergent between home
and foreign operations, when divergent?
level
16
A Composition Perspective of Chinese MNEs
复合式企业成长
Compositional
Competition
1. Price & product
2. Technology & brand
3. Service, channel &
speed
4. Integration of entire
chain
Compositional
Capability
Compositional
Strategy
1. Learning, knowledge
acquisition , assimilation
2. Reverse engineering,
imitation, and cost
innovation
3. Creation & innovation
4. Mass production capacity
5. Adaptability & agile
1. Export, inward and
outward FDI combined
2. Geographic diversification
together with focused
business portfolio
3. Integration of vertical and
horizontal FDI
4. Strategic ambidexterity
17
Composition Strategy 复合式战略理念
From Using Domestic to Global Resources
Sustainable Growth
可持续发展
From Evolution to Co-Evolution
从进化协同进化
From Core Competence to Dynamic Capability
从核心能力到动态能力
From Competition to Co-opetition
从竞争到竞合
From Rigidity to Ambidexterity
从刚性/单一性到双向性
From Imitation to Creation & Innovation
Macro- & Micro Business Environments
Spurring Sustainable Growth
鼓励可持续发展的宏、微观商业环境
从利用国内资源到利用全球资源
从模仿到创新
Domestic Market
国内市场
Global Market
国际市场
18
Ambidexterity 双向性战略观
 Facing the duality of “big” market and “big” government at home, and with a strategic
intent to win in both developing and developed markets, successful CMNEs are
increasingly ambidextrous in multiple fashions

处在像中国这样动态环境中的成功企业，正以不同的方式变得更加“双向”化
 Given the complexity of Chinese business environments, it becomes more important to
simultaneously balancing seemingly contradictory forces and needs - shifting from
trade-off (either/or) to paradoxical (both/and) thinking

考虑到中国商业环境的复杂性，同时平衡看似矛盾的因素和需求正变得越来越重要——即从“二者选一”向看似不可能
的“二者兼顾”转换.“双向性”广义上指企业在同一时间追逐两个相异目标的能力，例如：








Efficiency vs. flexibility
Low cost vs. innovation
Global integration vs. local responsiveness
Transactional vs. relational competence
Adaptive to vs. influencing environment
Competition vs. cooperation
Stability vs. adaptability
Short-term profit vs. long-term growth
19
Ambidextrous Evolution 复合式演变
From Evolution
to Co-Evolution
Institutional
Environment
制度环境
From Competition to
Co-opetition
从竞争到合作竞争
Socio-cultural
Environment
社会文化环境
从进化到协同进化
Sustainable
Growth
可持续发展
Dynamic
Capability
动态能力
From Rigidity
to Ambidexterity
Market
Environment
市场环境
From Imitation
to Innovation
从模仿到创新
Technological
Environment
技术环境
从单一性到双向性
20
Theorizing Organizational Ambidexterity
- Antecedent Factors双向性的前因
 Organizational ambidexterity is prompted by several antecedents at (i)
institutional (ii) market (3) cultural and (4) resource levels

组织的双向性”受到许多前因推动，这些前因来自（1）制度层面；（2）市场层面；（3）文化层
面和（4）资源层面。
Institution-based
Antecedents
• Institutional transition
• Hybrid economy
• Regulatory incompleteness
• Government intervention
Market-based
Antecedents
• Intensified competition
• Exploration importance
• Structural multiplicity
• Multi-point rivalry
制度转变
混合经济
监管不完善
政府干预
道家因缘
儒家中庸
关系优势
困难准备
Organizational
Ambidexterity
• Co-evolution
• Co-opetition
• Co-competence
• Co-adaptation
竞争加剧
探索价值
结构多元化
多点竟争
资源充裕度
领导视野
行业经验
协调能力
Culture-based
Antecedents
• Daojia’s yin-yan
• Rujia’s harmony
• Guanxi dominance
• Hardship preparation
Resource-based
Antecedents
• Resource munificence
• Leadership vision
• Industrial experience
• Reconciliation ability
21
Unlocking ambidexterity of Chinese MNEs
• Co-evolution, co-adaptation, co-competence, co-opetition, anything else?
Constructs
Determinants
Process
Outcome
Moderators
• External: Institutional, competitive, socio-cultural, political/regulatory at home and abroad?
• Internal: Strengths/weaknesses; Resource and organizational? Ambi-cultural orientation?
• Intraorganizational balance act?
• What are structural, organizational and administrative mechanisms with the firm that make
ambidexterity happen? What type of CMNEs can be more effective in nurturing and benefiting
from ambidexterity
• How home country ambidexterity and overseas ambidexterity are mutually linked and reinforced
• Corporate (home)- and business (subsidiary)-levels
• Short-term and long-term outcomes
• Industrial context
• Dependence on external resources
• Strategic intent of internationalization
22
Global Corporate Governance for Chinese MNEs
• “Internalization” is virtually absent to newcomers; lack of global integration
• Poor transparency (financial disclose, non-financial disclose, and strategic transparency)
• Lacking diverse representation of board members and TMT
Weaknesses • Absence of effective corporate governance mechanisms (non-tradable state ownership,
board composition, independent outsiders, board committees, SEC policies, etc)
Solutions
• Acquisitions with localized leadership and management avoid CMNCs’ weak leadership
and lack of international management skills
• Inviting frontline subsidiaries’ CEOs or directors to join in corporate board and
committees
• Maintaining two-tier (corporate and subsidiary) global corporate governance more
effectively
• Forming the executive or advisory board to plan and monitor a firm’s key international
investment decisions
• Inviting CEOs and/or board chairs of world class MNCs which has business ties and
good collaborations in the past to sit in the firm’s board
• Forming a specialized committee – global strategy committee – under the board of
directors and inviting interlocked directorates to serve in this committee
• Constantly improving and upgrading a firm’s information disclosure systems including
websites
• Striving to improve the company’s local legitimacy and corporate citizenship behaviors in
host countries
• If necessary, spinning off some overseas subsidiaries (including those in HK) and
undertaking OFDI under the name of these subsidiaries
23
Unpacking Corporate Governance for Chinese MNEs
Dependent
variable
• How state ownership affects corporate governance systems
• How different stock exchanges in which CMNEs are listed affect governance systems
differently
• Causal links between governance and internationalization?
• How governance mechanisms affect TNI, entry strategies, cooperative strategies, integration
strategies, and parent-subsidiary links?
• How governance mechanisms affect links between home operations and foreign operations?
Independent • How governance mechanisms affect corporate citizenship, organizational legitimacy, org.
learning, and adoption of best practices overseas?
variable
Moderator
• Governance may moderate the effect of M&A on performance
• Governance may moderate the effect of parent-subsidiary ties on international performance
• Governance may moderate the effect of global integration or control on corporate
performance
24
Ownership-Diversification Matrix
中国国际企业/跨国公司的类型：所有权-多样化矩阵
Non-state owned
非国有的
高
H
国
际
多
样
化
International Diversification
World-stage
Aspirant
世界舞台进取者
Transnational
Agent
跨国代理
Niche
Entrepreneur
小而精的创业者
Commissioned
Specialist
委托专家
L
低
State owned
国有的
25
Identifying and Examining Different Types of Chinese MNEs
• Pattern of motivations
• Multiplicity of motivations
Motivational • Stability of such motivations
difference
Path
difference
• Aggressiveness and risk-taking orientation
• Future orientation
• Evolution orientation
• Path dependence vs. path departure
Strategic
difference
• Investment strategies
• Cooperative strategies
• Link between home operations and offshore operations
• Corporate political strategies with home and host country governments
26
Identifying and Examining Different Types of Chinese MNEs
Capability
difference
• Financial (liquidity, leverage, etc)
• Operational (flexibility, innovation, responsiveness, adaptation, etc)
• Entrepreneurial capability
• Corporate autonomy and subsidiary autonomy
• Government interference or support (key resources)
Organizing • Structural inertia, efficiency and bureaucracy
difference • Incentives and human resources management
• Corporate culture, ideology, values, ethics and compliance programs
• Ownership concentration, stakeholders, and stewardship
Governance • Agency cost, principle-agent relationship, CEO selection, appointment,
incentives, and responsibilities
difference
Thank You & Good Luck!
27