Panel de control

A great deal of research has focused on internationalisation performance and identifying its contributory factors. However, despite a large number of studies that have examined the internationalisation performance, there is no consensus regarding the determinant factors for internationalisation success. Factors identified in previous studies can be classified into two categories: internal factors, such as resources, capabilities and firm specific factors (e.g. Bruton et al., 1994; Chatterjee et al., 1992; Datta, 1991; Fowler and Schmidt, 1989; Krishnan et al., 1997; Uhlenbruck, 2004), and external factors, such as host country specific and institutional factors (e.g. Luo, 2003; Demirbag et al., 2007), both of which will be reviewed in this section.

6.2.1 Internal Factors

Previous research has examined the role of various internal factors in internationalisation performance based on resource-based view, dynamic capability theory and attention perspectives (e.g. Bouquet et al., 2009; Daily et al., 2000; Demirbag et al., 2007; Luo, 2003; Uhlenbruck, 2004; Venaik et al.,2005). The factors, such as resource commitment, control flexibility, international experience and international attention, have been regarded as the main determinants of internationalisation performance.

Resource commitment of the parent firms helps overseas subsidiaries with

the management of uncertainty and the coordination of activities, and counterbalances the subsidiaries’ vulnerability to the host countries’ unfamiliar institutional environments (Demirbag et al., 2007, Luo, 2003). Although parent firms will not be able to provide all the resources needed by subsidiaries, such support can certainly reduce the subsidiaries’ reliance on local resources such as capital and semi-products, which will increase their competitive advantages in the host countries, especially in emerging economies (Luo, 2003). However, this is not to say that subsidiaries should depend for everything on their parent firms. A combination of resources provided by parent firms and location- specific resources acquired from the host countries may provide a better balance (Demirbag et al., 2007). Child and Yan (2003) state that the quality of resource provision in host countries, especially in emerging economies, is critical in the performance of overseas subsidiaries.

Control flexibility concerns ‘the extent to which a parent firm’s organisational

control over subsidiary activities is flexible’ (Luo, 2003, p. 295), and reflects the level of the subsidiary’s autonomy. Previous studies have well documented the fact that overseas performance and strategy implementation are significantly affected by the way in which parent firms control subsidiary operations (Baliga and Jaeger, 1984; Golden, 1992; Prahalad and Doz, 1987; Subramaniam and Watson, 2006; Varblane et al., 2005). Power delegation and parental control significantly influence the effectiveness of overseas subsidiaries (Gencturk and Aulakh, 1995; Habib and Victor, 1991; Roth et al.,

1991). Kogut (1985) suggests that the operational flexibility of subsidiaries is developed largely based on the foundation of the flexibility of parent control. It creates many arbitrage opportunities to explore the differentials (such as financial gains, production plans and tax minimisation) and leverage opportunities (such as political risk reduction and better global coordination). Control flexibility allows subsidiary managers to better explore future changes and opportunities and to better respond to a changing market (Luo, 2003). Venaik et al. (2005) also find that performance is improved for the more autonomous subsidiary. In particular, Varblane et al. (2005) find that financial autonomy has a bigger positive impact on foreign subsidiaries’ performance compared to technology, marketing and management autonomy.

International experience is another commonly examined factor in

internationalisation performance research (e.g. Bruton et al., 1994; Carlsson et al., 2005; Fowler and Schmidt, 1989; Uhlenbruck, 2004). In particular, previous acquisition experience has been widely recognised as a crucial factor in M&A performance (Bruton et al., 1994; Haspeslagh and Jemison, 1991; Hitt et al., 1998; Hitt et al., 2001). Hitt et al. (2001) caution that the importance of the link between managers’ international experience and internationalisation success should not be underestimated. The complex integration challenges caused by internationalisation may be helped by international experience at both individual and organisational level (Haspeslagh and Jemison, 1991). At the individual level, a top management team lacking international experience can be particularly susceptible to an escalation of commitment, which can result in unreasonably high transaction costs (Haspeslagh and Jemison, 1991). Previous research finds that top management teams’ international experience is positively related to firms’ internationalisation performance (Daily et al., 2000; Haspeslagh and Jemison, 1991). Moreover, at the organisational level, international experience can build facilitating processes for the identification (Hitt et al., 1998) and integration of resources, which in turn will contribute to the improvement of post-internationalisation performance (King et al., 2004). Such experience can also help overcome the negative cultural distance effects which often cause

studying Scandinavian firms’ performance in China reveals that subsidiaries in China have superior performance if their parent firms have operational experience in countries or regions similar to China, such as Hong Kong, Taiwan or Singapore.

International attention is defined as ‘the extent to which headquarters

executives in the MNEs invest time and effort in activities, communications, and discussions aimed at improving their understanding of the global marketplace’ (Bouquet et al., 2009, p. 108). International attention can be seen as a practical way to fulfil managers’ global mindset, which indicates how senior managers focus their thoughts and ideas (Bouquet et al., 2009).

International attention can provide access to superior information sources in the global environment (Zaheer and Zaheer, 1997), facilitate the generation and diffusion of ideas and competencies throughout the organisation (Rugman and Verbeke, 2001), significantly affect globalisation efforts (Levy, 2005), and signal the willingness of senior managers to be open-minded toward different opinions and perspectives (Bouquet et al., 2009). When senior managers of parent firms understand, respond and adapt to host country conditions, the efficiency of subsidiaries can be improved (Luo, 2003). These advantages can eventually result in better managerial decisions and improved corporate performance (Kim and Mauborgne 1993; Venaik et al., 2005). Bouquet et al. (2009) find that international attention has a curvilinear (inverted U-shape) rather than linear relationship with MNEs’ performance, which is positively moderated by the senior managers’ international experience.

6.2.2 External Factors

Previous research indicates that the environment in which MNEs operate has a significant impact on their strategies and outcomes, and plays an important role in explaining the variation in their behaviour and performance (Brouthers, 2002; Makino et al., 2004; Meyer, 2004; Peng, 2001; Uhlenbruck, 2004). The

existing literature has identified a number of external factors which have a profound impact on internationalisation performance.

Political risk is determined by the actions and policies of both home and host

country governments, which plays an important role in MNEs’ operation and performance (Ahmed et al., 2002; Brouthers, et al., 2000), and measured by political, policy and macroeconomic uncertainties in the prior literatures. While political risk exists more or less in every economy, it is much more in evidence in emerging economies due to market transition and institutional conditions prevailing (Hoskisson et al., 2000, Peng, 2001). Host country governments often intervene or interfere with foreign company activities via regulations and rules (Luo, 2003). However, the frequent and unpredictable changes of these regulations and rules, especially in emerging economies, lead to environmental uncertainty and complexity (Luo and Peng, 1999). The uncertainties make subsidiaries rely more on parent resources, but weaken the contribution of the parent resources to subsidiary performance (Luo, 2003). Demirbag et al. (2007) also find that a favourable managerial perception of host country political risk, which is heavily influenced by the institutional environment in which managers function (Makhija and Stewart, 2002), positively influence the perception of subsidiary performance.

Supportive government regulations towards corporate tax and FDI

incentives also contribute to a more favourable institutional environment and would tend to have a positive impact on firms’ performance in the host country (Child et al., 2003, Demirbag et al., 2007, Luo, 2003). Managers’ perception of the host country is in many ways influenced by the government regulations regarding competition and FDI (Demirbag et al., 2007). For example, Pangarkar and Lim (2003) find that a non-discriminatory approach from the host country government has a positive impact on MNE performance.

Very often, emerging economies are primarily concerned with facilitating an increase in employment, and in knowledge and technology transmission through FDI. They therefore tend to provide more incentives for FDI than other

are motivated additionally by these investment incentives and favourable regulations (Loree and Guisinger, 1995, Pangarkar and Lim, 2003), which feed directly into MNEs’ performance (Lim, 2005, Pangarkar and Lim, 2003).

The concept of cultural distance has been prominent since the work of Hofstede (1980, 2000), and used widely in international research. Previous research argues that as the culture dissimilarity between home and host countries increases, investment in the host country becomes riskier and the integration process becomes more difficult (Björkman et al., 2007; Cartwright and Cooper, 1995; Li et al., 2001; Lodorfos and Boateng, 2006; Morosini and Singh, 1994; Morosini et al., 1998; Newman and Nollen, 1996; Teerikangas and Very, 2006). This is because the cultural distance between home and host countries makes a foreign firm’s management techniques and procedures less appropriate (Demirbag et al., 2007). The integration problems and resource sharing difficulties caused by cultural distance will eventually result in less synergy creation (Brock, 2005). However, the available empirical evidence is far from decisive. The relationship between cultural distance and internationalisation performance has been found to be negative (Brouthers, 2002; Luo, 2003), positive (Demirbag et al., 2007) or not significant (Delios and Beamish, 2004; Pangarkar and Lim, 2003). Although the empirical evidence seems to be mixed, the argument of the negative impact of cultural distance on performance has been dominant in the discussion.

6.2.3 Summary

As reviewed in this section, factors identified in previous studies have been very selective and fragmented, focusing either on internal factors or external factors. However, more and more researchers have started to realise the importance of analysing firms’ internationalisation performance from a more integrated perspective by considering both internal and external factors, because investigating the impact of internal factors on a firm’s performance without addressing the external environment will provide an unsatisfactory explanation and can be misleading.

Moreover, although the impact of external institutional factors on MNEs’ performance has been acknowledged in previous studies, most only address the role of the host country institutional environment and ignore the role of the home country institutions. However, the impact of the latter, especially in emerging economies, cannot and should not be underestimated.

Furthermore, although many studies have been focusing on MNEs’ performance, relatively little has been done on the internationalisation performance of firms from emerging economies (Wright et al., 2005). As MNEs from emerging economies start to play a big part in the world FDI, more attention need to be given to their activities and performance (Wright et al., 2005). Therefore, this study intends to fill this research gap by investigating the internationalisation performance of firms from one of the leading emerging economies, China.

These issues will be addressed in this study by examining the post- internationalisation performance of Chinese SOEs through an integrated theoretical lens. Both internal and external factors will be investigated in order to provide a more complete picture of the factors contributing to firms’ overseas success.

6.3 Theoretical Foundation

In order to capture the influence of both internal and external factors, a combined perspective of the dynamic capability framework and the institution- based view has been chosen as the theoretical foundation for this study. Such an integrated approach brings together various theories and is expected to be more fruitful in explaining firms’ strategic decisions in a changing environment (Wright et al., 2005). The influence of dynamic capabilities on post- internationalisation performance has been well articulated in strategic management literature (Fang and Zou, 2009). The dynamic capability framework provides a flexible perspective for understanding firms’ abilities to respond to a changing business environment in order to create and/or sustain

how firms are influenced by their remote environments. These two approaches complement each other and can be combined to examine how both internal and external factors affect post-internationalisation performance.

In this section, the dynamic capability framework and institution-based view will be reviewed and the conceptual framework developed. The author’s approach mainly focuses on the influence of the combination of firms’ internal dynamic capabilities and the external institutional environments on their post- internationalisation performance. By taking this approach, the author attempts to address both firm and institutional level influences on the post- internationalisation performance of MNEs from emerging economies.

6.3.1 Dynamic Capability

The dynamic capability framework has been developed as an extension of the resource-based view (Eisenhardt and Martin, 2000; Teece et al., 1997; Ambrosini and Bowman, 2009). The resource-based view is an influential and well-developed theoretical framework for understanding how firms achieve competitive advantages and sustain them over time (Peteraf, 1993; Wernerfelt, 1984). It assumes that firms can achieve competitive advantages and strong performance through generating and/or possessing bundles of firm-specific resources, including capabilities, assets and knowledge, and the heterogeneous distribution of resources across firms persists over time (Eisenhardt and Martin, 2000; Mahoney and Pandian, 1992; Penrose, 1959; Teece et al., 1997; Wernerfelt, 1984). Despite the significance of the resource-based view in strategic management research, it has been challenged because of its inability to explain the mechanisms by which resources actually contribute to created and sustained competitive advantages (Priem and Butler, 2001; Teece et al., 1997)

As an extension, dynamic capability framework was developed with respect to ‘assisting in the understanding of how and why certain firms build competitive advantage in regimes of rapid change’ (Teece et al., 1997, p. 516). As pioneers in dynamic capability framework building, Teece et al. (1997, p. 516)

define dynamic capabilities as ‘the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments’. They identify three categories of dynamic capabilities, namely processes, positions and paths, and a list of parameters determining performance in the three categories (Teece et al., 1997, p. 518):

 Processes: the way things are done in the firm, or what might be referred to as its routines, or patterns of current practice and learning.  Position: firms’ current specific endowments of technology, intellectual

property, complementary assets, customer base, and its external relations with suppliers and complementors.

 Paths: the strategic alternatives available to the firm, and the presence or absence of increasing returns and attendant path dependencies. Following the initially proposed definition of dynamic capability by Teece, et al. (1997), other researchers have also attempted to define and classify dynamic capabilities from different perspectives. A few examples are as follows.

 Eisenhardt and Martin (2000, p. 1107) define dynamic capabilities as ‘the firm’s processes that use resources – specifically the processes to integrate, reconfigure, gain and release resources – to match and even create market change. Dynamic capabilities thus are the organisational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve, and die’.

 Zollo and Winter (2002, p. 340) propose an alternative: ‘a dynamic capability is a learned and stable pattern of collective activity through which the organisation systematically generates and modifies its operating routines in pursuit of improved effectiveness’. They point out that the learning mechanisms, including experience accumulation, knowledge articulation and codification, can develop firms’ dynamic capabilities.

 Winter (2003, p. 991) states that dynamic capabilities ‘are those that operate to extend, modify or create ordinary capabilities’.

 Wang and Ahmed (2007, p. 35) have defined dynamic capabilities as ‘a firm’s behavioural orientation constantly to integrate, reconfigure, renew and recreate its resources and capabilities and, most importantly, upgrade and reconstruct its core capabilities in response to the changing environment to attain and sustain competitive advantage’. Although dynamic capability has been defined by different researchers using different wordings, these definitions share some common characteristics. Dynamic capability has been considered as the ability to generate or modify the operating or strategic routines in order to more effectively configure resources in response to a rapidly or slowly changing environment with the aim of achieving a sustained competitive advantage. It is concerned with how firms create and/or access new knowledge, make investment choices, sense and seize new opportunities, and achieve necessary business model and organisational transformation (Augier and Teece, 2009).

As a theoretical framework developed to explain how firms sustain their competitive advantages in the ever changing business world, dynamic capability theory does not appear to be relevant to SOEs, which are labelled with monopoly, bureaucracy, low autonomy and drain on governmental resources (Steinfeld, 1998). However, Chinese SOEs have gone through drastic changes during the economic reform (Nolan, 2002). Unlike the past, SOEs can no longer turn a blind eye on the declining profit performance and expect the state to continuously inject resources for survival and bail them out in case of failure. Nowadays, the SASAC has an explicit requirement of performance for SOEs. Managers of SOEs in the financial red zone are under pressure to reverse the situation in a relatively short time frame. Meanwhile, although some SOEs are still enjoying institutional protection in certain industries, such as oil, railway and telecommunication, the majority has been forced to compete in the open market with private firms and foreign rivals, especially after China joined the WTO in 2001. Besides, when SOEs start to

invest abroad, the institutional protections that they enjoy at home, can hardly be extended to cover their operations in host countries. The above changes require Chinese SOEs to transform themselves from bureaucratic organisations to modern enterprises and fight for survival in increasingly fierce competition. As a result, dynamic capabilities become ever more relevant to Chinese SOEs’ daily operation and performance as they are going through changes and confronting a changing environment. In this sense, Chinese SOEs also need to utilise their dynamic capabilities to adapt to the changing business environment, especially in the internationalisation process. Therefore, in this study, dynamic capability is chosen as a key theoretical framework which guides the search for factors leading to overseas success of Chinese SOEs.

6.3.2 Institution-based View

The institution-based view has become an increasingly relevant and insightful tool when considering the international strategy and performance of firms from emerging economies (Hoskisson et al., 2000; Peng, et al., 2008; Wright et al., 2005). Although formal and informal institutions have been featured as ‘background’ conditions in international business research, the deficiency of this attitude emerges in research into understanding firms’ strategic behaviour and performance in developed economies (Oliver, 1997), and becomes even more striking in research concerning emerging economies (Child and Tsai, 2005; Chung and Beamish, 2005; Narayanan and Fahey, 2005; Wan, 2005). In previous research, there has been inadequate consideration given to the unique contexts of the emerging economies (Wan, 2005).

Institutions are commonly understood as the ‘rules of the game in a society’ (North, 1990, p. 3), which do not just sit quietly in the background. Instead, ‘institutions directly determine what arrows a firm has in its quiver as it struggles to formulate and implement strategy and to create competitive advantage’ (Ingram and Silverman, 2002, p. 20). As Wan and Hoskisson (2003, p. 28) put it: ‘the environment opportunity set is determined by

production factors and institutions, and firms seek to capture the profitable opportunities defined by the opportunity set’.

Although ‘institutions matter’ is hardly debatable, ‘how institutions matter’ is of more interest and still relatively under-investigated (Peng, et al., 2008; Smith, 2003). This is especially true concerning the mechanism by which institutional factors (both in the home and host countries) influence performance in overseas market. The institutional approach is highly relevant when examining firms from emerging economies, since the strategic behaviour and strategic outcomes of these firms are largely influenced by home government policies and regulations. This is why the institutional-based view has been chosen as an additional theoretical lens in order to take the special features of the Chinese institutional environment into account.

6.4 Conceptual Framework

6.4.1 Internal Factors

There is no consensus classification of dynamic capabilities. Dynamic capabilities have been classified from different perspectives, such as competence (Teece et al., 1997), opportunity (Augier and Teece, 2009) and resources (Eisenhardt and Martin, 2000). In this study, a resource perspective has been adopted to identify dynamic capabilities as dynamic capability framework is considered as an extension of resource-based view.

Eisenhardt and Martin (2000) identify three categories of dynamic capabilities, namely, integration of resources, reconfiguration of resources, and the gain