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1 Research on Chinese Multinationals: The Road Ahead YADONG LUO Harvard University Kennedy School Boston, October 3, 2011.

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Presentation on theme: "1 Research on Chinese Multinationals: The Road Ahead YADONG LUO Harvard University Kennedy School Boston, October 3, 2011."— Presentation transcript:

1 1 Research on Chinese Multinationals: The Road Ahead YADONG LUO Harvard University Kennedy School Boston, October 3, 2011

2 Global Fortune 500: Chinese firms are clearly growing 2

3 Absorptive Capability 吸收 / 消化能力 Chinese MNEs’ Competitive Advantages Speed Advantage Ambidextrous Adv. Cost Advantage Combinative Capability 组合 / 集成能力 Hardship-Surviving Capability艰苦生存能力 Intelligence Capability 商情征析能力 Networking Capability 业务网络能力 SAC & CHINA Framework 基本框架 Understanding Competitive (Dis)Advantages of Chinese MNEs SAC & CHINA Framework 基本框架 3 三大竞争优势: 速度优势 双元优势 成本优势

4 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 How to capitalize on competitive advantages or compensate competitive disadvantages (in core or key technologies, brands, experience, managerial brainpower, organizational skills, professional talents) through: 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 Who 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

5 Solving Puzzle: Exploiting Competitive Advantages or Compensating Competitive Disadvantages? 5 Contingencies Intertwinement Institutional arbitrage When exploiting advantages & when compensating disadvantages Where exploiting advantages & where compensating disadvantages How to use advantages to circumspect disadvantages 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

6 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 firmsFive stages of Internationalization for Chinese firms国际化五阶段: 6Export出口贸易 Inward Internationalization 内向国际化 Outward FDI 对外直接投资Insiderization高度本土化 Truly global 真正全球化

7 Assessing Evolution of Chinese MNEs 7 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 spring- boarding behavior How home country operational characteristics are linked with their international strategies LLL view Differential effect of learning, linkage and location advantages Missing 4 th L – Locus? Unique means and processes of organizational learning by CMNEs

8 Probing Home Country-Host Country Links Probing Home Country-Host Country Links HEAD Model Inward Internationalization 内向国际化 Home Development 国内发展 Outward Investment 对外投资 Transnational Operations 跨国经营 H ome Base E xport Growth A lliance Building D iversification 立足国内立足国内 出口增长出口增长 建立联盟建立联盟 多样经营多样经营

9 Probing Home Country-Host Country Links Why Unique importance of home base for CMNEs Pattern of these links Variations of home base dependence for different CMNEs How 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 Where 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

10 FDI Strategies by CMNEs: Toward Home Country Effects 10 OFDI Strategies (Firm-Level) Investment Strategies Investment Strategies Operational strategies Competitive Pressure Integration Strategies (Province) Economic Growth Institutional Hardship Political Support Inward Internationalization Business (Stage) Development Innovation Orientation Geo-Diversification Home Country EnvironmentHome Country OperationsOFDI Strategies of DMNCs

11 Examining Compositionary Cooperation by CMNEs Compositionary Cooperation (Alliance, JV, equity sharing) With foreign (including inward stretch) Between private and state- owned Between upstream and downstream Between manufacturing & services With banking & financial institutions 11

12 Examining Compositionary Cooperation by CMNEs 12 Building Clustering FDI & Federation Forces 重视集群投资、利用集体力量 Overseas industrial parks, clustering manufacturing bases 海外工贸园、工 业园、集群化生 产基地 Industrial associations, transportation & logistics, governments, insurance, VC, intermediaries

13 Examining Compositionary Cooperation by CMNEs 13 Forms Federation and constellation structure A multitude of partner type, role and contribution Reasons Kinship network advantage Complementarity advantage Solidarity advantage Mechanism Contractual norms Social exchange norms Administrative norms Informational norms Outcomes Group-level outcome Individual firm-level outcome (competitiveness, legitimacy, liability reduction, etc) Host country-level outcome

14 Evaluating Operational Strategies Mid- to high-end markets in Tiers 1 & 2 Emerging Markets Low-mid to upper- mid markets in developed countries Target markets 中国国际化企 业的主阵地 14

15 Evaluating Corporate and Business Strategies Corporate- level When vertical, when horizontal Focused vs. diversified business Regionalized vs. globalized integration Going public by parent vs. by subsidiary Corporate- level Determinants of partial vs. complete acquisition Determinants of equity participation Evolution of equity increase and control Corporate- level Unique links existing in parent-subsidiary relationships Subsidiary autonomy allocation and determination Study on unique roles played by Chinese MNE subsidiaries 15

16 Evaluating Corporate and Business Strategies Business- level Positioning strategy (price, product, customer, etc) Competitive strategy (integrated low cost & differentiation) Strategic and tactical responses to competition Business- level Interaction and cooperation between different value chain activities undertaking in different foreign countries and between home and foreign countries Upstream and downstream integration between inshore and offshore Business- level How different life cycle stages (industry and product) between home and foreign countries affect business-level strategy When business-level strategies tend to be convergent between home and foreign operations, when divergent? 16

17 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 1. Learning, knowledge acquisition, assimilation 2. Reverse engineering, imitation, and cost innovation 3. Creation & innovation 4. Mass production capacity 5. Adaptability & agile Compositional Strategy 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

18 Composition Strategy 复合式战略理念 18 Sustainable Growth 可持续发展 From Evolution to Co-Evolution 从进化协同进化 From Core Competence to Dynamic Capab ility 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 从模仿到创新 Domestic Market 国内市场 Global Market 国际市场 Macro- & Micro Business Environments Spurring Sustainable Growth 鼓励可持续发展的宏、微观商业环境 From Using Domestic to Global Res ources 从利用国内资源到利用全球资源

19 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

20 复合式演变 Ambidextrous Evolution 复合式演变 20 Sustainable Growth 可持续发展 Dynamic Capability 动态能力 From Evolution to Co-Evolution 从进化到协同进化 From Rigidity to Ambidexterity 从单一性到双向性 From Competition to Co-opetition 从竞争到合作竞争 From Imitation to Innovation 从模仿到创新 Institutional Environment 制度环境 Socio-cultural Environment 社会文化环境 Market Environment 市场环境 Technological Environment 技术环境

21 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。 21 Organizational Ambidexterity Co-evolution Co-opetition Co-competence Co-adaptation Institution-based Antecedents Institutional transition Hybrid economy Regulatory incompleteness Government intervention Culture-based Antecedents D aojia’s yin-yan Rujia’s harmony Guanxi dominance Hardship preparation Market-based Antecedents Intensified competition Exploration importance Structural multiplicity Multi-point rivalry Resource-based Antecedents Resource munificence Leadership vision Industrial experience Reconciliation ability 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 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

22 Unlocking ambidexterity of Chinese MNEs Constructs Co-evolution, co-adaptation, co-competence, co-opetition, anything else? Determinants External: Institutional, competitive, socio-cultural, political/regulatory at home and abroad? Internal: Strengths/weaknesses; Resource and organizational? Ambi-cultural orientation? Process 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 Outcome Corporate (home)- and business (subsidiary)-levels Short-term and long-term outcomes Moderators Industrial context Dependence on external resources Strategic intent of internationalization 22

23 Global Corporate Governance for Chinese MNEs Weaknesses “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 Absence of effective corporate governance mechanisms (non-tradable state ownership, board composition, independent outsiders, board committees, SEC policies, etc) S olutions 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

24 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? Independent variable 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? How governance mechanisms affect corporate citizenship, organizational legitimacy, org. learning, and adoption of best practices overseas? 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

25 25 Ownership-Diversification Matrix 中国国际企业 / 跨国公司的类型:所有权 - 多样化矩阵 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 Non-state owned State owned 非国有的 国有的

26 Identifying and Examining Different Types of Chinese MNEs Motivational difference Pattern of motivations Multiplicity of motivations Stability of such motivations 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

27 Identifying and Examining Different Types of Chinese MNEs Capability difference Financial (liquidity, leverage, etc) Operational (flexibility, innovation, responsiveness, adaptation, etc) Entrepreneurial capability Organizing difference Corporate autonomy and subsidiary autonomy Government interference or support (key resources) Structural inertia, efficiency and bureaucracy Incentives and human resources management Governance difference Corporate culture, ideology, values, ethics and compliance programs Ownership concentration, stakeholders, and stewardship Agency cost, principle-agent relationship, CEO selection, appointment, incentives, and responsibilities 27 Thank You & Good Luck!

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