Ownership hybridization and FDI propensity: How firms from state-directed emerging economies can overcome institutional challenges in foreign direct investment.

Abstract

The emergence of hybrid ownership structures and their OFDI activities is a critical but under-investigated phenomenon. We proffer that ‘state-directed emerging economies’ (SDEEs) - a unique typology of emerging economies – are largely driving the emergence of hybrid ownership structures. The direct and continuous government involvement in SDEE markets and the perception this economic system creates across a variety of host countries, present the dual hurdle of liability of “origin” and liability of foreignness in the OFDI of SDEEs firms. Our study proposes ownership hybridization (i.e. mixing state and private ownership) in the home market, as a mechanism through which SDEE firms counteract these unique institutional challenges in foreign investments. We argue that through hybridization, SDEEs firms benefit from the unique resources brought into the mixture by the different ownership logics and synergistically strengthen their ability to overcome institutional challenges in foreign investments. Nevertheless, benefits of hybridization are likely to vary in magnitude in relation to the degree of hybridization, suggesting an optimal blend of state and private ownership in a hybrid firm. In addition, we propose that hybridization effects are also contingent on top executives and their political connection, that engender resource and legitimacy implications. Our approach differs from existing studies that view home and host country institutional challenges in isolation. Rather, we recognize the inter-related effect of these institutional challenges and propose ownership hybridization as a strategy that simultaneously counteracts both.