The Paths of Internationalization of Chinese Innovative Firms

Abstract

Innovative enterprises from emerging markets, such as China, are a group of understudied enterprises, which could generate new and important views on internationalization. Some unique characteristics of Chinese innovative enterprises are creating new ideas that help to a better understanding of entry mode choice, market location choice, and entry speed in the paths of internationalization. Drawing on an unbalanced panel of Chinese innovative enterprises’ outward foreign direct investment (OFDI) event data, we analyzed the tendency of the paths of internationalization of Chinese innovative enterprises and the determining factors that influence the Chinese innovative enterprises’ choice in entry mode, market location, and entry speed. The results show that: (1) Chinese innovative enterprises are more likely to choose developing countries than developed countries. (2) When these firms conduct investment activities in developed countries, the probability rank (from high to low) of entry mode choice is acquisition, along with the wholly-owned subsidiary, exporting and joint venture. When these firms expand the business in developing countries, the entry mode of export is most likely to be chosen and the acquisition is least likely to be chosen. (3) This tendency and paths choice of internationalization in entry mode, market location and entry speed are influenced by the international experience, the multidimensional proximity, psychic distance, internationalization motivation, ownership structure, and innovation ability. Finally, we discuss these contributions and make some suggestions for future research.

A Systematic Literature Review about the Speed of Internationalization

“…With growing distance of the target market and growing diversity of international engagements internationalization process length extends (Schu et al, 2016). Institutional, language, economic and geographical proximity and psychic distance, however, are insignificant in a Cox-Hazard regression model explaining the entry speed of Chinese internationalizing companies in emerging or industrialized target countries (Du et al, 2020). Possibly, the distance-effect is diluted in this model due to the broad range of applied distance-related parameters for a single regression.…”

“…The framing conditions in target markets of internationalization activities are highly significant. The retrieved studies address a) physical and mental distance of target destinations (Cheng et al, 2020;Wild 2020, Neubert, 2018bOoi & Richardson, 2020;Clermonts, 2019;Schu et al, 2016;Hutzschenreuter et al, 2016), b) characteristics of foreign distribution markets (Bemborn, 2018;Clermonts, 2019, Du et al, 2020Mihailova et al, 2015;Himerson & Johanson, 2015) To a) Cultural distance of target destinations impedes the internationalization speed of Chinese companies of the Yangtze river delta (Cheng et al, 2020) but equally the internationalization of Western high-tech SME (Wild, 2020). Apart from geographic distance, the psychic distance of foreign destinations hampers internationalization activities, when businesses dispense with local connections and do not understand idiosyncratic business conditions (Wild, 2020).…”

“…Bemborn (2018) and Clermonts (2019) assess the "absorptive capacity" of foreign markets and find this characteristic decisive to internationalization speed of German businesses (Bemborn, 2018) and businesses from emerging countries (Clermonts, 2019) alike. Du et al (2020) explain that the development status of the target country codetermines entering businesses' internationalization speed. Depending on the development status of the target country, different entry strategies prove: In developed countries acquisitions result in the highest entry speed, while in developing countries pure export strategies promise faster entry success.…”

“…Internationalization speed has conclusively been found to diminish with company age (Amann, 2016;Chun et al, 2020;Du et al, 2020;Mihailova et al, 2015). Amann (2016) concretizes that the speed of Swiss SME expansion abroad diminishes with the age at internationalization set-off and remains a delaying factor even in the mid-and long term i.e.…”

“…for 21 years from initiation. Korean exchange traded firms as well as innovative Chinese businesses significantly diminish their internationalization speed with growing age (Chun et al, 2020;Du et al, 2020). Results concerning the impact of firm age on internationalization performance, however, diverge, while Lattemann et al (2015) superior performance for younger Chinese MNC, Chun et al (2020) and Du et al (2020) find the moderate pace of older Chinese businesses more successful.…”