What explains the performance of Chinese exporting firms?

Abstract

Drawing on the entry mode literature and the strategic tripod framework, we examine whether firm performance is influenced by its outward foreign direct investment (OFDI) mode, controlling other firm-, industry-and institution-specific factors. It is found that employing OFDI does not improve an exporting firm's performance. This is not surprising as anecdotal evidence shows that many Chinese firms with OFDI have been making loss in the host country. This may indicate exporting firms employ OFDI to seek complementary and strategic resources/assets, not to improve immediate firm performance. Furthermore, firm performance is influenced by strategic assets, including technology-based capabilities (TBCs) and brands, at the firm level, industry entry barriers at the industry level and the home and host country institutional support at the country level.Keywords: Performance, Exporting Firm, OFDI, Strategic Tripod Framework 2 IntroductionEntry mode is considered as an important determinant of firm performance (Brouthers, 2002; Brouthers, et al., 2003 Brouthers, et al., , 2008Brouthers & Nakos, 2004;Chen & Hu, 2002;Shaver, 1988;Woodcock, et al., 1994). The rationale is that "firms will select the mode that provides the best return on investment" (Brouthers, 2002, p.207). The existing literature has investigated whether some investment modes provide better performance than others (e.g. Brouthers, 2002;Woodcock, et al., 1994). The entry modes under consideration in these studies are often joint ventures (JVs) and wholly-owned subsidiaries (WOSs). Few research considers the performance impact of exporting only versus a hybrid mode of exporting and outward foreign direct investment (OFDI). Given the increasing trend in OFDI, a question arises: Does an entry mode transformation by exporting firms to include OFDI lead to better firm performance? This research aims to fill this research gap. As part of this investigation, other factors influencing firm performance are accounted for by taking an integrative perspective at the firm, industry and country-level.Exporting is often the first stage of internationalization in emerging market firms (EMFs). However, the continuous marketization and liberation in emerging markets motivate firms to undertake OFDI. Exporting helps firms to gain international experiences and to establish linkages in the international market (Mathews, 2006). Yiu et al., (2007) reveal that exporting firms can benefit from learning in foreign markets, 3 accumulating local knowledge, gaining legitimacy and developing local networks.Furthermore, given the home country specific resources (CSRs) such as low labor costs and low production costs, EMFs may benefit from economies of scale by concentrating production at home and then exporting their products to foreign markets.The learning-curve cost advantages suggest that the costs of production fall with the cumulative volume of production, therefore firms moving along the learning-curve can obtain cost advantages over rivals (Wei, et al., 2014). However,...

Internationalization of Chinese SMEs: The Perception of Disadvantages of Foreignness

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“…Exporting has been the first stage in their international expansion (Dunning 2003) as it has also been the most accessible, especially for small companies (it requires less fixed costs in comparison with other entry modes, etc (Zheng and Qu 2015)). Exporting has helped them to establish the necessary linkages abroad (Mathews 2006), to understand the market and develop capabilities to compete overseas (Gao 2008), and to build business relations with the aim of reducing the uncertainty and the asymmetry of information (Zheng and Qu 2015). Exporting has also supported learning along with economies of scale and scope which help in moving along the learning curve (Zheng and Qu 2015).…”

“…Exporting has helped them to establish the necessary linkages abroad (Mathews 2006), to understand the market and develop capabilities to compete overseas (Gao 2008), and to build business relations with the aim of reducing the uncertainty and the asymmetry of information (Zheng and Qu 2015). Exporting has also supported learning along with economies of scale and scope which help in moving along the learning curve (Zheng and Qu 2015).…”

Strategy impact on the choice of partial versus full acquisitions: evidence from Japanese outbound acquisitions

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