Strategizing of Foreign Firms in China

China has been assuming a prominent position in the world economy and one of the most attractive destinations for FDI. However, the popular press often points to institutional voids and difficulties that foreign firms face in operation. How foreign firms strategize in China, therefore, becomes a very important question to both academics and practitioners. This book offers an institutional perspective. Based on a detailed analysis of ownership choice and political activities of foreign firms, the book shows that the interaction between institutions and foreign firms accounts much for strategic decisions. In the context of China, it is local institutions, such as local governments and local business societies, which play a substantial role in shaping the behaviour of foreign firms. As a response, foreign firms must "think local", appreciating the role of local institutions and fitting their behaviour to local circumstances within China. Doing so through a process of learning by doing ex post entry is costly. Therefore, foreign firms need to build up capabilities to manage formal and informal institutions effectively at the local level. From a theoretical perspective, the findings in this book contribute significantly to international business and strategy research into transition economies by contextualizing the existing theories and adding a local perspective

Historical Attitudes and Implications for path dependence: FDI development and Institutional changes in China

This paper attempts to explain how institutions in the reform era of China have evolved by looking into the FDI policies and regulations. As history matters, we don’t look solely into the previous direct stage to the reform era, and rather look into a longer history starting from prior to the 14th century. The study shows that a dimension of time is crucial to understand institutional change in China. Though the initiation of the open-door policy in the reform era is commonly regarded as path-break event, we claim that this institutional change is a path dependent event from a longer historical view. The path takes a zigzag that is shaped by interaction among interested parties: the central government, local governments and economic agents (foreign investors in terms of the open-door policies). The historical study shows that mutual needs and their behaviours influence their attitudes which further influence institutional building. This also further implies how Chinese institutions may evolve in the future and what we should concern more about institutional changes in transitional economies