Strategizing of Foreign Firms in China

Abstract

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