The Evolution of Country and Firm Specific Advantages and Disadvantages in the Process of Chiness Firm Internationalization

Topics: Developed country, Case study, Emerging markets Pages: 36 (10333 words) Published: May 1, 2011
The Evolution of Country and Firm Specific Advantages and Disadvantages in the Process of Chinese Firm Internationalization

Svetla Marinova* University of Birmingham, UK John Child University of Birmingham, UK Marin Marinov University of Gloucestershire, UK

*Corresponding Author


The Evolution of Country and Firm Specific Advantages and Disadvantages in the Process of Chinese Firm Internationalization Introduction For a long time China has been attracting a huge volume of inward FDI, the stock of which has accumulated to US$758.9 billion by 2007 (CIA World Factbook, 2009). More recently outward FDI has grown steadily and in 2008 reached an annual figure of US$52.2 billion that was in sharp contrast with the global downturn in FDI flows (Davies, 2009). A key factor in this shift has been the increasing encouragement of the internationalization of Chinese firms by the government, which in 2000 announced the “Going out” policy as a national priority (Guangsheng, 2002). The implementation of this policy is supported by a sizeable trade surplus, a positive saving-investment ratio and the attempt of the Chinese authorities to increase income from overseas ownership of fixed assets (Globerman & Shapiro, 2009). Furthermore, the accumulation of technological and marketing expertise by leading Chinese firms has accelerated the involvement of other Chinese enterprises in outward investment (Tong & Li, 2008). However, Chinese outward FDI has only recently started to attract the attention of scholars. Studies have addressed the motives, driving forces and trends of outward FDI from China (Liu & Li, 2002; Deng, 2004; Child &


Rodrigues, 2005; Liu et al., 2005; Buckley et al., 2007; Rui & Yip, 2008, Morck et al., 2008). As an attempt to account for the success or otherwise of Chinese internationalization, Rugman and Li (2007) have explored the importance of firm specific advantages (FSAs) and country specific advantages (CSAs). Little is known, however, about the evolution of firm and country specific advantages and disadvantages in the process of internationalization. With this in mind, the aim of this paper is to identify and analyze changes in country specific advantages and disadvantages, and firm specific advantages and disadvantages that have relevance to the process of Chinese firm internationalization. Unlike previous studies, it will take account of disadvantages as well as advantages and it will also ground its analysis in six case studies. To meet its aim, the paper proceeds as follows. First, the relevant theoretical background is analyzed by summarizing mainstream views on firm

internationalization simultaneously addressing the use of advantages and changes in competitive disadvantages. Issues pertaining to latecomer firms and their internationalization are also brought to light. Further on, case study data of internationalizing Chinese firms are examined. Drawing upon the theoretical perspectives and case study analysis, the paper offers propositions relating to the evolution of country and firm specific disadvantages and advantages in the


process of firm internationalization. The closing discussion considers the implications of the study. 2. Theoretical perspectives 2.1. Resource based view of the firm The resource based view of the firm affirms that internationalization strategy depends on unique resources in the home country which give the firm a competitive advantage vis-à-vis other firms operating in a host country (Tan & Vertinsky, 1996; Teece et al., 1997, Prien & Butler, 2001). Wernerfelt (1984) defines firm resources as tangible and intangible assets that belong to a firm over a specific period of time. Resources underpin a firm’s competitive advantage (Barney, 1991, Peteraf, 1993) depending on the specifics of the competitive environment (Tallman, 1992; Montgomery, 1995; Brush & Artz, 1999). The predominant view is that companies exploit their own competitive advantages in order to...
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