THE INSTITUTIONALIZATION OF POLITICAL
RISK BY CHINESE MULTINATIONAL FIRMS
Ilan Alon, Alfredo Jiménez, Hui Liu, Hua Wang
Presented by Hua Wang, Kedge Business School, [email protected]
Keywords: Political Risk; Chinese MNEs; Resource Dependence Theory;
Non-market Strategy; State-ownership; Political Connections.
Agenda
1. Introduction
2. Development of the hypotheses
3. Research methodology
4. Results
5. Discussion and conclusions
1. Introduction
Context: • The rise of OFDI from emerging markets, case of China. • How political risk is perceived and managed? Contradictory findings. • Determinants of IPRA (Institutionalisation of political risk assessments) by
OFDI in China is not clear.
Core question: • To examine what are those resources, and how resources affect Chinese
companies’ IPRA in their international expansion (a specific focus on the firms’ ownership structure, the firms’ scale, and the firms’ degree of internationalization).
Objective: • Narrow the theory gap of resource-based theory
1. Introduction
Literature :
Resource dependence theory(Hillman et al., 2009; Pfeffer & Salancik, 1978, Xia et al., 2013)
The non-market strategy literature (Baron, 1995; Bonardi et al,. 2006; Doh et al., 2012; Hillman & Hitt, 1999; Hillman et al., 2004; Holtbrügge et al., 2007; Oliver & Holzinger, 2008),
This study has focused on the impact of state ownership, firm scale, and the degree of internationalization as resource-based factors and points out how these factors shape a firm’s relative behavior, leading to a different level of IPRA.
2. Development of the hypotheses
H1a. State-owned Chinese firms have a lower degree of institutionalization of political risk assessments compared to their private counterparts.
H1b. State-owned Chinese firms have a higher degree of institutionalization of political risk assessments compared to their private counterparts.
H2. Larger Chinese MNEs have a higher degree of institutionalization of political risk.
H3. Chinese MNEs with a broader degree of internationalization have a higher degree of institutionalization of political risk.
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SOE
Scale
IPRAH1a (-)
H1b (+)
Internationalization
1.Assignment of responsibility
2.Frequency of
conducting an
assessment
3.Risk assessment
techniques
1.State-ownership
1.Total sales2. Number of employees
1.Years of international operations
2. International revenue3. Number of countries in
which there are operations
H2 (+)
H3 (+)
Fig. 1 The framework for the development of the hypothesis
3. Research methodology
3.1. Questionnaire
Taxonomy Adopt Al Khattab et al. (2008) that proposes a three-step process (i.e., responsibility assignment, frequency, and approach)
Adding several additional firm-level variables:
• governmental connections (Bonardi et al., 2006; Cuervo-Cazurra et al., 2014;
Hillman et al. 2004; Pfeffer and Salancik, 1978;),
• firm scale (Albright, 2004; Kearns, 1997; Kettis, 2004),
• the degree of internationalization (Keillor et al., 2005; Oetzel, 2005; Wyper, 1995)
Questionnaire design• English, Chinese version, Back translation • Mutually exclusive, multiple choice items• Five-point Likert scale
3. Research methodology3.2. SampleTwo sources according to the sample list:
• (1) participants of the Internationalization Forum of Chinese Enterprises, delivered in August 2013; • (2) participants in the training course for managers of central government SOEs, delivered in Nov, 2013.
76 copies, 47 copies qualified, 54.4% SOEsSOEs are the top 100 Chinese multinational firms
Sector Number of firms Basic Materials 5 Conglomerates 4
Consumer goods 8 Financial 3
Healthcare 2Industrial goods 12
Services 6Technology 5
Utilities 2Total 47
Table 2 Sectors and the number of firms in each sector
3. Research methodology3.3.1 Resource-related determinants
SOE
Scale
IPRAH1a (-)
H1b (+)
Internationalization
1.Assignment of responsibility
2.Frequency of
conducting an
assessment
3.Risk assessment
techniques
1.State-ownership
1.Total sales2. Number of employees
1.Years of international operations
2. International revenue3. Number of countries in
which there are operations
H2 (+)
H3 (+)
SOE: 31/47 • Official list of SOEs by SASAC • Annual report (onwership)• Firm’s home page (7 cases).
Scale: Total sales, N° of employees:
The degree of internaionalisation
Variables Number of firms
Small scale Medium Scale Large Scale
Total Sales 12 14 21
Employees 17 11 19
Variables Strategies Low Medium High
YEARS Number of years 10 11~25 26
N 14 17 16
REVENUE International revenue 10% 10%~25% 26%
N 17 15 15
COUNTRIES Number of countries 5 6~10 10
N 14 10 23
3. Research methodology
3.3.2 Institutionalization of political risk assessment Quantifying Institutionalization of political risk assessment (IPRA) – AI Khattab et al. (2008)
Three stage process Indicator to distinguish a rank
responsibility assignments
non-institutionalizedless institutionalized more institutionalized
frequency of conducting assessments
NeverOccasionallyYearlyQuarterlydaily
risk assessment techniques
judgment and intuition of the manager, expert opinions, Delphi techniques, a standardized checklist, scenario development, quantitative techniques
4. Results
Test the normality and homogeneity of parametric data
A Normal Quintiles-Quintiles chart-> All the variables were normally distributed
Bartlett test: -> The homogeneity of the variable assumptions was reasonably
met of the parametric statistics
Therefore: In this case, both parametric statistics and non-parametric statistics can be used to examine the underlying connections among the variables.
4. Results
Determinant Variable Df Sum of Sq Mean Sq F-value P-valueOwnership SOEs 1 1278 1277.9 7.736 0.00788**
ResourcesSales 1 1444 1444.5 8.945 0.0045**
Employees 1 1974 1973.6 13.18 0.00072***
Degree of internationalization
Years 1 46 46.34 0.241 0.626Revenue 1 347 347.0 1.867 0.179Countries 1 1417 1416.7 8.74 0.00494**
0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05
Hypothesis 1 confirmed: SOEs have a higher degree of institutionalization of political
risk assessments as compared to non-SOEs.
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Fig. 2 Tukey’s HSD test for ownership
1. One-way ANOVA suggests a statistically significant difference in the level of institutionalization between SOEs and non-SOEs (P=0.00788, <0.01).
2. Tukey’s HSD test - to compare the means (see left)
Hypothesis 2 confirmed: • Larger Chinese MNEs have a higher degree of
institutionalization of political risk
– by the number of employees
– By sales
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Fig. 3 Tukey’s HSD test for scale
Hypothesis 3 is partially confirmed: • Chinese MNEs with a broader degree of
internationalization have a higher degree of
institutionalization of political risk.
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statisticallysignificant
P
Number of years in international business
NO P>0.05
Firm’s international revenue NO P>0.05
Number of foreign countries YES P<0.01
5. Discussion and conclusion
State-Ownership
Ownership
Total sales
Scale
Employees
The scope of internationalization
Countries
Firm-government resources
Large collaborative networks as
resources
Experience as resources
Resource dependence
The level of institutionalization
of political risk assessments
IPRA+
++
+
+
Fig. 4 Firm-specific resource-based factors and the IPRA framework
Limitation and direction for
future research• Only focus on China. applying this framework to other sets of host
countries and should include relevant country-specific factors
• Industry-specific factors are not accounted for in our study given the limited size of our sample.
• Additional factors, such as individual-related factors, the specific characteristics of the members of the top management team (i.e., their experience, age, tenure, education, and so forth) need to be integrated.
• We are unable to distinguish between the different types of government ownership. (central, regional, or municipal)
• Data limitation: uses ANOVA. More sophisticated methodologies if larger samples become available.
Thanks
Q&A
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