From Chinese Local State-Owned Enterprise to Global MNE: a Mixed Methods Investigation into pre- and post- Strategic Asset Seeking OFDI in sub-national CMNEs

Abstract

Over the last several decades, Chinese local state owned enterprises (LSOEs) have become significant forces in Chinese outward foreign direct investment (OFDI). I first show, using a quantitative regression model, how LSOEs have a comparatively stronger strategic asset seeking (SAS) orientation. Operating within a diversified external political economy, and possessing unique status and features following decentralization, LSOEs face particular challenges, to which SAS oriented OFDI has arguably been one response. I then investigate the case of China’s Northern Heavy Industries (NHI) Group from Liaoning Province. The group operates in the Tunnel Boring Machinery (TBM) industry and has become one of the world’s most successful TBM players. It has done so through several large foreign strategic asset related acquisitions (one in France and one in the US). I draw from interviews and hand-collected primary information from the parent firm in China, and the acquired subsidiaries in France, the United States and Germany. I explore in particular pre and post SAS related FDI decision making and integration strategies and behaviours. I identify: (1) Local state ownership as an important factor determining pre-OFDI strategic decision making and post-OFDI integration; (2) The Chinese institutional environment as a potential comparative advantage for LSOEs in negotiating with foreign investment targets or partners; (3) the challenges and responses to post FDI SAS integration for local state-owned Chinese businesses. To date we know relatively little in detail about the ways in which local Chinese MNEs have managed to catch-up with developed market counterparts. This research therefore contributes to our understanding of theories like Mathews’ (2006) ‘LLL’ model, the ‘springboard’ perspective of Luo and Tung (2007), and Chinese OFDI determination theory by Buckley et al. (2007). It also sheds important new light on the institutional perspective, particularly the role of local government in spurring Chinese MNEs (CMNE) OFDI related catch-up.