The impact of political behaviours on internationalisation. The case of Australian companies internationalising to China
| DOI | https://doi.org/10.1108/17544401011016663 |
| Pages | 24-42 |
| Published date | 09 February 2010 |
| Date | 09 February 2010 |
| Author | Jane L. Menzies,Stuart Orr |
| Subject Matter | Economics |
JCEFTS
3,1
24
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 3 No. 1, 2010
pp. 24-42
#Emerald Group Publishing Limited
1754-4408
DOI 10.1108/17544401011016663
The impact of political
behaviours on
internationalisation
The case of Australian companies
internationalising to China
Jane L. Menzies and Stuart Orr
Deakin Business School, Deakin University, Burwood, Australia
Abstract
Purpose – The purpose of this paper is to test a model of cooperation between inter nationalising
businesses and local and host country governments in the context of Australian companies
internationalising to China.
Design/methodology/approach – The paper presents a model for the political dimensions of
internationalising based on corporate p olitical theory and the cooperative view of management. Data
were collected from personal interviews with representatives from 40 Australian organisations with
businesses or operations in China. The data were analysed using NVivo.
Findings – Assistance provided by the Australian government was often sought and was perceived
to be beneficial. Most participants experienced policies and regulations which affected their entry
modes. In ten cases they acted as barriers and significantly influenced entry mode choice. The
majority of participants viewed the development of relationships with the Chinese government as
important and employed a variety of relationship behaviours. Over half of the par ticipants identified
the need to understand and deal with the psychically distant government structures of the Chinese
government, namely government intervention in business.
Practical implications – The model links the organisational objectives of businesses
internationalising to China, understanding the political/regulatory environment, selecting an entry
mode and developing/maintaining a successful business. To achieve these objectives corporate
political behaviour must reflect the sovereign powers in place at the time.
Originality/value – The paper presents a model which develops the literature fo r the political
dimensions of internationalisation. It also presents empirical data on the political dimensions of
internationalising into China. These findings will assist businesses in understanding political factors
when internationalising to China.
Keywords Australia, China, Politics, Economic cooperation, International business
Paper type Research paper
1. Introduction
Developed countries are increasingly interested in trade relationships with China
because China is a significant factor in the global economy. In the case of Australia,
Australia-China business relationships are important to the growth of Australia’s
economy which is significantly affected by China’s economic growth, which has
averaged around 10 per cent per annum (Austrade, 2007). A large population and
growing middle class (Farrell et al., 2006) also makes China an attractive market.
Despite the attraction, China is not straight-forward to invest in (Chung, 2006). Among
many influencing factors, the political environment has been a challeng ing area for
foreign investors. This dimension cannot be under-estimated, especially in relation to
China, because of its one-party dominated central administration system and its
‘‘socialist market economy’’(Hu, 2008).
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The impact of
political
behaviours
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China’s economic development and entry into the global economy in 1979 has also
resulted in considerable foreign direct investment (FDI) (Yeung, 2000). Over 2005 and
2006, China received US$70 billion in FDI (Davies, 2007) and is becoming one of the
world’s principal destinations for FDI (Bellabona and Spigarelli, 2007). At this stage,
trade outweighs investments. For example, although China is Australia’s number one
trading partner, it is only its 21st largest investment destination. This is changing
rapidly, however, and in 2006 Australian businesses invested A$3 billion in China
(DFAT, 2007).
Despite the level of FDI that occurs, research explaining the corporate political
behaviour of developed companies internationalising into economically imp ortant,
high growth rate developing countries, such as China, is ver y limited. The approach
that multinational corporations (MNCs) use to integrate their entry strategies with
their political activities is particularly poorly understood (Baron, 1995; Bonardi, 2004)
and is an important area of future research in relation to China.
1.1 Frameworks for the MNC political environment experiences
The political environment is one of the critical factors in the selection of entry modes
when internationalising (Sundaram and Black, 1992; Baysinger, 1984). Government
policies and regulations create opportunities and barriers for companies
internationalising into China. Environments can also be categorised as stable, unstable
or uncertain, placid, disturbed, turbulent, simple-complex or static-dynamic (Lawrence
and Lorsch, 1967; Emery and Trist, 1965). The Chinese political environment is
transitional and changing, but not uncertain. One of the reasons for this is that the
Chinese government discriminates between foreign investors on the basis of the fit of
the proposed investment with their economic goals (Lenway and Mu rtha, 1994) and
desire to protect certain industries. The multiple sources of sovereignty in China, which
includes the various levels of Chinese government, as well as influences from the
company’s home country government (Ring et al., 1990) further complicates the
political environment for MNCs.
The discipline of political economy provides a number of theoretical perspectives
which are relevant to thisstudy. These include corporate political strategy (Hillman and
Keim, 1995) and the cooperative view of managing government relations. Two other
perspectives, statism and globalism can also be used to consider the political
environment of international business. Statism considers the role of the host country
government (and possibly home country government) in determining aspects of the
international business environment (Easton and Walker, 1997). From the statism
perspective, the greatest impact in the Chinese internationalbusiness environment is on
Chinese businesses,particularly state-ownedenterprises (SOEs). In this regard,the state-
control level is extremely high and will determine the internationalisation behaviours of
these organisations directly. The impact upon companies internationalising into China,
however, was weaker, being limited to regulatory constraints and support for selected
industries.Indeed, it is even argued thatChina no longer operates with a statism political
philosophy (Goldstein, 1994). The regulatory constraint component is included in this
research by focusing on the direct impact of government policy on companies
internationalisinginto China, rather than theimpact of state-control plans.
Globalism considers the impact of global pressures on the political environment. In
the case of China, it is quite clear that China is experiencing globa lisation pressures, for
example, as a result of its accession to the world trade organization (WTO) (Lee et al.,
2009). At this stage, the impact on the political environment does not appear to extend
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