Business networks and transnational corporations: A study of Hong Kong firms in the ASEAN region

In recent years, the question of how business firms are embedded in society and space has received serious attention in economic geography. Arising from empirical research into the transnational operations of Hong Kong-based firms in Southeast Asia, this paper is concerned with the organizational processes of transnationalization-that is, how transnational operations are accomplished through networks of personal and business relationships. A network perspective specifies that three dimensions of transnational organizations-extrafirm, interfirm, and intrafirm networks-must be addressed simultaneously. Based on personal interviews with top executives from 111 headquarters and 63 subsidiaries of Hong Kong transnational corporations operating in the ASEAN region, I argue that social and business networks are necessary mechanisms of transnationalization. Political connections at the highest level enable Hong Kong entrepreneurs and business firms to tap into extrafirm networks and to penetrate local markets in Southeast Asia. Business connections and personal relationships are cornerstones of interfirm transactional governance structures through which Hong Kong firms establish their ASEAN operations. At the intrafirm level, personal trust and experience are keys to coordination and control in transnational operations. By showing how these Hong Kong firms and their ASEAN operations are socially and culturally embedded in networks of relationships, this paper serves also as a critique of economistic arguments and transaction cost analysis commonly found in leading international business research.