Multinational Advantages of Chinese Business Groups: A Theoretical Exploration

Prior research on the internationalization of emerging market firms focused either on established incumbent firms or peripheral latecomer firms. However, an increase in outward foreign direct investment from emerging markets such as China has benefitted from a new organizational form - business groups. Given that new organizational forms pose fundamental challenges to existing theories on multinational enterprise, an examination of business group internationalization will bring the literature of multinational enterprise theories forward. Adopting an organizational approach, I propose that business groups, an organizational form that emerged to substitute market imperfections in China, constitute a micro-institutional environment for generating ownership, location, and internalization advantages, as well as for capitalizing on the linkage, leverage, and learning opportunities for internationalization. I posit that Chinese business groups facilitate such an internationalization process via their unique attributes including internal market, inward linkages, and institutional support. The article aims to provide a theoretical framework that generates insights for China's policy makers and managers, and to guide future research.