Geopolitical Embeddedness in Home Country and Outbound Globalization

We examine the relationship between Chinese MNCs’ geopolitical embeddeness in home country and their outbound globalization. Prior studies on the relationship between geopolitical environments and international expansion focused mostly on effects of host country’s political conditions on inbound entry by multinational corporations (MNCs) from developed countries (Peng, 2012; Khoury and Peng, 2011; Meyer et al., 2009). In contrast to extensive research on host-country government, the effects of emerging-market firms’ relationships with the political sector of their home country received scant attention. To empirically study effects of an emerging-market firm’s geopolitical embeddedness in its home country, we analyze 216 events of cross-border M&A by Chinese MNCs 1989-2008. The findings of our study suggest that Chinese MNCs’ outbound globalization is affected positively by the government’s globalization policy and state ownership, showing that accessibility to abundant resource and coercive pressures are important antecedents to outbound globalization. Yet, the effect of the government’s ‘Go Global’ policy was reduced by the increase of firm size which indicates organizational slack’s buffering effect against external pressures. In addition, Chinese MNCs’ outbound globalization is affected negatively by links with elite politicians from same home province, implying that the geopolitical connections contribute to the avoidance of risky globalization strategy based on sufficient domestic returns. Moreover, the collusive business-politics links are found to reduce the positive effect of state ownership on outbound globalization.