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Institutional Environment and MNEs’ Strategy in Transitional China

Author

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  • Yongqiang Gao

    (Huazhong University of Science and Technology, China)

Abstract

MNEs face a complex institutional environment when doing business in the international market. As a result, MNEs adopt strategies to deal with the institutional pressures. However, present studies seldom discuss the institutional environment of a given country, specifically China. Therefore, the strategies that MNEs can use to cope with the institutions in China are far from being discussed. This study contributes to making up this gap. In this study, the identified important institutions in China are Chinese culture, governmental system, and non-governmental organizations (NGOs). They exert coercive and normative pressures on the operations of MNEs. Four strategies can be selected by MNEs to deal with the institutional pressures: guanxi strategy, commitment strategy, competitive strategy and leverage strategy. Guanxi strategy and commitment strategy are commonly used to build good guanxi with Chinese governors and NGOs. Competitive strategy is used when MNEs have high bargaining power against Chinese governments, while leverage strategy is used MNEs in setting conflicts between different institutions or parties to resist the unfavorable pressures from institutions in China.

Suggested Citation

  • Yongqiang Gao, 2008. "Institutional Environment and MNEs’ Strategy in Transitional China," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 6(1), pages 5-21.
    • Handle: RePEc:mgt:youmgt:v:6:y:2008:i:1:p:5-21
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    File URL: http://www.fm-kp.si/zalozba/ISSN/1581-6311/6_005-021.pdf
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    References listed on IDEAS

    as
    1. N. Venkatraman & John E. Prescott, 1990. "Environment‐strategy coalignment: An empirical test of its performance implications," Strategic Management Journal, Wiley Blackwell, vol. 11(1), pages 1-23, January.
    2. Pearce, John II & Robinson, Richard Jr., 2000. "Cultivating Guanxi as a foreign investor strategy," Business Horizons, Elsevier, vol. 43(1), pages 31-38.
    3. John Child & David K Tse, 2001. "China's Transition and its Implications for International Business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(1), pages 5-21, March.
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    Cited by:

    1. Agnieszka Glodowska & Bozena Pera & Krzysztof Wach, 2016. "The International Environment and Its Influence on the Entrepreneurial Internationalization of Firms: The Case of Polish Businesses (Miedzynarodowe srodowisko i jego wplyw na miedzynarodowa przedsiebi," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 14(62), pages 107-130.

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    More about this item

    Keywords

    China; institutional theory; institutional environment/pressure; multinational enterprise (MNE);
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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