Institutionalization to internationalization. The transformational dynamics and outward foreign direct investment of state-owned enterprises

• Published date: 05 March 2018
• Date: 05 March 2018
• DOI: https://doi.org/10.1108/IJPSM-02-2017-0040
• Pages: 241-264
• Author: K.S. Redding,En Xie,Qingqing Tang
• Subject Matter: Public policy & environmental management,Politics,Public adminstration & management

Institutionalization to

internationalization

The transformational dynamics and

outward foreign direct investment of

state-owned enterprises

K.S. Redding

School of Management, Xi’an Polytechnic University, Xi’an, China

En Xie

The School of Economics and Management,

Tongji University, Shanghai, China, and

Qingqing Tang

School of Management,

Xi’an Jiaotong University, Xi’an, China

Abstract

Purpose –The purpose of this paper is to examine the most interesting research question of the past

decade –What Lures the Bears? Leveraging the public sector management and international business

strategy literature, the paper first presents an overview of the transformational dynamics of state-owned

enterprises (SOEs) in three major phases –institutionalization, privatization, and corporatization, and

internationalization. Then, it analyzes geographic patterns and industry trends of the outward foreign direct

investment (FDI) projects announced by SOEs over an eight-year period.

Design/methodology/approach –Grounded in the exploratory research such as inductive and deductive

logic, the study proposes theoretical constructs, and discusses several findings based on the data accessed

from highly cited archival sources, such as the UNCTAD FDI stat/WIRs, the World Development Indicators,

Doing Business Report, Global Competitiveness Report, the Index of Economic Freedom, the Academic

Ranking of World Universities, and the Fortune Global 500.

Findings –Based on an analysis of global market trends (a sample of over 20 countries and five

industries), the study hig hlights that SOEs from Asia and Euro pe have been greatly expanded in to

developed markets, thus to secure natural resour ces, to acquire strateg ic assets like technolo gy, and to

leverage the developed f inancial markets and be tter investment enviro nment. Therefore, SOE s’outward

FDI strategy and overseas performance was driven by institutional transitions, resource security, home

market development an d government legitima cy may contribute to the competitive adva ntage of their

home country.

Practical implications –The study offers several implications for the policymakers of the governments in

emerging economies and bureaucratic management of SOEs. It recommends that state ownership pattern and

bureaucratic system of SOEs need to be reexamined, revised, and corporatized in the changing dynamics of

the multinational business environment, thus to secure resources, acquire technological know-how, and

compete in home and global markets.

Originality/value –As a response to academic calls on the globalization, performance and governance

mechanisms of SOEs in and out of emerging economies, this paper draws a unique presentation of the

transformational dynamics of SOEs –establishment to internationalization.

Keywords Disinvestment, Internationalization, Institutionalization, State-owned enterprises,

Corporatization, Outward foreign direct investment

Paper type Research paper

International Journal of Public

Sector Management

Vol. 31 No. 2, 2018

pp. 241-264

© Emerald PublishingLimited

0951-3558

DOI 10.1108/IJPSM-02-2017-0040

Received 15 February 2017

Revised 23 November 2017

14 January 2018

Accepted 15 January 2018

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/0951-3558.htm

A double-blind review process of this paper, February-September-December in 2017, was handled by the

Editor-in-Chief Professor Sandra van Thiel of the International Journal of Public Sector Management.The

authors wish to thank the editor and anonymous reviewers for suggesting several points that significantly

improved theoretical background and discussions of the paper. The usual disclaimer applies.

241

Transformational

dynamics and

outward

FDI of SOEs

1. Introduction

State-owned, public sector enterprises or government corporations (hereafter, SOEs) are

created, owned, and managed by governments of the country. They play a vital role in the

economic development of the country, welfare maximization of the society, and market

functioning of the commercial businesses (Atkinson and Stiglitz, 1980). They usually operate

in large-scale industries such as the mining, oil and gas, steel and heavy machinery; public

utilities such as the transport, electricity, gas, water, and irrigation-linked infrastructure

projects; services such as the banking, insurance, postal and telecommunications; defense;

space. Unlike somedeveloped economies in the Americanand European continents, SOEs are

key economic drivers and institutional navigators in several Asian, Latin American, and

African countries, for example, China, Malaysia, India, Brazil, and Russia. They are indeed

national champions in the heavy industries such as oil and gas (Reddy and Xie, 2017) and

biggest employers in emerging economies (see Table I in the next section). Importantly, they

are a visible source in the market for cross-border capital flows over the past decade, which

has sparked the academia, press, and world organizations to investigate:

RQ What Lures the Bears?

First, what do we know about SOEs’formation, performance, and policy remedies?

The existing public economics, public management, and financial economics literature have

addressed several modules of SOEs’establishment, administration, financial performance,

and governance mechanisms. Specifically, a voluminous number of empirical studies have

tested the impact of privatization on performance of SOEs and surveyed national

disinvestment policies in various countries (e.g. Megginson et al., 1994; Boubakri and Cosset,

1998; D’souza and Megginson, 1999; No lan and Xiaoqiang, 1999; Dewenter and

Malatesta, 2001; Megginson and Netter, 2001; Thynne and Wettenhall, 2004; Gupta, 2005;

Wettenhall, 2007; Boubakri et al.,2013;Xuet al., 2014; Liu et al., 2016; Bachiller, 2017;

Boubakri et al., 2017; Chen et al., 2017; Voszka, 2017). However, not much research has

analyzed the corporatization policy and its impact on performance and governance

improvement of SOEs (e.g. Daiser et al., 2017; Voorn et al., 2017). Thus, the imp act of

privatization and corporatization policies on the financial performance of SOEs is largely

mixed (positive, negative, neutral), as different countries have different formal and informal

institutional frameworks.

Second, since the development of institutional transitions and factor markets affects

firm’s strategic investment choices (Peng, 2003; Hoskisson et al., 2013), a number of recent

studies have examined the internationalization strategy of SOEs, particularly the Chinese

phenomenon and the energy sector (e.g. Hurst, 2011; Song et al., 2011; Cui and Jiang, 2012;

Amighini et al., 2013; Bass and Chakrabarty, 2014; Florio, 2014; Li et al., 2014;

Musacchio and Lazzarini, 2014; Alon et al., 2015; Clò et al., 2015, 2017; Reddy et al., 2016b;

Luo et al., 2017; Rodrigues and Dieleman, 2018). We also notice a burgeoning academic

research interest toward government relations, state capitalism, and host country

development from political science researchers and political geographers, especially

aftermath of the 2007-2009 financial crisis (e.g. Lim, 2010; Gonzalez-Vicente, 2011;

Meckling et al., 2015). Thus, researchers in public management and international business

strategy disciplines have analyzed the global investment strategies and performance of

state-owned and private enterprises, and contributed to the theories of the firm, such as

resource-based view, resource dependence, agency theory, and institutional theory

(Deng and Yang, 2015; Du and Boateng, 2015; Liang et al., 2015; Estrin et al., 2016;

Peng et al.,2016;Rudyet al., 2016; Huang et al., 2017; Karolyi and Liao, 2017; Li et al., 2017;

Zhou et al., 2017).

Yet there is a dearth of research on the global strategy of SOEs’growth strategies and

firm performance. For example, Bruton et al. (2015) find that only 39 articles published on

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