Motives, choice of entry mode, and challenges of bank internationalization: Evidence from China

• Published date: 01 November 2019
• Date: 01 November 2019
• DOI: http://doi.org/10.1002/tie.22062
• Author: Weijing He,Agyenim Boateng,Patrick Ring

RESEARCH ARTICLE

Motives, choice of entry mode, and challenges of bank

internationalization: Evidence from China

Weijing He

1

| Agyenim Boateng

2

| Patrick Ring

3

1

School of International Education &

Exchange, University of Jinan, Jinan, Shandong

Province, China

2

Leicester Castle Business School,

De Montfort University, Leicester, UK

3

Glasgow School for Business & Society,

Glasgow Caledonian University, Glasgow, UK

Correspondence

Agyenim Boateng, Professor of Finance,

Leicester Castle Business School, De Montfort

University, The Gateway, Leicester LE1 9BH,

UK.

Email: agyenim.boateng@dmu.ac.uk

This study examines the motives, entry mode choice, and challenges of the international expan-

sion in an emerging country context. Data were collected via interviews from 30 senior man-

agers based on a sample of 10 Chinese commercial banks (CCBs) involved in international

expansion over the period of 2001–2013. This study finds greenfield and mergers and acquisi-

tions are the most popular foreign entry mode used by CCBs. The motives of emerging market

banks’internationalization appear to be intrinsically linked to market development to serve cus-

tomers operating in overseas market, government policies, and strategic knowledge sourcing. In

terms of challenges, the study finds lack of management resources/technical capacity, culture,

adapting to the host country regulatory environment, and lack of experience to be the main

challenges to bank internationalization.

KEYWORDS

banks, challenges, entry mode, internationalization, motives

1|INTRODUCTION

The removal of investment restrictions and institutional constraints

that impede capital flows have led to a significant increase in capital

movement worldwide over the past three decades (See Bekaert &

Harvey, 2003; Mulder & Westerhuis, 2015). Researchers such as Mul-

der and Westerhuis (2015) pointed out these developments have

changed the competitive structure of firms and internationalization

has become a strategic imperative for firms to maintain their competi-

tive advantage. As a result, international cross-border investments

have increased each year over the last 30 years (Hoskisson, Eden,

Lau, & Wright, 2000; UNCTAD, 2015). In the context of China, official

statistics of Chinese government indicate Chinese OFDI reached US

$118 billion between 2002 and 2007 (MOC, 2008). By December

2007, nearly 7,000 Chinese firms had invested in 173 countries, both

developed and developing, establishing over 10,000 overseas enter-

prises (MOC, 2008). Most of these investments (about 86%) were in

nonfinance sectors and generated US$338 billion in sales revenue

(Luo, Xue, & Han, 2010).

Commensurate with the rising trends in cross-border investment,

a large number of studies have focused on why and how firms inter-

nationalize, and what organizational form (joint ventures [JVs],

mergers and acquisitions, and wholly owned subsidiary) they choose

(see Boateng, Du, Wang, Chengqi, & Ahammad, 2017; Buckley et al.,

2007; Dunning, 1998). While these studies have generally looked at

the manufacturing sector, more recent economic activity has

witnessed considerable growth in internationalization in the service

sector, in both developed and developing countries, and particularly in

financial services (Batten & Szilagyi, 2012; Parada, Alemany, &

Planellas, 2009). Significantly, financial entities differ from

manufacturing firms in that their products and services tend to be

information-intensive (Clara & Leonardo, 2001). In addition, the chal-

lenges of internationalization are heightened by governments’

approaches to financial services regulation, which often further differ-

entiates national markets (Parada et al., 2009).

In this study, we extend the prior literature on bank internationali-

zation by examining entry mode choice, motivation, and challenges of

bank internationalization in an emerging country context. The exami-

nation of banks from an emerging economy (EE) is important for sev-

eral reasons. First, most banks in emerging countries are state-

controlled, and so government policy plays a key role in their interna-

tionalization (see Du & Boateng, 2015; Hitt, Ahlstrom, Dacin,

Levitas, & Svobodina, 2004). Second, internationalizing banks from

EEs are generally latecomers and thus lack ownership advantages in

terms of strategic resources and international experience, which in

turn has implications for their success. Third, the existence of distinct

DOI: 10.1002/tie.22062

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