Does Privatization Affect Internationalization Strategy?

Abstract

The International Business literature has well documented the substantial differences between state-owned firms and privately owned firms in their international strategy, particularly in the setting of Chinese enterprises. However, a state-owned firm may transform its ownership and become a privately-owned firm. In this case, we do not know whether the privatized firm makes international strategies like other private firms. To explore the impact of privatization, we study the market entry decisions made by Chinese listed firms from 2000 to 2018. We categorize all firms into three types: the state-owned, the privatized, and the originally private firms. We find that privatized firms are less averse to the political risks of a host country when entering a market than originally private firms. The former firms’ market entry decision is more consistent with that of state-owned firms. This organizational inertia experienced by privatized firms can be partially attributed to their experience in the host country before the privatization. Interestingly, their prior direct connection with the government does not influence their decisions any longer even though this connection mitigates political risks for state-owned firms. We therefore call for more research into the impact of privatization on firms’ international strategy.