Exploring the role of government involvement in outward FDI from emerging economies

Abstract

We explain the mechanisms through which government impacts the internationalization of emerging-market enterprises (EMEs). Rather than merely viewing internationalization as the result of differences in resource positions, we demonstrate that an important source of variation is the idiosyncratic manner in which EMEs are affiliated with government agencies. Although government involvement has a strong effect on international expansion, this effect is contingent upon the level at which the firm is affiliated with government and the degree of state ownership. Different types and levels of governments have different objectives, exert different institutional pressures on EMEs, and impact their willingness and ability to internationalize differently. Government involvement influences the level of overseas investment, its location (developed vs developing countries) and its type (resource- vs market-seeking). These effects depend on firms’ own resources and capabilities, suggesting that not all firms possess equal ability to internalize government-related advantages and respond to institutional pressures. By demonstrating that resource-based and institutional constructs are highly dependent on one another, we enhance understanding of how EMEs succeed in expanding overseas, and why governments matter.