Get into Uncharted Waters: The Asymmetric Imitation Between State-Owned and Non-State-Owned Firms

Abstract

Prior literature has documented that firms tend to imitate each other in entering new product/geographic markets. We advance this line of research by examining how the nature of the risk that firms aim to address may affect the pattern of inter-firm imitation. We examine this question in the context of Chinese firms’ foreign direct investment (FDI) location choices. First, we argue that the number of investments made by Chinese firms in a country is positively related to the likelihood that a Chinese firm will make a new investment in that country, especially that country has a higher level of political risk. Based upon this baseline argument, we propose that state-owned enterprises (SOEs) and non-SOEs will differ in their imitation behaviors, in terms of both tendency of imitation and imitation targets. Regarding tendency of imitation, we propose that non-SOEs’ location choices are more sensitive to the number of Chinese investments in a country than SOEs’ location choices since the former are more vulnerable to the host country’s political risk than the latter. Regarding imitation targets, we propose that non-SOEs tend to follow SOEs than following non-SOEs in their location choices whereas SOEs may follow SOEs but do not care about non-SOEs in their location choices. With data on Chinese firms’ FDI location choices in 90 countries during or period of 2001 to 2013, we find strong empirical evidence to support our arguments.