Skip to main content
Top
Published in: Asia Pacific Journal of Management 3/2010

01-09-2010

How law, politics and transnational networks affect technology entrepreneurship: Explaining divergent venture capital investing strategies in China

Author: Douglas B. Fuller

Published in: Asia Pacific Journal of Management | Issue 3/2010

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

This article identifies three distinct patterns of investment behavior by venture capital firms investing in technology sector start-ups in China. The first pattern is the service-oriented, technology-light investment behavior exhibited by the foreign venture capitalist firms not founded by ethnic Chinese. The second pattern is the technology creation investment pattern exhibited by foreign firms founded by ethnic Chinese and embedded in ethnic Chinese communities. The third pattern consists of local state-funded Chinese venture capital firms that choose either to invest in state-directed projects or opt out of investing in technology start-ups entirely. What explains the differences in behavior between the strictly foreign and the ethnic Chinese-embedded foreign firms are the different legal environments in which these firms honed their skills. The different learned experience gained from operating in different environments explains why the foreign firms avoid investing in technology-generating activities in China whereas the ethnic Chinese firms are willing to do so despite China’s notorious weak intellectual property rights regime. The political factors influencing the distribution of finance in China explain the behavior and essential failure of the local state-run venture capital firms. These findings demonstrate that several distinct, separate and non-clashing institutional arrangements are concurrently operating within China and shaping the behavior of venture capital firms there.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

Footnotes
1
For the rest of the article, VC firms and VCs will be used interchangeably. People engaged in the business of venture capital will be referred to as individual venture capitalists.
 
2
One could argue that there are in fact two separate market-based institutional systems if one incorporates the different learned experience of the ECF and foreign VC firms into the institutional systems, but for clarity’s sake, this article will refer to two systems (one government-dominated and the other market-based) with prior learned behavior differentiating how ECF and foreign VCs behave in the market-based system.
 
3
Among all the individual venture capitalists from ECF and foreign VCs interviewed, only one was not an ethnic Chinese returnee.
 
4
One of the VCs was a university VC and most of the others were nominally corporations, but were tightly linked to various municipal governments through ownership ties.
 
Literature
go back to reference Ahlstrom, D., Bruton, G. D., & Yeh, K. S. 2007. Venture capital in China: Past, present, and future. Asia Pacific Journal of Management, 24: 247–268.CrossRef Ahlstrom, D., Bruton, G. D., & Yeh, K. S. 2007. Venture capital in China: Past, present, and future. Asia Pacific Journal of Management, 24: 247–268.CrossRef
go back to reference Baron, R. A., & Tang, J. 2009. Entrepreneurs’ social capital: The role of entrepreneurs’ social competencies in their financial success. Journal of Management, 35: 282–306.CrossRef Baron, R. A., & Tang, J. 2009. Entrepreneurs’ social capital: The role of entrepreneurs’ social competencies in their financial success. Journal of Management, 35: 282–306.CrossRef
go back to reference Batjargal, B., & Liu, M. 2005. Entrepreneur’s access to private equity in China: The role of social capital. Organization Science, 15: 159–172.CrossRef Batjargal, B., & Liu, M. 2005. Entrepreneur’s access to private equity in China: The role of social capital. Organization Science, 15: 159–172.CrossRef
go back to reference Bruton, G. D., & Ahlstrom, D. 2003. An institutional view of China’s venture capital industry: Explaining differences between China and the West. Journal of Business Venturing, 18: 233–259.CrossRef Bruton, G. D., & Ahlstrom, D. 2003. An institutional view of China’s venture capital industry: Explaining differences between China and the West. Journal of Business Venturing, 18: 233–259.CrossRef
go back to reference Bruton, G. D., Ahlstrom, D., & Obloj, K. 2008. Entrepreneurship in emerging economies: Where are we today and where should the research go in the future. Entrepreneurship Theory and Practice, 32: 1–14. Bruton, G. D., Ahlstrom, D., & Obloj, K. 2008. Entrepreneurship in emerging economies: Where are we today and where should the research go in the future. Entrepreneurship Theory and Practice, 32: 1–14.
go back to reference Bruton, G. D., Ahlstrom, D., & Yeh, K. 2004. Understanding venture capital in East Asia: The impact of institutions on the industry today and tomorrow. Journal of World Business, 29: 72–88.CrossRef Bruton, G. D., Ahlstrom, D., & Yeh, K. 2004. Understanding venture capital in East Asia: The impact of institutions on the industry today and tomorrow. Journal of World Business, 29: 72–88.CrossRef
go back to reference Chen, C. C., & Chen, X.-P. 2009. Negative externalities of close guanxi within organizations. Asia Pacific Journal of Management, 26: 37–53.CrossRef Chen, C. C., & Chen, X.-P. 2009. Negative externalities of close guanxi within organizations. Asia Pacific Journal of Management, 26: 37–53.CrossRef
go back to reference Chen, X.-P., Yao, X., & Kotha, S. 2009. Entrepreneur passion and preparedness in business plan presentations: A persuasion analysis of venture capitalists’ funding decisions. Academy of Management Journal, 52: 199–214. Chen, X.-P., Yao, X., & Kotha, S. 2009. Entrepreneur passion and preparedness in business plan presentations: A persuasion analysis of venture capitalists’ funding decisions. Academy of Management Journal, 52: 199–214.
go back to reference Dam, K. 2006. The law-growth nexus: The rule of law and economic development. Washington, DC: Brookings Institution. Dam, K. 2006. The law-growth nexus: The rule of law and economic development. Washington, DC: Brookings Institution.
go back to reference Dossani, R., & Kenney, M. 2007. The next wave of globalization: Relocating service provision to India. World Development, 35: 772–791.CrossRef Dossani, R., & Kenney, M. 2007. The next wave of globalization: Relocating service provision to India. World Development, 35: 772–791.CrossRef
go back to reference Elsbach, K. D., & Kramer, R. M. 2003. Assessing creativity in Hollywood pitch meetings: Evidence for a dual-process model of creativity judgments. Academy of Management Journal, 46: 283–301.CrossRef Elsbach, K. D., & Kramer, R. M. 2003. Assessing creativity in Hollywood pitch meetings: Evidence for a dual-process model of creativity judgments. Academy of Management Journal, 46: 283–301.CrossRef
go back to reference Fuller, D. B. 2005. Creating ladders out of chains: China’s technological upgrading in a world of global production. PhD dissertation, Massachusetts Institute of Technology, Cambridge, MA. Fuller, D. B. 2005. Creating ladders out of chains: China’s technological upgrading in a world of global production. PhD dissertation, Massachusetts Institute of Technology, Cambridge, MA.
go back to reference Fuller, D. B. 2008. The cross-strait economic relationship’s impact on development in Taiwan and China: Adversaries and partners. Asian Survey, 48: 239–269.CrossRef Fuller, D. B. 2008. The cross-strait economic relationship’s impact on development in Taiwan and China: Adversaries and partners. Asian Survey, 48: 239–269.CrossRef
go back to reference Fuller, D. B. 2009a. China’s national system of innovation and uneven technological trajectory: The case of China’s integrated circuit design industry. Chinese Management Studies, 3: 58–74.CrossRef Fuller, D. B. 2009a. China’s national system of innovation and uneven technological trajectory: The case of China’s integrated circuit design industry. Chinese Management Studies, 3: 58–74.CrossRef
go back to reference Fuller, D. B. 2009b. Networks and nations: The interplay of transnational networks and domestic institutions in China’s chip design industry. International Journal of Technology Management, (in press). Fuller, D. B. 2009b. Networks and nations: The interplay of transnational networks and domestic institutions in China’s chip design industry. International Journal of Technology Management, (in press).
go back to reference Garud, R., & Jain, S. 1996. Technology embeddedness. In J. Baum & J. Dutton (Eds.). Advances in strategic management, 13: 389–408. Greenwich: JAI. Garud, R., & Jain, S. 1996. Technology embeddedness. In J. Baum & J. Dutton (Eds.). Advances in strategic management, 13: 389–408. Greenwich: JAI.
go back to reference Glaser, B., & Strauss, A. 1967. The discovery of grounded theory. New York: Aldine de Gruyter. Glaser, B., & Strauss, A. 1967. The discovery of grounded theory. New York: Aldine de Gruyter.
go back to reference Gregory, N. F., Tenev, S., & Wagle, D. M. 2000. China’s emerging private enterprises. Washington: International Finance Corporation. Gregory, N. F., Tenev, S., & Wagle, D. M. 2000. China’s emerging private enterprises. Washington: International Finance Corporation.
go back to reference Gwartney, J., Lawson, R., & Easterley, W. 2006. Economic freedom of the world 2006 annual report. Vancouver: The Fraser Institute. Gwartney, J., Lawson, R., & Easterley, W. 2006. Economic freedom of the world 2006 annual report. Vancouver: The Fraser Institute.
go back to reference Huang, Y. 2003. Selling China. New York: Cambridge University Press. Huang, Y. 2003. Selling China. New York: Cambridge University Press.
go back to reference Huang, Y. 2008. Capitalism with Chinese characteristics. New York: Cambridge University Press.CrossRef Huang, Y. 2008. Capitalism with Chinese characteristics. New York: Cambridge University Press.CrossRef
go back to reference Knockaert, M., Lockett, A., Clarysse, B., & Wright, M. 2006. Do human capital and fund characteristics drive follow-up behavior of early stage high-tech VCs?. International Journal of Technology Management, 34: 7–27.CrossRef Knockaert, M., Lockett, A., Clarysse, B., & Wright, M. 2006. Do human capital and fund characteristics drive follow-up behavior of early stage high-tech VCs?. International Journal of Technology Management, 34: 7–27.CrossRef
go back to reference Lee, T. W. 1999. Using qualitative methods in organizational research. Thousand Oaks: Sage. Lee, T. W. 1999. Using qualitative methods in organizational research. Thousand Oaks: Sage.
go back to reference Lockett, A., Wright, M., Sapienza, H., & Pruthi, S. 2002. Venture capital investors, valuation and information: A comparative study of the US, Hong Kong, India and Singapore. Venture Capital, 4: 237–252.CrossRef Lockett, A., Wright, M., Sapienza, H., & Pruthi, S. 2002. Venture capital investors, valuation and information: A comparative study of the US, Hong Kong, India and Singapore. Venture Capital, 4: 237–252.CrossRef
go back to reference North, D. 1990. Institutions, institutional change and economic performance. Cambridge: Cambridge University Press. North, D. 1990. Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.
go back to reference Park, S. H., & Luo, Y. 2001. Guanxi and organizational dynamics: Organizational networking in Chinese firms. Strategic Management Journal, 22: 455–477.CrossRef Park, S. H., & Luo, Y. 2001. Guanxi and organizational dynamics: Organizational networking in Chinese firms. Strategic Management Journal, 22: 455–477.CrossRef
go back to reference Peng, M. W. 2001. How do entrepreneurs create wealth in transition economies?. Academy of Management Executive, 15: 95–112. Peng, M. W. 2001. How do entrepreneurs create wealth in transition economies?. Academy of Management Executive, 15: 95–112.
go back to reference Peng, M. W. 2003. Institutional transitions and strategic choice. Academy of Management Review, 28: 275–286.CrossRef Peng, M. W. 2003. Institutional transitions and strategic choice. Academy of Management Review, 28: 275–286.CrossRef
go back to reference Peng, M. W., & Luo, Y. 2000. Managerial ties and firm performance in a transition economy: The nature of a micro–macro link. Academy of Management Journal, 43: 486–501.CrossRef Peng, M. W., & Luo, Y. 2000. Managerial ties and firm performance in a transition economy: The nature of a micro–macro link. Academy of Management Journal, 43: 486–501.CrossRef
go back to reference Ren, B., Au, K., & Birtch, T. A. 2009. China’s business network structure during institutional transitions. Asia Pacific Journal of Management, 26: 219–240.CrossRef Ren, B., Au, K., & Birtch, T. A. 2009. China’s business network structure during institutional transitions. Asia Pacific Journal of Management, 26: 219–240.CrossRef
go back to reference Saxenian, A. 2006. The new Argonauts. Cambridge: Harvard University Press. Saxenian, A. 2006. The new Argonauts. Cambridge: Harvard University Press.
go back to reference Saxenian, A., & Hsu, J.-Y. 2000. The limits of guanxi capitalism: Transnational collaboration between Taiwan and the US. Environment and Planning A, 32: 1991–2005.CrossRef Saxenian, A., & Hsu, J.-Y. 2000. The limits of guanxi capitalism: Transnational collaboration between Taiwan and the US. Environment and Planning A, 32: 1991–2005.CrossRef
go back to reference Saxenian, A., & Li, C. 2003. Bay-to-bay strategic alliances: The network linkages between the US and Taiwanese venture capital industries. International Journal of Technology Management, 25: 136–150.CrossRef Saxenian, A., & Li, C. 2003. Bay-to-bay strategic alliances: The network linkages between the US and Taiwanese venture capital industries. International Journal of Technology Management, 25: 136–150.CrossRef
go back to reference Scott, W. R. 1995. Institutions and organizations. Thousand Oaks: Sage. Scott, W. R. 1995. Institutions and organizations. Thousand Oaks: Sage.
go back to reference Steinfeld, E. 1998. Forging reform in China. Cambridge: Cambridge University Press.CrossRef Steinfeld, E. 1998. Forging reform in China. Cambridge: Cambridge University Press.CrossRef
go back to reference Strauss, A. L. 1987. Qualitative analysis for social scientists. Cambridge: Cambridge University Press.CrossRef Strauss, A. L. 1987. Qualitative analysis for social scientists. Cambridge: Cambridge University Press.CrossRef
go back to reference Strauss, A. L., & Corbin, J. 1990. Basics of qualitative research: Grounded theory procedures and techniques. Newbury Park: Sage. Strauss, A. L., & Corbin, J. 1990. Basics of qualitative research: Grounded theory procedures and techniques. Newbury Park: Sage.
go back to reference Tan, J., & Tan, D. 2004. Environment-strategy co-evolution and co-alignment: A staged model of Chinese SOEs under transition. Strategic Management Journal, 26: 141–157.CrossRef Tan, J., & Tan, D. 2004. Environment-strategy co-evolution and co-alignment: A staged model of Chinese SOEs under transition. Strategic Management Journal, 26: 141–157.CrossRef
go back to reference Tang, J., Tang, Z., Marino, L. D., Zhang, Y., & Li, Q. 2008. Exploring an inverted U-shaped relationship between entrepreneurial orientation and performance in Chinese ventures. Entrepreneurship Theory and Practice, 32: 219–239. Tang, J., Tang, Z., Marino, L. D., Zhang, Y., & Li, Q. 2008. Exploring an inverted U-shaped relationship between entrepreneurial orientation and performance in Chinese ventures. Entrepreneurship Theory and Practice, 32: 219–239.
go back to reference White, S., Gao, J., & Zhang, W. 2005. Financing new ventures in China: System antecedents and institutionalization. Research Policy, 34: 894–913.CrossRef White, S., Gao, J., & Zhang, W. 2005. Financing new ventures in China: System antecedents and institutionalization. Research Policy, 34: 894–913.CrossRef
go back to reference Wright, M. 2007. Venture capital in China: A view from Europe. Asia Pacific Journal of Management, 24: 269–281.CrossRef Wright, M. 2007. Venture capital in China: A view from Europe. Asia Pacific Journal of Management, 24: 269–281.CrossRef
go back to reference Wright, M., Lockett, A., & Pruthi, S. 2002. Internationalization of Western venture capitalists into emerging markets: Risk assessment and information in India. Small Business Economics, 19: 13–29.CrossRef Wright, M., Lockett, A., & Pruthi, S. 2002. Internationalization of Western venture capitalists into emerging markets: Risk assessment and information in India. Small Business Economics, 19: 13–29.CrossRef
go back to reference Wright, M., Lockett, A., Pruthi, S., Manigart, S., Sapienza, H., Desbrieres, P., & Hemmel, U. 2004. Venture capital investors, capital markets, valuation and information: US, Europe and Asia. Journal of International Entrepreneurship, 2: 305–326.CrossRef Wright, M., Lockett, A., Pruthi, S., Manigart, S., Sapienza, H., Desbrieres, P., & Hemmel, U. 2004. Venture capital investors, capital markets, valuation and information: US, Europe and Asia. Journal of International Entrepreneurship, 2: 305–326.CrossRef
go back to reference Yusuf, S., Nabeshima, H., & Perkins, D. 2006. Under new ownership. Stanford: Stanford University Press. Yusuf, S., Nabeshima, H., & Perkins, D. 2006. Under new ownership. Stanford: Stanford University Press.
Metadata
Title
How law, politics and transnational networks affect technology entrepreneurship: Explaining divergent venture capital investing strategies in China
Author
Douglas B. Fuller
Publication date
01-09-2010
Publisher
Springer US
Published in
Asia Pacific Journal of Management / Issue 3/2010
Print ISSN: 0217-4561
Electronic ISSN: 1572-9958
DOI
https://doi.org/10.1007/s10490-009-9149-0

Other articles of this Issue 3/2010

Asia Pacific Journal of Management 3/2010 Go to the issue