Skip to main content
SpringerLink
Log in

The dynamic value of MNE political embeddedness: The case of the Chinese automobile industry

  • Article
  • Published:
Journal of International Business Studies Aims and scope Submit manuscript

Abstract

This paper examines the complex relationship between the embeddedness of multinational enterprises (MNEs) in host-country political networks and their long-run competitive positions in host emerging markets. We report the findings of a longitudinal study of the Chinese automobile sector from the early 1980s to the mid 2000s. Using data from 142 interviews over 11 years, and a wide range of secondary sources, we explore the process through which the value of political embeddedness changed over time in the face of profound and rapid changes in host-country business environments. On the basis of this longitudinal study, the paper unravels the underlying mechanisms that lead to the declining, and even negative, value of deep political embeddedness by MNEs in a politically stable emerging economy.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2
Figure 3

Similar content being viewed by others

Notes

  1. As late as the year 1994, private users accounted for only 7.3% of the Santana cars sold (Chinese Automobile Industry Yearbook 1994: 295).

  2. Global Automobiles: The Chinese Auto Industry, Goldman Sachs Global Equity Research, 21 February 2003: 37.

  3. Business Week, 7 April 1986: 50; Wall Street Journal, 30 April 1986: 23.

  4. Automobile ownership in China: China's vehicle fleet boosted by private purchase, Fourin China Auto Weekly, 15 January 2007.

  5. Shanghai Auto wants to be the world's next great car company, Fortune, 4 October 2004.

  6. The people's grounded duck, The Wall Street Journal, 26 April 2006.

  7. Driving in reverse: China's car industry hoodwinked by foreign auto giants?, ChinaOnline, 17 January 2000.

  8. We thank one of the reviewers for calling our attention to this potential limitation.

References

  • Abell, D. F. 1978. Strategic windows. Journal of Marketing, 42 (3): 21–26.

    Article  Google Scholar 

  • Baron, D. P. 1995. Integrated strategy: Market and nonmarket components. California Management Review, 37 (2): 47–65.

    Article  Google Scholar 

  • Baum, J. A. C., & Oliver, C. 1992. Institutional embeddedness and the dynamics of organizational populations. American Sociological Review, 57 (4): 540–599.

    Article  Google Scholar 

  • Boddewyn, J. J., & Brewer, T. L. 1994. International-business political behavior: New theoretical directions. Academy of Management Review, 19 (1): 119–143.

    Google Scholar 

  • Burt, R. S. 1997. The contingent value of social capital. Administrative Science Quarterly, 42 (2): 339–365.

    Article  Google Scholar 

  • Chen, I. S. N., Luk, S. T. K., & Yip, L. S. C. 2005. Shanghai GM's marketing strategy for the China market. Asian Case Research Journal, 9 (2): 145–180.

    Article  Google Scholar 

  • Eden, L., & Molot, M. A. 1993. Insiders and outsiders: Defining “who is us” in the North American automobile industry. Transnational Corporations, 2 (3): 61–98.

    Google Scholar 

  • Eden, L., & Molot, M. A. 1996. Made in America? The US auto industry, 1955–95. The International Executive, 38 (4): 501–541.

    Article  Google Scholar 

  • Eden, L., & Molot, M. A. 2002. Insiders, outsiders and host country bargains. Journal of International Management, 8 (4): 359–388.

    Article  Google Scholar 

  • Eisenhardt, K. M. 1989. Building theory from case study research. Academy of Management Review, 14 (4): 532–550.

    Google Scholar 

  • Faccio, M. 2006. Politically connected firms. American Economic Review, 96 (1): 369–386.

    Article  Google Scholar 

  • Faccio, M., Masulis, R. W., & McConnell, J. J. 2006. Political connections and corporate bailouts. Journal of Finance, 61 (6): 2597–2635.

    Article  Google Scholar 

  • Farhoomand, A., & Tao, Z. 2005. Shanghai Volkswagen: Time for a radical shift of gears. Asia Case Research Centre, Hong Kong: The University of Hong Kong.

    Google Scholar 

  • Fernandez, J. A., & Liu, S. 2007. China CEO: A case guide for business leaders in China. Singapore: John Wiley & Sons.

    Google Scholar 

  • Fisman, R. 2001. Estimating the value of political connections. American Economic Review, 91 (4): 1095–1102.

    Article  Google Scholar 

  • Frynas, J. G., Mellahi, K., & Pigman, G. A. 2006. First mover advantages in international business and firm-specific political resources. Strategic Management Journal, 27 (4): 321–345.

    Article  Google Scholar 

  • Gargiulo, M., & Benassi, M. 2000. Trapped in your own net? Network cohesion, structural holes, and the adaptation of social capital. Organization Science, 11 (2): 183–196.

    Article  Google Scholar 

  • Garner, J. 2006. The rise of the Chinese consumer: Theory and evidence. Chichester: John Wiley & Sons.

    Google Scholar 

  • Granovetter, M. 1985. Economic action and social structure: The problem of embeddedness. American Journal of Sociology, 91 (3): 481–510.

    Article  Google Scholar 

  • Gulati, R., Nohria, N., & Zaheer, A. 2000. Strategic networks. Strategic Management Journal, 21 (3): 203–215.

    Article  Google Scholar 

  • Harwit, E. 1995. China's automobile industry: Policies, problems, and prospects. Armonk, NY: M.E. Sharpe.

    Google Scholar 

  • Henisz, W. J. 2000. The institutional environment for multinational investment. Journal of Law, Economics & Organization, 16 (2): 334–364.

    Article  Google Scholar 

  • Henisz, W. J., & Delios, A. 2004. Information or influence? The benefits of experience for managing political uncertainty. Strategic Organization, 2 (4): 389–421.

    Article  Google Scholar 

  • Hillman, A. J. 2005. Politicians on the board of directors: Do connections affect the bottom line? Journal of Management, 31 (3): 464–481.

    Article  Google Scholar 

  • Hillman, A. J., Keim, G. D., & Schuler, D. 2004. Corporate political activity: A review and research agenda. Journal of Management, 30 (6): 837–857.

    Google Scholar 

  • Hillman, A. J., Zardkoohi, A., & Bierman, L. 1999. Corporate political strategies and firm performance: Indications of firm-specific benefits from personal service in the US Government. Strategic Management Journal, 20 (1): 67–81.

    Article  Google Scholar 

  • Huber, G. P., & Van de Van, A. H. 1995. Longitudinal field research methods: Studying processes of organizational change. Thousand Oaks, CA: Sage Publications.

    Google Scholar 

  • Hung, S.-C. 2005. The plurality of institutional embeddedness as a source of organizational attention differences. Journal of Business Research, 58 (11): 1543–1551.

    Article  Google Scholar 

  • Johanson, J., & Vahlne, J.-E. 2009. The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership. Journal of International Business Studies, 40 (9): 1411–1431.

    Article  Google Scholar 

  • Khanna, T., Palepu, K., & Sinha, J. 2005. Strategies that fit emerging markets. Harvard Business Review, 83 (6): 63–76.

    Google Scholar 

  • Leuz, C., & Oberholzer-Gee, F. 2006. Political relationships, global financing, and corporate transparency: Evidence from Indonesia. Journal of Financial Economics, 81 (2): 411–439.

    Article  Google Scholar 

  • Li, J. J., Zhou, K. Z., & Shao, A. T. 2009. Competitive position, managerial ties, and profitability of foreign firms in China: An interactive perspective. Journal of International Business Studies, 40 (2): 339–352.

    Article  Google Scholar 

  • Luo, Y. 2001. Toward a cooperative view of MNC–host government relations: Building blocks and performance implications. Journal of International Business Studies, 32 (3): 401–419.

    Article  Google Scholar 

  • Luo, Y. 2003. Industrial dynamics and managerial networking in an emerging market: The case of China. Strategic Management Journal, 24 (13): 1315–1327.

    Article  Google Scholar 

  • March, J. G. 1991. Exploration and exploitation in organizational learning. Organization Science, 2 (1): 71–87.

    Article  Google Scholar 

  • Michelson, E. 2007. Lawyers, political embeddedness, and institutional continuity in China's transition from socialism. American Journal of Sociology, 113 (2): 352–414.

    Article  Google Scholar 

  • Nee, V. 1992. Organizational dynamics of market transition: Hybrid form, property rights, and mixed economy in China. Administrative Science Quarterly, 37 (1): 1–27.

    Article  Google Scholar 

  • Noble, G. W. 2002. On the road to Asia: Japanese automakers in ASEAN. In V.K. Aggarwal & S. Urata (Eds), Winning in Asia, Japanese style: Market and non-market strategies for success: 123–156. New York: Palgrave Macmillan.

    Chapter  Google Scholar 

  • Peng, M. W. 2003. Institutional transitions and strategic choices. Academy of Management Review, 28 (2): 275–296.

    Google Scholar 

  • 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 (3): 486–501.

    Article  Google Scholar 

  • Peng, M. W., & Zhou, J. Q. 2005. How network strategies and institutional transitions evolve in Asia. Asia Pacific Journal of Management, 22 (4): 321–336.

    Article  Google Scholar 

  • Perez-Batres, L. A., & Eden, L. 2008. Is there a liability of localness? How emerging market firms respond to regulatory punctuations. Journal of International Management, 14 (3): 232–251.

    Article  Google Scholar 

  • Pfeffer, J., & Salancik, G. R. 2003. The external control of organizations: A resource dependence perspective. Stanford, CA: Stanford University Press.

    Google Scholar 

  • Posth, M. 2008. 1,000 days in Shanghai: The Volkswagen story – The first Chinese-German car factory. Singapore: John Wiley & Sons.

    Google Scholar 

  • Ravenhill, J. 1999. Japanese and US subsidiaries in East Asia: Host-country effects. In D.J. Encarnation (Ed.), Japanese multinationals in Asia: Regional operations in comparative perspective: 261–284. New York: Oxford University Press.

    Google Scholar 

  • Shaffer, B. 1995. Firm-level responses to government regulation: Theoretical and research approaches. Journal of Management, 21 (3): 495–514.

    Article  Google Scholar 

  • Siegel, J. 2007. Contingent political capital and international alliances: Evidence from South Korea. Administrative Science Quarterly, 52 (4): 621–666.

    Article  Google Scholar 

  • Sun, P. 2007. Is the state-led industrial restructuring effective in transition China? Evidence from the steel sector. Cambridge Journal of Economics, 31 (4): 601–624.

    Article  Google Scholar 

  • Thun, E. 2004a. Industrial policy, Chinese-style: FDI, regulation, and dreams of national champions in the auto sector. Journal of East Asian Studies, 4 (3): 453–489.

    Article  Google Scholar 

  • Thun, E. 2004b. Keeping up with the Jones’: Decentralization, policy imitation, and industrial development in China. World Development, 32 (8): 1289–1308.

    Article  Google Scholar 

  • Thun, E. 2006. Changing lanes in China: Foreign direct investment, local governments, and auto sector development. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Uzzi, B. 1997. Social structure and competition in interfirm networks: The paradox of embeddedness. Administrative Science Quarterly, 42 (1): 35–67.

    Article  Google Scholar 

  • Yin, R. K. 2003. Case study research: Design and method. Thousand Oaks, CA: Sage Publications.

    Google Scholar 

  • Zaheer, S. 1995. Overcoming the liability of foreignness. Academy of Management Journal, 38 (2): 341–363.

    Article  Google Scholar 

  • Zhao, Z., Anand, J., & Mitchell, W. 2005. A dual networks perspective on inter-organizational transfer of R&D capabilities: International joint ventures in the Chinese automotive industry. Journal of Management Studies, 42 (1): 127–160.

    Article  Google Scholar 

Download references

Acknowledgements

We are eternally grateful to the essential help the government officials and business managers have offered for us to conduct fieldwork in the Chinese automobile industry over the last decade. Meanwhile, we acknowledge Lorraine Eden (Editor-in-Chief), Witold Henisz (Departmental Editor) and three anonymous reviewers for their constructive and insightful remarks during the review process. We are indebted to Ruth Aguilera, Jean Boddewyn, and Yadong Luo for their comments and encouragement during the paper development process. We also thank the audience of our presentations at the Strategic Management Society (SMS) 27th Annual Conference in San Diego, US, October 2007, the Third IACMR Conference in Guangzhou, China, June 2008, and the Academy of International Business (AIB) 50th Annual Conference in Milan, Italy, July 2008, for their comments and suggestions. Financial support from China's national “211 Project” (project code: 211xk06), Shanghai Pujiang Program, and Nottingham University Business School is greatly appreciated.

Author information

Authors and Affiliations

  1. School of Management, Fudan University, Shanghai, P.R. China

    Pei Sun

  2. The Management School, University of Sheffield, Sheffield, UK

    Kamel Mellahi

  3. Saïd Business School, University of Oxford, Oxford, UK

    Eric Thun

Authors
  1. Pei Sun
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Kamel Mellahi
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Eric Thun
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Pei Sun.

Additional information

Accepted by Witold Henisz, Area Editor, 27 August 2009. This paper has been with the authors for two revisions.

The authors contributed equally to this joint work.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Sun, P., Mellahi, K. & Thun, E. The dynamic value of MNE political embeddedness: The case of the Chinese automobile industry. J Int Bus Stud 41, 1161–1182 (2010). https://doi.org/10.1057/jibs.2009.94

Download citation

  • Received:

  • Revised:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/jibs.2009.94

Keywords

Search

Navigation