Multinational Enterprises and Emerging Economies
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Multinational Enterprises and Emerging Economies

Klaus E. Meyer

Guided by the overarching question “how and why does the emerging economy context matter for business?”, this collection brings together key contributions of Klaus Meyer on multinational enterprises (MNEs) competing in, and originating from, emerging economies. The book also explores how outward investment strategies contribute to building internationally competitive MNEs.
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Chapter 15: Diplomatic and corporate networks: Bridges to foreign locations

Jing Li, Klaus E. Meyer, Hua Zhang and Yuan Ding

Abstract

Firms and governments operate in broad networks in which the home government and its diplomatic service are a critical node – or a ‘‘referral point’’ – between firms and potential partners in foreign locations. Thus diplomatic relations between countries matter for the choice of foreign investment location. Using a network perspective, we argue that the extent to which good diplomatic relations induce firms to invest in friendly host countries depends on their political connections to home governments. Those with stronger ties to home governments can better access and leverage intergovernmental diplomatic connections, thus benefiting potentially from enhanced access to information, reduced political risks, and increased legitimacy. Such ability of politically connected firms is more useful where weak institutional impartiality in the host country inhibits neutral treatment of foreign investors. Empirically, using overseas investment location decisions by Chinese firms, we find that the types of home government ties (i.e., whether they are organizational or personal and whether those relationships are with central or local governments) and the impartiality of host institutions are both important contingencies affecting firms’ utilization of diplomatic relations. We discuss the implications of our study to research on network theory, political ties, and internationalization of emerging market firms.

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