Strategic Asset Seeking in Chinese Business - Essay Example

What is ‘strategic-asset-seeking’ and does it help explain why Chinese business groups internationalise their operations? Introduction Approximately three decades ago, China was regarded as an underperforming economy based on agricultural development. Now, China is unquestionably a major emerging economy, steadily gaining currency in the global economy (Morck, Yeung, & Zhao). In addition to increasing foreign direct investment (FDI) inflows, China’s outward FDI investments have been increasing at a phenomenal rate and drawing the attention of scholars and researchers (Fung & Garcia-Herrero). In attempting to understand and predict location choices of FDI outflows, researchers use a number of hypotheses including asset-seeking explanations (Makino, Lau, & Yeh). In this research study, trends in China’s FDI outflows are examined and analysed with a view to determining whether or not strategic asset-seeking provides a satisfactory explanation for China’s FDI outflows. This paper is therefore divided into three main parts. The first part of this paper defines asset seeking. The second part of this paper explores and discusses trends in China’s FDI outflows. Some examples of Chinese firms’ internationalisation will be highlighted in the second part of this paper. The final part of this paper analyses whether or not strategic asset-seeking provides a satisfactory explanation of China’s FDI outflows or internationalising trends. In order to test the hypothesis that strategic asset seeking explains China’s trends toward internationalization, references will be made to examples of Chinese companies that have become internationalized. Strategic Asset-Seeking Strategic asset seeking is defined as an organization’s internationalising for the purpose of creating, sustaining or maintaining a competitive edge. This usually occurs via the acquisition of another’s assets either partly or wholly (Buckley, Clegg, Cross, Voss, Rhodes, & Zheng). Organizations that are characterized as strategic asset seekers include well-known Multinational Enterprises (MNEs) attempting to realize an international or “regional strategy” or “first-time foreign direct investors seeking to” gain a competitive foothold in “an unfamiliar market” (Dunning & Lundan, p. 72). One of the ways in which strategic asset seeking organizations attempt to invest abroad as a means of gaining or maintaining a competitive edge is to invest in research and development or in “design facilities” (Buckley, et. al., p. 114). As Buckley, et. al. explain, these kinds of investments are intended to put the organization in a position to access current know-how and to be able to take part in the production of new products and to set standards for maximizing the organization’s competitive edge. According to Buckley, et. al.: The investor normally intends to benefit from spillover effects deriving from agglomerations of similar minded companies and from complementary industries in the host country (p. 114). In addition, strategic asset-seeking behaviour of organizations usually takes place when there are improvements in popular brands, the national supply chain and in management and expertise talent via directly purchasing or from “proximity of operations” (Buckley, et. al., p. 144). In the latter scenario, the organization gains from operational proximity via the spillover effects and/or “demonstration effects” (Buckley, et. al., p. 114). According to Dunning’s eclectic paradigm suggest that firms will usually invest abroad to gain an advantage that is not usually available at home. These advantages can include the acquisition of knowledge, expertise, and distribution channels (Dunning). According to Dunning and Lundan, strategic asset seeking is not about exploiting conditions abroad, although it may be an important and complimentary motive. However, the impetus for asset-seeking behaviour is the acquisition of an organization’s “global portfolio of physical assets and human competences” which is perceived to be important for sustaining or strengthening the organization’s “ownership-specific advantages or weaken those of their competitors” (Dunning & Lundan, p. 73). For the most part strategic asset-seeking behaviour usually emanates from flaws in the market of the home state (Dunning & Lundan). It can therefore be assumed that flaws exist in virtually all markets since MNEs do not operate solely in one state and have branches all over the world. In this regard, the flaws in the home state’s market are not limited to regulatory regimes or economic policies. Some of the flaws at home may relate to consumer preferences or competition in the home market. Regardless, over the last several decades, firms have become increasingly internationalised and have shifted from local to international forces (Malhotra, Agarwal, & Ulgado). This shift toward internationalisation corresponds with improvements in production and technologies (Malhotra, et. al.). It therefore makes sense, that in analysing the internationalisation of Chinese firms, strategic asset-seeking behaviour can be used to form a conceptual framework for analysing and understanding why Chinese businesses internationalise their business operations. FDI Outflows from China and the Internationalisation of Chinese Business Operations Going Global The internationalisation of China’s firms began in 1978 and at the time was a particularly unanticipated phenomenon. In 1978, China’s Communist Party government, introduced what is referred to as an “open-door policy” (Taylor, p. 209). The open door policy catapulted China from a “command market” to a “market economy” (Taylor, p. 209). By the year 1990, China was a major destination for FDI inflows and it began to play an accelerating role in international commerce and trade. At the same time, there was a growing trend toward increasing internationalisation of China’s firms and with this trend was a corresponding increase in FDI outflows that only continued to gain momentum (Taylor). China leaped from the 14th largest emerging market investor in 2004 to the 4th largest emerging market investor in 2005. Approximately 72.4% of the world’s economies were the recipients of FDI outflows from China (Lian & Ma). Although China’s FDI outflows are primarily earmarked for Asia, Chinese FDI outflows to Europe and the U.S. has been increasing annually since 2003 and is now higher than Chinese FDI outflows globally (Yong & Hong). By 2006, China was without question the world’s largest emerging market source of outward FDI flows (Ding, Akoorie, & Pavlovich). The growth of Chinese FDI outflows is not a coincidence. In 1999, the Chinese government introduced a “Go Global policy” which encouraged Chinese businesses to invest abroad as a means of improving their ability to compete on the global market and to obtain a presence as global forces and players (Ding, et. al., p. 149). Since the introduction of China’s going global policy a number of interesting trends have been observed. For example a number of garment manufacturers in China invested in less developed markets. One noticeable acquisition was China’s Lenovo acquisition of IBM PC business. In addition, a number of China’s state-owned enterprises (SOEs) such as Sinopec and PetroChina have invested in “oil, gas and mining activities in other developing countries” such as Indonesia, Kazakhstan, Sudan and Yemen (Ding, et. al., p. 149). In fact, King and Weitzel argued that several of China’s firms that have become internationalized are SOEs. According to Child and Rodriguez, the internationalization of China’s firms is occurring in three ways. The first observable way in which China’s firms are becoming internationalised is through exports. By 2005, China was the world’s third largest exporter after only Germany and the U.S. Secondly, the internationalisation of Chinese firms occurs through “original equipment manufacture or subcontracting production for foreign companies” and other kinds of inter-company “partnerships” (Child & Rodriguez, p. 382). The third way in which Chinese firms become internationalised is via the acquisition of foreign businesses of funding of foreign businesses (Child & Rodriguez). Fan, Huang, Oberholzer-Gee, Smith, and Zhao conducted a study in which the level and trends of internationalisation of Chinese firms was compared to internationalisation trends among firms from other major economies from 2001-2005. In order to conduct the comparative study, data was collected from all of the public companies on stock markets in China, Brazil, France, Germany, India, Italy, Japan, the UK and the US. Data was also collected from Thomson One Banker which documents and codes activities and trends in ten business sectors for each of the firms studied. Using a regression analysis and a non-parametric test, the results of the study revealed that emerging markets do not exhibit more diversification than firms in developed markets. In most of the countries studied, diversification decreases and stabilizes after a while. However, Chinese firms are different and these firms demonstrate progressive diversification and Chinese firms were the most diversified among the 9 countries studied. The study also found that China’s SEOs are the most diversified than any other Chinese firms (Hans, et. al.). Regardless, the growth and expansion of Chinese firms abroad have given rise to fear and speculation as indicated by headlines and stories reported in the press. For example a 2005 story reported in The Economist was headlined: The Dragon Tucks In. A 2005 German story was titled Will the World Become Chinese? A 2004 story was headlined China: Is the World Prepared? (Schuller & Turner). These concerns are driven by observable and reported trends. For example in the 6.5 years leading up to 2005, Chinese firms had attempted the acquisition of 171 foreign companies. Approximately 28 billion Euros were offered by Chinese firms for the acquisition of these foreign companies. While 14 offers were either rejected or withdrawn, 129 offers were finalized (Schuller & Turner). According to Wang, Hong, Kafouros and Boateng, the internationalisation of Chinese firms is a natural trajectory given China’s economic growth and the competitiveness within China driven by the “institutional and industrial environment” (p. 425). Regardless, the growth of FDI outflows and the corresponding internationalisation of Chinese firms have occupied researchers for some time. In this regard, Schuler-Zhou and Schuller conducted a study using the Deologic database for the purpose of observing and analysing trends in transnational mergers and acquisitions by Chinese companies from 1999 to 2007. The study found that while outward FDI flows from China were in line with expectations, transnational mergers and acquisitions were entirely much greater than anticipated. The study also found that Asia was the largest recipient of China’s FDI outflows and Western countries were more often targeted for mergers and acquisitions. Moreover, mergers and acquisitions were primarily in mining and manufacturing industries and Chinese firms were determined to become involved in these companies (Schuler-Zhou & Schuller). It would also appear that China’s firms attempt to acquire foreign companies informs that despite its impressive completion of mergers and acquisition, China’s record would be even more impressive but for the uncompleted attempted. For example, the Thomson Financial Merger and Acquisition database reports that between 1982 and 2009, Chinese firms attempted 1,324 mergers and acquisitions and only completed 679 of them (Zhang & Ebbers). It is therefore obvious that Chinese firms are determined to become internationalized although the opportunities for becoming internationalized are not always available. Some Examples of Chinese Firms Going Global/Becoming Internationalised According to a report from Price Waterhouse Coopers, Lenovo, Chinalco an international mining company, China National Peteroleum Corporation and the Industrial and Commercial Bank of China are just a few of the Chinese firms that have become internationalised. A profile of Huawei a Chinese telecom company reveals the competitiveness of Chinese firms going global. The telecom sector is intensely competitive globally and Huawei has successfully tapped into the global telecom market. Founded in 1987, Huawei began with an equivalent of US$3,300. The company’s strategy from the outset was to provide higher quality material than its rivals at lower prices, and to ensure that technical assistance was available to its customers around the clock (Shambaugh). The founder of the company had military ties and was linked to the People’s Liberation Army. As a result, Huawei had some difficulty gaining a foothold in foreign markets. Essentially, attempts at acquisitions were never successful in the early going. There was a concern that given Huawei’s links to the People’s Liberation Army there was a risk that the company’s equipment could be used for eavesdropping or could black out in the event of a conflict. Huawei was able to overcome these obstacles by going through three stages of going global. Huawei’s first stage of going global involved gaining a foothold in Asia, Africa and Latin America. In the first stage, Huawei was able to increase its annual offshore revenue by US$23 billion in 2008. This represented 75% of Huawei’s total income. This trend was again reflected in 2010 (Shambaugh). The second stage of Huawei’s going global strategy involved expansions to Europe. This stage was successful as Huawei is not the primary telecoms operation in Europe. Huawei now operates Vodafone, Duetsche Telekom, France Telecom, Telefonica and British Telecom in Europe. However, it has not been able to own operations in the US despite attempts to acquire U.S. organizations such as 3Com, 3Leaf and Sprint Nextel. In October 2012 the U.S. House Intelligence Committee suggested that Huawei be banned from operating anywhere in the U.S. In the meantime, Huawei has turned attention to research and development in the US. In 2001, Huawei began with a research and development centre in Plano, Texas and by 2011, it had seven research and development centres and twelve headquarters in the U.S. with 1,500 Americans employed (Shambaugh). While the world’s automobile companies are attempting to expand in China, Chinese automobile companies are attempting to gain a share of the global market. Some of these company’s attempts at acquisitions abroad have drawn media attention. For example, Tengzhon Heavy’s attempt to acquire the Hummer line of General Moters, Beijing Auto’s bid for General Motors’ Opel, and a number of attempts by Chinese automobile companies to acquire Saab in Sweden when it faced bankruptcy. China’s Geely did acquire the passenger car line produced by Volvo. Shanghai Auto and Nanjing Auto were also able to rescue Britain’s MG Rover in 2005. In other words, China’s automobile companies are gradually becoming internationalised (Shambaugh). Haier is another example of China’s firms’ going global. Haier is known for its manufacturing of refrigerators, televisions, washing machines, mobile telephones, air conditioners, computers and microwave ovens. By 2010, Haier owned the largest share of the world’s market for appliances. Haier was founded in 1920 and began the internationalisation process in the 1980s. The internationalisation process took four stages to complete (Lane, Maznevski, Dietz, & DiStefano). The first stage of Haier going global, involved branching out into Southeast Asia including Indonesia, the Philippines, Thailand and Malaysia during 1996 and 1997. Around the same time, Haier became China’s first company to establish facilities for production in Japan. The second stage of going global involved the gaining a foothold in the U.S. where Haier competed with GE, Whirlpool, Frigidaire and Maytag. The U.S. strategy began in 1999 with an investment of US$30 million. Haier’s success in the U.S. is attributed to two main strategies. First, Haier’s products are well known for its high quality and low prices. Secondly, Haier entered the U.S. market with the intention of not just selling its goods to Americans, but also providing employment for Americans. In addition, Haier has also partnered with the National Basketball Association of the U.S. which has helped to establish its brand and popularity in the U.S. (Lane, et. al.). Haier’s third phase of internationalisation took off in 2002 and lasted until 2005. During this stage, Haier expanded to South Asia, the Middle East and Africa. In this regard, Haier established plants in South Africa, Egypt, Nigeria, Tunisia, Algeria, Pakistan and Jordan. The fourth and final stage of Haier’s internationalisation began in 2009 with establishing plants in Europe and Latin America. As of 2011, Haier had 29 plants, 16 industrial parks, and 8 research and development centres on each of the world’s continents (Lane, et. al.). This far it has been clearly established that Chinese firms are motivated to become internationalisation. There is evidence of repeated attempts to acquire foreign interests and the implementation of strategies for gaining a foothold in foreign markets. Researchers have attempted to understand why Chinese firms have a tendency to become internationalised. It has been suggested that internationalisation is a natural consequence of the forces of globalization and the competitive environment created by multinational firms crowding China’s consumer market (Ding, et. al.). However, according to the Organization for Economic Cooperation and Development (OECD), China’s firms are motivated to become internationalised as a means of gaining “a foothold in more advanced markets” (p. 290). The tendency to invest in research and development abroad also indicates an intention to develop technology, expertise, brand equity and know-how (Organization for Economic Cooperation and Development). Therefore the suggestion is that strategic asset seeking explains the tendency of China’s firms to become internationalised. This explanation is examined below. Strategic Asset-Seeking as an Explanation for the Internationalisation of Chinese Firms Rugman and Li theorize that MNEs will usually become successful once they have acquired a knowledge base referred to as “firm-specific advantages (FSAs)” (p. 333). However, since China’s MNEs are lacking in FSAs, they seek to create “scale economies” on the basis of China’s comparatively cheaper labour and “natural resources” (Rugman & Li, p. 333). Thus, when China’s MNEs expand to foreign markets they do so with a view to acquiring knowledge as opposed to transporting knowledge with them (Rugman & Li). Therefore the suggestion is that, China’s firms become internationalised with a view to gaining knowledge assets and are therefore operating on the basis of strategic asset-seeking behaviour. Deng also argues that the evidence suggest that Chinese firms typically attempt to gain a foothold in more mature economies with a view to gaining access to “strategic resources and capabilities” (Deng, p. 71). It can be argued however, that while strategic asset-seeking might explain the internationalisation of China’s firm that expand to mature markets it might not explain why China’s firm internationalise by expanding to least developed and developing markets. A closer examination might reveal that the process of internationalisation takes the Uppsala approach in which firms become internationalised via phases where they branch out regionally and work outward toward loftier goals (Johanson & Vahlne). This methodology was demonstrated in the case of China’s Huawei which internationalised gradually as it attempted to form networks and build trust for more advanced internationalisation. Yong and Hong conducted a study calculated to test the hypothesis that the main reason MNEs from emerging markets invest in mature economies is asset or technology seeking. The study involved the collection of primary data related to Indian and Chinese MNEs in Europe. In this regard, data was collected in relation to 910 Chinese MNEs in Europe. The study dealt with the years 1981-2010 and covered China’s most significant European companies. The data revealed that Chinese firms are distributed in Europe as follows: UK: 20.50%; Germany: 18.18%; France: 19.34% and the rest of Europe: 41.98% (Yong & Hong). The nature of China’s firms’ investment in Europe is distributed as follows: Electrical and electronic: 22.44%; transportation: 14.74%; Textile: 11.88%; Building, entertainment and service: 9.24%, Telecom: 8.69%; Transportation equipment: 8.25%; Finance: 5.72% and other products and services: 19.04% (Yong & Hong). The study also revealed that China’s MNE investments in Europe are characterized as comprised of 44.7% in “creations”, 49.34% in acquisitions, 2.97% in joint ventures and 3.63% in extensions (Yong & Hong, p. 571). It therefore follows that in internationalisation, China’s firms are predisposed toward acquisitions more frequently than any other form of FDI outflows. This would support the contention that Chinese firms are inclined toward internationalisation for the purpose of asset/technology seeking as they more frequently gain a foothold through the acquisition of an established foreign company and no doubt not only acquire technology and know-how, but also brand reputation and equity. Yong and Hong conducted a regression analysis and the results of the study confirmed the hypothesis that China’s firms’ internationalization is motivated by asset and technology seeking strategies. This was particularly obvious since, market size was particularly weak in terms of location. In addition, most of China’s foreign investments in Europe (97%) took place between 2000 and 2010 when no specific projects were underway in Europe. Sutherland conducted a study on examining the possibility that China’s largest MNEs become internationalised as a means of strategic asset seeking. The study was conducted using national data and data relative to FDI outflows to ascertain origins and destinations of the outward FDI flows. The findings indicated that most of the asset seeking strategies were linked to manufacturers in China. However, most of the internationalisation occurred in because China was expanding in trade and has limited natural resources. Moreover, according to Sutherland: Strategic-asset-seeking OFDI when it does take place...is orchestrated to a large extent through large state controlled business groups, as is much other OFDI (p. 11). Sutherland, therefore suggests that the contention that China’s firms’ internationalization can be explained by strategic asset seeking is erroneous. Most of the studies focus on select cases that do not represent the trends in internationalisation on the part of China’s firms (Sutherland). However, This is not necessarily true as the study conducted by Yong and Hong covered all major Chinese companies in Europe for a particularly long period. Therefore the firms covered in that study are highly representative of Chinese firms becoming internationalised in Europe. Child and Rodriguez suggest that no one theory can explain the internationalisation of Chinese firms although, strategic asset seeking provides a partial and perhaps significant explanation. As Child and Rodriguez argue, the internationalisation of Chinese firms have a number of factors influencing this trajectory. According to Child and Rodriguez, these factors include: ...the latecomer perspective and catch-up strategies, the institutional role of government, the relations of entrepreneurs and institutions, and the liability of foreigners... (p. 410). Child and Rodriguez acknowledge however, that it is certainly true that when Chinese firms venture out into foreign markets, they do so in response to “competitive disadvantages” as opposed to exploiting a “competitive advantage” (p.381). Child and Rodriguez also note that many of China’s state-owned enterprises are asset seeking as evidenced by their tendency to invest in projects in developing countries with the aim of gaining access to raw material. It has also been observed that after several years of a market economy, a number of China’s firms remains competitively disadvantaged. A primary contributing factor is a weakness in research and development, marketing limitations, a lack of “brand development” and the “administrative constraints that government agencies continue to impose on them” (Child and Rodriguez, p. 383). It is also important to note that multinational firms originating in China are also encouraged by the government to become internationalised and they usually have “considerable state support in the form of soft loans, government procurement, and protected marketing channels” (Child & Rodriguez, p. 383). It therefore follows that while Chinese firms may venture abroad as a strategic asset seeking venture, there are a number of other factors that might better or more fully explain the internationalisation of Chinese organizations. In fact, Child and Rodriguez identify a number of domestic conditions that explain internationalisation on the part of China’s firms. Some of these domestic conditions do give rise to strategic asset seeking, but also point toward a necessity to escape domestic conditions that are incompatible with profit-making and the ability to compete. In this regard, the domestic conditions include: Regional protectionism that limits the opportunities otherwise offered by a large domestic market to exploit economies of scale, limited access to capital that prevents investment in plants of optimal scale, lack of developed intellectual property rights that limits access to state-of-the-art technologies, under-provision of training and education that limits access to skilled human resources, poor local infrastructure that increases transport costs, and regional markets that are fragmented by provincial and municipal protectionism (Child & Rodriguez, p. 384-385). Child and Rodriguez also argue that at home, Chinese firms are facing intense competition from foreign rivals particularly in appliances, electronics and mobile telephones. This intense competition when coupled with a greater supply capability, negatively impacts profits. Moreover, state intervention persistently influenced incentives to branch out abroad. For instance: ...the central authorities have intervened to constrain domestic mergers and acquisitions, while fees and other transaction costs are imposed in an arbitrary and often illegal fashion by local authorities (Child & Rodriguez, p. 386). Additionally, China’s legal system is riddled with uncertainty and is complicated with the result that transaction costs for firms are increased (Child & Rodriguez). Child and Rodriguez are able to tie these domestic conditions to strategic asset seeking motivations. In this regard, Child and Rodriguez argue that conditions at home that constrain the growth and development of Chinese firms makes foreign markets particularly attractive to Chinese firms. However, in order to take advantage of opportunities to escape constraining conditions at home, Chinese firms require the acquisition of know how via the formation of partnerships overseas or investments overseas. Moreover, by becoming internationalized, Chinese firms will improve their ability to compete with international giants in China (Child & Rodriguez). In other words, Chinese firms are forced to become internationalized for a number of reasons tied to domestic conditions. Internationalization provides a method by which Chinese firms can obtain technological assets and know-how in order to become competitive at home. As Rui and Yip conducted a strategic intent perspective on Chinese firms acquisitions. The results of the analysis reveal that Chinese firms use transnational acquisitions as a means of achieving goals including the acquisition of “strategic capabilities to offset their competitive disadvantages” and for “leveraging their unique ownership advantages, while making use of institutional incentives and minimizing institutional constraints” (Rui & Yip, p. 213). Joint ventures, mergers and acquisitions are more decisively explained by strategic asset seeking. According to Luo, in partnering with foreign firms is particularly prevalent among firms from emerging economies. This is necessitated by the changing nature of the emerging state’s economy which is usually compromised by growing demands juxtaposed against previous political ideology highlighted by state interference. Many of these economies confront a number of on-going challenges including weak market conditions, structural revisions, weak property protection rights, and uncertainties relative to institutional structures. Partnerships with foreign firms in mature markets can help these firms “boost market expansion, obtain insightful information, mitigate operational risks, and provide country-specific knowledge” (Luo, p. 648). As for China, when one examines partner selection in joint ventures and mergers and acquisitions, it is clear that Chinese firms are adopting strategic asset seeking behaviour. Chinese firms usually seek international partners or assets with established reputations, popular brands and significant experience in select industries (Luo). It therefore follows that when Chinese firms look for opportunities to merge with or partner with or acquire foreign firms, they are looking to improve their capabilities. Ramasamy, Yeung and Laforet,, conducted a study on Chinese firms that are listed publically. The study was conducted on publically listed firms from 2006-2008 using a Poisson Count data regression model. The firms were divided into two categories: state-owned firms and private firms. The results of the study indicated that Chinese firms became internationalised for reasons that can be traced to ownership type. Firms that were state-owned were inclined to invest in countries with significant natural resources with high risk political conditions. Privately owned firms were more inclined to seek appealing market conditions. The main attraction for privately owned firms is “commercially viable technology” (Ramasamy, et. al., p. 17). In other words, strategic asset seeking can explain the internationalisation of Chinese firms although ownership determines the type of assets that the firms are interested in. State-owned firms are interested in raw materials and are more inclined toward asset exploitation behaviour than asset seeking behaviour. While raw materials are assets and might be considered a logical asset to acquire, the fact that Chinese state-owned firms seek raw material from politically weak states indicate an inclination toward exploitation rather than asset seeking. Privately owned firms seeking appealing market conditions can be interpreted as seeking inroads in mature economies from which capabilities and know how are acquired in the process. Lu, Liu and Wang conducted a study using the results of a survey for examining in influence of a firm’s resources, industry factors, and state policies on outflows of FDI among Chinese firms. The results of the study indicated that state policies supporting internationalisation were significant motivating factors for both market seeking and asset seeking behaviour. Where technology was important for gaining a competitive edge and research and development were important, firms leaned toward strategic asset-seeking behaviour. However, firms more inclined toward export and competing at a domestic level were more inclined toward market-seeking behaviour (Lu, et. al.). Dong and Glaister conducted a survey among Chinese partners in a 203 Chinese international strategic alliance. The Chinese partners ranked the highest motivations for these alliances as “maintaining market position”, expanding abroad, and exchanging technology (Dong & Glaister, p. 577). Thus both market seeking and asset seeking strategies are important to Chinese firms partnering with foreign firms. Interestingly, the study also found that foreign firms partnered with Chinese firms as a means of acquiring knowledge relative to navigating China’s market (Dong & Glaister). Thus, it can be argued that when Chinese firms become internationalized in terms of forming a partnership with foreign firms the relationship is based on a know-how exchange and is therefore reciprocal in creating asset seeking behaviour. In other words, Chinese firms pursue partnerships and mergers with foreign partners in ways that are more properly defined as strategic alliances and therefore strategic asset-seeking. As Todeva and Knoke explain firms form strategic alliance based on “collaboration” as opposed to competition as cooperation is perceived to be more conducive to achieving the firm’s goals (p. 123). Chinese firms are not attempting to compete with foreign firms when they venture abroad. In fact the evidence suggests that for the most part, Chinese firms confront difficulties competing with foreign firms at home and in order to overcome those difficulties they venture out into foreign and in particular mature markets. It can therefore be argued, that if Chinese firms are unable to compete with foreign firms at home, they are not expected to be able to compete with foreign firms overseas. Therefore the motivating factor for branching out can best be explained by strategic asset seeking. Conclusion A review of literature suggests that the results are mixed with respect to whether or not strategic asset seeking can explain why Chinese firms become internationalised. However, the weight of the literature appears to lean more toward strategic asset seeking as a viable explanation for the internationalisation of Chinese firms. It would appear however, that while strategic asset seeking explains some of the motivations for the internationalisation of Chinese firms, it does not fully explain all of the reasons Chinese firms become internationalised. If strategic asset seeking was accepted as the only explanation for why Chinese firms become internationalised one would have to ignore a number of important factors. For example, state support of internationalisation might explain why some firms decide to become internationalised. In fact, state financial support is more likely a strong motivating factor for some firms. In other words, while strategic asset seeking is a strong motivating factor, it is not the only explanation and in some cases may simply be complimentary to a larger and more important motivating factors. Bibliography Buckley, Peter, J.; Clegg, Jeremy, L.; Cross, Adam, R.; Voss, Hinrich; Rhodes, Mark and Zheng, Ping. “Explaining China’s Outward FDI: An Institutional Perspective.” In Sauvant, Karl, Peter. (Ed.) The Rise of Transnational Corporations from Emerging Markets: Threat or Opportunity? Cheltenham, UK: Edward Elgar Publishing Limited, (2008), Ch. 7. 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