Diplomatic and corporate networks: Bridges to foreign locations

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 locat...

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Bibliographic Details
Published in:Journal of international business studies 2018-08, Vol.49 (6), p.659-683
Main Authors: Li, Jing, Meyer, Klaus E, Zhang, Hua, Ding, Yuan
Format: Article
Language:English
Subjects:
Access to information
Aptitudes
Business and Management
Business Strategy/Leadership
Companies
Contingencies
Diplomatic & consular services
Emerging markets
Foreign investment
Globalization
Impartiality
International Business
Legitimacy
Leverage
Localization
Management
Multinational corporations
Organization
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Summary: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 goverments) 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.
ISSN:0047-2506
1478-6990
DOI:10.1057/s41267-017-0098-4