Internalization In China

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Literature Review
As have been mentioned before most of the Internalization Theories are based on developed countries, while it is hard to apply them for developing countries like China without apparent discrepancies. There is a lot of literature, describing the process of entry modes to foreign countries broadly. However, there is not specific theories and literature explaining process of entry mode decision by MNEs especially to China. All foreign automotive enterprises have chosen the same entry mode to Chinese market. It can be explained in formal way by such literature as “The law and regulations prohibit or restrict the establishment of WHOEs in certain Industries”. Chinese government implemented policies and regulations regarding certain
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It states that there is constant pressure from different aspects on foreign firms in the host country. Scot (1995) suggests firms have to obey to the local rules and belief systems prevailing in the environment. In this way, in different countries there are varying institutional environments and MNEs will face diverse pressures. Some of those pressures in the host countries can influence different aspects. For instance, it can affect competitive strategy (Martinsons, 1993; Porter, 1990) and human resource management (HRM) practices ( Rosenzweig and Singh, 1991, Zaheer, 1995). Every host country has it is own individual institutional system, which contains specific characteristics. When a firm first entrants to host country, the most important thing is to pursue a differentiation strategy to distinguish itself from the rest of the competitors. There is a possibility that a firm will not be able to make the unique attributes of its products to be noticed by audience, if a firm remains as…show more content…
There are so many articles and information is presented about “Doing business in China”. Even some MNEs, which successfully operated in numerous foreign countries, failed in Chinese market, just because of misunderstanding Chinese perceived environment (The case with Barbie). It is definitely hard to penetrate in the nature of the host country business environment. The one way to solve this challenge is to joint with local company, a local partner can help the entrant to make understand local way of doing the business. This approach suits even more in countries with developing economy such as China. Since most MNEs are originated in the developed countries, usually they lack the necessary experience and knowledge about local market, political or economic challenges and uncertainties of host country. If MNE has some experience in the host countries through other projects, then it possible to handle local challenges. Whereas, if MNE entrants the host country for the first time, the conditions will not be very beneficial.
Hypothesis 1: Joint venture with local automobile company can help to handle with different kind of Institutional pressures in China.
Institutional environment in China
The main indicators of Institutional environment in China are: governmental system, non-governmental organizations and Chinese culture. The governmental system uses coercive pressure on MNEs. It means that government tends to require

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