Confucian dynamism and Dunning's framework: Direct and moderation associations in internationalized Chinese private firms☆
Introduction
A critical decision regarding the foreign activities of a firm refers to its international entry mode choice. Based on Dunning, 1980, Dunning, 1988 seminal work, the eclectic paradigm offers an integrated theoretical framework to explain international entry mode decision (Agarwal and Ramaswami, 1992, Nakos and Brouthers, 2002, Shi et al., 2001). This paradigm suggests that the extent, form, and location of foreign direct investment depend on three categories of advantages: ownership (O), location (L), and internalization (I).
Rational decision-making forms the underlying logic behind the OLI framework (Brouthers & Hennart, 2007), meaning that the systematic analysis of the OLI factors determines the outcome of decisions for the firm concerned. However, inherent decision-maker cultural traits also influence managerial perceptions of the decision situation and entry mode choices. Cultural norms, values, and beliefs underlie managerial preferences regarding information interpretations, allocations of attention, and management responses in making international decisions (Dimitratos, Petrou, Plakoyiannaki, & Johnson, 2011). According to the upper-echelon perspective, these cultural norms may intermingle with managerial perceptions to influence decision choices (Hambrick & Mason, 1984). Without the incorporation of direct and moderating effects of such contextual values, the OLI framework remains untenably “rational” (Morschett, Schramm-Klein, & Swoboda, 2010). Nonetheless, prior research has yet to employ the OLI framework along with contextual managerial variables to examine the degree to which these variables can effectively complement it for explaining international entry mode choice. Such an investigation is necessary as it can provide the eclectic paradigm with a more “hands-on” perspective to “flesh out” the theme of international entry mode choice (Stoian & Filippaios, 2008).
Compared with business people with a Protestant work ethic, managers in East Asia, and especially China, tend to typically adhere to Confucian work values, as reflected in Confucian dynamism (CD) (Lim & Lay, 2003). The predominance of Confucian values in China is a result of its two-thousand-year history of Confucian ideology. Confucian work values offer practical guidelines for applying the philosophy of Confucius to one's tasks in life (Lam, 2003). This philosophy exerts a fundamental influence on Chinese thinking modes, business activities, and management practices (Chong, 2008, Jaw et al., 2007, Ralston et al., 1999). Despite its significance, the research has not yet implemented the CD construct in Chinese enterprise international entry mode choices. This study seeks to fill this gap in the research, examining this construct at an individual rather than an overall cultural level, as this practice highlights the possible intra-cultural variation of CD across Chinese managers. Consequently, the simultaneous investigation of CD, the OLI framework, and their interaction undertaken in the current research is likely to appropriately contextualize and complement the usefulness of the eclectic paradigm.
This study aims to investigate the complementarity of CD with the OLI framework by assessing (1) whether CD exerts a direct influence on the entry mode decisions of Chinese firms and (2) whether CD interacts with the three components of the OLI framework to affect entry mode decisions. This study investigates entry mode choices of Chinese private firms, whose internationalization is a rather infrequent research topic (Morck, Yeung, & Zhao, 2008).
This paper is structured as follows. The second section reviews the literature and develops research hypotheses concerning the effects of CD and its interactions with OLI components on entry mode decisions. The third section presents the methodological aspects of the study. The results of the statistical analysis are discussed in the fourth section. The concluding section examines the implications of the study along with its limitations and suggestions for further research.
Section snippets
Research background and hypotheses
International entry modes include exporting, contractual modes, joint ventures, and wholly owned subsidiaries. The equity vs. non-equity mode differentiation is one of the most frequently examined classifications (Nakos & Brouthers, 2002). Equity modes refer to full and partial ownership of foreign investments, which correspond to wholly owned subsidiaries and joint ventures, respectively. Non-equity modes refer to licensing, franchising, and exporting. In this study, the choice of the firm
Data collection and sample
A mail survey was carried out using a structured questionnaire whose items were based on previously developed scales. Four academics checked the face validity of the questionnaire, and seven Chinese managers pre-tested it further. The investigated firms are located in the Yangtze Delta (namely, Shanghai and the Zhejiang province) as well as Beijing. The selection of these regions follows from the fact that they are the most open to international business exposure. Analytically, these regions
Statistical analysis
We first employ confirmatory factor analysis to examine the dimensionality and convergent and discriminant validity of CD and the multi-item OLI variable scales. The fit indices show that the measurement model fits the data reasonably well (χ2/df = 1.98; goodness of fit index = 0.90; comparative fit index = 0.93; root mean square error of approximation = 0.07; non-normed fit index = 0.92) and that all items load significantly on their corresponding latent variables, with the lowest t-value being 6.53.
Implications
This study has significant implications for research and management. Regarding the former, the findings suggest that the effective incorporation of managerial behavioral elements measured through CD at the individual level into the “rational” OLI framework can effectively illuminate international entry mode decisions. The evidence suggests that CD may successfully predict entry mode choices and increase the explanatory power of Dunning's OLI framework in analyzing Chinese private enterprise
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The authors presented an earlier version of this paper at the 37th European International Business Academy (EIBA) Conference in Porto, Portugal in December 2010, for which it received the “Best Paper on Emerging Markets” award. They thank the conference participants for the constructive feedback provided. They also acknowledge the valuable comments of Stephen Young and Feng Wei on earlier drafts of this manuscript.