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Institutional constraints and ecological processes: Evolution of foreign-invested enterprises in the Chinese construction industry, 1993–2006

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Abstract

In the current study, expansion of foreign investment in transition economies such as China is analyzed as an organizational selection process in a community ecology setting. Insights from organizational ecology are used to explain how institutional forces constrain ecological processes, together driving the evolution of the population size of foreign-invested enterprises (FIEs), privately held domestic firms, and state-owned domestic organizations. We argue that the variation in the relative forces of ecological processes and institutional constraints across FIEs and their domestic rivals accounts for the expansion of FIEs in China. On the one hand, in many transition economies, institutional constraints are imposed on foreign enterprises by regulation that limits FDI opportunities. On the other hand, after entry, foreign enterprises can benefit from their competitive advantages in their ecological struggle against domestic rivals. This logic produces different sets of hypotheses as to foreign enterprises’ density and sales growth, in interaction with domestic organizations. Using a data set of the Chinese construction industry in 29 provinces over the 1993–2006 period, estimation of a partial adjustment growth model produces support for our theoretical claim.

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Notes

  1. This definition is in line with the following legal documents: Law of the People's Republic of China on State-owned Industrial Enterprises (1988); Interim Regulation of the People's Republic of China on Rural Collectively Owned Enterprises (1990); Interim Regulation of the People's Republic of China on Urban Collectively Owned Enterprises (1991); Interim Regulation of the People's Republic of China on Privately Owned Enterprises (1988); Law of the People's Republic of China on Foreign Invested Enterprises (1986).

  2. Anand Swaminathan suggested distinguishing with-alliance from without-alliance sub-forms. However, regrettably, we cannot do so, owing to data unavailability. This type of information is, generally, non-existent for the Chinese construction industry, with some exceptions for some years. For example, only in 4 years (1999, 2000, 2001, and 2003) have the official data made such a distinction; for the remaining years the official data simply do not report the figures of without-alliance sub-forms separately. Note that we checked for the fraction of without-alliance sub-forms in the total population of FIEs for the available 4 years. The without-alliance FIEs account for 2.8–5.6% (in term of sales, or mass) and 7.8–11.1% (in terms of density) of the total FIEs’ population size. These shares are, in all likelihood, even much smaller for the pre-1999 period, given the nature of regulation. So, basically, our results relate to with-alliance FIEs.

  3. The introduction of this quadratic term closely follows Carroll (1981) in the assumption that resource abundance increases carrying capacity at a decreasing rate. Removing the quadratic term, as in Brittain and Wholey (1988) and an earlier version of this paper, revealed no differences.

  4. Autocorrelation is controlled by specifying a panel (province) specific AR(1) process.

  5. Given the complexity of such a community structure matrix and the possible feedback processes embedded (Baum & Kom, 1994; Baum & Singh, 1994b), cross-form interaction effects are not always systematically patterned (e.g., Brittain & Wholey, 1988; Carroll, 1981). This implies a need for careful interpretation, relating to the empirical context at hand.

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Acknowledgements

Arjen van Witteloostuijn gratefully acknowledges the financial support of the Odysseus program of the Flemish Science Foundation (FWO). We thank three reviewers and Anand Swaminathan for their constructive comments. Of course, the usual disclaimer applies.

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Authors and Affiliations

  1. Utrecht School of Economics, Utrecht University, Utrecht, The Netherlands

    Chaohong Zhou & Arjen van Witteloostuijn

  2. University of Antwerpen, Antwerpen, Belgium

    Arjen van Witteloostuijn

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  1. Chaohong Zhou
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  2. Arjen van Witteloostuijn
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Correspondence to Arjen van Witteloostuijn.

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Accepted by Anand Swaminathan, Area Editor, 19 April 2009. This paper has been with the authors for three revisions.

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Zhou, C., van Witteloostuijn, A. Institutional constraints and ecological processes: Evolution of foreign-invested enterprises in the Chinese construction industry, 1993–2006. J Int Bus Stud 41, 539–556 (2010). https://doi.org/10.1057/jibs.2009.61

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