Dragons in the West: Localization Strategies of Chinese Multinationals in Developed Economies

Abstract

This study examines two localization strategies that Chinese Multinational Corporations (MNCs) use to improve the likelihood of success in penetrating developed markets: internally- and externally-oriented strategies. Internal strategies include those that give subsidiary managers greater discretion to fit their human resource (HR) practices to local norms. External strategies include networking strategies with external stakeholders designed to access local information and develop relationships of trust that facilitate doing business in new environments. Drawing on a sample of Chinese MNCs operating in the U.S., I show that both localization strategies provide important means to overcome liabilities of foreignness and origin and contribute to subsidiary growth. The extent of adoption of these strategies, however, reflects not only strategic considerations, but also institutional pressures from host and home countries. Host country regulatory pressures appear to induce network building, but home country institutions (the relative level of state ownership) are associated with lower devolution of HRM and network building to subsidiary managers, suggesting efforts to exert centralized control.