The evidence of Chinese multinational enterprises as latecomers

Journal of International Management 13 (2007) 296 – 318

Toward an integrated theory of multinational evolution: The evidence of Chinese multinational enterprises as latecomers Peter Ping Li ⁎ College of Business Administration, California State University, Stanislaus, 801 West Monte Vista Avenue, Turlock, CA 95382, United States Received 1 July 2006; received in revised form 1 April 2007; accepted 1 May 2007 Available online 20 July 2007

Abstract This paper seeks to address the fundamental question of how much we can modify and enhance the ownership–location–internalization (OLI) Model of multinational enterprise (MNE) formation to reflect the new evidence of MNE latecomers from the developing countries. The evidence of three longitudinal cases from China suggests that the traditional OLI and the newly proposed linkage–leverage–learning (LLL) Model of MNE formation can be readily integrated within a content-process framework of MNE evolution so as to better explain all types of MNE from both the developed and the developing countries. © 2007 Elsevier Inc. All rights reserved. Keywords: MNE evolution; MNE latecomer; Integrated framework; Developing country; China

1. Introduction Despite the consensus that multinational enterprises (MNE) have been the primary driver behind the trend toward globalization (Dicken, 2007), the continuing debate over the uniqueness of multinational enterprise (MNE) from the developing countries is entering into a new phase in the context of globalization (Li, 2003; Mathews, 2006). Specifically, the extant MNE theories, including the Ownership–Location–Internalization (OLI) Model, are questioned concerning not only their relevance for MNE latecomers from the developing countries but also their validity for any MNE in the context of globalization (Coviello, 2006). The OLI Model has been particularly ⁎ Tel.: +1 209 667 3001; fax: +1 209 667 3210. E-mail address: [email protected]. 1075-4253/$ - see front matter © 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.intman.2007.05.004

P.P. Li / Journal of International Management 13 (2007) 296–318

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challenged by a growing body of research on MNE latecomers from the developing countries in East Asia (Li, 1994, 2003; Mathews, 2002, 2006; Yeung, 1994). However, the recent challenges may be biased with too much criticism of the OLI Model's limitations but too little appreciation of its strengths, especially with respect to the roles of ownership advantage and internalization mode. Hence, a more balanced perspective is required to explain all types of MNE. To shed new light on the ongoing debate over whether or not the OLI Model is outdated so as to be modified or even replaced by new models, this paper builds on the recent studies on MNE latecomers from East Asia to address the essential question of how much we can modify and enhance the OLI Model, especially with a more balanced approach. I focus on this issue due to three reasons. First, I doubt if the OLI Model is readily applicable to MNE latecomers from the developing countries because it fails to explain how MNE latecomers from the developing countries achieve initial competitive advantages, and how MNE latecomers catch up with MNE early-movers over time. Second, I am concerned if the OLI Model is still relevant to any MNE in the future because it fails to explain the strategic implications of globalization and strategic alliance for MNE evolution. Third, it is desirable to adopt a balanced perspective concerning the limitations and strengths of the OLI Model, and it is also plausible to integrate the OLI Model with the new alternative models as complementary elements of a holistic framework. Adopting the method of multi-site longitudinal case study with a focus on the evolution of MNE latecomers from China, I seek to make two major contributions: (1) to modify the OLI Model so as to be applicable to MNE latecomers, and (2) to enhance the OLI Model so as to be relevant to all MNEs in the future. This paper is part of a growing trend to analyze organizational phenomena from a holistic, dynamic and dialectical perspective (Lado et al., 2006; Lewis, 2000; Li, 1998, 2005; Poole and Van de Ven, 1989; Quinn and Cameron, 1988). The rest of this paper is organized as follows. First, I introduce a framework to modify and enhance the OLI Model. Second, I provide the evidence of three case studies from China. Third, I discuss the implications of the case evidence. Finally, I conclude by suggesting the direction of future research. 2. The OLI Model and MNE latecomers 2.1. A critique of the extant MNE theories The mainstream MNE research has traditionally focused on large established MNE from the developed countries, thus MNE early-movers (e.g., Buckley and Casson, 1976; Caves, 1982; Dunning, 1981, 1995). From the perspective that MNE latecomers from the developing countries may differ categorically from MNE early-movers, some scholars have examined the former as a distinctive category from the latter, thus verifying the assumed universality of the extant MNE theories (e.g., Giddy and Young, 1982; Lall, 1983; Lecraw, 1993; Tolentino, 1993; Ulgado et al., 1994; Wells, 1983; Yeung, 1994). However, there is little consensus except the agreement that MNE latecomers tend to differ from MNE early-movers, especially at the early stage of MNE evolution in the process of internationalization (Dunning, 2006; Hoesel, 1999; Li, 1994, 2003; Mathews, 2002, 2006; Narula, 2006; Yeung, 1994). I take issue with the claim of no fundamental differences between incumbents and newcomers because this view dismisses the need to modify or enhance the OLI Model (e.g., Narula, 2006). The doubt about the universal validity of the extant MNE theories is not confined to the “unconventional” MNE latecomers from the developing countries. More scholars have begun to question the validity of the extant MNE theories regarding MNEs from the developed countries, especially those small “born-global” new ventures (e.g., Andersen, 1993; Coviello, 2006; Hill

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et al., 1990; Madhok, 1997). Among these scholars include the originators of the two best-known MNE theories: (1) the OLI Model (Dunning, 1981), and (2) the Internationalization Process (IP) Model (Johanson and Vahlne, 1977). They raise various issues, ranging from the implications of strategic alliance to the need to incorporate the strategic perspective into both OLI and IP Models; from the need to combine the OLI and the IP Models to the imperative to clarify the distinction between the embedded location-specific advantages and the tacit firm-specific advantages, and from their transferability within and across locations to their transferability within and across firms. Such a reevaluation is primarily triggered by the growing importance of globalization and strategic alliance (Li, 2003; Madhok, 1997; Mathews, 2006). At the heart of such a reevaluation of the extant MNE theories is the growing concern that the extant MNE theories are incomplete in their coverage of “spatial” content and temporal process, and inconsistent between their internal and external validities (e.g., Andersen, 1993, 1997; Dunning, 1995, 2006; Johanson and Vahlne, 1990, 2003, 2006; Tihanyi et al., 2005). For instance, the OLI Model is incomplete in two major aspects. First, the model primarily focuses on the reduction of transaction cost or exchange risk and the exploitation of ex ante advantages via the mode of internalization, rather than the enhancement of transaction value or exchange opportunity and the exploration of ex post new advantages via the mode of alliance (Birkinshaw, 2000; Madhok, 1997; see Zhao et al., 2004 for a meta-analysis). Second, the model primarily focuses on the state of equilibrium rather than a dynamic process (Johanson and Vahlne, 1990). Further, the OLI Model is inconsistent in two major aspects. First, the central constructs seem blurred and confusing. The model juxtaposes the three sequential constructs (i.e., firm-specific ownership advantage and location-specific context as two interrelated antecedents of transaction mode; internalization as the choice of transaction mode; and internalization-based saving as an effect of internalization) as three independent ones, thus blurring their conceptual distinctions and causal links. The conceptualization of transactionbased ownership advantage is particularly problematic as it blurs the conceptual distinctions and causal links between ownership advantage, location context and internalization mode. Second, the model fails to see the paradoxical features of MNE evolution, such as disadvantagetriggered advantage, exploitation-leveraged exploration; cooperation-based competition, and change-driven equilibrium (see Li, 2003 for a review). Further, the problems of the OLI Model are exacerbated by the trends of globalization and alliance in the sense that the model is losing its external validity in the new era. It has been admitted that the OLI Model is embedded in the traditional “hierarchy capitalism,” so it is less relevant for today's “alliance capitalism” in terms of the tendency of adopting strategic alliance as the most popular governance mode for coordination and cooperation (Dunning, 1995; also see Li, 1998; Madhok, 1997; Mathews, 2002). The recent attempt to update the model seem short for a paradigm shift to truly reflect the emerging “alliance capitalism” (e.g., Dunning, 1995, 2006). In contrast to the efforts to adopt the alliance perspective in the IP Model (Johanson and Vahlne, 2003, 2006), the OLI Model still treats the firm as its basic unit of analysis, even when it tries to incorporate the effect of alliance in the recent attempts to update the OLI Model (Dunning, 1995, 2006). In this regard, it is imperative to further update the OLI Model, especially in light of MNE latecomers (Chen and Chen, 1998; Ernst, 2000; Hobday, 1997; Li, 2003; Mathews, 2006) as well as MNE newcomers in terms of born-global international new ventures (Coviello, 2006; Coviello and McAuley, 1999; Oviatt and McDougall, 1994). To catch up with MNE early-movers, MNE latecomers and newcomers tend to follow a pattern of accelerated globalization via strategic alliance to leverage available advantages and create new advantages at the network level rather than doing it alone at the firm level.


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2.2. The perspective of MNE latecomers The latest debate over this issue takes place between the originator of the OLI Model and the provider of the recently proposed linkage–leverage–learning (LLL) Model (Dunning, 2006; Mathews, 2006; also see Narula, 2006). The OLI Model (also known as the Eclectic Paradigm) developed by Dunning (1981, 1988, 1995) identifies ownership advantage, location advantage and internalization advantage as the three bases for MNE formation via foreign direct investment (FDI). Ownership advantage refers to the firm-specific competitive advantage MNE must have before they engage in FDI to overcome the inherent liability of being foreign investors. Location advantage refers to the attractiveness of specific sites for investment by MNE. Internalization advantage refers to the benefit of internal control instead of other modes of market entry without direct control such as export and licensing. This model is primarily based on large MNEs from the developed countries, so it focuses on how to apply or exploit the existing internal advantages (i.e., asset-exploitation) in foreign markets via whole or majority equity investment, in contrast to the case of MNE latecomers who emphasize asset-exploration (Li, 2003; Mathews, 2006). For MNE latecomers from the developing countries, FDI is often adopted as a means to overcome their existing disadvantages by acquiring the needed advantages overseas (i.e., assetexploration or asset-seeking) via non-equity alliance (Li, 2003; Mathews, 2006). It is critical that MNE latecomers do not start from a position of exploiting ex ante strengths; rather, they start from an acute need for acquiring ex post new advantages by becoming MNEs. The significance of the latecomer perspective lies in the three key implications for modifying and enhancing the OLI Model (Li, 2003; Mathews, 2006). First, it is implied that ownership advantage may not be required as a precondition for MNE formation; rather, it is a strategic motive or goal to achieve after MNE formation. In this sense, the initiating point of MNE formation in the evolutionary process starts earlier with asset-seeking rather than asset-exploiting, and with inward investment (in terms of serving as the local alliance partners for MNE early-movers for local marketing or global supply chains via original equipment manufacturing arrangement or OEM) rather than outward investment (Child and Rodrigues, 2005). Second, according to the OLI Model, MNE latecomers will only invest in the less developed countries rather than in the more developed countries. The evidence of more MNE latecomers from the less developed countries, including China, South Korea and Taiwan, investing in such developed countries as the U.S. and Europe seriously challenges the OLI Model (Li, 1994, 2003). Third, another challenge lies in the issue of entry mode. Instead of full internalization, MNE latecomers often apply partial internalization or even external modes (e.g., contracting and other non-equity strategic alliances) for their foreign entries (Li, 2003; Mathews, 2006). For instance, a recent study of the internationalization of the Chinese family enterprises (Erdener and Shapiro, 2005) finds that these firms emphasize social or relational mode to control their foreign operations, and their unique ownership advantages derive from their social or relational capital. This is also true for MNE newcomers, born-global international new ventures (Coviello, 2006), or even MNE early-movers (Johanson and Vahlne, 2003, 2006). Based on the perspective of MNE latecomers, Mathews (2006) proposes a new model to supplement or perhaps even supersede the OLI Model. The newly proposed LLL Model claims that MNE latecomers engage in FDI to achieve new competitive advantages via external linkage, leverage and learning rather than exploiting existing internal advantages via internal control. The LLL Model also emphasizes a dynamic process of MNE formation rather than the static bias of the OLI Model. However, the LLL Model is ambiguous about the distinctions between linkage, leverage and learning. It seems that linkage and leverage are the strategic means to the strategic

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end of learning since learning refers to the result of repeated application of linkage and leverage (Mathews, 2006: 20). Further, linkage and leverage seem to be inseparable as the two sides of the same coin, thus the two elements of the same strategy of external asset-seeking via strategic alliance (Mathews, 2006: 18–19). It is not likely to have linkage without leverage or vice versa. Hence, I claim that neither model alone is sufficient to account for MNE formation because the two models are complementary (Dunning, 2006). Further, I acknowledge that the recent critiques of the OLI Model may be biased without sufficient appreciation of its strengths (e.g., Li, 2003; Mathews, 2006). Consequently, I seek to integrate the two models into a holistic, dynamic and dialectical framework. This is in the spirit of the recent effort to reconcile and integrate the IP Model and the network model (Johanson and Vahlne, 2003). 2.3. An integrated content-process framework of MNE evolution While the OLI is more internal-focused in its explanation of MNE formation, the LLL Model is more external-focused in its contrasting explanation (Mathews, 2006: 21). I argue that each orientation is biased, and their integration offers a balanced view. To best capture the whole process and content MNE latecomers in particular and all types of MNE firms in general, I adopt the comprehensive framework of MNE evolution proposed by Li (2003) because this framework integrates the internal focus of the OLI Model and the external focus of the LLL Model. The new framework integrates five major “spatial” content factors (i.e., ultimate intent, external context, internal profile, strategic choice, and market effect) with three major temporal process factors (i.e., simultaneity/synchronization, directionality/sequence, and rhythm/tempo). This integration is a holistic, dynamic and dialectical approach to MNE evolution (Li, 2003). Further, this new framework is consistent with a recent effort to model the internationalization of entrepreneurial firms (Jones and Coviello, 2005), which consists of four factors: external environment (marketspecific, industry-specific, and overall factors); internal firm (structure, resources, products, and entrepreneurial orientation); entrepreneur profile (risk orientation, social capital, and human capital), and market performance (financial and non-financial measures). The only difference between Jones and Coviello's model and Li's model is that Li's model incorporates the four factors of Jones and Coviello as the content and then adds to them a time dimension. Specifically, Li (1998, 2003) proposes that MNE formation and evolution can be best explained as a strategic phenomenon with both content and process dimensions. The strategic content dimension consists of five “spatial” content factors. The first factor is ultimate intent, which refers to the firmspecific long-term vision, mission and strategic intent to guide strategic choices and behaviors. The second factor is external context, which refers to the demand and supply conditions at both home and host countries, including both industry-specific and country-specific condition. The third factor is internal profile, which refers to the firm-specific internal resources, including both tangible and intangible resources. The fourth factor is strategic choice, which refers to the firm-specific decisions and behaviors to compete in the global market with the four concrete elements of strategic target or goal, strategic thrust or orientation, strategic posture or position, and strategic mode or mechanism. The last “spatial” factor is market effect, which refers to the firm-specific performance in the market, including both financial results and learning results. In addition to the five “spatial” factors, there are three temporal process factors. The first factor is simultaneity, which refers to the temporal pattern of events taking place at the same moment. The second factor is directionality, which refers to the sequential process of the events. The last “temporal” factor is rhythm, which refers to the tempo of events. Integrating the two dimensions together, I have a comprehensive framework of MNE formation to guide theory-grounded case studies. Specifically, I break down the whole process of MNE evolution


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Table 1 Haier's pattern of internationalization “Spatial” content

Temporal process Pre-export (1984–1992)

Ultimate intent From local to global To survive as restructured From latecomer collective firm with debt to leader

Immature export (1992–1998)

Mature export (1998–2000)

To accumulate capital and expertise

To be No. 1 maker of white goods in China

External context [Location profile: China's lack of capital, technology and market; U.S., Europe and Japan are the world leaders in all three areas] From local to global

From industry to general

Large and growing home China's cheap labor market in China Chinese culture of paternalism

State support for big firms China's growing nationalism Property rights control Asian economic crisis Appliance industry well established and dominated by the MNEs from U.S. and Europe (oligopoly competition as the industry structure)

Internal profile [Advantage profile: Haier had no ownership advantage in terms of capital, technology and brand] From personal level New management to firm level assigned by a local state agency From firm level Good management team to network level Relative weak R&D staff Heavy debt burden Poor production quality Emerging corporate culture (quality control, innovation, centralized control, etc.)

Powerful CEO Centralized control

Relative strong R&D staff Stock listing at home in 1993 Good production quality Culture of centralized control over anything including info

Strategic choice [Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] Linking firm level with network level From reactive to pro-active

Market effect From short-term to long-term Boom–Bust Cycle

Licensing technology from Germany's Liebherr

Exporting to Germany under OEM in 1992

Strong export to the U.S. under its own brand

Central control

The new brand of Haier in 1993 Export to U.S. in 1995 Export to the developed markets first and the developing markets later

Starting broad diversification from white to black goods

Initial success No export yet Initial fast sales growth

Continued success Unstable export (b40% growth a year) Fast sales growth

Initial take-off boom Stable fast-growing export (N90% growth a year) Fast sales growth (N78% per year from 1984–2001) No. 1 in China for white goods (continued on next page)

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Table 1 (continued) “Spatial” content

Ultimate intent From local to global From latecomer to leader

Temporal process Infant MNE (1996–99)

Teenage MNE (1999–Present)

Adult MNE (?)

To be the leader both at home and abroad

To be among Global Top 500

?

External context [Location profile: China was still weak in capital, technology and market; U.S., Europe and Japan are still the world leaders] From local to global


Booming stock market in China Chinese culture of paternalism Stable competition in the global appliance industry Asian economic crisis

State push for globalization and nationalism Property rights control in China Anti-dumping against China's export Game rules as the same in the global appliance industry Growing competition in China

?

Internal profile [Advantage profile: Haier got much stronger in ownership advantage in terms of capital, technology and brand] From personal level to firm level

From firm level to network level

Powerful CEO and tight control Strong R&D capability (2–3 new products per day) Enough capital for expansion Excellent manufacturing Gaining global experience Weak global brand

Little disclosure of negative news

?

Hong Kong (HK) stock listing in 2005 Privatization problem Succession problem (same CEO since 1984) Weak global brand

Strategic choice [Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] From firm level to network level From reactive to pro-active

To emphasize growth To emphasize cost To focus on the mid-end mainstream segments in China FDI in Southeast Asia (via majority joint venture) Centralized control

Further diversification

To globalize aggressively To emphasize cost and value To focus on higher-end niche segments in Europe and U.S. FDI in U.S., Italy and Mid-East (via 100% ownership greenfield FDI in U.S. 100% ownership acquisition FDI in Italy and majority joint venture FDI in Mid-East and Japan) Further unrelated diversification (e.g., cell phone, PC, medicine, finance, etc.)

?


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Table 1 (continued ) (continued) “Spatial” content



Adult MNE (?)

Strategic choice [Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] From reactive Overlap between stable New 3-in-1 global-localization to pro-active export and initial FDI strategy(local design, production (export-led FDI) and sales) R&D/sales ratio above average (4.4% in the past 6 years) Market effect From short-term to long-term

Initial take-off boom Stable fast revenue growth

Boom–bust cycle

No. 1 in China for white goods Haier brand (limited OEM)

Tough time in both US and Europe Slower revenue growth (b22% per year in the past 5 years) Troubling unrelated diversification (e.g., medicine and finance) Export still limited (export/sales ratio 6.96% in the past 6 years) Profit/sales ratio below average (2.60% in the past 6 years)

?

into six major stages: pre-export (no export yet), immature-export (irregular export), mature export (regular export), infant MNE (initial FDI), teenage MNE (immature/unstable FDI), and mature MNE (stable/experienced FDI). The first three stages refer to the pre-MNE phases, while the last three as the MNE phases (Li, 2003). All the “spatial” content factors are analyzed in the temporal context of the six specific stages of MNE evolution. Further, within and between these six stages, the temporal factors of simultaneity for concurrent events, directionality for the sequential events, and rhythm for the tempo or pace of all events are all analyzed with the contents of such events. 3. The methology of case study 3.1. The method of case study Many MNE scholars have called for more and better-guided longitudinal case studies of MNEs (Andersen, 1993; Coviello and McAuley, 1999; Parkhe, 1993; Zaby, 1996). In contrast to crosssectional surveys, embedded longitudinal case studies have the best prospect of advancing more complete and consistent knowledge about the holistic, dynamic and paradoxical nature of organization (Eisenhardt, 1989; Numagani, 1998; Yin, 1994). In particular, this research focuses on theory-building, so an inductive case study is the best method, especially when the research is both theory-driven with respect to integrating two models and phenomenon-driven with respect to developing a plausible theory to explain MNE latecomers (Eisenhardt and Graebner, 2007: 26). Following the established recommendation (Eisenhardt and Graebner, 2007; Yin, 1994), I adopted the method of multi-site comparative longitudinal case study. This is also a response to the call to verify and extend the previous case studies (e.g., Li, 2003), especially beyond the boundaries of newly industrializing countries in Asia (Narula, 2006).

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For the purpose of this study, I selected three Chinese MNEs. I considered several criteria in selecting the three MNEs. First, I limited my selection to the Chinese MNEs in the electronics sector because they have made the fastest advances in global competition, while the electronic industry, as one of the most globalized industries, offers the best prospect to study the issue of MNE evolution. Second, I limited my selection to those MNEs that have become successful major players in the industry. Third, I limit my selection to those MNEs that have gone through a relatively complete process of evolution (i.e., from a start-up to a global player), including foreign merger and acquisition (M&A). I selected Haier, Lenovo, and TCL as the cases for this study because they met the above criteria (Child and Rodrigues, 2005). Lenovo is the largest and most successful computer firm in China, whereas Haier and TCL are the two largest and most successful consumer electronic firms in China. The three firms were the top three electronic firms in China and also among the largest in the world. The choice of leading firms in the electronic industry is appropriate for this study. 3.2. Data collection I collected the data for this study primarily from the archived documents, including the corporate reports (including the corporate web site), published books, newspaper and magazine reports, and other case studies of three firms. About 1500–2000 pages of the archival documents were collected for each firm. I further augment the archival data via personal interviews with the top executives of all three firms—one senior vice president from each firm. The data were coded according to the typical content analysis procedures (Yin, 1994) and the framework proposed by Li (2003). First, I identified specific events as the unit of analysis. Second, I coded those events into the five “spatial” categories of ultimate intent, external context, internal profile, strategic choice, and market effect. Third, I further recoded those events into the three temporal categories of simultaneity, directionality, and rhythm. Fourth, within each "spatial" or temporal category, I also recoded the events into subcategories. For instance, there were four specific components of strategic choice (i.e., strategic target, thrust, posture and mode, Li, 1994). There were two levels of directionality (i.e., the phases of preexport, immature export, and mature export at the phase of pre-MNE, and the phases of infant MNE, teenage MNE, and adult MNE at the phase of MNE evolution). Finally, I only used the data that were corroborated from multiple sources. 3.3. Profile of Haier Restructured in 1984 from a collective-owned manufacturer of electrical devices with a debt burden of RMB 1.47 million in the City of Qingdao, the Province of Shandong, Haier Group has become one of the most successful companies in China—the largest consumer electronic firm in China and the 4th largest white house appliance vendor in the world. As a multinational firm with the sales revenue of RMB103.4 billion or US$12.6 billion and the export revenue of over US$1 billion in 2005, Haier has a broad scope of global operations with more than 240 subsidiaries, 30 plants overseas, 8 R&D centers, and 50,000 employees (see Table 1 for the case summary). In terms of organizational life cycle, Haier has been undergoing three major stages of its organizational evolution (Hua, 2003; Sun et al., 2001): 1. Domestic dominance stage (1984–1991): It took Haier seven years to become No. 1 in white goods business in China via total quality management (TQM) program and innovative marketing.


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Table 2 Lenovo's pattern of internationalization “Spatial” content


Ultimate intent From local to global To survive as a start-up From latecomer and a latecomer to leader



To accumulate capital and experience

To be No. 1 PC Maker in China

External context [Location profile: China's lack of capital, technology and market; U.S. as the world leader in all three areas] From local to global Tight state control over business (e.g., license, trade and capital)

HK as the best site for China's import/export Booming stock market in HK


IBM launched PC-XT (limited competition) IBM clone (more competition)

Cheap labor in China

State support for big firms China's growing nationalism Property rights control in China Chinese culture of paternalism Booming PC market in China

High tariff on PC but low tariff on PC parts

Internal profile [Advantage profile: Lenovo lacked ownership advantage in terms of capital, technology and brand] From personal level to firm level From firm level to network level

Founders as entrepreneurs Lack of business expertise Good R&D staff Little capital or foreign exchange No manufacturing until 1988 Chinese language card in 1985 Latecomer without PC license (other PC firms with licenses) No corporate culture

Emerging powerful CEO More business experience First major hiring More operating capital

Powerful CEO

Starting manufacturing

Tapping Chinese Nationalism Tapping state support

parts in HK

Stock listing in HK in 1993

PC license granted in 1990

Emerging corporate culture

Controlled entrepreneurial culture (e.g., the vision of large ship)

Strategic choice [Strategy profile: strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] Linking firm level with network level From reactive to pro-active

As indirect local distributor for IBM PC (inward) Commitment to entrepreneurship as self-motivation Marketing Chinese language card

Exporting parts from HK back to China (inward) Assembling PC in China with Chinese language card As direct local distributor for US MNEs (AST PC and HP printer) Exporting language cards

Exporting PC motherboards to Europe and US under OEM Among the top 3–5 motherboard suppliers in the world Serious R&D since 1996 Focus on distribution channels (it learned from HP) (continued on next page)

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Market effect From short-term to long-term Boom–bust cycle

“Spatial” content




Initial success as local agent No export yet Initial fast growth (N250% per year)

Initial boom with parts

Up and down at home market Regular export No. 1 in China since 1997 (from 1997's 10% to 2004's 30% China's PC market) High growth (N70% per year)

Limited export High growth (about 60% per year)

Temporal process Infant MNE (1988–1998) Teenage MNE (1998–Present)

Ultimate intent From local to global To be the leader both at home and abroad From latecomer to leader

To defend No. 1 position (1998–2003) To be among Global Top 500 (since 2003)

Adult MNE (?) ?

External context [Location profile: China still weak in capital, technology and market; U.S. still the world leader in all three areas] From local to global Property rights control


State push for globalization and nationalism Asian economic crisis Chinese culture of paternalism Global competition Anti-dumping against and changing China's export PC game rule (Dell model) Bust of the Internet bubble

?

Internal profile [Advantage profile: Acer was getting much stronger in ownership advantage in terms of capital, technology and brand] From personal level to firm level From firm level to network level

Founders' fight and split (from 1995–1999) Stronger R&D (e.g., 1st large computer in China) Stock listing in HK in 1993 Ownership restructuring (35% by employees) Good manufacturing Strong nationalism Lacking global experience Lacking global brand

Complacent management in early 2000s (e.g., fast diversification) Smooth CEO succession in 2000 China Digital as spin-off in 2000

?

Nationalism expected to weaken Leverage IBM's experience Name changed to Lenovo in 2003

Strategic choice [Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] From firm level to network level

To emphasize growth To emphasize cost

To globalize aggressively via acquisition of IBM

?


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Temporal process Infant MNE(1984–1988) (1988–1998) Pre-export

Teenage (1998–Present) ImmatureMNE export (1988–1993)

Adult MNE (?)(1993–1997) Mature export

Strategic choice [Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] From reactive to pro-active

To focus on marketing (local distributor)

PC division in 2004 To refocus on PC away from diversification strategy

To focus on home market No major FDI projects Fast related diversification (e.g., Internet and cell phone) 1st JV and acquisition in To emphasize cost and value Hong Kong in 1988 and 1989 Small sales and R&D To emphasize export via brand offices in U.S. and Europe Export still limited (export/sale ratio Overlap between export/ of 5.58% in the past 6 years) import and initial FDI R&D/sales ratio below average (trade-led FDI) (2.69% in the past 6 years) Market effect From short-term to long-term

Boom–bust cycle

Up and down in growth

Difficult integration of IBM PC Division Still relatively fast growth Slower growth (b12% per year before IBM deal) No. 1 PC maker in China First negative growth in 2004 Export via OEM only Failures in related diversification (e.g., Internet and cell phone) Profit/sales ratio still low (3.39 % in the past 7 years)

?

2. Diversification stage (1992–1998): It took Haier another seven years to broadly diversify and broaden its product offerings from white goods to black goods and even totally unrelated businesses. 3. Globalization stage (1998–present): Haier has been undertaking a globalization program. Its strategic intent is to join Global Top 500 with a well-known global brand. 3.4. Profile of Lenovo Founded in 1984 in the City of Beijing as one of the new state-owned startups, Lenovo (formerly known as Legend) has become the largest computer firm in China and the 3rd largest personal computer firm in the world after its acquisition of IBM's PC Division in 2005. As a multinational firm of HK$103.6 billion or US$13.3 billion in sales revenue, 7 R&D centers and 19,000 employees in 2005, Lenovo has a relatively focused business operations, mainly in the PC and the related segments. After the acquisition of IBM's PC Division, Lenovo has become a truly

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Table 3 TCL'S pattern of internationalization “Spatial” content





To survive as a new state-owned firm with no advantages

To accumulate capital and expertise

To be No. 1 maker of black goods in China

External context [Location profile: China's lack of capital, technology and market; Japan, U.S. and Europe as the world leaders in all three areas] From local to global Large and growing home China's cheap labor State support for big firms market in China Chinese culture of paternalism Asian economic crisis Property rights control in China From industry Electronic industry well established and dominated by the MNEs from Japan, U.S. and Europe to general (oligopoly competition as the industry structure) Internal profile [Advantage profile: Haier had no ownership advantage in terms of capital, technology and brand] From personal level Management team Emerging powerful CEO Relatively powerful CEO to firm level appointed by a local state agency From firm level Inexperienced Good production quality to network level management team Relative weak R&D staff Relative strong R&D staff Little capital Stock listed at home in 1993 No corporate culture Emerging corporate culture Entrepreneurial culture Strategic choice [Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] Linking firm level Joint ventures with HK Entry into TV Stronger export under both with network level firms for audio tape Export to Asian markets its own brand and OEM and phone under OEM From reactive Emphasis on cost No more than 30% export to pro-active Focus on domestic market under its own TCL brand Adopting the brand Export to the developing Starting broad in 1986 markets first and then the diversification from black developed markets later to white goods Market effect From short-term to long-term

Initial success No export yet

Continued success Limited export via OEM (slow growth)

Boom–bust cycle

Initial fast sales growth

Fast sales growth (N86% per year)

Initial take-off boom Stable fast-growing export via both OEM and own brand Faster sales growth (N44% a year) China's No. 1 in TV and Phone

P.P. Li / Journal of International Management 13 (2007) 296–318 Table 3 (continued) “Spatial” content


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Adult MNE (?)

To be the leader at home To expand abroad

To be one of the best in the world (the Dragon–Tiger plan)

?

External context [Location profile: China was still weak in capital, technology and market; U.S., Europe and Japan are still the world leaders] From local to global Chinese culture of State push for globalization ? paternalism and nationalism Asian economic crisis Property rights control From industry Growing competition Intense competition in China to general in China Global market as attractive Anti-dumping against China's export Stable competition in the Game rules as the same in the global electronic industry global electronic industry Internal profile [Advantage profile: TCL got much stronger in ownership advantage in terms of capital, technology and brand] From personal level Relatively powerful CEO Power struggle and split ? to firm level Good R&D capability Stronger R&D (via FDI) (proprietary HDTV tech and 3–4 new products per days) From firm level Enough capital HK stock listing in 2004 to network level for expansion Excellent manufacturing Privatization success (state ownership b28% and insider ownership N25%) Gaining global experience State ownership reform Weak global brand Acquired well-known global brands Strategic choice [Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] From firm level To expand abroad To globalize aggressively ? to network level To emphasize cost To emphasize value From reactive To focus on the mid-end To focus on higher-end niche to pro-active market segments market segments (e.g., 2 labs in the U.S.) FDI in HK in 1996 FDI in U.S. , Germany, and France (via acquisition) (via 100% acquisition in U.S. and Germany and majority joint ventures in France, i.e., Thompson for TV and Alcatel for cell-phone FDI in Vietnam in 1999 (via Greenfield FDI) Further diversification Continued diversification into white good and info R&D/sales ratio below average (2.76% in the past 6 years) (continued on next page)

310 Table 3 (continued ) global player in (continued)


the computer industry (see Table 2 for the case summary). In terms of

“Spatial” content



Adult MNE (?)

Strategic choice [Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points] From reactive Overlap between stable “Dragon and Tiger Plan” to pro-active export and initial FDI (as a leader at home and abroad) (export-led FDI) High export/sales ratio (N24% in the past 6 years) Market effect From short-term to long-term

Initial take-off boom Stable fast revenue growth

Boom–bust cycle

China's No. 1 in TV and phone Both TCL brand and OEM

Difficult integration of foreign acquisitions Slower revenue growth (b18% per year in the past 3 years) Questionable broad diversification

?

First loss in history in 2005 and further loss in 2006 Profit/sales ratio still low (2.92% in the past 7 years)

organizational life cycle, Lenovo has been undergoing three major stages of its organizational evolution (Chi, 2005; Ling, 2005): 1. Domestic dominance stage (1984–1997): It took Lenovo 14 years to become No. 1 in PC business in China via local distribution of foreign brands and innovative marketing of its own products. 2. Restructuring stage (1998–2003): It took Lenovo another 4 years to restructure its business offering and internal organization, including corporate spin-off, diversification and ownership restructuring. 3. Globalization stage (2004–present): Lenovo started its initial internationalization program in 1988 in Hong Kong, but only recently it has become serious and aggressive in pursuing a globalization goal of joining Global Top 500 with a well-known global brand. 3.5. Profile of TCL Founded in 1981 in the City of Huizhou, the Province of Guangdong, TCL is the 2nd largest consumer electronic firm in China and the world's largest TV vendor. As a multinational firm of RMB51.6 billion or US$6.3 billion, 20 plants, 4 R&D centers and 63,000 employees in 2005, TCL has a broad scope of global operations with fourteen overseas factories, six design centers, and over forty-five major sales agents around the world. Since the early 1990s, TCL has achieved an annual average export growth rate of over 40%, and it generated about a half of its total revenues from overseas sales in 2005 (see Table 3 for the case summary). In terms of organizational life cycle, TCL has been undergoing three major stages of its organizational evolution (Du, 2004; Wan, 2005). 1. Domestic dominance stage (1981–1995): It took TCL fourteen years to become No. 1 in China in the areas of telephone and TV via innovative marketing.


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2. Diversification stage (1996–1998): It took TCL another two years to diversify and broaden its product offerings into personal computer and other segments of information industry. 3. Globalization stage (1999–present): TCL has been undertaking an internationalization program, termed as “Dragon and Tiger Plan” (with “dragon” sub-plan for international operation and “tiger” sub-plan for domestic operation). Its strategic intent is to join Global Top 500 with multiple global brands. 4. Discussion Supporting the integrated content-process framework of MNE evolution, the three cases bears critical implications for both OLI and LLL Models, especially their integration. The five “spatial” factors have major effects on MNE's initial formation and later evolution in a process measurable by the three temporal factors. In this section, I discuss the content and process of MNE evolution to suggest how to integrate the OLI and LLL Models for a balanced (holistic, dynamic, and dialectical) explanation for all types of MNE. 4.1. “Spatial” content of MNE evolution For the first content factor of ultimate intent, there are two major issues. First, all three MNE latecomers are extremely ambitious concerning their vision, mission and strategic intent. They all want to become major global players in a shortest time possible. This is often termed as catch-up intent or accelerated internationalization (Li, 2003; Mathews, 2006). Given this intent, MNE latecomers often adopt aggressive global strategies. Second, all three firms set their initial goals at being the market leaders at home first before they launched their major outward FDI projects. In this sense, certain ownership advantages may be necessary, at least still desirable, for MNE latecomers. This implies that the internal focus of the OLI Model and the external focus of the LLL Model should be integrated into a balanced model. For the second content factor of external context, there are three major issues. First, all three firms have benefited from the strong support from the state government for globalization, which is viewed as a unique external home context for the Chinese entrepreneurs (Child and Rodrigues, 2005). It is evident that the Chinese firms are more effective in internationalization due to strong governmental ties. This is a distinctive dimension of the external context for MNE latecomers from the developing countries (Li, 1994). Second, the high-level globalization in the computer and consumer electronics industries has provided the key opportunities for (rather than threats to) MNE latecomers. In all three firms, inward internationalization—as the local alliance partners for foreign MNEs in the area of local marketing or local OEM supply—has been a rare opportunity for MNE latecomers to learn about the initial manufacturing technologies, marketing skills and managerial expertise. Third, in all three firms, FDI has been a means to avoid China's institutional constraint regarding property rights in terms of state or collective ownership, which is one of their key motives for MNE formation (Child and Rodrigues, 2005). It is worth noting that all three firms have their stocks listed in Hong Kong not only to raise financial capital but also to seek legal protection of the stock ownership for their top management teams. In this sense, the OLI and LLL Models can both benefit from incorporating the institutional forces both at home and abroad and at both national and industry levels (Dunning, 2006), especially the interplay between the institutional forces and entrepreneurial choices (Child and Rodrigues, 2005). For the third content factor of internal profile, there are two major issues. First, in all three firms, ex ante ownership advantages did not exist before the MNE latecomers' engagement in

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FDI; rather, they expanded overseas to overcome their inherent ownership disadvantages with an asset-seeking motive. In this sense, ownership advantage should not be required as an initial precondition for MNE formation; rather, it is required as the goal or motive for MNE formation (Li, 2003; Mathews, 2006). In the OLI terminology, while ownership-based advantage is not a necessary requirement, transaction-based advantage derived from becoming MNE should be the necessary requirement for MNE evolution subsequent to the initial MNE formation. Hence, the external-focused LLL Model and the internal-focused OLI Model is reconcilable, with the direct external–internal link as particularly critical to MNE latecomers (Chen and Chen, 1998; Ernst, 2000; Hobday, 1997; Hoesel, 1999; Li, 2003; Mathews, 2006). It is worth noting that, although ownership disadvantage serves as the precondition for MNE latecomers to engage in FDI at the initial stage, the derived ownership advantage is necessary for MNE evolution at the later stage. Second, related to the issue of property rights in China, all three firms pursued their stock listings, especially abroad (e.g., Hong Kong), to overcome the ambiguous property rights of either state or collective ownership (see Li, 2005 for a review about the property rights issues in China). For the fourth content factor of strategic choice, which is closely tied to the above three factors, there are three major issues. First, rather than exploiting existing ownership advantages, the primary motive for FDI is to explore new ownership advantages from external sources. It can be argued that asset-exploration should be one of the two primary motives for FDI beside assetexploitation. Dunning (1995, 2006) recognizes the imperative of strategic asset-augmenting as a key motive for FDI. The pessimistic view that MNE latecomers from the developing countries will suffer from disadvantages permanently does not appreciate the nature and power of MNE to leverage external resources for transaction-based advantages. To integrate the OLI and LLL Models in this aspect, I regard ownership advantage and learning as both ex ante motive and ex post effect, rather than a given or required precondition, of MNE formation, especially for MNE latecomers. Second, all three firms show that transaction cost is not the sole determinant of entry mode. The evidence suggests that transaction value, including the opportunity for learning about tacit knowledge from alliance partners, is the other determinant of entry mode. For instance, all three firms preferred strategic alliance as the primary entry mode, not due to the associated low transaction cost but because of the associated high transaction value. Hence, we must recognize the imperative of strategic alliance (e.g., OEM and joint venture) as the best mode to enter global supply chains for MNE latecomers to catch up with MNE early-movers in an accelerated manner (Ernst, 2000; Hobday, 1997; Li, 1994; Mathews, 2002). In this sense, ownership advantages lie not only at the firm level but also at the network level (Chen and Chen, 1998; Coviello, 2006; Johanson and Vahlne, 2003; Mathews, 2002). Hence, both transaction cost and transaction value should be considered for the choice of entry mode (Coviello and McAuley, 1999; Madhok, 1997), especially for the new organizational form of network (see Li, 1998 for a review). Third, these cases show that the liability of foreignness can be remedied through strategic alliances between foreign and local firms. Though the liability of foreignness is often reduced via strong ethnic ties by the Asian firms (Chen and Chen, 1998; Saxenian and Hsu, 2001; Sim and Pandian, 2002), my cases show little evidence of that. This may be due to the maturity of my three cases as the leading firms at home and the complexity of FDI projects they were involved in (Child and Rodrigues, 2005). Hence, the OLI Model can benefit from the external-focused LLL Model to reflect the paradigm shift from the hierarchy capitalism to the alliance capitalism (Dunning, 1995; Li, 1998). However, I do not yet see the compelling evidence for the rationale to replace the OLI Model as long as we can enhance the OLI Model in light of the paradigm shift (Child and Rodrigues, 2005). Further, the LLL Model is not without its own problems. My three cases provide no evidence to differentiate leverage from linkage mainly because they both serve


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the same function as the basic means to the end of learning. Also, the LLL Model is largely silent on the leverages and linkages between the five content factors, especially the complex interplays between the “spatial” content factors and the temporal process factors. 4.2. Temporal process of MNE evolution For the last content factor of market effect, which is the joint effect of all the other four content factors, it is best to analyze the issue of market effect together with the temporal factors in an integrated manner. The first temporal factor is simultaneity. The case evidence shows that network leverage requires a proper temporal coordination between strategic alliance partners as well as intra-firm activities to complement external sources. For instance, different entry modes are never mutually exclusive, and they tend to co-exist to complement each other. It is also worth noting that there are substantial overlaps between the regular export and infant MNE phases in all three firms, thus further confirming the concurrent co-existence of multiple entry modes. In this sense, choosing an entry mode is not a mechanistic or deterministic event; instead, multiple entry modes can be selected concurrently as complementary options (Li, 2003). The second temporal factor is directionality. None of the three cases offer clear evidence for the “establishment chain” from low-risk entry modes to high-risk entry modes as prescribed by the IP Model (Johanson and Vahlne, 1977, 1990; cf. Johanson and Vahlne, 2006). All three firms started their international experience with inward internationalization by serving as the importers of foreign technologies and the local distributors of foreign products. While Haier and TCL did start FDI after export and overseas marketing, Lenovo began its initial manufacturing in Hong Kong rather than at home, with its FDI before its export. Though all three firms did engage in FDI via joint ventures before whole ventures or acquisitions, Haier and TCL adopted the entry modes of whole acquisition and joint venture back and forth. Further, Lenovo acquired IBM PC Division in 2004 after its initial minor acquisition in Hong Kong in 1989, thus without any FDI projects in between. As mentioned earlier, there have been major overlaps between the phases of regular export and infant MNE in all three firms. It is worth noting that, for a prolonged time, all three firms focused more on their domestic markets than their overseas market despite the push by the state government for export. This is in contrast to the experience of MNE latecomers from Taiwan (e.g., Acer), possibly due to the larger home market in China than in Taiwan. Further, all three firms have not been following the traditional pattern of early FDI in “culturally close” countries and later in the countries of greater “psychic distance” (Johanson and Vahlne, 1977, 1990). Largely due to the need for asset-exploring, all three firms launched their initial major FDI projects in the U.S. or Europe despite the greater cultural distances. The last temporal factor is rhythm. Due to the joint effect of Chinese government's push for globalization, the growing competition in the home market, and the firms' ambiguous intents, all three firms have adopted an accelerated pattern of internationalization as the catch-up strategy in the recent years. However, there were clear delays or low-tempos in their regular export phase and the infant MNE phases, largely due to the pro-longed dependency of Chinese firms on their home market. Only in their most recent phases have these firms accelerated their tempos of MNE evolution. In the latest effort of acceleration, they have jumped or leapfrogged the “establishment chain” so as to catch up with MNE early-movers from the developed countries (Li, 1994, 2003; Mathews, 2002, 2006; Sim and Pandian, 2002). Their past successes at the early stages did not guarantee their performance at the later stages. There is evidence that the overall pattern of MNE evolution tends to follow a boom-and-bust cycle (Li, 2003; Li and Chang, 2000). All three firms

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engaged in unrelated diversification after their initial success in their main business, but they all had major problems in their diversification drive. Also, their recent globalization drive after their major success at home becomes their biggest challenge so far as they are experiencing the pains of accelerated globalization as teenage MNEs. In sum, the temporal process is an imperative, yet neglected, aspect of MNE evolution that should be integrated into the OLI and LLL Models. 4.3. Holistic, dynamic and dialectical integration Based on the evidence of the three cases, I conclude that the OLI and LLL Models should and can be integrated to provide a balanced explanation for all types of MNE across the process of MNE evolution. Further, it is imperative for the OLI and LLL Models to retain the “spatial” content and temporal process factors so as to offer a holistic, dynamic and dialectical framework of MNE evolution. Hence, the integrated framework of MNE evolution proposed by Li (2003) is promising for integrating the OLI and LLL Models. The content-process framework bears three central implications for future research with respect to MNE formation and evolution. First, we need both the external focus of the LLL Model and the internal focus of the OLI Model to fully explain MNE evolution. In this regard, it is helpful to reconceptualize ownership advantage as an internally available complementary resource to be leveraged with the external resources, thus the necessary ex ante internal profile for external leverage, linkage and learning. This precondition is necessary for all MNEs. It is reasonable to reconceptualize transaction or learned advantages as the ex ante ultimate intent for MNE formation; if perceived dynamically, it becomes the ex post market effect of MNE evolution. Internal advantages are needed for linkage and leverage, but such advantages are only comparative rather than absolute. Second, for the issue of location, we should consider the role of institutions and industry dynamics as interactive forces in a portfolio of diverse home and host countries, thus the external context for leverage, linkage, and learning. This diverse portfolio of external contexts can serve as both opportunities and threats. Third, for the issue of internalization as an entry mode, it is helpful to treat various entry modes as complementary rather than independent or conflicting ones. Hence, it is helpful to substitute the notion of internalization with that of entry mode portfolio with internalization and externalization for both transaction cost and transaction value (Johanson and Vahlne, 2006). While transaction cost is primarily concerned with risk reduction via control, transaction value is based on value enhancement or opportunity development via commitment (Johanson and Vahlne, 2006; Li, 1998, in press). All the factors related to entry modes and other strategic factors fall into the domain of strategic choice. Finally, viewed dynamically, the “spatial” factors interact with the temporal factors. In sum, we can readily integrate the OLI and LLL Models into the content-process framework of MNE evolution. To further develop the integrated framework of MNE evolution, we should also consider three other issues suggested by the case evidence. First, we need to pay a closer attention to the “soft” factors and institutional factors. The “soft” factors refer to the non-cognitive elements of social capital, trust, charisma, entrepreneurship, ambition, passion, and value. The institutional factors should not be treated as stand-alone forces (e.g., state, law and ethics); their interplay and interdependency must be the focus of attention. For instance, the recent push for globalization in China is a joint effect of multiple interactive forces, including the state policy, home competition, nationalistic fever, ambitious intent, need for cutting-edge technologies and global brands, and changing rules of global game. It is also the case with the unrelated diversification of the Chinese firms as the joint effect of the interplay between the state support, ambitious intent, opportunistic pursuit of emerging domestic markets, and biased domestic stock market (in favor of fast growth and expansion in total assets and revenues rather than profitability and stability).


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Second, we will benefit from incorporating the key constructs and perspectives from the theories on organizational evolution (Barnett and Burgelman, 1996; Gersick, 1991; Nelson and Winter, 2002). For instance, the process of internationalization is an integral part of an overall MNE evolution, so a research of the former must be done in the context of the latter. Further, the path of internationalization does not always match the overall path of organizational evolution. As all three firms show, the take-off phases and the boom-and-bust cycles did not match the preMNE and MNE phases. In particular, in light of the excessive diversification among all firms, it is necessary to explore the possible link between the process of internationalization and that of diversification. One possible way to integrate all major elements is to evoke the concept of deep structure (i.e., the focal link between interdependent parts in a system, Gersick, 1991). The deep structure of MNE evolution is the overlapping co-existence of as well as interplay between five “spatial” content variables in a three-factor temporal process, with MNE's ability and motive to learn as the possible core or anchor of the deep structure. Third, to be truly holistic and dynamic in theory-building, it is imperative to be dialectical, thus treating paradox as the best tool to conceptualize and operationalize all complex phenomena as dualities (Lado et al., 2006; Lewis, 2000; Li, 1998, 2005; Poole and Van de Ven, 1989; Quinn and Cameron, 1988). For instance, it is best to conceptualize internalization and externalization, transaction cost and transaction value, institution and entrepreneurship, intent and effect, boom and bust, and modesty and complacency as paradoxical or dualistic opposites-in-unity (see Li, 1998 for a review). Specifically, the evidence suggests that MNE evolution follows a pattern of spiral progression with a series of boom-and-bust cycles because of the shifting effectiveness of organizational learning in different phases of MNE evolution (Li, 2003; Li and Chang, 2000). Organizational learning seems effective in the early phase of MNE evolution, ineffective in the later phase after the initial success, and effective again after the later failure. The spiral pattern of organizational learning suggests that an accumulation of knowledge through learning is possible, but this does not follow a linear pattern toward equilibrium (cf. Barnett and Burgelman, 1996; Gersick, 1991). The spiral pattern can derive from the success-induced complacency. It is logical to suggest that, while learning capability may increase with MNE success, learning motive could decrease with MNE success, thus contradictory elements interacting in tandem over time. Hence, I propose a spiral version of the punctuated incrementalism model as a process of evolution to be occasionally disrupted by paradigm shifts, thus reconciling the inherent contradiction between stability and change (cf. Gersick, 1991). I regard MNE evolution as a spiral co-evolution of five “spatial” factors, with organizational learning as the anchor of the deep structure in this process due to its power to connect the five “spatial” factors with the three temporal factors. For instance, the spiral pattern of organizational learning may derive from the interplay between the external factors (e.g., state policy, nationalistic fever, advanced technology, market competition, social network, and global opportunities), and the internal factors (e.g., ambitious intent, ownership disadvantage, complacency, charisma, and entry modes). This is consistent with the proposed integration between the internally-focused OLI Model and the externally-focused LLL Model into a content-process framework of MNE evolution. 5. Conclusion This paper has contributed to the literature by addressing a fundamental question of how much we need to modify and enhance the OLI Model of MNE formation given the new evidence of MNE latecomers from the developing countries. The evidence of three longitudinal cases from China suggests that the traditional OLI and the new LLL Model can be readily integrated into the content-process framework of MNE evolution so as to better explain all types of MNE. The core

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implications for theorizing MNE are embedded in the holistic, dynamic and dialectical approach to theory-building with respect to the content and process of MNE formation and evolution. In particular, I adopted a more balanced perspective with respect to the limitations and strengths of the OLI Model so as to focus on the benefit of integrating the OLI and LLL Models. Further, I contributed with the new evidence of MNE latecomers beyond the so-called “dragon MNEs.” There are some critical implications for future research. First, we must verify and extend the findings of this study at other sites, especially in other non-Asian developing countries. The legitimacy of case study must be recognized (Eisenhardt, 1989; Eisenhardt and Graebner, 2007; Numagani, 1998; Parkhe, 1993). Second, built on the new case evidence, we need to refine the proposed framework so as to develop specific models from the framework for theory-testing in the future. In particular, we must pay closer attention to the “soft” content factors of charisma, ambition and complacency as well as the temporal factors of tempo, synchronization and spiral progression. Third, we should examine how to operationalize the paradoxical nature of social phenomena via the dialectical logic for complete and consistent theory-building. One of critical topics for further study is to compare the three types of MNEs, i.e., latecomer, newcomer and early-mover, in the same industry. For instance, we ought to study the potential drawbacks of accelerated internationalization for MNE latecomers and newcomers with respect to the liability of lateness and newness, especially in more mature industries dominated by MNE early-movers. Also, we can compare the evolutionary patterns of the same type of MNE from various countries with different home markets so as to verify the impact of local contexts both at home and abroad, especially those countries with contrasting cultural values to verify the impact of cultural values (see Leung et al., 2005 for a review). In this sense, an expanded multi-dimensional construct of country-of-origin effect as a moderator can be a rich area for future MNE research (Tihanyi et al., 2005). References Andersen, O., 1993. On the internationalization process of firms: a critical analysis. Journal of International Business Studies 2, 209–231. Andersen, O., 1997. Internationalization and market entry mode: a review of theories and conceptual frameworks. Management International Review 37 (2), 7–42. Barnett, W.P., Burgelman, R.A., 1996. Evolutionary perspectives on strategy. Strategic Management Journal 7, 5–19 (special issue). Birkinshaw, J., 2000. Entrepreneurship in the Global Firm. Sage, London. Buckley, P.J., Casson, M., 1976. The Future of the Multinational Enterprise. Macmillan, London. Caves, R.H., 1982. Multinational Enterprise and Economic Analysis. Cambridge University Press, Cambridge. Chen, H., Chen, T., 1998. Network linkages and location choice in foreign direct investment. Journal of International Business Studies 29, 445–468. Chi, Y., 2005. The Saga of Lenovo. Zhongguo Guangbuodainshi Publishing, Beijing, China. (in Chinese). Child, J., Rodrigues, S.B., 2005. The internationalization of Chinese firms: a case for theoretical extension? Management and Organization Review 1, 381–410. Coviello, N.E., 2006. Network dynamics of international new ventures. Journal of International Business Studies 37, 713–731. Coviello, N.E., McAuley, A., 1999. Internationalization and the smaller firm: a review of contemporary empirical research. Management International Review 39, 223–256. Dicken, P., 2007. Global Shift: Mapping the Changing Contours of the World Economy, 5th ed. Guilford Publications, London. Du, H., 2004. Li Dongsheng's Twelve Secretive Weapons for Innovative Management. Zhonghua Gongshanglianhe Publishing, Beijing, China. (in Chinese). Dunning, J.H., 1981. International Production and the Multinational Enterprise. Allen and Uniwin, London. Dunning, J.H., 1988. The eclectic paradigm of international production: a restatement and some possible extensions. Journal of International Business Studies 19, 1–491. Dunning, J.H., 1995. Reappraising the eclectic paradigm in an age of alliance capitalism. Journal of International Business Studies 26, 461–491.


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