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Diplomatic and corporate networks: Bridges to foreign locations

Jing Li (), Klaus Meyer, Hua Zhang and Yuan Ding
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Jing Li: Simon Fraser University
Hua Zhang: China–Europe International Business School (CEIBS)
Yuan Ding: China–Europe International Business School (CEIBS)

Journal of International Business Studies, 2018, vol. 49, issue 6, 659-683

Abstract: Abstract Firms and governments operate in broad networks in which the home government and its diplomatic service are a critical node – or a “referral point” – between firms and potential partners in foreign locations. Thus diplomatic relations between countries matter for the choice of foreign investment location. Using a network perspective, we argue that the extent to which good diplomatic relations induce firms to invest in friendly host countries depends on their political connections to home governments. Those with stronger ties to home governments can better access and leverage intergovernmental diplomatic connections, thus benefiting potentially from enhanced access to information, reduced political risks, and increased legitimacy. Such ability of politically connected firms is more useful where weak institutional impartiality in the host country inhibits neutral treatment of foreign investors. Empirically, using overseas investment location decisions by Chinese firms, we find that the types of home government ties (i.e., whether they are organizational or personal and whether those relationships are with central or local goverments) and the impartiality of host institutions are both important contingencies affecting firms’ utilization of diplomatic relations. We discuss the implications of our study to research on network theory, political ties, and internationalization of emerging market firms.

Keywords: diplomatic relations; network theory; political ties; state-controlled firms; foreign location choice; Chinese multinationals (search for similar items in EconPapers)
Date: 2018
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