Bringing corporate governance into internalization theory: State ownership and foreign entry strategies
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Bringing corporate governance into internalization theory: State ownership and foreign entry strategies Birgitte Grøgaard1, Asmund Rygh2 and Gabriel R. G. Benito1 1
BI Norwegian Business School, Nydalsveien 37, 0484 Oslo, Norway; 2 Alliance Manchester Business School, The University of Manchester, Manchester M15 6PB, UK Correspondence: B Grøgaard, BI Norwegian Business School, Nydalsveien 37, 0484 Oslo, Norway. Tel: +47 46 41 05 35; e-mail: [email protected]
Abstract We use internalization theory to analyze the establishment and entry mode decisions of state-owned (SOE) and privately owned (POE) enterprises. We enrich internalization theory by building on insights from economic theory of corporate governance and taking into account particular characteristics of SOEs such as non-economic motivations, long-term orientation, and different risk preferences. We examine foreign entries over a 10-year period in the Canadian oil and gas industry. This single-country and single-industry context features foreign SOEs and POEs from a wide range of home countries, allowing a focused study of the combined influence of state ownership and home-country factors. Compared to POEs, SOEs tend to prefer acquiring stand-alone assets rather than firms, and to take lower ownership shares. We also find that differences between SOEs and POEs diminish when home countries are characterized by high government quality and market orientation and identify differences between types of SOEs, with partially owned SOEs exhibiting behaviors more similar to POEs than fully owned SOEs. We demonstrate how our enrichment of internalization theory strengthens its predictive and explanatory capacity. Our results also show that SOEs from strong and market-oriented institutional environments are similar to POEs and can be studied using the traditional internalization theory. Journal of International Business Studies (2019). https://doi.org/10.1057/s41267-019-00237-5 Keywords: state ownership; internalization theory; corporate governance; foreign market entry; multinational enterprise; oil and gas industry
Received: 31 May 2017 Revised: 13 November 2018 Accepted: 17 January 2019
INTRODUCTION Internalization theory is one of the most influential theories within international business (IB), and is often considered the general theory of the multinational enterprise (MNE) (Narula & Verbeke, 2015; Rugman 1981). It is widely used to explain why and how firms expand abroad. However, it is largely developed through research on privately owned enterprises (POEs) in manufacturing industries, where rivalry amongst profit-seeking actors supposedly promotes economically efficient operation modes1 (Buckley & Casson, 1976), raising questions – e.g., by Rugman (1983) – regarding its applicability to other market actors such as state-
Bringing corporate governance into internalization
owned enterprises (SOEs). Over the past decade, the global economy has seen a surge in the international activities of SOEs (George, Schillebeeckx & Liak, 2015). According to Fortune
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