Diplomatic and Corporate Networks: Bridges to Foreign Locations

25 Pages Posted: 27 Jul 2018 Last revised: 6 Sep 2018

See all articles by Jing Li

Jing Li

Simon Fraser University

Klaus E. Meyer

China Europe International Business School (CEIBS); Copenhagen Business School - Center for East European Studies (CEES)

Zhang Hua

China Europe International Business School (CEIBS)

Yuan Ding

China Europe International Business School (CEIBS)

Date Written: September 2017

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

Suggested Citation

Li, Jing and Meyer, Klaus E. and Hua, Zhang and Ding, Yuan, Diplomatic and Corporate Networks: Bridges to Foreign Locations (September 2017). Journal of International Business Studies, Vol. 49, Issue 6, 2017. Available at SSRN: https://ssrn.com/abstract=3219039 or http://dx.doi.org/10.1057/s41267-017-0098-4

Jing Li (Contact Author)

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Klaus E. Meyer

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

HOME PAGE: http://www.ceibs.edu/faculty/facultylist/09/100132.shtml

Copenhagen Business School - Center for East European Studies (CEES) ( email )

Porcelanshaven 24
2000 Frederiksberg
Denmark

HOME PAGE: http://www.klausmeyer.co.uk

Zhang Hua

China Europe International Business School (CEIBS) ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Yuan Ding

China Europe International Business School (CEIBS) ( email )

699, Hongfeng Road
Shanghai 201206, Shanghai 201206
China

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