Relational ownership, institutional context, and internationalization of state‐owned enterprises: When and how are multinational co‐owners a plus?

• Author: Riccardo Marzano,Sergio Mariotti
• Date: 01 November 2020
• DOI: http://doi.org/10.1002/gsj.1379
• Published date: 01 November 2020

RESEARCH ARTICLE

Relational ownership, institutional context,

and internationalization of state-owned

enterprises: When and how are multinational

co-owners a plus?

Sergio Mariotti

1

| Riccardo Marzano

2

1

Department of Management,

Economics & Industrial Engineering,

DIG—Politecnico di Milano, Milan, Italy

2

Department of Computer, Control &

Management Engineering, DIAG—

Sapienza Università di Roma, Rome, Italy

Correspondence

Riccardo Marzano, Department of

Computer, Control & Management

Engineering, DIAG—Sapienza Università

di Roma, Via Ariosto 25, 00185 Rome,

Italy.

Email: riccardo.marzano@diag.

uniroma1.it

Abstract

Research Summary: We investigate when and how a

foreign multinational enterprise by acting as a rela-

tional co-owner helps the internationalization of hybrid

state-owned enterprises. We merge the “liability of stat-

eness”and the “government as strategist”perspectives

with an institutional context-based approach. We claim

that the effect of multinational enterprise relational co-

ownership is contingent on the countries' institutional

settings. It is positive at lower levels of both institu-

tional coordination (as a measure of variety of capital-

ism) and government effectiveness. This effect is

mitigated as coordination and government effective-

ness increase. Further, a comparison between hybrid

state-owned and private-owned enterprises shows that

the magnitude of the contribution by foreign relational

co-owners to internationalization is also moderated by

institutional variables.

Managerial Summary: Opportunities and challenges

for state-owned enterprises (SOEs) to expand their

activities abroad and to climb the rankings of the

world-class multinational corporations have been

emerging. However, these enterprises often lack the

experience required for internationalization and suffer

from the inward-looking orientation and political inter-

ferences of their national governments. This is espe-

cially true when governments are ineffective in getting

Received: 27 June 2019 Revised: 25 February 2020 Accepted: 25 February 2020

DOI: 10.1002/gsj.1379

Global Strategy Journal. 2020;10:779–812. wileyonlinelibrary.com/journal/gsj ©2020 Strategic Management Society 779

things done, and the local institutions limit their role

to sustaining a positive regulatory internal market, but

with no strategy to promote multinational state-owned

players. Under these conditions, the co-ownership with

a foreign proactive industrial partner can be an effec-

tive strategy for SOEs to overcome the difficulties in

entering foreign markets.

KEYWORDS

institutional theory, internationalization, multinational enterprises,

relational ownership, state-owned enterprises

1|INTRODUCTION

In the 1980s and 1990s, when a massive wave of privatizations and promarket reforms was

underway, state-owned enterprises (SOEs) were considered a dying breed, crushed under the

weight of inefficiency in resource allocation, bureaucratic management, and poor economic

performance (Megginson & Netter, 2001). Contrary to this popular opinion, in the new millen-

nium SOEs have risen like a “phoenix from the ashes”along with radical changes in ownership

and corporate governance that have transmuted them from monolithic hierarchies wholly

owned by the state into hybrid organizations with varying degrees of shareholding by both pub-

lic and private entities (Aharoni, 2018; Bruton, Peng, Ahlstrom, Ciprian, & Xu, 2015; Kalasin,

Cuervo-Cazurra, & Ramamurti, 2019; Musacchio, Lazzarini, & Aguilera, 2015). Different state-

owners' policies, ranging from full to more reluctant privatization (Bortolotti & Faccio, 2009),

and some re-nationalizations in more recent years (Rodrigues & Dieleman, 2018) are responsi-

ble for this evolution. Further, the lowering of worldwide entry barriers has created opportuni-

ties and challenges for SOEs to expand their activities abroad and to climb the rankings of the

world-class multinational corporations. According to the preferences of their shareholders and

managers, different corporate strategies have been adopted. Their purpose has sometimes been

aggressive and oriented to pursuing a rapid process of internationalization, and sometimes

timid and conservatively aimed at maintaining and consolidating the market share at home

(Cuervo-Cazurra, Inkpen, Musacchio, & Ramaswamy, 2014).

This trend has prompted a flourishing debate among academicians, politicians, and practi-

tioners about the role of various SOE shareholders—state, private partners (including local and

foreign enterprises), funds, and other financial institutions—in promoting or deterring the

international growth of SOEs. The literature has puzzled over what Kalasin et al. (2019) have

called the helping hand and hindering hand duality. However, the results of investigation are so

mixed that the balance between the components of that duality has remained an open empirical

issue (Benito, Rygh, & Lunnan, 2016; Duanmu, 2014; Meyer, Ding, Li, & Zhang, 2014; C. Wang,

Hong, Kafouros, & Wright, 2012). Kalasin et al. (2019) have proposed a reconciliation of the

conflicting views by relying on the new hybrid nature of SOEs (Bruton et al., 2015; Musacchio

et al., 2015). With reference to the emerging markets, they propose that different levels of state

ownership modify the relationship between state ownership and the international expansion of

SOEs as relevant private owners can correct or mitigate some of the state dysfunctionalities in

780 MARIOTTI AND MARZANO

the pursuit of profit-oriented foreign investments (see also Estrin, Meyer, Nielsen, &

Nielsen, 2016). Other scholars have argued that the way in which state ownership influences

the willingness and ability of SOEs to internationalize depends on the institutional settings in

which they are embedded (Clegg, Voss, & Tardios, 2018; Colli, Mariotti, & Piscitello, 2014;

Estrin et al., 2016; Hennart, Sheng, & Carrera, 2017; Hoskisson, Wright, Filatotchev, &

Peng, 2013). In particular, Mariotti and Marzano (2019) argue that the duality balance evolves

from negative (against internationalization) to positive (in favor of internationalization) along a

continuum between the paradigmatic forms of the liberal market economy (LME) and the coor-

dinated market economy (CME). Whereas in LMEs governments develop an inward-looking

approach that hinders any support of SOEs internationalization, the opposite is the case of

CMEs, where governments act strategically to promote the internationalization of SOEs

through coordination and access to government-related advantages.

In order to contribute to the extant debate, our article investigates the role of foreign multi-

national enterprises (MNEs) as “relational”co-owners (Aguilera & Crespi-Cladera, 2016)—that

is, industrial partners involved long term and interested in both financial performance and

growth of the participated firms—in promoting the SOEs internationalization. To better appre-

ciate their role, we compare the effects of relational MNE co-owners in SOEs and the effects in

privately owned enterprises (POEs).

The relevance and newness of this investigation are variously motivated. First, the few IB

studies on the internationalization of SOEs with mixed ownership examine the relationships

between state/government and private blockholders without any distinction between foreign

versus domestic and transactional versus relational co-owners (e.g., Benito et al., 2016; V. Z.

Chen, Musacchio, & Li, 2019; Estrin et al., 2016; Zhou, 2018). Thus, not surprisingly, many

scholars still highlight the need for more theory and evidence on the relationships between

SOEs' outward investment choices and their ownership structure and corporate governance

(e.g., Bruton et al., 2015; Cuervo-Cazurra et al., 2014; Grøgaard, Rygh, & Benito, 2019; Peng,

Bruton, Styan, & Huang, 2016; Xie, Reddy, & Liang, 2017). Hybrid SOEs having foreign MNEs

as relational shareholders, not involved in national government interests are a burgeoning phe-

nomenon. Therefore, evidence about these cases has the potential for being theory-enhancing

and policy-relevant.

Second, the extant international business (IB) literature on the relationship between foreign

ownership and firm internationalization is still somewhat lacking as regards important catego-

ries of firms, such as hybrid SOEs. The bulk of relevant studies has focused on the role of MNEs

as investors endowed with superior knowledge and international networks (Caves, 2007) in

helping “weaker”subjects—local partners and host contexts—to grow abroad. Instead, SOEs

are somehow unique organizations that combine weakness and strength: historically focused

on the domestic markets as instruments for promoting social and political unification, and

securing national defense (Millward, 2011), they are often not equipped to undertake an inter-

nationalization process that requires specific managerial capabilities, international experience

and reputation; at the same time, they enjoy a privileged position, thanks to their government-

related firm-specific advantages (Benito et al., 2016), especially in advanced countries.

1

To the best of our knowledge, this article is the first attempt to empirically analyze how rela-

tional foreign shareholders influence the hybrid SOEs' internationalization process, also in com-

parison with that of POEs. We consequently believe that we have identified a new angle on the

conundrum of SOEs' international performance. The article adopts a multitheoretical approach

(Douma, George, & Kabir, 2006; Musacchio et al., 2015). After proposing our baseline hypothe-

ses following the conventional wisdom of IB and international economics, we discuss them

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