The Benefits of Internationalization for State‐Owned Enterprises

• DOI: http://doi.org/10.1002/gsj.1138
• Date: 01 November 2016
• Published date: 01 November 2016
• Author: Gabriel R.G. Benito,Randi Lunnan,Asmund Rygh

THE BENEFITS OF INTERNATIONALIZATION FOR

STATE-OWNED ENTERPRISES

GABRIEL R.G. BENITO,

1

*ASMUND RYGH,

2

and RANDI LUNNAN

1

1

BI Norwegian Business School, Oslo, Norway

2

Alliance Manchester Business School, Manchester, U.K.

Plain language summary: We investigate whether listed state-owned enterprises (SOEs)

benefit morefrom internationalizationthan listed private enterprises.We argue thatSOEs

have a greater scope for benefitting from internationalization because of their previous

domestic focus andbecause of government-related firm-specificadvantages they can uti-

lize for their internationalization.In listed SOEs, these factors maymatter more than non-

economic objectives and corporate governance deficiencies that could reduce SOEs’

economic benefitsfrom internationalization. Empiricalanalysis on a sample of listed Nor-

wegian firms provides modest supportfor the hypotheses. There is no indicationthat state

ownership reduces the benefits of internationalization.

Technical summary: We consider state ownership as a moderator of the relationship be-

tween internationalization and performance in listed firms, developing theoretical argu-

ments on the scope for benefits from internationalization, corporate governance, and

government-related firm-specific advantages. We propose hypotheses on a positive mod-

eration effect from state ownership overall and on more positive effects in majority

state-owned enterprises (SOEs) than in minority SOEs, on more positive effects in SOEs

previously part of the government administration, and on more positive effects from

market-seekinginternationalization than from efficiency or resource-seeking internation-

alization.Panel data analyses considering listedNorwegian firms (2000 to 2010) provide

modest support for the hypotheses. Copyright © 2016 Strategic Management Society.

INTRODUCTION

Recent studies describe a reinvention of state capital-

ism (Bruton et al., 2015; Musacchio, Lazzarini, and

Aguilera, 2015) based on state-owned enterprises

(SOEs), where the stateshares ownership with private

owners (the state being either a majorityor a minority

owner) that are publicly listed and that are focusing

more on the international arena (Cuervo-Cazurra

et al., 2014).Many of these SOEs are highlyprofitable

and internationally competitive, on par with private

enterprises (Musacchio et al., 2015). The increasing

internationalization of SOEs has spurred a number of

recent studies in international business (IB) on the

strategies of SOEs in terms of foreign location and

entry mode choices (e.g., Cui and Jiang, 2012;

Knutsen, Rygh, and Hveem, 2011; Meyer et al.,

2014). We still know little, however, about what spe-

cific benefits SOEs get from their international activi-

ties and about whether and how these benefits differ

from those enjoyed by privately owned enterprises

(POEs). This study presents theoretical arguments, as

well as empirical evidence using data on Norwegian

listed firms (2000 to 2010), on these questions.

Based on the studyof POEs, IB research has used a

variety of theoretical perspectives to argue for a gener-

ally positive relationship between internationalization

Keywords: internationalization-performance relationship; state

ownership; listedfirms; Norway

**Correspondence to: Gabriel R.G. Benito, BI Norwegian Busi-

ness School, Nydalsveien 37, 0484 Oslo, Norway. E-mail:

gabriel.r.g.benito@bi.no

Global Strategy Journal

Global StrategyJournal, 6:269–288 (2016)

Published onlinein Wiley Online Library (wileyonlinelibrary.com). DOI: 10.1002/gsj.1138

Copyright © 2016 Strategic Management Society

and economic performance (I/P relationship). Con-

tractor (2012) reviewed eight types of arguments

found in the IB literature, including exploiting scale

and scope economies, diversifying risk, reducing

costs, and accessing knowledge f rom and learning

about the international environment, among others.

In a related but largely separate literature in interna-

tional economics, a similar ‘learning-by-exporting’

hypothesis proposes that contact with international

buyers and competitors produces learning effects and

that international competition forces firms to be more

efficient and stimulates innovation (Greenaway and

Kneller, 2007; Wagner, 2007, 2012).

The interestin considering how firms with different

types of ownership can gain from internationalization

is highlightedby the fact that after three decadesof re-

search in IB, results on the I/P relationship remain in-

conclusive (Contractor, 2012; Verbeke and Forootan,

2012). It has been recognized that internationalization

also entails costs, including increasing coordination,

information, and monitoring costs (Contractor,

2012). Empirical studies alternatively report positive,

negative, and insignificant relationships, as well as a

variety of nonlinear relationships motivated theoreti-

cally by changes in the relationship between benefits

and costs as internationalization progresses from low

to high levels.

1

This inconclusiveness has led some

researchersto question the notion of a generalI/P rela-

tionship (whether linear or more complex) itself and

instead look for factors that increase or constrain the

ability of firms to benefit from internationalization.

Bowen (2007) claims that empirical I/P studies in

IB have so far not paid sufficient attention to how dif-

ferences between firms in terms of firm-specific ad-

vantages (FSAs) and performance may imply sample

selection, omitted variable, and simultaneity biases.

2

Based on transaction cost theory, Hennart (2007,

2011) argues that what matters for performance is

not multinationality per se, but whether the firm’sin-

tegration decisions, whether domesticor cross-border,

are appropriate. In particular, deviation from a firm’s

economically optimal degree of multinationality

would imply a negative I/P relationship. Powell

(2014) finds empirical support for Hennart’sideas

and calls for research on factors determining whether

firms deviate from their optimal multinationality fol-

lowing a transaction cost logic. To explain a some-

times observed positive I/P relationship, Hennart

(2011) speculates that successful highly

internationalized firms could differ from other firms

in terms of managerialand governance characteristics.

For example, some companies may have managers

who are more internationally experienced and, there-

fore, better able to work out and implement a strategy

aligned with an o ptimal foreign foo tprint. Or their

governance in terms of ownership structure and the

identities ofowners and board members couldencom-

pass and bring superior international competence and

outlook into play. Again,this suggests differences be-

tween firms matter.

We argue that state ownership may affect both

firms’scope for benefitting from internationalization

as well as theirability to do so. SOEs may indeedhave

particularly much to gain from internationalization, to

the extent that a sheltered domestic position and a fo-

cus on domesticgoals have meant little exposure to in-

ternational competition and impulses. SOEs’actual

ability to gain from internationalization will depend

on factors such as their corporate governance as well

as their uniqueFSAs. We argue the new breed of pub-

licly listed SOEs are better equipped to benefit from

internationalization given that the noneconomic ob-

jectives and corporate governance deficiencies often

believed to characterize SOEs are less relevant, while

these SOEs may still possess particular government-

related FSAs, including financial and political FSAs.

Although this context provides only a partial pic-

ture of the effects of internationalization on SOEs,

studying publicly listed SOEs is highly appropriate

to assess the economic benefits of SOEs from interna-

tionalization,as listed SOEs have predominantlycom-

mercial objectives,providing a common yardstick for

measuring them against POEs. To study the benefits

of internationalization for SOEs more generally, in-

cluding non-listed SOEs (as well as their owner gov-

ernments), one may need to look beyond purely

economic measures, which is an important topic for

future research.

Our arguments lead to hypotheses on a positive

moderationeffect from state ownershipon the I/P rela-

tionship, imply ing that listed SOE s benefit more t han

listed POEs. Furthermore, we develop hypotheses on

the effects of majorityversus minority state ownership

and on the effects of the origins of the SOEs as either

government administration units or POEs. Our hy-

potheses are tested on a sample of Norwegian listed

firms over the period 2000 to 2010. Overall, doing

1

A similar inconclusiveness regarding learning-by-exporting is

found in the international economics literature (Wagner, 2007,

2012).

2

In contrast, international economists take it as ‘something of a

stylized fact that ex ante productivity determines the choice of

whether or not to export’(Greenaway andKneller, 2007: F135).

270 G. R.G. Benito, A. Rygh, and R. Lunnan

Copyright©2016 Strategic ManagementSociety Global StrategyJournal, 6:269–288 (2016)

DOI: 10.1002/gsj.1138