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Global Business | Peer-Reviewed Research

Good Fences, Good Neighbors

How Can State-Owned Enterprises Speed Up the Welcome Wagon When They Invest Overseas?

Based on research Yan Anthea Zhang, Robert E. Hoskisson (George R. Brown Emeritus Professor of Management), and Wei Shi (former Rice Business doctoral student)

How Can State-Owned Enterprises Speed Up the Welcome Wagon When They Invest Overseas?

  • Different factors drive location choice for a state-owned enterprise investing overseas vs. location choice for other multinationals.
  • When a state-owned enterprise invests abroad, the government of the home country has control rights. That means the choice of where to expand may depend on more than just economic considerations.
  • Among the possible factors are geographic distance, similarity in religious beliefs and resource complementarity between an SOE’s home and a target country.

Past research assumes that multinational enterprises interested in overseas investment choose locations based on economic goals. But when a multinational firm is a state-owned enterprise (SOE), it’s a different story. The home country has control rights – which can shape strategic decisions including choices of where to focus overseas investment. The choice of where to expand thus may hinge on more than economics. Geopolitical factors, national interests, social priorities and even political missions may play a role.

Potential opposition from the target countries can also play a role. When an SOE decides to branch out abroad, what might seem like a straightforward business venture from another type of multinational may look like an incursion from foreign agents or even a threat to national security. The United States isn’t immune to such concerns. In 2005, the U.S. blocked a Chinese state-owned oil company, China National Offshore Oil Corporation, from acquiring the U.S. firm Unocal.

So what are the factors that can shape opposition toward a foreign SOE?

A former Rice Business doctoral candidate, Wei Shi, along with Rice Business professor Yan Anthea Zhang and emeritus professor Robert E. Hoskisson created a conceptual model to analyze the level of potential opposition from target countries. Their model proposes five geopolitical factors that can affect the kind of welcome an SOE can expect from its new home.

  • Geographic distance

For a private multinational enterprise, hopping over to a neighboring country makes economic sense: it can be simpler and cheaper to manage overseas investment if it’s nearby. But from a geopolitical standpoint, proximity isn’t necessarily a plus. Close neighbors may pose greater threats to each other’s national sovereignty than countries that are comfortably far apart. Neighbors may also have a track record of conflict. Think of the historic conflict between China and Japan, or more recently, between Russia and Ukraine. The lesson? For an SOE, moving into the neighborhood next door may threaten the target country’s sense of sovereignty, or even national security, and spark opposition.

  • Similarity between religious beliefs

Everywhere from small towns to large nations, shared religious beliefs can increase trust and dissimilar beliefs can sow suspicion and conflict. It’s no different in international investments. When an SOE’s home country and its target country share religious beliefs, the Rice professors wrote, the move may be smoother.

  • Similarity between governments

The modern business world involves governments ranging from full autocracies to full democracies, with a kaleidoscope of possibilities in between. Countries with similar government forms, however, are more likely to identify with each other and agree about how governance should work. That mutual identification and acceptance can lower opposition to a foreign SOE’s investment.

  • Resource complementarity

Resource complementarity between countries means the degree to which one country has resources that the other country needs. The coveted resources might be energy, technological savvy or financial muscle. If an SOE has resources that its target country wants, there’s more chance its target country will roll out a red carpet.

  • Nationalist politics in the target country

For an SOE looking to move abroad, the target country’s political leaders can either muffle or amplify the first four factors in this list. For example, even if the target country sees a hopeful SOE as a threat, its political leaders might be able to propose official visits or foster economic cooperation. If these leaders can calm nationalistic friction, they can help open even the stickiest doors to the SOE. By the same token, political leaders can use nationalistic feelings to stoke opposition.

This research raises some intriguing questions. Are the factors in this model as applicable to SOEs from emerging markets such as China, India and Latin America as they are to SOEs from developed countries such as France? Are the factors equally applicable to SOEs with majority state control rights, and SOEs from countries such as Brazil, which often holds minority state control rights? And do the same factors hold for SOEs from countries with better or worse governance structures?

Whether it’s in a cow pasture or a sovereign nation, the arrival of outsiders onto home territory can kick up some dust. For an SOE, analyzing the factors in an overseas venture can determine whether it’s worth climbing over the fence.


Yan Anthea Zhang is the Fayez Sarofim Vanguard Professor of Management in Strategic Management at Jones Graduate School of Business at Rice University. 

Robert E. Hoskisson is the George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University.

Wei Shi is a former doctoral student in the strategy department in the Jones Graduate School of Business at Rice University, and now is an assistant professor at Kelly School of Business at Indiana University.

To learn more, please see: Shi, W., Hoskisson, R. E., & Zhang, Y. A. (2016). A geopolitical perspective into the opposition to globalizing state-owned enterprises in target states. Global Strategy Journal, 6(1), 13-30.

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