State owned enterprises (SOEs) play an important role in both global and domestic business, not only in China but in many emerging and advanced economies. Many of these SOEs blend public and state ownership through stock exchange listings, and thus are operating in both the political and the economic sphere. SOEs are estimated to own around 20% of the world’s stock market capitalization. Over the past 15 months in particular there has been a surge of Chinese SOEs chasing acquisitions and joint ventures abroad.  How does state ownership facilitate or constrain corporate internationalisation strategies in different countries?

Phillips Chair in Strategy and International Business at CEIBS Professor Klaus E. Meyer and his co-authors have done one of the first research studies to explore these questions. They looked at a unique sample of 153 listed SOEs from 40 different countries spanning both developed and developing economies with a wide variety of institutional and political configurations and compared them to a matched set of listed privately owned firms (POEs). Their empirical results show that in countries with strong legal and governance systems, the internationalisation strategies of listed SOEs are more similar to those of listed POEs.  

The strategic focus of SOEs differs from POEs because they must align with the strategy of their home country government to some degree. Their government ties mean SOEs also differ from POEs in terms of their governance, risk attitude, and access to resources. While the prime directive of POE senior managers is to maximize profits, their SOE counterparts have to balance the bottom line with a variety of different government objectives such as economic development, job creation, and dispensing occasional favours for constituents in politically influential groups. SOE senior managers therefore usually have less incentive to pursue international business opportunities. Staying focussed on their domestic market makes it easier to meet their objectives because their domestic advantages cannot be easily leveraged abroad.

The researchers found, however, that when appropriate executive incentives are provided and the legal and governance systems are stronger, listed SOEs will make similar internationalization choices as their non-SOE counterparts. Examples include Électricité de France and Telenor ASA from Norway.  Strong formal governance institutions lead listed SOEs to act in ways similar to private firms, both by providing better monitoring of executives and by enhancing firms’ ability to develop firm-specific advantages that may be leveraged in foreign markets.

“While this study explores the variations across countries, we would also expect the same variations to emerge within countries such as China,” says Prof. Meyer. “Regions with stronger legal frameworks and governance structures are likely to generate SOEs that act more like private firms, and that ultimately will be more successful internationally.”

Their findings have been published in the Journal of World Business in a paper titled “Home Country Institutions and the Internationalization of State-owned Enterprises: A Cross-country Analysis” which received the journal's 2016 Best Paper Award. Prof. Meyer’s co-authors are Saul Estrin of London School of Economics, Bo B. Nielsen of University of Sydney, and Sabina Nielsen of Copenhagen Business School. 

Read the paper here     

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