International Business Review: Xiao Zhang, Xufei Ma, Yue Wang, Xin Li, Dong Huo

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IBR-1245; No. of Pages 13
International Business Review xxx (2015) xxx–xxx
Contents lists available at ScienceDirect
International Business Review

journal homepage: www.elsevier.com/locate/ibusrev
What drives the internationalization of Chinese SMEs? The joint effects

of international entrepreneurship characteristics, network ties, and
firm ownership
Xiao Zhang a, Xufei Ma b, Yue Wang c, Xin Li a,*, Dong Huo a
a
Department of Management, School of Business, Nanjing University, Nanjing, Jiangsu 210093, China
b
Department of Management, Faculty of Business Administration, Chinese University of Hong Kong, Shatin, N.T., Hong Kong
c
Department of Marketing and Management, Faculty of Business and Economics, Macquarie University, Sydney 2109, Australia
A R T I C L E I N F O A B S T R A C T
Article history: The paper first investigates how Chinese small-to-medium enterprises’ (SMEs) network ties at home
Received 30 June 2014 moderate the relationships between different international entrepreneurship (IE) characteristics and the
Received in revised form 30 August 2015 degree of internationalization of the firm. The paper further explores how the Chinese SMEs’ ownership
Accepted 3 September 2015
arrangement might explain the boundary conditions of the proposed moderating effects of network ties
Available online xxx
on the relationship between IE characteristics and internationalization. Findings of our empirical study
generally support the hypotheses derived from our theoretical framework. The paper offers new insights
Keywords:
into the internationalization of Chinese SMEs by ascertaining the differential contingent value of
International entrepreneurship
business versus political ties in the relationship between IE characteristics and internationalization and
Internationalization
Network ties explores the bounds of our findings in terms of the ownership arrangement unique to the Chinese
Political tie context.
Business tie ß 2015 Elsevier Ltd. All rights reserved.
Ownership arrangement
Chinese SMEs
1. Introduction constraints through their social networks (Tang, 2011). How

exactly IE characteristics and network ties interact with each other
The drivers behind small-to-medium enterprises (SMEs) from in influencing the internationalization of emerging-market SMEs
the emerging market going international has been a subject of remains under theorized and poorly understood in practice.
increasing interest in international entrepreneurship (IE) research Therefore, we first examine how home-based business and
(Boehe, 2013; Tang, Kreiser, Marino, & Weaver, 2010; Yamakawa, political ties might exercise different influences in moderating
Peng, & Deeds, 2008). The existing IE literature focuses on the the relationship between IE characteristics and the degree of
explanatory variables associated with the internal characteristics internationalization among Chinese SMEs.
of such firms. It is now generally established that a firm’s IE Second, we explore the boundary conditions of the proposed
characteristics, such as innovativeness, proactiveness and risk- moderating effects of business and political ties on the relationship
taking, have positive effects on the internationalization behavior of between IE characteristics and internationalization. We consider
SMEs from both the developed world (Coviello & Munro, 1995; ownership as a major factor. A prominent issue closely related to
Lindqvist, 1990; McDougall & Oviatt, 1991) and emerging markets, the role of network ties in the internationalization of Chinese firms
such as China (Yiu, Lau, & Bruton, 2007). is that many of these firms are state-owned enterprises (SOEs)
However, the extent to which the possession of IE character- (Kling & Weitzel, 2011). Indeed, a growing number of researchers
istics can result in the internationalization of emerging market have looked at the effect of state ownership on Chinese firms’
SMEs is likely contingent upon their ability to overcome resource international expansion behavior (e.g., Cui & Jiang, 2012; Du &
Boateng, 2015; Luo, Xue, & Han, 2010; Rui & Yip, 2008), but most
focus on large SOEs to the neglect of the ownership effect on the
* Corresponding author.
internationalization behavior of Chinese SMEs. In this paper, we
E-mail addresses: zhangxiao@nju.edu.cn (X. Zhang), xufei@cuhk.edu.hk (X. Ma),
yue.wang@mq.edu.au (Y. Wang), lixinkaran@foxmail.com (X. Li), dhuo@nju.edu.cn postulate that the ownership of SMEs plays an important role.
(D. Huo). Specifically, we conceptualize how the proposed moderating
http://dx.doi.org/10.1016/j.ibusrev.2015.09.001
0969-5931/ß 2015 Elsevier Ltd. All rights reserved.
Please cite this article in press as: Zhang, X., et al. What drives the internationalization of Chinese SMEs? The joint effects of
international entrepreneurship characteristics, network ties, and firm ownership. International Business Review (2015), http://
dx.doi.org/10.1016/j.ibusrev.2015.09.001
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2 X. Zhang et al. / International Business Review xxx (2015) xxx–xxx
effects of network ties on the relationship between IE character- made to delineate their different implications for firms’ behavior
istics and internationalization differ depending on the ownership (Chen & Wu, 2011). Both business and political ties enable Chinese
arrangement (i.e. state owned versus non state owned) for the SMEs to access and acquire complementary resources held by
Chinese SMEs. network partners and enhance the effects of innovativeness on
The present study enables us to advance our understanding of internationalization. However, studies show that business ties and
the organizational contingencies under which emerging-market political ties do not have the same weight of influence on the
SMEs’ IE characteristics drive their internationalization behavior. operations of Chinese firms (Chen & Wu, 2011; Yiu et al., 2007). We
First, we focus on the organizational contingencies of the argue that political ties might play a stronger role than business
moderating role of Chinese SMEs’ home-based networks and their ties in moderating the innovativeness-internationalization rela-
firm-specific ownership arrangement. Recently, Mesquita and tionship for a number of reasons.
Lazzarini (2008) examined the role of home-based networks in First, to encourage Chinese firms’ international competitive-
fostering emerging market firms’ access to global markets, but ness and export performance, governments in China often help
their emphasis was on the influences of business ties to the neglect innovative firms to expand their production capabilities indirect-
of political ties. Such neglect is unfortunate, as both business and ly and to reduce costs in R&D through providing low-cost
political ties have long been identified as important social capital regulatory resources, such as land, bank credits, or tax subsidies
affecting emerging-market firms’ business decisions in earlier (Sheng, Zhou, & Li, 2011). However, a salient feature of the
literature (Luo & Chen, 1997; Peng, 1997; Peng & Luo, 2000). In this government-business relationship in China is that such low-cost
study, we extend this line of work by examining the role of both regulatory resources are not accessible to all SMEs; rather they
political and business ties in shaping the relationship between IE are available selectively only to those firms with strong political
characteristics and internationalization. Second, China today connections with officials in charge. Chinese SMEs with political
provides a unique setting with a multitude of ownership types connections are more likely to receive favorable government
due to its ownership-reform, and ownership is widely regarded as incentives to engage in innovation, which may further facilitate
an important institutional facet of the research on Chinese their international expansion.
enterprises behavior (Zhu, Cooper, D, Thomson, & Zhao, 2008). Second, political ties can help Chinese SMEs to establish
Thus, among many peculiarities about the Chinese institutional legitimacy for their innovative products in developed markets in a
environment, one important aspect is the ownership arrangement way that business ties cannot achieve, and these ties provide
of Chinese SMEs. Reliance on personal and organizational net- innovative firms with a stronger ability to turn their intention to
works in managing internationalization dynamics is another internationalize into action. Since innovative SMEs tend to be the
(Mathews & Zander, 2007). first to introduce new products, they are in greater need of
Thus, by adopting a theoretical lens that incorporates the joint legitimacy for their innovations (Aldrich & Fiol, 1994). Such a
effects of IE characteristics, network ties, and firm ownership, we legitimacy issue is especially a threat for Chinese SMEs
are able to embed the unique Chinese context in theorizing the introducing innovative products to customers in developed
SMEs’ internationalization and answer the increasing call for countries. Relying on home-based business ties may not help
integrating context-free and context-embedded (China-specific) much, as other Chinese SMEs face the same legitimacy problem
elements in studying the international behavior of Chinese when going abroad. However, political ties may facilitate the
enterprises (Alon, Child, Li, & McIntyre, 2011; Li & Peng, 2008; association with successful organizations, such as large state-
Tsui, 2009). We test the hypotheses derived from our contingency owned companies with well-established presence overseas or
framework by using an empirical study of 117 exporting SMEs in educational or scientific institutions with an international
China. reputation. Hence, political ties may enhance the legitimacy of
Chinese SMEs’ innovative products by permitting ‘‘piggybacking’’
2. How IE characteristics drive Chinese SMEs’ on the credibility of other organizations (Stam & Elfring, 2008).
internationalization: the moderating effects of network ties Therefore:
Hypothesis 1a. The moderating effect of political ties on the
IE is a multi-dimensional concept defined as ‘‘a combination of
relationship between innovativeness and the degree of Chinese
innovative, proactive, and risk-seeking behavior that crosses
SMEs’ internationalization is stronger than that of business ties.
national borders’’ (McDougall & Oviatt, 2000McDougall & Oviatt,
2000, p. 903). It has been well established in entrepreneurship The moderating effects of business and political ties in the
research that in the dynamic and turbulent global market, SMEs proactiveness-internationalization relationship may differ for two
possessing these IE characteristics will fare better than those that reasons. First, in China, where almost all SMEs are at the early stage
lack such qualities (Knight, 2000). However, compared with large of internationalization, the function of business ties as an
multinational enterprises (MNEs) or SMEs based in developed information-sharing mechanism is less effective in helping firms
economies, emerging-market SMEs are subject to more severe to acquire critical knowledge related to international business
resource constraints for international competitiveness (Yamakawa opportunities (Zeng & Williamson, 2003). The complementary
et al., 2008). As a result, while IE characteristics often constitute the assets that each Chinese SME can draw upon from its local partners
most important driver for these firms’ international expansion, are of limited use for international expansion compared with the
they provide only the necessary but not sufficient conditions for network assets held by SMEs in developed countries. Therefore,
actual internationalization. In fact, current researchers rarely although business ties strengthen the positive effect of proactive-
address the extent to which possessing IE characteristics can result ness on the degree of internationalization of SMEs from developed
in the actual exploitation of international business opportunities countries, they are less effective in encouraging Chinese SMEs to
(Ellis, 2011). seek international opportunities proactively.
For the emerging-market SMEs who lack resources, social Second, China’s rapid economic development has resulted in an
capital embedded in their local networks has important implica- uncertain and ever-changing institutional environment. Old
tions for their international entrepreneurial strategies. In the government policies and institutions are either quickly outdated
Chinese context, there is widespread acceptance of the classifica- or the targets of ongoing reform, but new policies and institutions
tion of networks into business versus political ties (Luo & Chen, are constantly emerging and often not very well crafted and/or
1997; Peng, 1997; Peng & Luo, 2000), but limited efforts have been implemented. As a result, China’s institutional transition has
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X. Zhang et al. / International Business Review xxx (2015) xxx–xxx 3
produced an institutional environment characterized as lack of 3. Explaining the boundary conditions of the moderating
policy stability (Peng & Luo, 2000) and a lack of legal enforceability effects of network ties: the role of ownership type
and consistency across different sectors and regions (Zhou &
Poppo, 2010). The above conceptualization of the role of local network ties
During the institutional transition, various Chinese government adds to the literature on the internationalization of emerging-
agencies and officials enjoyed a high degree of power and market SMEs. In recent years, however, the accelerated interna-
discretion in the interpretation and enforcement of relevant tionalization of emerging market firms in general and Chinese
policies or even in the direct intervention of business activities firms in particular has garnered increasing attention to the
(Sheng et al., 2011). Consequently, while Chinese governments importance of these firms’ home country contexts themselves as
generally encourage and support the business sectors’ entrepre- the basis of theorizing (Alon et al., 2011; Child, 2009; Child &
neurial behavior toward business opportunities abroad, Chinese Rodrigues, 2005). Answering the call for more context-bound or
SMEs are heavily dependent on government support to enhance context-specific conceptualization to enhance our global manage-
their proactiveness in seeking international business opportunities ment knowledge (Tsui, 2009), we account for the unique feature of
(Zhang, Ma, & Wang, 2012). Good relationships with key Chinese enterprise system and investigate how Chinese SMEs’
government agencies can provide firms with important benefits, ownership arrangements might explain the boundary conditions
such as ‘‘inside’’ information about government policy intents, of the proposed moderating effects of network ties on the
allowing firms to prepare better for industry and policy changes, relationship between IE characteristics and internationalization.
including those related to export and FDI, as well as critical
regulatory resources, such as cheap credit and timely approval 3.1. Joint effects of ownership type, innovativeness and network ties
(Chen & Wu, 2011). However, not all firms have equal access to on Chinese SMEs’ internationalization
such government support, and an SME’s close connections with
key officials often offer shortcuts to these scarce government- Small SOEs in China are often controlled by municipal
controlled resources that business networks cannot provide. governments and the political ties they possess are of limited
Therefore, use for international expansion. Large SOEs have benefited from
government support through a range of benefits that have
Hypothesis 1b. The moderating effect of political ties on the direct impact on their international expansion, such as value-
relationship between proactiveness and the degree of Chinese added tax breaks and substantial bank loans with low interest
SMEs’ internationalization is stronger than that of business ties. rates; foreign exchange assistance (Kling & Weitzel, 2011);
While both business and political ties can moderate the effects expedited approval; and legitimacy enhancement and market
of risk-taking on the degree of Chinese SMEs’ internationalization, information gathering in overseas market (Cui & Jiang, 2012).
the strength of these two moderating effects may be different. However, these benefits are not immediately available for small
First, the information and resources available through political ties SOEs. Indeed, the ‘Go Global Strategy’ initiated by central
are more valuable than business ties in reducing the costs of government is primarily aimed at promoting large SOEs to
conducting domestic and international business. Given that the become global champions and a result of high-level government
internationalization of Chinese SMEs is a relatively new and support (Chen & Young, 2010; Du & Boateng, 2015; Rui & Yip,
emerging phenomenon (Yamakawa et al., 2008), the information 2008).
and legitimacy benefits created by business ties might be limited Business ties at home can strengthen the effect of small SOEs’
(Guillen, 2002). On the other hand, as institutional intervention by innovativeness on their international expansion since such ties can
Chinese governments is common (Child & Tse, 2001), the firm- help them to understand what kind of innovative products they
specific resources and cost reduction benefits derived from should develop for international markets through learning from
political ties have become more useful in dealing with such other firms’ internationalization experiences. For example, Xu, Lin,
intervention. and Lin (2008) found that active networking with other firms at
Second, both home-based business and political ties can reduce home could increase the circulation of tacit knowledge regarding
Chinese SMEs’ perceived risks of engaging in domestic and overseas demand patterns and enhance the direct effect of Chinese
international expansion. But, in China, where the government is SMEs’ innovative capabilities on their export performance. SOEs
not only involved in macro-policy making but also engaged that have successfully developed innovative products may still find
directly in the micro-management of the economy, political ties it difficult to introduce their products to overseas markets due to
can nurture substantially more domestic business opportunities the lack of reputation and recognition overseas.
(e.g., government contracts related to infrastructure projects) than Home-based business ties allow these firms to develop trust
overseas business opportunities. The risks of these domestic relationships with overseas customers through their partners who
business opportunities are also lower as Chinese governments have already established a reputation or market recognition in
often provide cheap credit and tax exemptions for firms involved in foreign markets. In addition, such business ties can help a firm to
government projects. In contrast, Chinese SMEs exploiting overcome its resource and capability impediments through
domestic business opportunities through their business ties are sharing knowledge, technologies, inputs, and develop products
subject to fierce competition and discriminative treatment, for with greater responsiveness to international demand, making it
example, in loan conditions imposed by state-owned banks. more likely and easier to introduce their innovative products to
Therefore, political ties tend to reduce more risks and provide more foreign markets. Through these information and reputation
opportunities for domestic expansion than business ties can. In advantages, home-based business ties help small SOEs better
other words, compared with business ties, political ties are more utilize their innovative capacity for developing international
likely to drive low risk-takers to focus on China’s domestic market markets, thus strengthening the effect of innovativeness on their
and high risk-takers to concentrate in developing international internationalization behavior.
markets. Thus, we suggest: By contrast, non-SOEs typically possess more business ties that
can provide the necessary market information about the kind of
Hypothesis 1c. The moderating effect of political ties on the innovative products overseas customers are demanding but less
relationship between risk-taking and the degree of Chinese SMEs’ political ties that facilitate the access to regulatory resources. Many
internationalization is stronger than that of business ties. non-SOEs often grew together in the same or neighboring towns
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and villages engaged in internationally oriented OEM manufactur- function as a scanning device that helps proactive, small Chinese
ing (Wang & Nicholas, 2005), resulting in the rise of industrial SOEs to detect new niche markets and new trends in overseas
clusters of SMEs competing with one another and cooperating to demand faster than SOEs lacking such connections (Stam & Elfring,
form a part of international supply chain for western MNEs 2008). The moderating effect of business ties on the proactiveness-
(Naughton, 2007). Such small firms do not have strong government internationalization relationship is stronger for SOEs than for non-
support and are often left on their own for survival, and yet they SOEs.
have operated in a market environment and are generally more By contrast, non-SOEs typically possess more business ties than
efficient than their state-owned counterparts are. Due to the SOEs but less political ties. While they may enjoy better access to
accumulated business ties, these non-SOEs have a stronger knowledge and ideas about how to develop international markets,
propensity to engage with international business opportunities the barriers caused by local government agencies may hamper
and are more confident and willing to adapt their products for their proactive stance and effort toward internationalization. For
international markets. Their international competitiveness, how- example, Chinese SMEs (both state owned or non-state-owned)
ever, would benefit from further political ties that would give them must obtain government approval before embarking on interna-
the same level of treatment as SOEs, such as land use and tax tional expansion, which may take much more time than expected
breaks at home (Naughton, 2007). (Cai, 1999). However, SOEs may have readily available political ties
Political ties may be particularly important for non-SOEs with with key government officials that would help them to shorten the
strong innovativeness characteristics, as they can provide access to bureaucratic procedures significantly. But non-SOEs need to invest
complementary regulatory resources not available through more time and effort in obtaining the same level of access to
business ties but that are necessary for Chinese SMEs to government resources and preferential treatment, such as timely
appropriate value from their innovations (Stam & Elfring, 2008). approval of overseas projects (Sheng et al., 2011) and expedited
For example, the abilities of Chinese SMEs to engage in innovation custom-clearing procedures (Wang & Nicholas, 2005). Such
are constrained by the lack of access to financial and technological political connections are more important to non-SOEs than to
resources at home, where banks and financial institutions remain SOEs to materialize the positive effect of proactiveness on their
largely state-owned and controlled. Ties with bank officials thus internationalization.
become crucial for non-SOEs seeking to engage in product In addition, although private businesses in China today enjoy
innovations and internationalization. the constitutional recognition, they are still subject to govern-
Private Chinese SMEs also face difficulties in securing financial mental intervention without the same level of protection afforded
support in host countries due to their lack of credit history and the to SOEs, which prevents them from proceeding proactively and
liability of foreignness, which further reinforces the importance of aggressively in growing their businesses (Naughton, 2007).
the links with domestic financial institutions as a valuable tie for Chinese entrepreneurs’ ties with government officials not only
successful international expansion (Yiu et al., 2007). Based on the provides their firms with critical information about governments’
above arguments, we expect that relatively speaking, SOEs need regulations and policies on export and FDI to reduce uncertainty
more business ties to strengthen the positive effect of innova- (Yiu et al., 2007), but also helps them to mitigate potential
tiveness on internationalization, while for non-SOEs, the effect of bureaucratic intervention and/or seek government protection.
innovativeness on internationalization would benefit from a Compared with SOEs, non-SOEs are in a less favorable position in
stronger support from political ties. Therefore, terms of home-based political ties and hence are in greater
demand for such information and protection benefits afforded by
Hypothesis 2a. The moderating effect of business ties on the political ties to strengthen the effect of proactiveness on their
relationship between innovativeness and the degree of Chinese internationalization behavior. Based on the above arguments, we
SMEs’ internationalization will be further bounded by the owner- predict:
ship type in such a way that the moderating effect would be
stronger for SOEs than Non-SOEs. Hypothesis 3a. The moderating effect of business ties on the
relationship between proactiveness and the degree of Chinese
Hypothesis 2b. The moderating effect of political ties on the SMEs’ internationalization will be further bounded by the owner-
relationship between innovativeness and the degree of Chinese ship type in such a way that the moderating effect would be
SMEs’ internationalization will be further bounded by the owner- stronger for SOEs than Non-SOEs.
weaker for SOEs than Non-SOEs. Hypothesis 3b. The moderating effect of political ties on the
relationship between proactiveness and the degree of Chinese
SMEs’ internationalization will be further bounded by the owner-
3.2. Joint effects of ownership type, proactiveness and network ties on
Chinese SMEs’ internationalization
weaker for SOEs than Non-SOEs.
Small Chinese SOEs generally possess stronger political ties
than non-SOEs but such political ties do not necessarily provide 3.3. Joint effects of ownership type, risk-taking and network ties on
strong impetus for international expansion; rather the municipal- Chinese SMEs’ internationalization
level government support tends to favor such firms’ domestic (or
local) expansion than their international expansion. Relatively SOEs generally possess stronger political ties but less business
speaking, small SOEs need more business ties to strengthen the ties than non-SOEs. However, political ties at local level often bring
positive effect of proactiveness on internationalization. For small Chinese SOEs more local business opportunities (e.g.,
example, under the influence of old central planning system and lucrative government contracts related to local infrastructure
local government protection, small Chinese SOEs are generally projects) rather than international business opportunities. In
more internally rather than externally oriented and as a result, addition, small Chinese SOEs receive protections from local
they have less experiences and exposures to international market governments against competition from firms outside the local
than non-SOEs. Extensive business ties at home may stimulate area, including foreign firms. Such political ties at the local level
small SOEs’ exposure to a diversity of approaches, perspectives, often result in higher perceived risks in international expansion
and ideas on how to engage in internationalization. Such ties compared with local expansion.
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Although political ties at home may help mitigate the perceived Pett, 2000), we randomly selected 500 firms in Jiangsu Province
risks involved in international expansion, other things being equal, reported as engaging in export in November 2006 by the Customs
the asymmetries in their risk-reduction function tend to favor Bureau of China. Between November 2006 and March 2007, we
local/domestic expansion over international expansion. Relatively sent to and collected questionnaires from the target firms and
speaking, to achieve the positive effect of risk-taking on asked general or deputy-general managers to complete them
internationalization, small Chinese SOEs need to build more because the small size of the firm increases the importance of
business ties that would help them gain more experience and individual managers’ perceptions and powers in the decision-
confidence in engaging international business. For example, small making process (Fabian, Molina, & Labianca, 2009). The IE
Chinese SOEs can gain precious information and experience from literature has also recognized that the focus on the role of
township and village enterprises (TVEs) or private enterprises who individual managers is especially compelling when studying SME
have already undertaken successful international expansion, internationalization (Coviello & McAuley, 1999; Lu & Beamish,
thereby reducing the risks associated with liabilities of foreignness 2001). After several rounds of phone, fax, and personal follow-ups,
and increasing firms’ confidence in taking risks abroad (Guillen, the final sample comprised 117 SMEs (representing a 23.4%
2002). When initially expanding overseas, small Chinese SOEs may response rate).
also follow their non-SOE business partners and enter the same Recent research has indicated that this is a good response rate for
foreign locations. Such herding of internationalization helps not conducting international survey research (Brock, Shenkar, Shoham,
only to enhance the bargaining power of the entire business & Siscovick, 2008). We checked the non-respondent bias by
network but also to establish market legitimacy in the host observing the size, age, and industry distribution of the targeted
countries (Yiu et al., 2007), which may enhance the willingness of firms. We found that the non-responding firms were not statisti-
local SOEs to take further risks in the host countries. cally different in these dimensions from those that responded,
By contrast, non-SOEs typically possess more business ties than suggesting that our sample represented the target population.
SOEs but less political ties. Consequently, to strengthen the
positive effect of risk-taking on internationalization, non-SOEs 4.2. Dependent variable
would need to develop more political ties. Political ties also
positively moderate the relationship between risk-taking and Number of foreign countries. Internationalization behavior is
internationalization to a greater degree for non-SOEs than for SOEs. overt and demonstrable and should be readily identifiable in
First, the actual risks facing non-SOEs going abroad may be even measures used in internationalization literature (Jones & Coviello,
higher than those facing SOEs, not only due to their limited 2005). We measured the degree of internationalization by country
resources and capabilities but also due to the lack of institutional scope, which has been frequently used in prior research. Following
support at home compared with SOEs. When small SOEs decide to previous studies (Goerzen & Beamish, 2003; Hitt, Hoskisson, &
go international, in general they receive more government support Kim, 1997; Tallman & Li, 1996), country scope is measured as the
in the areas of tax breaks, export subsidiaries, expedited approval, number of foreign countries to which an SME’s products were
and customs clearing for export (Wang & Nicholas, 2005). These exported in 2006.
regulatory and institutional advantages at home serve to mitigate
the extent of risks for successful international business operations 4.3. Independent variables
(Zahra & Garvis, 2000).
Previous research shows such resources brought by political International entrepreneurship. We measured a firm’s IE
ties at home can help Chinese SMEs concentrate more on pursuing characteristics based on 10 items developed by Covin and Slevin
international market opportunities even when the risk is high and (1989) and Zahra and Garvis (2000), which capture a firm’s
the payoff is uncertain (Kuivalainen, Sundqvist, & Servais, 2007). innovativeness (three items), proactiveness (four items), and risk-
However, such resources are not easily available for non-SOEs. taking (three items). To test the reliability and validity of the
Being able to access such resources through political ties means measures, we used LISREL 8.51 to examine the three sub-scales
more for non-SOEs than for SOEs in terms of the impact on their using confirmatory factor analysis (CFA). Although the normed chi-
internationalization behavior. In other words, the influence of square value (x2/DF = 56.36/32 = 1.76) is significant (p < .01), all
ownership type is such that the moderating effect of political ties the other fit were within acceptable cut-off ranges. Specifically, the
on the risk taking-internationalization relationship will be root mean square error of approximation (RMSEA) = .08; non-
stronger for non-SOEs than SOEs. Therefore, normed fit index (NNFI) = .90; and comparative fit index
(CFI) = .91 were satisfactory. The Cronbach’s alphas of the
Hypothesis 4a. The moderating effect of business ties on the innovativeness, proactiveness, and risk-taking sub-scales were
relationship between risk taking and the degree of Chinese SMEs’ 0.73, 0.78, and 0.67, respectively, suggesting strong internal
internationalization will be further bounded by the ownership consistency of each dimension.
type in such a way that the moderating effect would be stronger Network ties. We used four items developed by Peng and Luo
for SOEs than Non-SOEs. (2000) to measure the two types of network ties in the Chinese
context. A firm’s managerial relationships with its immediate
Hypothesis 4b. The moderating effect of political ties on the
buyers (e.g. export trading companies or purchasing agents for
relationship between risk taking and the degree of Chinese SMEs’
overseas end-customers) and suppliers measured home-based
internationalization will be further bounded by the ownership
business ties. The managerial connections with officials in
type in such a way that the moderating effect would be weaker
industrial bureaus and officials in regulatory and supporting
for SOEs than Non-SOEs.
organizations measured political ties. Responses on the intensity of
ties were coded using a seven-point Likert scale ranging from ‘‘very
4. Method little’’ to ‘‘very extensive’’.
Similarly, we employed LISREL 8.5 to test the reliability and
4.1. Sample and data collection validity of the two sub-scales in CFA. The normed chi-square value
(x2/DF = 0.14/1 = 0.14) is not significant (p > .1), and RMSEA = .00,
As export strategy is the primary mode of internationalization NNFI = 0.99, and CFI = 1 were satisfactory. The Cronbach’s alphas
used by small firms (Calof, 1993; Naidu & Prasad, 1994; Wolff & were 0.85 and 0.71 for business ties and political ties, respectively.
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Ownership type. We classified firm ownership into two types: (n = 17); and (5) others (n = 17) that included three in food
state-owned and non state-owned, using one dummy variable to products; three in leather and related products; six in motor
control it, which took the value of 1 if the firm is a SOE. Thirteen out vehicles, trailers, and semi-trailers; one in other transport
of the 117 firms surveyed were SOEs (11.1%). equipment; and one each in paper products, printing, and
reproduction of recorded media, coke and refined petroleum
4.4. Control variables products, and pharmaceutical products. Consequently, we created
four dummy variables for industry.
4.4.1. Firm size
The number of employees and annual sales normally measures 4.5. Common method variance
firm size. We used the log of the number of employees as the
measure for size due to the difficulties in collecting financial data Common method variance may be present when both
from firms in China (Brouthers & Xu, 2002; Peng & Luo, 2000). It dependent and independent variables are generated from the
helped to avoid problems of multicollinearity in the hypothesis same respondents at the same time. However, we designed the
testing and controlled for the initial amount of resources that these study to minimize the possibility of such bias. First, our
Chinese SMEs processed. independent variable was a combination of a set of Likert scales,
which eliminated the possibility of respondent-specific response
4.4.2. International experience patterns affecting this measurement. Second, respondents did not
Studies have shown that international experience will assist know the exact goal of the questionnaire, which made it unlikely
enterprises to gain more knowledge to identify new opportunities that they consciously (or unconsciously) linked specific questions
in overseas markets (Goerzen & Beamish, 2003), so we controlled to firm performance. Third, the complexity of the theoretical model
this variable by measuring the number of years that a firm had with moderating effects as the focus made it unlikely that
operated in international markets and log-transformed to correct respondents themselves theorized the proposed relationships
for skewness. when they filled out a questionnaire (Brockner, Siegel, Tyler, &
Martin, 1997). To verify our contention, we conducted a principal-
4.4.3. Location components factor test of all questionnaire-based variables, which
We added four dummy variables for location given our data did not yield one overarching factor, suggesting the absence of
were collected from five cities in Jiangsu Province. Scholars have common-method bias (Podsakoff & Organ, 1986). Because of these
found that geographic location may be one reason why some considerations and tests, we are confident that common method
ventures are able to acquire the resources needed to internation- bias has not distorted our results.
alize while others cannot (Fernhaber, Gilbert, & McDougall, 2008).
5. Results and analysis
4.4.4. Industry
Industry dummies were included to account for the possibility Table 1 presents the descriptive statistics, which shows the
that firms from certain industries are exposed to more opportu- magnitude of correlations between the independent variables
nities in foreign markets than are firms from other industries being in the range of low to medium. We conducted standardized
(Autio, Almeida, & Sapienza, 2000). We used 2-digit ISIC 4 to code multiple regressions to test our hypotheses. The variance inflation
all sample firms, which resulted in 18 industry classifications as factors (VIF) for the regression models do not exceed 2, suggesting
shown in Appendix 1. Since introducing so many dummies created that multicollinearity is not a substantive concern (Ryan, 1997).
DF constraints, we combined 18 industries into five categories: (1) We tested our hypotheses with seven regression models, the
textiles and apparel (n = 38); (2) chemical, rubber, and plastics results of which are reported in Table 2. As the dependent variable
products (n = 20); (3) fabricated metal products, machinery, and is a count variable, a Poisson regression approach is appropriate.
equipment (n = 25); (4) computer, electronic, and optical products However, the variable exhibited over dispersion and violated the
Table 1
Descriptive statistics and correlations.a,b
Variable Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1. Number of foreign 10.89 14.01

countries
2. Firm size 5.83 1.08 0.11
3. International 1.87 0.74 0.03 0.42
experience
4. Industry 1 0.32 0.47 0.19 0.08 0.15
5. Industry 2 0.17 0.38 0.08 0.08 0.14 0.31
6. Industry 3 0.21 0.41 0.00 0.05 0.14 0.36 0.24
7. Industry 4 0.15 0.35 0.07 0.11 0.01 0.29 0.19 0.21
8. Location 1 0.12 0.33 0.01 0.10 0.13 0.03 0.04 0.00 0.00
9. Location 2 0.18 0.39 0.16 0.02 0.01 0.23 0.32 0.08 0.00 0.17
10. Location 3 0.19 0.39 0.03 0.09 0.07 0.05 0.01 0.07 0.07 0.18 0.23
11. Location 4 0.22 0.42 0.09 0.09 0.03 0.06 0.19 0.17 0.19 0.20 0.25 0.26
12. SOE 0.11 0.32 0.13 0.14 0.25 0.01 0.13 0.05 0.07 0.12 0.12 0.03 0.06
13. Innovativeness 4.75 1.24 0.10 0.02 0.11 0.05 0.01 0.05 0.00 0.14 0.04 0.04 0.06 0.13
14. Proactiveness 5.47 1.11 0.22 0.07 0.01 0.01 0.01 0.04 0.02 0.07 0.19 0.09 0.31 0.01 0.51
15. Risk-taking 4.67 1.09 0.26 0.04 0.00 0.00 0.04 0.08 0.10 0.13 0.06 0.10 0.09 0.05 0.34 0.28
16. Business ties 5.32 1.24 0.14 0.05 0.06 0.09 0.17 0.04 0.11 0.13 0.04 0.02 0.24 0.05 0.26 0.43 0.12
17. Political ties 4.22 1.49 0.00 0.00 0.01 0.10 0.02 0.03 0.01 0.01 0.16 0.04 0.06 0.00 0.27 0.05 0.16 0.19
Note:
a
N = 117 firms.
b
Significant at the .05 level when Pearson correlations >.18 or < .18.
G Model
Table 2
Results of the negative binomial regression models.a,b
Variable Number of foreign countries
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7
Constant 1.08+ 0.83 0.75 1.30* 0.49 0.74 1.18+

(0.74) (.77) (.77) (.74) (.83) (.73) (.78)
Firm size 0.17* 0.15+ 0.18* 0.19* 0.14+ 0.20* 0.17*
(0.09) (.09) (.10) (.09) (.09) (.09) (.09)
International experience 0.02 0.03 0.01 0.02 0.01 0.08 0.00
(0.15) (.15) (.16) (.15) (.14) (.14) (.14)
Industry 1 0.42+ 0.45+ 0.42+ 0.40+ 0.54* 0.45+ 0.52*
(0.30) (.30) (.30) (.30) (.29) (.29) (.31)
Industry 2 0.24 0.22 0.22 0.27 0.10 0.24 0.20
(0.32) (.31) (.32) (.31) (.31) (.32) (.32)
Industry 3 0.02 0.00 0.02 0.03 0.21 0.04 0.14
(0.31) (.31) (.32) (.31) (.30) (.31) (.32)
Industry 4 0.07 0.05 0.01 0.03 0.15 0.05 0.09
(0.40) (.39) (.39) (.39) (.36) (.38) (.40)
Location 1 0.31 0.30 0.32 0.26 0.30 0.23 0.27
(0.30) (.30) (.29) (.29) (.29) (.28) (.29)
Location 2 0.20 0.27 0.18 0.21 0.15 0.18 0.17
(0.31) (.30) (.30) (.31) (.28) (.29) (.30)
Location 3 0.09 0.08 0.14 0.04 0.14 0.25 0.11
(0.24) (.23) (.23) (.24) (.22) (.23) (.24)
Location 4 0.03 0.03 0.08 0.05 0.02 0.06 0.12
(0.25) (.24) (.25) (.24) (.24) (.25) (.25)
Innovativeness 0.03 0.03 0.03 0.04 0.01 0.09 0.05
(0.07) (.07) (.08) (.07) (.08) (.08) (.08)
Proactiveness 0.15* 0.12+ 0.14+ 0.16* 0.09 0.17* 0.15*
(0.08) (.08) (.09) (.08) (.09) (.09) (.09)
Risk-taking 0.23*** 0.24*** 0.24*** 0.25*** 0.26*** 0.25*** 0.25***
(0.07) (.07) (.07) (.08) (.07) (.07) (.08)
Business tie 0.12* 0.13* 0.08 0.12* 0.10+ 0.07 0.14*
(0.07) (.07) (.07) (.07) (.08) (.08) (.08)
Political tie 0.00 0.04 0.04 0.01 0.03 0.01 0.02
(0.05) (.06) (.06) (.05) (.07) (.06) (.06)
SOE 0.33 0.46+ 0.37+ 0.34 0.30+ 0.20 0.17
(0.27) (.29) (.29) (.27) (.22) (.24) (.25)
Innovativeness * Business ties 0.00 0.02
(.04) (.05)
Innovativeness * political ties 0.11* 0.18**
(.05) (.06)
Proactiveness * Business ties 0.05 0.09+
(.07) (.07)
Proactiveness * Political ties 0.12* 0.13**
(.05) (.05)
Risk-taking * Business ties 0.01 0.03
(.07) (.07)
Risk-taking * political ties 0.07+ 0.09*
(.04) (.05)
Innovativeness * SOE 0.08
(.15)
Proactiveness * SOE 0.29+
(.22)
Risk-taking * SOE 0.17
(.22)
Business ties * SOE 0.06 0.11 0.10
(.19) (.19) (.18)
Political ties * SOE 0.12 0.15 0.23*
(.13) (.17) (.11)
Innovativeness * Business ties * SOE 0.32**
(.11)
Innovativeness * political ties * SOE 0.49***
(.10)
Proactiveness * Business ties * SOE 0.69***
(.16)
Proactiveness * Political ties * SOE 0.30+
(.20)
Risk-taking * Business ties* SOE 0.16
(.19)
Risk-taking * political ties * SOE 0.19**
(.07)
Test of coefficient equality 2.78+ 4.06* 0.73

x2 62.7*** 59.88*** 76.46*** 71.63*** 230.04*** 201.88*** 126.66***
Log likelihood 379.98 377.76 377.83 378.94 369.87 372.52 376.48
Note:
a
N = 117.
b
White’s robust estimator of variance is adopted to adjust for potential heteroskedasticity. One-tailed statistics tests.
+
p < .10.
*
p < .05.
**
p < .01.
***
p < .001.
G Model
Poisson assumptions, suggesting that a negative binomial model is proactiveness and SOEs’ degree of internationalization compared
more appropriate (Hausman, Hall, & Griliches, 1984). All the with non-SOEs’, thus Hypothesis 3b is supported.
models are significant. With regard to the joint interactions among business tie,
Model 1 is the baseline model that includes all of the ownership, and risk-taking, in Model 7, the coefficient of the three-
independent and control variables. As part of our research question way interaction is negative and non-significant, which indicated
is to compare the moderating effect of business tie and political tie that our Hypothesis H4a is not supported. However, we found a
on the relationship between IE characteristics (innovativeness, negative and significant (p < .01) coefficient of the three-way
proactiveness, and risk-taking) and the degree of internationaliza- interaction among political tie, ownership type, and risk-taking,
tion (i.e., number of foreign countries), we need to focus on these suggesting that compared with non-SOEs, the moderating effect of
six two-way interaction terms. Accordingly, Model 2 compares the political tie on the relationship between risk-taking and firms’
moderating effect of business tie and political tie on the degree of internationalization is weaker for SOEs, thus hypothesis
innovativeness-internationalization relationships; Model 3 com- H4b is supported.
pares the moderating effect of business tie and political tie on the To gain further insights on the significant interaction effects, we
proactiveness-internationalization relationships; and Model plot those effects in Figs. 1–5, based on the results from Models 5, 6,
4 compares the moderating effect of business tie and political and 7, respectively. We draw Figs. 1–5 to illustrate the joint effect
tie on the risk-taking-internationalization relationships. of network tie, ownership type, and IE characteristics on the
To test if firms’ network ties (business ties and political ties) and degrees of firms’ internationalization. We take Fig. 1 as an example.
ownership (SOE and non-SOE) jointly moderate the relationship Fig. 1 demonstrates the three-way interactions among business
between IE characteristics (innovativeness, proactiveness, and tie, ownership type, and innovativeness in explaining the firms’
risk-taking) and the degree of internationalization (i.e., number of degree of internationalization. This figure is composed of two two-
foreign countries), we entered six three-way interactions terms in way interactions between business ties and innovativeness: one
Models 5, 6, and 7. Specifically, Model 5 tests the joint moderating for the SOEs and a second for non-SOEs. The figure generally
effect of network ties and ownership on the innovativeness- confirms to expectation. That is, the degrees of firms’ internation-
internationalization relationships; Model 6 tests the joint moder- alization will be higher when samples are SOEs with high level of
ating effect of network ties and ownership on the proactiveness- business ties; and when samples are non-SOEs, the slope of the line
internationalization relationships; and Model 7 tests the joint with high level of business ties is smaller than that of the line with
moderating effect of network ties and ownership on the risk- low level of business ties, thus support is found for Hypothesis 2a.
taking-internationalization relationships. Nonetheless, we observe a negative relationship between innova-
In Model 2, we compared the strength of the moderating effect tiveness and the degree of firms’ internationalization for SOEs with
of political ties versus business ties on the innovativeness- low levels of business ties. Part of the reason might be that firms
internationalization relationships. Consistent with the moderating with low level of innovativeness are most enterprises engaged in
results, the strength of the moderating effect of political ties on the OEM. Therefore, even if their innovativeness is not very high, they
relationship between innovativeness and number of foreign
countries is stronger than that of business ties (p < .1). Thus,
Hypothesis 1a is supported. 6
Number of Foreign Countries
In Model 3, we found a significant difference between the

moderating effects of political ties and business ties on the 5
proactiveness-internationalization relationships (p < .05). Hence,

4
Hypothesis 1b is supported. In terms of the moderating effect of
business tie and political ties on the relationship between risk- Low Business Tie
3
taking and internationalization, the difference test between the
moderating effect of political ties and that of business ties is 2 High Business Tie
insignificant in Model 4 (p > .1), thus Hypothesis 1c is not
supported. 1
For the joint interaction among business tie, ownership and
innovativeness, in Model 5, the estimation for the coefficient is 0
positive and significant (p < .01), suggesting that compared with
Low level of Innov ativeness High level of Innova tiveness
non-SOEs, the moderating effect of business ties on the relation-
ship between innovativeness and the degree of internationaliza- For SOEs
tion is stronger for SOEs, thus Hypothesis 2a is supported. In Model
5, we also found the coefficient of the three-way interaction among 8
political tie, ownership type, and innovativeness is negative and

7
significant (p < .001), which suggested that the moderating effect
6
of political tie on the relationship between innovativeness and the
degree of internationalization is weaker for SOEs compared with 5
non-SOEs, thus Hypothesis 2b is supported. 4
In Model 6, the coefficient of the three-way interaction among 3
Low Business Tie
business tie, ownership and proactiveness is found to be positive 2

High Business Tie
and very significant (p < .001), implying that compared with
1
non-SOEs, the moderating effect of business tie on the relation-
ship between proactiveness and the firms’ degree of internation- 0
alization is stronger for SOEs, thus Hypothesis 3a is supported. Low level of Innov ativeness High level of Innova tiveness
Similar to Model 5, we also observed a negative and significant
For NSOEs
(p < .1) coefficient of the three-way interaction among political
tie, ownership, and proactiveness, suggesting that political tie Fig. 1. Joint effect of business tie, ownership type, and innovativeness on the degree
may exert a weaker influence on the relationship between of internationalization.
G Model
9 14

12
7
10
8
6
6
5 Low Political Tie
4
4 2 Low Political Tie
High Political Tie
3 0 High Political Tie
2 -2
-4
1
-6
0
Low level of Innovativeness High level of Innova tiveness Low level of Proactiveness High level of Proactiveness
For SOEs For SOEs
9
6

7
5
6
5
Low Political Tie
4
4
High Political Tie Low Political Tie
3 3
2 High Political Tie
1 2
0
Low level of Innovativeness High level of Innovativeness 1
For Non-SOEs
Low level of Proactiveness High level of Proactiveness
Fig. 2. Joint effect of political tie, ownership type, and innovativeness on the degree
For Non-SOEs
of internationalization.
Fig. 4. Joint effect of political tie, ownership type, and proactiveness on the degree of
internationalization.
1
10
8 0
6
-1
4
Low Political Tie
Low Business Tie -2
High Business Tie
0 -3
-2
-4
-4 Low level of Risk-taking High level of Risk-taking
Low level of Proactiveness Highlevel of Proactiveness
For SOEs
For SOEs
8
5
7
4 6
5
3
Low Political Tie
4
Low Business Tie
High Business Tie 3
1 2
1
0
Low level of Proactiveness High level of Proactiveness Low level of Risk-taking High level of Risk-taking
ForNon-SOEs ForNon-SOEs
Fig. 3. Joint effect of business tie, ownership type, and proactiveness on the degree Fig. 5. Joint effect of political tie, ownership type, and risk-taking on the degree of
of internationalization. internationalization.
G Model
can reach a high degree of internationalization; while for firms Second, the paper contributes to the literature on the
with high level of innovativeness, because of their lacking internationalization of emerging-market SMEs. It is well recog-
necessary business ties to expand international market, they have nized in literature that the main impediment to emerging-market
no other choice but to focus on the domestic market, therefore, firms in general, and SMEs in particular, is the lack of home-based
their degree of internationalization is limited. firm-specific advantages and that the existing frameworks are not
In Fig. 2, we demonstrate the three-way interactions among capable of offering explanations of the ways such firms go
political ties, ownership type, and innovativeness to explain the international (Mathews & Zander, 2007). Given the resource
firms’ degree of internationalization. Similarly, this figure is constraints emerging-market SMEs face and their lack of
composed of two two-way interactions between political ties international networks, researchers have called for more studies
and innovativeness: one for the SOEs and a second for non-SOEs. on the relationship between the local network relationships and
The significant three-way interaction provides strong support for SME internationalization (e.g., Leonidou, Katsikeas, & Coudou-
Hypothesis 2b. When samples are non-SOEs with high level of naris, 2010). But, there is still a shortage of empirical evidence on
political ties, the slope of the line is greater compared with those how exactly emerging-market SMEs use their home-based
with low level of political ties, indicating that the relationship network resources to facilitate their internationalization
between innovativeness and firms’ degree of internationalization efforts. By ascertaining the differential and contingent values
is stronger when non-SOEs enjoy a high level of political ties. of business versus political ties in the relationship between IE
However, when samples are SOEs, their degree of internationaliza- characteristics and internationalization, this paper adds to the
tion will be lower for firms with high level of political ties than for literature in this area.
those with low level of political ties, indicating that the Third, the paper contributes to the stream of literature on the
relationship between innovativeness and SOEs’ degree of interna- role of social capital on the internationalization of emerging-
tionalization is becoming weaker than those with high level of market SMEs. There is a growing recognition of the influence of
political ties, thus supporting Hypothesis 2b. social capital in the form of network relationships on SME
We also conducted sensitivity analysis. Specifically, we took the internationalization (Chetty & Agndal, 2007) and internationaliza-
percentage of international sales as a proxy for internationalization efforts by such firms are viewed as a process of developing and
tion; following Hansen and Løvas (2004), we used cultural accessing social capital as they establish and deepen network
diversity as another proxy for internationalization. We then ran relationships (Johanson & Vahlne, 2006). In the context of Chinese
the OLS regression analysis for each of the two dependent variables SMEs, some studies have focused on the role of locally embedded
respectively, and the results were largely the same as in Table 2. networks in their internationalization process (Zhang et al., 2012;
In addition, given the potential clustering effect of industry and Zhou, Wu, & Luo, 2007), but these studies failed to examine the
location, not only did we perform cluster robust estimators of conditions (other than general firm characteristics, such as size and
standard errors in our negative binomial model, but we also age) under which these local networks exercise their influences. In
employed multilevel negative binomial modeling to assess the this paper, we not only delineated the different effects of business
consistency of our original estimation results. All the estimates do and political ties on the relationship between IE characteristics and
not systematically differ from our original models, which indicate internationalization but also established the bounds of our
the standard error is robustness against heteroskedasticity, as well findings in terms of the ownership arrangement unique to the
as clustering effects. Chinese firms.
Specifically, before considering the potential influence of
6. Discussions and conclusions ownership arrangement, our results generally provide support
to the more important role of political ties for Chinese SMEs
The paper explores the joint effects of IE characteristics, compared with business ties. For example, we found support for
network ties, and ownership arrangement on the internationaliza- our hypotheses that the moderating effect of political ties on the
tion of Chinese SMEs. It has been generally established in the relationship between innovativeness/proactiveness and the de-
current IE literatures that network ties tend to strengthen the gree of Chinese SMEs’ internationalization is stronger than that of
positive effects of IE characteristics, such as innovativeness, business ties (H1a and H1b).
proactiveness, and risk-taking on the degree of emerging-market When accounting for the peculiar ownership arrangement of
SMEs’ internationalization. But the questions of which network the Chinese enterprise system, our results show overall support to
ties (business or political ties) and under what conditions they most of our predictions-that is, the moderating effects of political
might play a greater or weaker role in moderating the relationship ties and business ties differ significantly for SOEs versus non-SOEs.
between IE characteristics and internationalization remain unex- The moderating effects of political ties on the relationships
plored. By addressing these conceptually more important and between all three IE characteristics and internationalization
managerially more relevant questions in the context of Chinese degree were weaker for SOEs than for non-SOEs as predicted
SMEs’ internationalization, this paper makes several theoretical (H2b, H3b, H4b). The moderating effects of business ties were
and empirical contributions. stronger for SOEs than for non-SOEs in the innovativeness-
First, the paper contributes to the IE literature on emerging internationalization and proactiveness-internationalization links
market SMEs’ internationalization. Traditionally, the IE literature (H2a, H3a).
has studied firm internationalization as a combination of innova- The implication of our findings is that to strengthen the
tive, proactive, and risk-seeking behavior that crosses national positive effects of IE characteristics on firm internationalization,
borders (McDougall & Oviatt, 2000). Zhang et al. (2012) argued small Chinese SOEs need to develop more business ties to get
such an approach is inadequate in explaining the international access to market-related complementary resources held by
entrepreneurship behavior of SMEs from emerging markets, and external oriented private firms while non-SOEs would benefit
they provided evidence of how each of the three dimensions of IE from further political ties to facilitate their access to regulatory
characteristics exercised different levels of independent influence resources. The recent extension of resource-based view maintains
on Chinese SMEs’ internationalization degree. This paper extends that access to resources possessed by partner firms can be a
this line of research to explore how different types of network ties source of competitive advantage (Lavie, 2006), and this view has
at home might further moderate different IE characteristics’ been extended to explain why and how resource-poor emerging-
influence on emerging-market SMEs’ internationalization. market firms are engaging international expansion without
G Model
obvious internal firm-specific resources and capabilities (Math- The standard discussion of normal limitations, such as the
ews & Zander, 2007). In this paper, we highlight the different generalizability of our results due to the sample selection, is saved
value of network ties (in terms of the complementary resources in favor of a more in-depth discussion on the limitations created by
they possess) to Chinese SMEs with different ownership our choice of firm-specific ownership arrangement in examining
arrangements. Thus, the paper contributes to the growing the boundary condition of our conceptualization and findings. For
literature on the role of network ties in the internationalization research on Chinese firms’ behavior, the ownership reform that
of emerging-market firms by identifying exactly what kind of resulted in the proliferation of various types of ownership
network ties can facilitate which type of Chinese SMEs’ arrangements within the Chinese enterprise system is perhaps
international expansion. the most important aspect of the economic reform since
Finally, it should be noted that two of our nine hypotheses did 1979. When studying the internationalization behavior of Chinese
not receive support from our data analysis. We did not find SME sector, we cannot neglect the coexistence of state and non-
significant differences between the political and business ties in state forms of ownership arrangements and their impact on our
moderating the relationship between risk-taking and internation- conceptual development.
alization degree (H1c). Nor did we find significant difference However, the focus on this one factor to establish the
between SOEs and non-SOEs in terms of the moderating effects of boundary condition of our conceptual model and findings creates
political and business ties in the risk taking-internationalization some limitations. First, there might be other factors peculiar to
relationship (H4a). But the explanation of such findings may still the Chinese context that can help us understand the bounds of our
hinge upon the unique characteristic of Chinese SMEs and could findings. Second, when investigating the effect of ownership
generate context-specific insights related to Chinese SMEs’ arrangement, we focused on the comparison between state and
internationalization behavior. non-state SMEs. But there are many forms of ownership
Indeed, the unexpected findings from H4a and H1c may very arrangements in China’s non-state sector. Even the so-called
well be consistent with each other within the Chinese context. Like private enterprises in practice often embody a mixture of
political ties, Chinese SMEs’ business ties are more likely to bring ownership arrangements far more complex than what we
more domestic (or local) business opportunities than international normally know about private ownership in (western) property
business opportunities and hence they tend to reduce the rights sense. Our study has simplified the classification of Chinese
perceived risks associated with domestic business expansion SMEs in terms of the ownership arrangement despite the
more than international business expansion. Hence, the effect of important contributions it has made. Future studies should aim
business ties in moderating the risk taking-internationalization did at opening up the black box of the ownership arrangements
not differ significantly from that of political ties. Moreover, for among Chinese firms through a more refined categorization of
small Chinese SOEs, their local business partners are also more Chinese non-SOE sector. Third, our cross-sectional research
likely to be other Chinese SOEs with a high level of internal design poses some limits on the insights we can generate. For
(domestic) growth orientation as opposed to external (overseas) example, many of today’s Chinese private small firms have their
growth orientation (Lin, Chen, & Lin, 2014), while non-SOEs’ historical origins in other forms of ownership arrangements such
business partners are likely to be broader in scope and include ties as township and village enterprises and collectively owned
with both inward-oriented and outward-oriented firms (including enterprises. Without a deep investigation of their path-depen-
foreign firms in China). dent ownership arrangement and evolution, we cannot claim a
As a result, business ties do not strengthen the positive risk thorough understanding of the impact of ownership as a
taking-internationalization relationship in the context of SOEs. boundary condition of our conceptual and empirical knowledge
In other words, for SOEs with strong business ties, the more about the internationalization behavior of Chinese SME. Such
risk-taking does not make them more external (overseas) investigation would require a longitudinal research design
oriented than non-SOEs as predicted by our hypothesis. Thus, instead of a cross-sectional approach.
by incorporating one of the most important firm characteristics
(i.e. ownership arrangement) unique to the context of China’s Acknowledgement
emerging and transition economy into our research, we were
able to delve deeper into the context-specific explanation This research was supported by the National Natural Science
about the boundary conditions of our conceptualization of Foundation of China (Grant No. 71172060). Our deepest gratitude
Chinese SMEs’ internationalization behavior, with potential goes to the anonymous reviewers for their careful work and
broader implications for other emerging markets with similar thoughtful suggestions that have helped improve this paper
mixture of ownership arrangements and institutional back- substantially. And we are also grateful for useful discussions with
ground. Dr. Qian Lu from Nanjing University.
Appendix A. Sample industry distribution
Industry Sample size Industry Sample size
Food products 3 Rubber and plastics products 10

Textiles 11 Other non-metallic mineral products 4
Wearing apparel 27 Basic metals 8
Leather and related products 3 Fabricated metal products, except machinery 7
and equipment
Paper and paper products 1 Computer, electronic and optical products 17
Printing and reproduction of recorded media 1 Electrical equipment 5
Coke and refined petroleum products 1 Machinery and equipment 5
Chemicals and chemical products 6 Motor vehicles, trailers and semi-trailers 6
Basic pharmaceutical products and pharmaceutical preparations 1 Other transport equipment 1
G Model
Appendix B. Factor loadings on constructs
Construct Item Factor loading Cronbach’s alpha
Innovativeness In recent years there has been frequent and substantial changes in product or service lines in my 0.832 0.726
company
My company has promoted many new products and services in the past few years 0.670
My company prefers to design its own unique new process and production methods 0.596
Proactiveness My company typically engages competitors proactively 0.753 0.777

When engaging competitors, the first thing my company would do is often to introduce new 0.725
products/services, management techniques, operation technologies
Our company is usually among the first to introduce new products in the industry 0.695
Our company emphasizes the pursuit of long-term goals and strategies 0.834
Risk-taking The top managers of my company have a strong proclivity for high risk projects 0.856 0.669
My company rewards taking calculated risks 0.682
My company believes taking bold and wide-ranging actions based on the nature of the environment 0.715
is necessaryto achieve the firm’s objectives
Business ties The extent to which top managers at your 0.936 0.853
company have utilized personal ties, networks, and connections during the past three years with
top managers at buyer firms in China
The extent to which top managers at your company have utilized personal ties, networks, and 0.923
connections during the past three years with top managers at supplier firms in China
Political ties The extent to which top managers at your company have utilized personal ties, networks, and 0.892 0.711
connections during the past three years with officials in industrial bureaus
The extent to which top managers at your company have utilized personal ties, networks, and 0.862
connections during the past three years with officials in regulatory and supporting organizations
such as tax bureaus, state banks, commercial administration bureaus, and the like
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IBR-1245; No. of Pages 13

International Business Review xxx (2015) xxx–xxx

Contents lists available at ScienceDirect

International Business Review

What drives the internationalization of Chinese SMEs? The joint effects

1. Introduction constraints through their social networks (Tang, 2011). How

2 X. Zhang et al. / International Business Review xxx (2015) xxx–xxx

X. Zhang et al. / International Business Review xxx (2015) xxx–xxx 3

4 X. Zhang et al. / International Business Review xxx (2015) xxx–xxx

X. Zhang et al. / International Business Review xxx (2015) xxx–xxx 5

6 X. Zhang et al. / International Business Review xxx (2015) xxx–xxx

Variable Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1. Number of foreign 10.89 14.01

X. Zhang et al. / International Business Review xxx (2015) xxx–xxx 7

Variable Number of foreign countries

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

Constant 1.08+ 0.83 0.75 1.30* 0.49 0.74 1.18+

Test of coefﬁcient equality 2.78+ 4.06* 0.73

8 X. Zhang et al. / International Business Review xxx (2015) xxx–xxx

In Model 3, we found a signiﬁcant difference between the

proactiveness-internationalization relationships (p < .05). Hence,

political tie, ownership type, and innovativeness is negative and

business tie, ownership and proactiveness is found to be positive 2

X. Zhang et al. / International Business Review xxx (2015) xxx–xxx 9

Number of Foreign Countries

Number of Foreign Countries

Number of Foreign Countries

10 X. Zhang et al. / International Business Review xxx (2015) xxx–xxx

X. Zhang et al. / International Business Review xxx (2015) xxx–xxx 11

Appendix A. Sample industry distribution

Industry Sample size Industry Sample size

Food products 3 Rubber and plastics products 10

12 X. Zhang et al. / International Business Review xxx (2015) xxx–xxx

Appendix B. Factor loadings on constructs

Construct Item Factor loading Cronbach’s alpha

Proactiveness My company typically engages competitors proactively 0.753 0.777

X. Zhang et al. / International Business Review xxx (2015) xxx–xxx 13

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