One of the major benefits of establishing a China headquarters
is facilitating the within-country diversifications.
According to the data in the period from 1979-2005,
MNEs with an HCHQ had agreed to a number of subsequent diversifications in
China in terms of
either industrial or geographical diversifications as
compared with those MNEs without an HCHQ.
This effect was more prominent when the diversifications
within their means is a high level of institutional intervention.
Now comes to a question,
how do we explain such findings?
To answer this question,
we need to use what we have learned from our course so far.
On the one hand, China is still a country where the central government and
different levels of subnational governments have been playing an important role.
On the other hand, when dealing with government interventions,
foreign firms should be fully aware of
the unique informal institutions or social cultural values of the Chinese society.
The establishment of a headquarters in China may help in these aspects.
As a corporate ambassador,
the China HQ is liked by an MNE's highest ranked executive in China.
People with similar status are more likely to develop personal relationship,
or guanxi, in China.
Moreover, the establishment of headquarters signals the MNE's confidence in China
as it means not only the accumulation of
existing investments but also the future commitment.
Such a commitment indicates the favor or Mianzi offered
by the MNE which may in turn benefit the MNE's future development.
This a is typical social exchange or Renqing logic.