Toward an integrated theory of multinational evolution: The ...

Journal of International Management 13 (2007) 296–318

Toward an integrated theory of multinational evolution:The evidence of Chinese multinational

enterprises as latecomers

Peter Ping Li ⁎

College of Business Administration, California State University, Stanislaus, 801 West Monte Vista Avenue, Turlock,CA 95382, United States

Received 1 July 2006; received in revised form 1 April 2007; accepted 1 May 2007Available online 20 July 2007

Abstract

This paper seeks to address the fundamental question of how much we can modify and enhance theownership–location–internalization (OLI) Model of multinational enterprise (MNE) formation to reflect thenew evidence of MNE latecomers from the developing countries. The evidence of three longitudinal casesfrom China suggests that the traditional OLI and the newly proposed linkage–leverage–learning (LLL)Model of MNE formation can be readily integrated within a content-process framework of MNE evolutionso as to better explain all types of MNE from both the developed and the developing countries.© 2007 Elsevier Inc. All rights reserved.

Keywords: MNE evolution; MNE latecomer; Integrated framework; Developing country; China

1. Introduction

Despite the consensus that multinational enterprises (MNE) have been the primary driverbehind the trend toward globalization (Dicken, 2007), the continuing debate over the uniquenessof multinational enterprise (MNE) from the developing countries is entering into a new phase inthe context of globalization (Li, 2003; Mathews, 2006). Specifically, the extant MNE theories,including the Ownership–Location–Internalization (OLI) Model, are questioned concerning notonly their relevance for MNE latecomers from the developing countries but also their validity forany MNE in the context of globalization (Coviello, 2006). The OLI Model has been particularly

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297P.P. Li / Journal of International Management 13 (2007) 296–318

challenged by a growing body of research on MNE latecomers from the developing countries inEast Asia (Li, 1994, 2003; Mathews, 2002, 2006; Yeung, 1994). However, the recent challengesmay be biased with too much criticism of the OLI Model's limitations but too little appreciation ofits strengths, especially with respect to the roles of ownership advantage and internalization mode.Hence, a more balanced perspective is required to explain all types of MNE.

To shed new light on the ongoing debate over whether or not the OLI Model is outdated so asto be modified or even replaced by new models, this paper builds on the recent studies on MNElatecomers from East Asia to address the essential question of how much we can modify andenhance the OLI Model, especially with a more balanced approach. I focus on this issue due tothree reasons. First, I doubt if the OLI Model is readily applicable to MNE latecomers from thedeveloping countries because it fails to explain how MNE latecomers from the developingcountries achieve initial competitive advantages, and how MNE latecomers catch up with MNEearly-movers over time. Second, I am concerned if the OLI Model is still relevant to any MNEin the future because it fails to explain the strategic implications of globalization and strategicalliance for MNE evolution. Third, it is desirable to adopt a balanced perspective concerning thelimitations and strengths of the OLI Model, and it is also plausible to integrate the OLI Modelwith the new alternative models as complementary elements of a holistic framework.

Adopting the method of multi-site longitudinal case study with a focus on the evolution ofMNE latecomers from China, I seek to make two major contributions: (1) to modify the OLIModel so as to be applicable to MNE latecomers, and (2) to enhance the OLI Model so as to berelevant to all MNEs in the future. This paper is part of a growing trend to analyze organizationalphenomena from a holistic, dynamic and dialectical perspective (Lado et al., 2006; Lewis, 2000;Li, 1998, 2005; Poole and Van de Ven, 1989; Quinn and Cameron, 1988). The rest of this paper isorganized as follows. First, I introduce a framework to modify and enhance the OLI Model.Second, I provide the evidence of three case studies from China. Third, I discuss the implicationsof the case evidence. Finally, I conclude by suggesting the direction of future research.

2. The OLI Model and MNE latecomers

2.1. A critique of the extant MNE theories

The mainstream MNE research has traditionally focused on large established MNE from thedeveloped countries, thus MNE early-movers (e.g., Buckley and Casson, 1976; Caves, 1982;Dunning, 1981, 1995). From the perspective that MNE latecomers from the developing countriesmay differ categorically from MNE early-movers, some scholars have examined the former as adistinctive category from the latter, thus verifying the assumed universality of the extant MNEtheories (e.g., Giddy and Young, 1982; Lall, 1983; Lecraw, 1993; Tolentino, 1993; Ulgado et al.,1994; Wells, 1983; Yeung, 1994). However, there is little consensus except the agreement thatMNE latecomers tend to differ from MNE early-movers, especially at the early stage of MNEevolution in the process of internationalization (Dunning, 2006; Hoesel, 1999; Li, 1994, 2003;Mathews, 2002, 2006; Narula, 2006; Yeung, 1994). I take issue with the claim of no fundamentaldifferences between incumbents and newcomers because this view dismisses the need to modifyor enhance the OLI Model (e.g., Narula, 2006).

The doubt about the universal validity of the extant MNE theories is not confined to the“unconventional” MNE latecomers from the developing countries. More scholars have begun toquestion the validity of the extant MNE theories regarding MNEs from the developed countries,especially those small “born-global” new ventures (e.g., Andersen, 1993; Coviello, 2006; Hill

298 P.P. Li / Journal of International Management 13 (2007) 296–318

et al., 1990; Madhok, 1997). Among these scholars include the originators of the two best-knownMNE theories: (1) the OLI Model (Dunning, 1981), and (2) the Internationalization Process (IP)Model (Johanson and Vahlne, 1977). They raise various issues, ranging from the implications ofstrategic alliance to the need to incorporate the strategic perspective into both OLI and IP Models;from the need to combine the OLI and the IP Models to the imperative to clarify the distinctionbetween the embedded location-specific advantages and the tacit firm-specific advantages, andfrom their transferability within and across locations to their transferability within and acrossfirms. Such a reevaluation is primarily triggered by the growing importance of globalization andstrategic alliance (Li, 2003; Madhok, 1997; Mathews, 2006).

At the heart of such a reevaluation of the extant MNE theories is the growing concern that theextant MNE theories are incomplete in their coverage of “spatial” content and temporal process,and inconsistent between their internal and external validities (e.g., Andersen, 1993, 1997;Dunning, 1995, 2006; Johanson and Vahlne, 1990, 2003, 2006; Tihanyi et al., 2005). Forinstance, the OLI Model is incomplete in two major aspects. First, the model primarily focuseson the reduction of transaction cost or exchange risk and the exploitation of ex ante advantagesvia the mode of internalization, rather than the enhancement of transaction value or exchangeopportunity and the exploration of ex post new advantages via the mode of alliance(Birkinshaw, 2000; Madhok, 1997; see Zhao et al., 2004 for a meta-analysis). Second, themodel primarily focuses on the state of equilibrium rather than a dynamic process (Johansonand Vahlne, 1990). Further, the OLI Model is inconsistent in two major aspects. First, the centralconstructs seem blurred and confusing. The model juxtaposes the three sequential constructs(i.e., firm-specific ownership advantage and location-specific context as two interrelatedantecedents of transaction mode; internalization as the choice of transaction mode; andinternalization-based saving as an effect of internalization) as three independent ones, thusblurring their conceptual distinctions and causal links. The conceptualization of transaction-based ownership advantage is particularly problematic as it blurs the conceptual distinctionsand causal links between ownership advantage, location context and internalization mode.Second, the model fails to see the paradoxical features of MNE evolution, such as disadvantage-triggered advantage, exploitation-leveraged exploration; cooperation-based competition, andchange-driven equilibrium (see Li, 2003 for a review).

Further, the problems of the OLI Model are exacerbated by the trends of globalization andalliance in the sense that the model is losing its external validity in the new era. It has beenadmitted that the OLI Model is embedded in the traditional “hierarchy capitalism,” so it is lessrelevant for today's “alliance capitalism” in terms of the tendency of adopting strategic alliance asthe most popular governance mode for coordination and cooperation (Dunning, 1995; also see Li,1998; Madhok, 1997; Mathews, 2002). The recent attempt to update the model seem short for aparadigm shift to truly reflect the emerging “alliance capitalism” (e.g., Dunning, 1995, 2006). Incontrast to the efforts to adopt the alliance perspective in the IP Model (Johanson and Vahlne,2003, 2006), the OLI Model still treats the firm as its basic unit of analysis, even when it tries toincorporate the effect of alliance in the recent attempts to update the OLI Model (Dunning, 1995,2006). In this regard, it is imperative to further update the OLI Model, especially in light of MNElatecomers (Chen and Chen, 1998; Ernst, 2000; Hobday, 1997; Li, 2003; Mathews, 2006) as wellas MNE newcomers in terms of born-global international new ventures (Coviello, 2006; Covielloand McAuley, 1999; Oviatt and McDougall, 1994). To catch up with MNE early-movers, MNElatecomers and newcomers tend to follow a pattern of accelerated globalization via strategicalliance to leverage available advantages and create new advantages at the network level ratherthan doing it alone at the firm level.


2.2. The perspective of MNE latecomers

The latest debate over this issue takes place between the originator of the OLI Model and theprovider of the recently proposed linkage–leverage–learning (LLL) Model (Dunning, 2006;Mathews, 2006; also see Narula, 2006). The OLI Model (also known as the Eclectic Paradigm)developed by Dunning (1981, 1988, 1995) identifies ownership advantage, location advantageand internalization advantage as the three bases for MNE formation via foreign direct investment(FDI). Ownership advantage refers to the firm-specific competitive advantage MNE must havebefore they engage in FDI to overcome the inherent liability of being foreign investors. Locationadvantage refers to the attractiveness of specific sites for investment by MNE. Internalizationadvantage refers to the benefit of internal control instead of other modes of market entry withoutdirect control such as export and licensing. This model is primarily based on large MNEs from thedeveloped countries, so it focuses on how to apply or exploit the existing internal advantages (i.e.,asset-exploitation) in foreign markets via whole or majority equity investment, in contrast to thecase of MNE latecomers who emphasize asset-exploration (Li, 2003; Mathews, 2006).

For MNE latecomers from the developing countries, FDI is often adopted as a means toovercome their existing disadvantages by acquiring the needed advantages overseas (i.e., asset-exploration or asset-seeking) via non-equity alliance (Li, 2003; Mathews, 2006). It is critical thatMNE latecomers do not start from a position of exploiting ex ante strengths; rather, they start froman acute need for acquiring ex post new advantages by becoming MNEs. The significance of thelatecomer perspective lies in the three key implications for modifying and enhancing the OLIModel (Li, 2003; Mathews, 2006). First, it is implied that ownership advantage may not berequired as a precondition for MNE formation; rather, it is a strategic motive or goal to achieveafter MNE formation. In this sense, the initiating point of MNE formation in the evolutionaryprocess starts earlier with asset-seeking rather than asset-exploiting, and with inward investment(in terms of serving as the local alliance partners for MNE early-movers for local marketing orglobal supply chains via original equipment manufacturing arrangement or OEM) rather thanoutward investment (Child and Rodrigues, 2005). Second, according to the OLI Model, MNElatecomers will only invest in the less developed countries rather than in the more developedcountries. The evidence of more MNE latecomers from the less developed countries, includingChina, South Korea and Taiwan, investing in such developed countries as the U.S. and Europeseriously challenges the OLI Model (Li, 1994, 2003). Third, another challenge lies in the issue ofentry mode. Instead of full internalization, MNE latecomers often apply partial internalization oreven external modes (e.g., contracting and other non-equity strategic alliances) for their foreignentries (Li, 2003; Mathews, 2006). For instance, a recent study of the internationalization of theChinese family enterprises (Erdener and Shapiro, 2005) finds that these firms emphasize social orrelational mode to control their foreign operations, and their unique ownership advantages derivefrom their social or relational capital. This is also true for MNE newcomers, born-globalinternational new ventures (Coviello, 2006), or even MNE early-movers (Johanson and Vahlne,2003, 2006).

Based on the perspective of MNE latecomers, Mathews (2006) proposes a new model tosupplement or perhaps even supersede the OLI Model. The newly proposed LLL Model claimsthat MNE latecomers engage in FDI to achieve new competitive advantages via external linkage,leverage and learning rather than exploiting existing internal advantages via internal control. TheLLL Model also emphasizes a dynamic process of MNE formation rather than the static bias ofthe OLI Model. However, the LLL Model is ambiguous about the distinctions between linkage,leverage and learning. It seems that linkage and leverage are the strategic means to the strategic


end of learning since learning refers to the result of repeated application of linkage and leverage(Mathews, 2006: 20). Further, linkage and leverage seem to be inseparable as the two sides of thesame coin, thus the two elements of the same strategy of external asset-seeking via strategicalliance (Mathews, 2006: 18–19). It is not likely to have linkage without leverage or vice versa.Hence, I claim that neither model alone is sufficient to account for MNE formation because thetwo models are complementary (Dunning, 2006). Further, I acknowledge that the recent critiquesof the OLI Model may be biased without sufficient appreciation of its strengths (e.g., Li, 2003;Mathews, 2006). Consequently, I seek to integrate the two models into a holistic, dynamic anddialectical framework. This is in the spirit of the recent effort to reconcile and integrate the IPModel and the network model (Johanson and Vahlne, 2003).

2.3. An integrated content-process framework of MNE evolution

While the OLI is more internal-focused in its explanation of MNE formation, the LLL Modelis more external-focused in its contrasting explanation (Mathews, 2006: 21). I argue that eachorientation is biased, and their integration offers a balanced view. To best capture the wholeprocess and content MNE latecomers in particular and all types of MNE firms in general, I adoptthe comprehensive framework of MNE evolution proposed by Li (2003) because this frameworkintegrates the internal focus of the OLI Model and the external focus of the LLL Model. The newframework integrates five major “spatial” content factors (i.e., ultimate intent, external context,internal profile, strategic choice, and market effect) with three major temporal process factors(i.e., simultaneity/synchronization, directionality/sequence, and rhythm/tempo). This integrationis a holistic, dynamic and dialectical approach to MNE evolution (Li, 2003). Further, this newframework is consistent with a recent effort to model the internationalization of entrepreneurialfirms (Jones and Coviello, 2005), which consists of four factors: external environment (market-specific, industry-specific, and overall factors); internal firm (structure, resources, products, andentrepreneurial orientation); entrepreneur profile (risk orientation, social capital, and humancapital), and market performance (financial and non-financial measures). The only differencebetween Jones and Coviello's model and Li's model is that Li's model incorporates the fourfactors of Jones and Coviello as the content and then adds to them a time dimension.

Specifically, Li (1998, 2003) proposes thatMNE formation and evolution can be best explained as astrategic phenomenon with both content and process dimensions. The strategic content dimensionconsists of five “spatial” content factors. The first factor is ultimate intent, which refers to the firm-specific long-term vision, mission and strategic intent to guide strategic choices and behaviors. Thesecond factor is external context, which refers to the demand and supply conditions at both home andhost countries, including both industry-specific and country-specific condition. The third factor isinternal profile, which refers to the firm-specific internal resources, including both tangible andintangible resources. The fourth factor is strategic choice, which refers to the firm-specific decisionsand behaviors to compete in the global market with the four concrete elements of strategic target orgoal, strategic thrust or orientation, strategic posture or position, and strategicmode ormechanism. Thelast “spatial” factor is market effect, which refers to the firm-specific performance in the market,including both financial results and learning results. In addition to the five “spatial” factors, there arethree temporal process factors. The first factor is simultaneity, which refers to the temporal pattern ofevents taking place at the same moment. The second factor is directionality, which refers to thesequential process of the events. The last “temporal” factor is rhythm, which refers to the tempo ofevents. Integrating the two dimensions together, I have a comprehensive framework ofMNE formationto guide theory-grounded case studies. Specifically, I break down the whole process ofMNE evolution

Table 1Haier's pattern of internationalization

“Spatial” content Temporal process

Pre-export (1984–1992) Immature export (1992–1998) Mature export (1998–2000)

Ultimate intentFrom local to global To survive as restructured To accumulate capital To be No. 1 maker of whiteFrom latecomer

to leadercollective firm with debt and expertise goods in China

External context[Location profile: China's lack of capital, technology andmarket; U.S., Europe and Japan are theworld leaders in all three areas]

From localto global

Large and growing homemarket in China

China's cheap labor State support for big firmsChinese culture of paternalism China's growing

nationalismProperty rights control Asian economic crisis

From industryto general

Appliance industry well established and dominated by the MNEs from U.S. and Europe(oligopoly competition as the industry structure)

Internal profile[Advantage profile: Haier had no ownership advantage in terms of capital, technology and brand]

From personal levelto firm level

New managementassigned by a local stateagency

Powerful CEOCentralized control

From firm levelto network level

Good management teamRelative weak R&D staff Relative strong R&D staffHeavy debt burden Stock listing at home in 1993Poor production quality Good production qualityEmerging corporateculture (quality control,innovation, centralizedcontrol, etc.)

Culture of centralized controlover anything including info

Strategic choice[Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points]

Linking firm levelwith networklevel

Licensing technologyfrom Germany's Liebherr

Exporting to Germany underOEM in 1992

Strong export to the U.S.under its own brand

From reactiveto pro-active

Central control The new brand of Haier in 1993 Starting broaddiversification from whiteto black goods

Export to U.S. in 1995Export to the developed marketsfirst and the developing marketslater

Market effectFrom short-term

to long-termInitial success Continued success Initial take-off boomNo export yet Unstable export

(b40% growth a year)Fast sales growth

Stable fast-growingexport (N90% growth a year)Boom–Bust Cycle Initial fast sales growthFast sales growth (N78% peryear from 1984–2001)No. 1 in China for whitegoods

(continued on next page)


Table 1 (continued)


Infant MNE (1996–99) Teenage MNE (1999–Present) Adult MNE (?)

Ultimate intentFrom local to global To be the leader both

at home and abroadTo be among Global Top 500 ?

From latecomerto leader

External context[Location profile: China was still weak in capital, technology andmarket; U.S., Europe and Japan are still the world leaders]

From local to global Booming stock marketin China

State push for globalization andnationalism

?

Property rights control in ChinaChinese culture ofpaternalism

Anti-dumping against China'sexport


Stable competition in theglobal appliance industry

Game rules as the same in theglobal appliance industry

Asian economic crisis Growing competition in China

Internal profile[Advantage profile: Haier got much stronger in ownership advantage in terms of capital, technology and brand]


Powerful CEO and tightcontrol

Little disclosure of negative news ?

Strong R&D capability(2–3 new products perday)


Enough capital forexpansion

Hong Kong (HK) stock listingin 2005

Excellent manufacturing Privatization problemGaining global experience Succession problem

(same CEO since 1984)Weak global brand Weak global brand

Strategic choice[Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points]


To emphasize growth To globalize aggressively ?To emphasize cost To emphasize cost and value


To focus on the mid-endmainstream segments inChina

To focus on higher-end nichesegments in Europe and U.S.

FDI in Southeast Asia(via majority joint venture)

FDI in U.S., Italy and Mid-East(via 100% ownership greenfieldFDI in U.S.

Centralized control 100% ownership acquisition FDIin Italy and majority jointventure FDI in Mid-East andJapan)

Further diversification Further unrelated diversification(e.g., cell phone, PC, medicine,finance, etc.)


(continued)



Strategic choice[Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points]From reactive

to pro-activeOverlap between stableexport and initial FDI(export-led FDI)

New 3-in-1 global-localizationstrategy(local design, productionand sales)R&D/sales ratio above average(4.4% in the past 6 years)


to long-termInitial take-off boom Tough time in both US

and Europe?

Stable fast revenue growth Slower revenue growth(b22% per year in the past5 years)

Boom–bust cycle No. 1 in China for whitegoods

Troubling unrelateddiversification (e.g., medicineand finance)

Haier brand (limitedOEM)

Export still limited (export/salesratio 6.96% in the past 6 years)Profit/sales ratio below average(2.60% in the past 6 years)

Table 1 (continued )


into six major stages: pre-export (no export yet), immature-export (irregular export), mature export(regular export), infant MNE (initial FDI), teenage MNE (immature/unstable FDI), and mature MNE(stable/experienced FDI). The first three stages refer to the pre-MNE phases, while the last three as theMNE phases (Li, 2003). All the “spatial” content factors are analyzed in the temporal context of the sixspecific stages ofMNE evolution. Further, within and between these six stages, the temporal factors ofsimultaneity for concurrent events, directionality for the sequential events, and rhythm for the tempo orpace of all events are all analyzed with the contents of such events.

3. The methology of case study

3.1. The method of case study

ManyMNE scholars have called for more and better-guided longitudinal case studies of MNEs(Andersen, 1993; Coviello and McAuley, 1999; Parkhe, 1993; Zaby, 1996). In contrast to cross-sectional surveys, embedded longitudinal case studies have the best prospect of advancing morecomplete and consistent knowledge about the holistic, dynamic and paradoxical nature oforganization (Eisenhardt, 1989; Numagani, 1998; Yin, 1994). In particular, this research focuseson theory-building, so an inductive case study is the best method, especially when the research isboth theory-driven with respect to integrating two models and phenomenon-driven with respect todeveloping a plausible theory to explain MNE latecomers (Eisenhardt and Graebner, 2007: 26).Following the established recommendation (Eisenhardt and Graebner, 2007; Yin, 1994), Iadopted the method of multi-site comparative longitudinal case study. This is also a response tothe call to verify and extend the previous case studies (e.g., Li, 2003), especially beyond theboundaries of newly industrializing countries in Asia (Narula, 2006).


For the purpose of this study, I selected three Chinese MNEs. I considered several criteria inselecting the three MNEs. First, I limited my selection to the Chinese MNEs in the electronicssector because they have made the fastest advances in global competition, while the electronicindustry, as one of the most globalized industries, offers the best prospect to study the issue ofMNE evolution. Second, I limited my selection to those MNEs that have become successfulmajor players in the industry. Third, I limit my selection to those MNEs that have gone througha relatively complete process of evolution (i.e., from a start-up to a global player), includingforeign merger and acquisition (M&A). I selected Haier, Lenovo, and TCL as the cases for thisstudy because they met the above criteria (Child and Rodrigues, 2005). Lenovo is the largestand most successful computer firm in China, whereas Haier and TCL are the two largest andmost successful consumer electronic firms in China. The three firms were the top threeelectronic firms in China and also among the largest in the world. The choice of leading firms inthe electronic industry is appropriate for this study.

3.2. Data collection

I collected the data for this study primarily from the archived documents, including the corporatereports (including the corporate web site), published books, newspaper and magazine reports, andother case studies of three firms. About 1500–2000 pages of the archival documents were collectedfor each firm. I further augment the archival data via personal interviews with the top executives ofall three firms—one senior vice president from each firm. The data were coded according to thetypical content analysis procedures (Yin, 1994) and the framework proposed by Li (2003). First, Iidentified specific events as the unit of analysis. Second, I coded those events into the five “spatial”categories of ultimate intent, external context, internal profile, strategic choice, and market effect.Third, I further recoded those events into the three temporal categories of simultaneity, directionality,and rhythm. Fourth, within each "spatial" or temporal category, I also recoded the events into sub-categories. For instance, there were four specific components of strategic choice (i.e., strategic target,thrust, posture and mode, Li, 1994). There were two levels of directionality (i.e., the phases of pre-export, immature export, andmature export at the phase of pre-MNE, and the phases of infantMNE,teenageMNE, and adultMNE at the phase ofMNEevolution). Finally, I only used the data that werecorroborated from multiple sources.

3.3. Profile of Haier

Restructured in 1984 from a collective-owned manufacturer of electrical devices with a debtburden of RMB 1.47 million in the City of Qingdao, the Province of Shandong, Haier Group hasbecome one of the most successful companies in China—the largest consumer electronic firm inChina and the 4th largest white house appliance vendor in the world. As a multinational firm with thesales revenue of RMB103.4 billion or US$12.6 billion and the export revenue of over US$1 billion in2005, Haier has a broad scope of global operations with more than 240 subsidiaries, 30 plantsoverseas, 8 R&D centers, and 50,000 employees (see Table 1 for the case summary). In terms oforganizational life cycle, Haier has been undergoing three major stages of its organizational evolution(Hua, 2003; Sun et al., 2001):

1. Domestic dominance stage (1984–1991): It took Haier seven years to become No. 1 in whitegoods business in China via total quality management (TQM) program and innovativemarketing.

Table 2Lenovo's pattern of internationalization



Ultimate intentFrom local to global To survive as a start-up

and a latecomerTo accumulate capitaland experience

To be No. 1 PC Makerin ChinaFrom latecomer

to leader

External context[Location profile: China's lack of capital, technology and market; U.S. as the world leader in all three areas]

From local to global Tight state control overbusiness (e.g., license,trade and capital)

HK as the best site for China'simport/export

State support for big firmsChina's growingnationalism

Booming stock market in HK Property rights control inChinaChinese culture ofpaternalism


IBM launched PC-XT(limited competition)

Cheap labor in China Booming PC market inChina

High tariff on PCbut low tariff on PC parts

IBM clone(more competition)

Internal profile[Advantage profile: Lenovo lacked ownership advantage in terms of capital, technology and brand]


Founders as entrepreneurs Emerging powerful CEO Powerful CEOLack of business expertise More business experience


Good R&D staff First major hiringLittle capital or foreignexchange

More operating capital Stock listing in HK in 1993

No manufacturing until1988

Starting manufacturing Tapping ChineseNationalism

Chinese language card in1985

parts in HK Tapping state support

Latecomer without PClicense (other PC firmswith licenses)

PC license granted in 1990

No corporate culture Emerging corporate culture Controlled entrepreneurialculture (e.g., the vision oflarge ship)

Strategic choice[Strategy profile: strategic target, thrust, posture andmode, including internalization and other entrymodes and entry points]

Linking firm levelwith networklevel

As indirect localdistributor for IBM PC(inward)

Exporting parts from HK backto China (inward)

Exporting PCmotherboards to Europeand US under OEM


Commitment toentrepreneurship asself-motivation

Assembling PC in China withChinese language card

Among the top 3–5motherboardsuppliers in the world

Marketing Chineselanguage card

As direct local distributor for USMNEs (AST PC and HP printer)

Serious R&D since 1996Focus on distributionchannels (it learned from HP)Exporting language cards



Table 2 (continued)




to long-termInitial success as localagent

Initial boom with parts Up and down at homemarket

No export yet Limited export Regular exportBoom–bust cycle Initial fast growth

(N250% per year)High growth(about 60% per year)

No. 1 in China since 1997(from 1997's 10% to 2004's30% China's PC market)High growth (N70% peryear)



Ultimate intentFrom local to global To be the leader both

at home and abroadTo defend No. 1 position(1998–2003)

?


To be among Global Top 500(since 2003)

External context[Location profile: China still weak in capital, technology and market; U.S. still the world leader in all three areas]

From local to global Property rights control State push for globalizationand nationalism

Asian economic crisis Chinese culture of paternalism ?From industry

to generalGlobal competitionand changing

Anti-dumping againstChina's export

PC game rule (Dell model) Bust of the Internet bubbleInternal profile[Advantage profile: Acer was getting much stronger in ownership advantage in terms of capital, technology and brand]


Founders' fight and split(from 1995–1999)

Complacent management in early2000s (e.g., fast diversification)

?


Stronger R&D (e.g., 1stlarge computer in China)

Smooth CEO succession in 2000China Digital as spin-off in 2000

Stock listing in HKin 1993Ownership restructuring(35% by employees)Good manufacturingStrong nationalism Nationalism expected to weakenLacking global experience Leverage IBM's experienceLacking global brand Name changed to Lenovo in 2003

Strategic choice[Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry

points]


To emphasize growth To globalize aggressively ?To emphasize cost via acquisition of IBM


Table 2 (continued)




points]


To focus on marketing(local distributor)

PC division in 2004To refocus on PC away fromdiversification strategy

To focus on home marketNo major FDI projects Fast related diversification

(e.g., Internet and cell phone)1st JV and acquisition inHong Kong in 1988 and1989

To emphasize cost and value

Small sales and R&Doffices

To emphasize export via brand

in U.S. and Europe Export still limited(export/sale ratio

Overlap between export/import and initial FDI(trade-led FDI)

of 5.58% in the past 6 years)R&D/sales ratio below average(2.69% in the past 6 years)


to long-termUp and down in growth Difficult integration of IBM

PC Division?

Still relatively fast growth Slower growth (b12% per yearbefore IBM deal)

Boom–bust cycle No. 1 PC maker in China First negative growth in2004

Export via OEM only Failures in related diversification(e.g., Internet and cell phone)Profit/sales ratio still low(3.39 % in the past 7 years)



2. Diversification stage (1992–1998): It took Haier another seven years to broadly diversify andbroaden its product offerings from white goods to black goods and even totally unrelatedbusinesses.

3. Globalization stage (1998–present): Haier has been undertaking a globalization program. Itsstrategic intent is to join Global Top 500 with a well-known global brand.

3.4. Profile of Lenovo

Founded in 1984 in the City of Beijing as one of the new state-owned startups, Lenovo(formerly known as Legend) has become the largest computer firm in China and the 3rd largestpersonal computer firm in the world after its acquisition of IBM's PC Division in 2005. As amultinational firm of HK$103.6 billion or US$13.3 billion in sales revenue, 7 R&D centers and19,000 employees in 2005, Lenovo has a relatively focused business operations, mainly in the PCand the related segments. After the acquisition of IBM's PC Division, Lenovo has become a truly

Table 3TCL'S pattern of internationalization



Ultimate intentFrom local to global To survive as a new

state-owned firm withno advantages

To accumulate capital and expertise To be No. 1 maker of blackgoods in ChinaFrom latecomer

to leader

External context[Location profile: China's lack of capital, technology and market; Japan, U.S. and Europe as the world leaders in all three

areas]From local to global Large and growing home

market in ChinaChina's cheap labor State support for big firmsChinese culture of paternalism Asian economic crisisProperty rights control in China


Electronic industry well established and dominated by the MNEs from Japan, U.S. and Europe(oligopoly competition as the industry structure)

Internal profile[Advantage profile: Haier had no ownership advantage in terms of capital, technology and brand]From personal level

to firm levelManagement teamappointed by a local stateagency

Emerging powerful CEO Relatively powerful CEO


Inexperiencedmanagement team

Good production quality

Relative weak R&D staff Relative strong R&D staffLittle capital Stock listed at home in 1993No corporate culture Emerging corporate culture Entrepreneurial culture


points]Linking firm level

with network levelJoint ventures with HKfirms for audio tapeand phone

Entry into TV Stronger export under bothits own brand and OEMExport to Asian markets

under OEMFrom reactive

to pro-activeEmphasis on cost No more than 30% export

under its own TCL brandFocus on domestic marketAdopting the brandin 1986

Export to the developingmarkets first and then thedeveloped markets later

Starting broaddiversification from blackto white goods


to long-termInitial success Continued success Initial take-off boomNo export yet Limited export via OEM

(slow growth)Stable fast-growing exportvia both OEM and ownbrand

Boom–bust cycle Initial fast sales growth Fast sales growth(N86% per year)

Faster sales growth(N44% a year)China's No. 1 in TVand Phone


Table 3 (continued)



Ultimate intentFrom local to global To be the leader at home To be one of the best in the world

(the Dragon–Tiger plan)?


To expand abroad

External context[Location profile: China was still weak in capital, technology andmarket; U.S., Europe and Japan are still the world leaders]From local to global Chinese culture of

paternalismState push for globalizationand nationalism

?

Asian economic crisis Property rights controlFrom industry

to generalGrowing competitionin China

Intense competition in China

Global market as attractive Anti-dumping againstChina's export

Stable competition in theglobal electronic industry

Game rules as the same in theglobal electronic industry

Internal profile[Advantage profile: TCL got much stronger in ownership advantage in terms of capital, technology and brand]From personal level

to firm levelRelatively powerful CEO Power struggle and split ?Good R&D capability(proprietary HDTV techand 3–4 new products perdays)

Stronger R&D (via FDI)


Enough capitalfor expansion

HK stock listing in 2004

Excellent manufacturing Privatization success(state ownership b28%and insider ownership N25%)

Gaining global experienceState ownership reformWeak global brand Acquired well-known global

brands

Strategic choice[Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points]From firm level

to network levelTo expand abroad To globalize aggressively ?To emphasize cost To emphasize value


To focus on the mid-endmarket segments

To focus on higher-end nichemarket segments (e.g., 2 labs inthe U.S.)

FDI in HK in 1996(via acquisition)

FDI in U.S. , Germany, and France(via 100% acquisition in U.S. andGermany and majority jointventures in France, i.e., Thompsonfor TV and Alcatel for cell-phone

FDI in Vietnam in 1999(via Greenfield FDI)Further diversificationinto white good and info

Continued diversificationR&D/sales ratio belowaverage (2.76% in the past 6 years)




global player in the computer industry (see Table 2 for the case summary). In terms of(continued)Table 3 (continued )



Strategic choice[Strategy profile: Strategic target, thrust, posture and mode, including internalization and other entry modes and entry points]From reactive

to pro-activeOverlap between stableexport and initial FDI(export-led FDI)

“Dragon and Tiger Plan”(as a leader at home and abroad)High export/sales ratio(N24% in the past 6 years)


to long-termInitial take-off boom Difficult integration of foreign

acquisitions?

Stable fast revenue growth Slower revenue growth(b18% per year in the past3 years)

Boom–bust cycle China's No. 1 in TVand phone

Questionable broad diversification

Both TCL brand and OEM First loss in history in 2005and further loss in 2006Profit/sales ratio still low(2.92% in the past 7 years)

organizational life cycle, Lenovo has been undergoing three major stages of its organizationalevolution (Chi, 2005; Ling, 2005):

1. Domestic dominance stage (1984–1997): It took Lenovo 14 years to becomeNo. 1 in PC businessin China via local distribution of foreign brands and innovative marketing of its own products.

2. Restructuring stage (1998–2003): It took Lenovo another 4 years to restructure its businessoffering and internal organization, including corporate spin-off, diversification and ownershiprestructuring.

3. Globalization stage (2004–present): Lenovo started its initial internationalization program in1988 in Hong Kong, but only recently it has become serious and aggressive in pursuing aglobalization goal of joining Global Top 500 with a well-known global brand.

3.5. Profile of TCL

Founded in 1981 in the City of Huizhou, the Province of Guangdong, TCL is the 2nd largestconsumer electronic firm in China and the world's largest TV vendor. As a multinational firm ofRMB51.6 billion or US$6.3 billion, 20 plants, 4 R&D centers and 63,000 employees in 2005, TCLhas a broad scope of global operations with fourteen overseas factories, six design centers, and overforty-five major sales agents around the world. Since the early 1990s, TCL has achieved an annualaverage export growth rate of over 40%, and it generated about a half of its total revenues fromoverseas sales in 2005 (see Table 3 for the case summary). In terms of organizational life cycle, TCLhas been undergoing three major stages of its organizational evolution (Du, 2004; Wan, 2005).

1. Domestic dominance stage (1981–1995): It took TCL fourteen years to become No. 1 in Chinain the areas of telephone and TV via innovative marketing.


2. Diversification stage (1996–1998): It took TCL another two years to diversify and broaden itsproduct offerings into personal computer and other segments of information industry.

3. Globalization stage (1999–present): TCL has been undertaking an internationalizationprogram, termed as “Dragon and Tiger Plan” (with “dragon” sub-plan for internationaloperation and “tiger” sub-plan for domestic operation). Its strategic intent is to join Global Top500 with multiple global brands.

4. Discussion

Supporting the integrated content-process framework of MNE evolution, the three cases bearscritical implications for both OLI and LLL Models, especially their integration. The five “spatial”factors have major effects on MNE's initial formation and later evolution in a process measurableby the three temporal factors. In this section, I discuss the content and process of MNE evolutionto suggest how to integrate the OLI and LLL Models for a balanced (holistic, dynamic, anddialectical) explanation for all types of MNE.

4.1. “Spatial” content of MNE evolution

For the first content factor of ultimate intent, there are two major issues. First, all three MNElatecomers are extremely ambitious concerning their vision, mission and strategic intent. They allwant to become major global players in a shortest time possible. This is often termed as catch-upintent or accelerated internationalization (Li, 2003; Mathews, 2006). Given this intent, MNElatecomers often adopt aggressive global strategies. Second, all three firms set their initial goals atbeing the market leaders at home first before they launched their major outward FDI projects. Inthis sense, certain ownership advantages may be necessary, at least still desirable, for MNElatecomers. This implies that the internal focus of the OLI Model and the external focus of theLLL Model should be integrated into a balanced model.

For the second content factor of external context, there are three major issues. First, all threefirms have benefited from the strong support from the state government for globalization, which isviewed as a unique external home context for the Chinese entrepreneurs (Child and Rodrigues,2005). It is evident that the Chinese firms are more effective in internationalization due to stronggovernmental ties. This is a distinctive dimension of the external context for MNE latecomersfrom the developing countries (Li, 1994). Second, the high-level globalization in the computerand consumer electronics industries has provided the key opportunities for (rather than threats to)MNE latecomers. In all three firms, inward internationalization—as the local alliance partners forforeign MNEs in the area of local marketing or local OEM supply—has been a rare opportunityfor MNE latecomers to learn about the initial manufacturing technologies, marketing skills andmanagerial expertise. Third, in all three firms, FDI has been a means to avoid China's institutionalconstraint regarding property rights in terms of state or collective ownership, which is one of theirkey motives for MNE formation (Child and Rodrigues, 2005). It is worth noting that all threefirms have their stocks listed in Hong Kong not only to raise financial capital but also to seek legalprotection of the stock ownership for their top management teams. In this sense, the OLI and LLLModels can both benefit from incorporating the institutional forces both at home and abroad andat both national and industry levels (Dunning, 2006), especially the interplay between theinstitutional forces and entrepreneurial choices (Child and Rodrigues, 2005).

For the third content factor of internal profile, there are two major issues. First, in all threefirms, ex ante ownership advantages did not exist before the MNE latecomers' engagement in


FDI; rather, they expanded overseas to overcome their inherent ownership disadvantages with anasset-seeking motive. In this sense, ownership advantage should not be required as an initialprecondition for MNE formation; rather, it is required as the goal or motive for MNE formation(Li, 2003; Mathews, 2006). In the OLI terminology, while ownership-based advantage is not anecessary requirement, transaction-based advantage derived from becoming MNE should be thenecessary requirement for MNE evolution subsequent to the initial MNE formation. Hence, theexternal-focused LLL Model and the internal-focused OLI Model is reconcilable, with the directexternal–internal link as particularly critical to MNE latecomers (Chen and Chen, 1998; Ernst,2000; Hobday, 1997; Hoesel, 1999; Li, 2003; Mathews, 2006). It is worth noting that, althoughownership disadvantage serves as the precondition for MNE latecomers to engage in FDI at theinitial stage, the derived ownership advantage is necessary for MNE evolution at the later stage.Second, related to the issue of property rights in China, all three firms pursued their stock listings,especially abroad (e.g., Hong Kong), to overcome the ambiguous property rights of either state orcollective ownership (see Li, 2005 for a review about the property rights issues in China).

For the fourth content factor of strategic choice, which is closely tied to the above threefactors, there are three major issues. First, rather than exploiting existing ownership advantages,the primary motive for FDI is to explore new ownership advantages from external sources. It canbe argued that asset-exploration should be one of the two primary motives for FDI beside asset-exploitation. Dunning (1995, 2006) recognizes the imperative of strategic asset-augmenting as akey motive for FDI. The pessimistic view that MNE latecomers from the developing countrieswill suffer from disadvantages permanently does not appreciate the nature and power of MNE toleverage external resources for transaction-based advantages. To integrate the OLI and LLLModels in this aspect, I regard ownership advantage and learning as both ex ante motive and expost effect, rather than a given or required precondition, of MNE formation, especially for MNElatecomers. Second, all three firms show that transaction cost is not the sole determinant of entrymode. The evidence suggests that transaction value, including the opportunity for learning abouttacit knowledge from alliance partners, is the other determinant of entry mode. For instance, allthree firms preferred strategic alliance as the primary entry mode, not due to the associated lowtransaction cost but because of the associated high transaction value. Hence, we must recognizethe imperative of strategic alliance (e.g., OEM and joint venture) as the best mode to enter globalsupply chains for MNE latecomers to catch up with MNE early-movers in an accelerated manner(Ernst, 2000; Hobday, 1997; Li, 1994; Mathews, 2002). In this sense, ownership advantages lienot only at the firm level but also at the network level (Chen and Chen, 1998; Coviello, 2006;Johanson and Vahlne, 2003; Mathews, 2002). Hence, both transaction cost and transaction valueshould be considered for the choice of entry mode (Coviello and McAuley, 1999; Madhok, 1997),especially for the new organizational form of network (see Li, 1998 for a review).

Third, these cases show that the liability of foreignness can be remedied through strategicalliances between foreign and local firms. Though the liability of foreignness is often reducedvia strong ethnic ties by the Asian firms (Chen and Chen, 1998; Saxenian and Hsu, 2001; Simand Pandian, 2002), my cases show little evidence of that. This may be due to the maturity of mythree cases as the leading firms at home and the complexity of FDI projects they were involvedin (Child and Rodrigues, 2005). Hence, the OLI Model can benefit from the external-focusedLLL Model to reflect the paradigm shift from the hierarchy capitalism to the alliance capitalism(Dunning, 1995; Li, 1998). However, I do not yet see the compelling evidence for the rationaleto replace the OLI Model as long as we can enhance the OLI Model in light of the paradigm shift(Child and Rodrigues, 2005). Further, the LLLModel is not without its own problems. My threecases provide no evidence to differentiate leverage from linkage mainly because they both serve


the same function as the basic means to the end of learning. Also, the LLL Model is largelysilent on the leverages and linkages between the five content factors, especially the complexinterplays between the “spatial” content factors and the temporal process factors.

4.2. Temporal process of MNE evolution

For the last content factor of market effect, which is the joint effect of all the other four contentfactors, it is best to analyze the issue of market effect together with the temporal factors in anintegrated manner. The first temporal factor is simultaneity. The case evidence shows thatnetwork leverage requires a proper temporal coordination between strategic alliance partners aswell as intra-firm activities to complement external sources. For instance, different entry modesare never mutually exclusive, and they tend to co-exist to complement each other. It is also worthnoting that there are substantial overlaps between the regular export and infant MNE phases in allthree firms, thus further confirming the concurrent co-existence of multiple entry modes. In thissense, choosing an entry mode is not a mechanistic or deterministic event; instead, multiple entrymodes can be selected concurrently as complementary options (Li, 2003).

The second temporal factor is directionality. None of the three cases offer clear evidence forthe “establishment chain” from low-risk entry modes to high-risk entry modes as prescribed bythe IP Model (Johanson and Vahlne, 1977, 1990; cf. Johanson and Vahlne, 2006). All threefirms started their international experience with inward internationalization by serving as theimporters of foreign technologies and the local distributors of foreign products. While Haier andTCL did start FDI after export and overseas marketing, Lenovo began its initial manufacturingin Hong Kong rather than at home, with its FDI before its export. Though all three firms didengage in FDI via joint ventures before whole ventures or acquisitions, Haier and TCL adoptedthe entry modes of whole acquisition and joint venture back and forth. Further, Lenovo acquiredIBM PC Division in 2004 after its initial minor acquisition in Hong Kong in 1989, thus withoutany FDI projects in between. As mentioned earlier, there have been major overlaps between thephases of regular export and infant MNE in all three firms. It is worth noting that, for aprolonged time, all three firms focused more on their domestic markets than their overseasmarket despite the push by the state government for export. This is in contrast to the experienceof MNE latecomers from Taiwan (e.g., Acer), possibly due to the larger home market in Chinathan in Taiwan. Further, all three firms have not been following the traditional pattern of earlyFDI in “culturally close” countries and later in the countries of greater “psychic distance”(Johanson and Vahlne, 1977, 1990). Largely due to the need for asset-exploring, all three firmslaunched their initial major FDI projects in the U.S. or Europe despite the greater culturaldistances.

The last temporal factor is rhythm. Due to the joint effect of Chinese government's push forglobalization, the growing competition in the home market, and the firms' ambiguous intents, allthree firms have adopted an accelerated pattern of internationalization as the catch-up strategy inthe recent years. However, there were clear delays or low-tempos in their regular export phase andthe infant MNE phases, largely due to the pro-longed dependency of Chinese firms on their homemarket. Only in their most recent phases have these firms accelerated their tempos of MNEevolution. In the latest effort of acceleration, they have jumped or leapfrogged the “establishmentchain” so as to catch up with MNE early-movers from the developed countries (Li, 1994, 2003;Mathews, 2002, 2006; Sim and Pandian, 2002). Their past successes at the early stages did notguarantee their performance at the later stages. There is evidence that the overall pattern of MNEevolution tends to follow a boom-and-bust cycle (Li, 2003; Li and Chang, 2000). All three firms


engaged in unrelated diversification after their initial success in their main business, but they allhad major problems in their diversification drive. Also, their recent globalization drive after theirmajor success at home becomes their biggest challenge so far as they are experiencing the painsof accelerated globalization as teenage MNEs. In sum, the temporal process is an imperative, yetneglected, aspect of MNE evolution that should be integrated into the OLI and LLL Models.

4.3. Holistic, dynamic and dialectical integration

Based on the evidence of the three cases, I conclude that the OLI and LLL Models should andcan be integrated to provide a balanced explanation for all types of MNE across the process ofMNE evolution. Further, it is imperative for the OLI and LLL Models to retain the “spatial”content and temporal process factors so as to offer a holistic, dynamic and dialectical frameworkof MNE evolution. Hence, the integrated framework of MNE evolution proposed by Li (2003) ispromising for integrating the OLI and LLL Models. The content-process framework bears threecentral implications for future research with respect to MNE formation and evolution.

First, we need both the external focus of the LLLModel and the internal focus of the OLI Modelto fully explain MNE evolution. In this regard, it is helpful to reconceptualize ownership advantageas an internally available complementary resource to be leveraged with the external resources, thusthe necessary ex ante internal profile for external leverage, linkage and learning. This precondition isnecessary for all MNEs. It is reasonable to reconceptualize transaction or learned advantages as theex ante ultimate intent for MNE formation; if perceived dynamically, it becomes the ex postmarketeffect of MNE evolution. Internal advantages are needed for linkage and leverage, but suchadvantages are only comparative rather than absolute. Second, for the issue of location, we shouldconsider the role of institutions and industry dynamics as interactive forces in a portfolio of diversehome and host countries, thus the external context for leverage, linkage, and learning. This diverseportfolio of external contexts can serve as both opportunities and threats. Third, for the issue ofinternalization as an entry mode, it is helpful to treat various entry modes as complementary ratherthan independent or conflicting ones. Hence, it is helpful to substitute the notion of internalizationwith that of entry mode portfolio with internalization and externalization for both transaction costand transaction value (Johanson and Vahlne, 2006). While transaction cost is primarily concernedwith risk reduction via control, transaction value is based on value enhancement or opportunitydevelopment via commitment (Johanson andVahlne, 2006; Li, 1998, in press). All the factors relatedto entry modes and other strategic factors fall into the domain of strategic choice. Finally, vieweddynamically, the “spatial” factors interact with the temporal factors. In sum, we can readily integratethe OLI and LLL Models into the content-process framework of MNE evolution.

To further develop the integrated framework of MNE evolution, we should also consider threeother issues suggested by the case evidence. First, we need to pay a closer attention to the “soft”factors and institutional factors. The “soft” factors refer to the non-cognitive elements of socialcapital, trust, charisma, entrepreneurship, ambition, passion, and value. The institutional factorsshould not be treated as stand-alone forces (e.g., state, law and ethics); their interplay andinterdependency must be the focus of attention. For instance, the recent push for globalization inChina is a joint effect of multiple interactive forces, including the state policy, home competition,nationalistic fever, ambitious intent, need for cutting-edge technologies and global brands, andchanging rules of global game. It is also the case with the unrelated diversification of the Chinesefirms as the joint effect of the interplay between the state support, ambitious intent, opportunisticpursuit of emerging domestic markets, and biased domestic stock market (in favor of fast growthand expansion in total assets and revenues rather than profitability and stability).


Second, we will benefit from incorporating the key constructs and perspectives from thetheories on organizational evolution (Barnett and Burgelman, 1996; Gersick, 1991; Nelson andWinter, 2002). For instance, the process of internationalization is an integral part of an overallMNE evolution, so a research of the former must be done in the context of the latter. Further, thepath of internationalization does not always match the overall path of organizational evolution. Asall three firms show, the take-off phases and the boom-and-bust cycles did not match the pre-MNE and MNE phases. In particular, in light of the excessive diversification among all firms, it isnecessary to explore the possible link between the process of internationalization and that ofdiversification. One possible way to integrate all major elements is to evoke the concept of deepstructure (i.e., the focal link between interdependent parts in a system, Gersick, 1991). The deepstructure of MNE evolution is the overlapping co-existence of as well as interplay between five“spatial” content variables in a three-factor temporal process, with MNE's ability and motive tolearn as the possible core or anchor of the deep structure.

Third, to be truly holistic and dynamic in theory-building, it is imperative to be dialectical, thustreating paradox as the best tool to conceptualize and operationalize all complex phenomena asdualities (Lado et al., 2006; Lewis, 2000; Li, 1998, 2005; Poole and Van de Ven, 1989; Quinn andCameron, 1988). For instance, it is best to conceptualize internalization and externalization, transactioncost and transaction value, institution and entrepreneurship, intent and effect, boom and bust, andmodesty and complacency as paradoxical or dualistic opposites-in-unity (see Li, 1998 for a review).Specifically, the evidence suggests that MNE evolution follows a pattern of spiral progressionwith aseries of boom-and-bust cycles because of the shifting effectiveness of organizational learning indifferent phases of MNE evolution (Li, 2003; Li and Chang, 2000). Organizational learning seemseffective in the early phase ofMNE evolution, ineffective in the later phase after the initial success, andeffective again after the later failure. The spiral pattern of organizational learning suggests that anaccumulation of knowledge through learning is possible, but this does not follow a linear patterntoward equilibrium (cf. Barnett and Burgelman, 1996; Gersick, 1991). The spiral pattern can derivefrom the success-induced complacency. It is logical to suggest that, while learning capability mayincrease with MNE success, learning motive could decrease with MNE success, thus contradictoryelements interacting in tandem over time. Hence, I propose a spiral version of the punctuatedincrementalism model as a process of evolution to be occasionally disrupted by paradigm shifts, thusreconciling the inherent contradiction between stability and change (cf. Gersick, 1991). I regard MNEevolution as a spiral co-evolution of five “spatial” factors, with organizational learning as the anchor ofthe deep structure in this process due to its power to connect the five “spatial” factors with the threetemporal factors. For instance, the spiral pattern of organizational learning may derive from theinterplay between the external factors (e.g., state policy, nationalistic fever, advanced technology,market competition, social network, and global opportunities), and the internal factors (e.g., ambitiousintent, ownership disadvantage, complacency, charisma, and entry modes). This is consistent with theproposed integration between the internally-focused OLI Model and the externally-focused LLLModel into a content-process framework of MNE evolution.

5. Conclusion

This paper has contributed to the literature by addressing a fundamental question of how muchwe need to modify and enhance the OLI Model of MNE formation given the new evidence ofMNE latecomers from the developing countries. The evidence of three longitudinal cases fromChina suggests that the traditional OLI and the new LLL Model can be readily integrated into thecontent-process framework of MNE evolution so as to better explain all types of MNE. The core


implications for theorizing MNE are embedded in the holistic, dynamic and dialectical approachto theory-building with respect to the content and process of MNE formation and evolution. Inparticular, I adopted a more balanced perspective with respect to the limitations and strengths ofthe OLI Model so as to focus on the benefit of integrating the OLI and LLL Models. Further, Icontributed with the new evidence of MNE latecomers beyond the so-called “dragon MNEs.”

There are some critical implications for future research. First, we must verify and extend thefindings of this study at other sites, especially in other non-Asian developing countries. Thelegitimacy of case study must be recognized (Eisenhardt, 1989; Eisenhardt and Graebner, 2007;Numagani, 1998; Parkhe, 1993). Second, built on the new case evidence, we need to refine theproposed framework so as to develop specific models from the framework for theory-testing in thefuture. In particular, we must pay closer attention to the “soft” content factors of charisma, ambitionand complacency as well as the temporal factors of tempo, synchronization and spiral progression.Third, we should examine how to operationalize the paradoxical nature of social phenomena via thedialectical logic for complete and consistent theory-building. One of critical topics for further studyis to compare the three types of MNEs, i.e., latecomer, newcomer and early-mover, in the sameindustry. For instance, we ought to study the potential drawbacks of accelerated internationalizationfor MNE latecomers and newcomers with respect to the liability of lateness and newness, especiallyin moremature industries dominated byMNE early-movers. Also, we can compare the evolutionarypatterns of the same type ofMNE from various countries with different homemarkets so as to verifythe impact of local contexts both at home and abroad, especially those countries with contrastingcultural values to verify the impact of cultural values (see Leung et al., 2005 for a review). In thissense, an expanded multi-dimensional construct of country-of-origin effect as a moderator can be arich area for future MNE research (Tihanyi et al., 2005).

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