Local embeddedness, corporate social capital and Chinese enterprises

Abstract

Purpose The purpose of this study is to examine the impact of corporate social capital and local embeddedness on perceived business performance of Chinese enterprises operating overseas, whose recent growth resulted from the Belt and Road Initiative. Design/methodology/approach This study reports the results of a sample of 83 Shaanxi outward foreign direct investment (FDI) firms operating in Africa, Asia, Australia, Europe and North America. In-depth interviews with a few sampled firms are used to develop the survey questionnaire and help interpret the results of statistical analysis. Findings This study proposes two hypotheses and both are supported by the data. First, corporate social capital is a three-dimensional concept, covering governmental, market and personal sources with each source making an equal, positive effect on perceived overseas performance of the surveyed firms. Second, these firms do better when having developed a higher degree of local embeddedness, a measure on local channels used to obtain information and mobilize resources. While local embeddedness indeed mediates some effect of corporate social capital, both variables have shown direct impact on performance. Research limitations/implications Reported findings are from a small sample of 83 firms in an inland Chinese province, and business performance is measured by subjective evaluation rather than economic output. Practical implications The practical implication is that a Chinese FDI firm is expected to maintain all three relational channels – governmental, market and interpersonal – because the firm can gain different kinds of information and resources from these sources and each channel is necessary and equally important for the firm’s development. Importantly, it needs a different strategy to maintain and best use each channel. For the Belt and Road Initiative to be effective, China must establish platforms through which enterprises can strengthen and reconfigure their corporate social capital, as well as to cultivate and sustain their local networks in foreign destinations.