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Understanding the embeddedness of foreign ethnic Chinese networks in host markets
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posted on 22.02.2017by Ong, Xin De
Although networks are increasingly emphasised in the international business literature, few studies have examined the development of networks in the post-entry phase. Moreover, there is a paucity of research on ethnic Chinese networks in the post-entry phase, despite the growth of ethnic Chinese trade and migration outflows. This study explores the broad research problem of ‘How are foreign ethnic Chinese networks embedded in host markets?’ by way of a dual-context, qualitative study of foreign ethnic Chinese networks in Prato, Italy and in Singapore. Primarily, the study examines the embeddedness of individual actors from small and medium enterprises (SMEs). Prato was chosen due to the apparent social and economic tensions between the local (host) and the Chinese community, whose members began arriving in Italy in the 1980s. Singapore being predominantly ethnic Chinese, yet reportedly also recently experiencing anti-Chinese sentiments, is a contrasting context to Prato. This comparative study applies and contributes to theories and related concepts such as network theories, social exchange theory, embeddedness, the liability of outsidership, the liability of foreignness, legitimacy theory, and institutional theory.
Embeddedness—a central concept of the study—emphasises that social relations underpin most economic actions. Overembeddedness occurs when insufficient new relevant ties are developed in a network, which can lead to network decline or disadvantages for the overembedded actor. The overembeddedness of foreign ethnic Chinese actors within their own ethnic networks in Prato is of social and economic concern, as their networks are often perceived as inaccessible to Italian businesses. The embeddedness of foreign ethnic Chinese actors is explored to study their interactions with host market actors. Two research questions are posed. To deepen our understanding of the relationship between the liability of outsidership and the liability of foreignness, the first research question asks: How do the liabilities of outsidership and foreignness influence the embeddedness of foreign ethnic Chinese networks in host markets? The second research question draws on institutional theory and asks: How does the institutional environment influence the embeddedness of foreign ethnic Chinese networks in host markets?
Incorporating social exchange theory and the concept of embeddedness, findings reveal the dyadic nature of the liability of outsidership. Host market actors also face the liability of outsidership when they have difficulty entering foreign ethnic Chinese networks. By overcoming their liability of outsidership with foreign ethnic Chinese networks in their home markets, host market actors can potentially leverage international networks of foreign ethnic Chinese actors. Diverging from existing literature that highlights the temporary nature of the liability of foreignness, the study’s findings suggest that, because of ascribed attributes such as race or cultural background, the liability of foreignness may not be easily overcome and can be long-lasting. Next, we highlight the importance of examining legitimacy at the network level, that is, network legitimacy, as foreign ethnic Chinese actors were found to conform more to network norms than market-wide norms enforced by formal institutions. Findings also extend the literature on market exit by highlighting that commonly perceived anti-Chinese sentiments degrade the social environment for foreign ethnic Chinese actors, encouraging market exit. Thus, unfavourable social and political environments could discourage positive long-term behaviour (e.g., building strong ties with host market actors) and encourage short-term negative behaviour (e.g., illicit tax evasion) of foreign ethnic Chinese actors.
The study concludes that foreign ethnic Chinese are embedded in complex ways in Prato and Singapore. Some foreign ethnic Chinese actors in Prato show evidence of being overembedded, but many are often connected to host market actors directly or indirectly to various degrees. In predominantly ethnic Chinese Singapore, foreignness is still a barrier to insidership in relevant networks, but can be overcome more easily due to the availability of bilingual intermediaries. Findings show that, in both contexts, foreign ethnic Chinese and their international networks are potentially valuable for host market actors in home or foreign markets. Co-evolving informal and formal institutions influence foreign ethnic Chinese short- and long-term behaviours, which in turn, influence foreign ethnic Chinese actors’ embeddedness among host market actors in Prato and Singapore.
The study advances the theoretical development of a network perspective of internationalisation by integrating network theories with the concepts of embeddedness and the liabilities of outsidership and foreignness. Findings reveal the significant influence of social networks as an informal institution on foreign ethnic Chinese, thereby highlighting the important roles of networks in institutional theory. Methodological contributions and implications for policy and practice are also discussed.