antecedents to government relationship building and the institutional contingencies in a transition...

ReseaRch aRticle

Abstract: 0 this study argues that the government-relationship building efforts by foreign invested en-

terprises (Fies) depend on the perceived level of regulatory uncertainties, which, in turn, is conditioned by the institutional distances between their home and host countries.

0 the regulatory antecedents (regulatory complexity and enforcement uncertainty) to govern-ment-relationship building by foreign-invested enterprises and the moderating effects of in-stitutional distance (regulative and cultural distances) in the context of the large transition economy of china are examined using a sample of 424 foreign-invested enterprises.

0 the results show that they tend to actively engage in government-relationship building when regulatory uncertainties (complexity and enforcement uncertainties) are high. the moderating analyses reveal the strengthening effects of regulative distances on the relationship between regulatory uncertainties and government-relationship building and the mixed effects of cul-tural distance.

Keywords: Regulatory complexity institutional distance Government relationship-building transition economy

Manag int Rev (2013) 53:579605DOi 10.1007/s11575-012-0167-7

Antecedents to Government Relationship Building and the Institutional Contingencies in a Transition Economy

Reuben Mondejar Hongxin Zhao

Received: 5.07.2011 / Revised: 1.08.2012 / Accepted: 20.08.2012 / Published online: 08.06.2013 springer Fachmedien Wiesbaden 2013

Prof. h. Zhao, PhD ()Boeing institute of international Business, John cook school of Business, saint louis University, saint louis, MO, Usae-mail: [email protected]

Prof. R. Mondejar, PhDDepartment of Management, city University of hong Kong, hong Kong, china

580 R. Mondejar and H. Zhao

Introduction

Why do foreign invested enterprises (Fies)1 engage in government relation-building activities? What roles does institution play? to address these questions, we draw on the perspectives of institution-based views of international business (Peng et al. 2008) and corporate political strategy (hillman and hitt 1999) to empirically examine (a) the regu-latory uncertainties as antecedents to the engagement in government-relationship build-ing in the context of a transition economy of china and the moderating effects of national institutional distance on such a relationship.

Government-relationship building represents the extent to which a foreign subsidiary engages itself in allocating its time and efforts to cultivate and develop relationships with various local governments and regulatory agencies (Peng 2000a). the emergent institution-based firm literature in transition economies (Child 1994; luo and tan 1999; Peng 1997; Peng 2000b; Peng et al. 2008) has increasingly recognized the government-relationship building as an essential strategic capability of firms in transition economies (Peng and heath 1996) to improve organizational innovativeness (luk et al. 2008) and firm performance (Peng and Luo 2000). However, the link between the specific institu-tional environment and the firm-level political endeavor remains underexplored (Rodri-guez et al. 2006). a number of empirical studies have examined the determinants of the government-business relationship (Blumentritt and Nigh 2002; hillman 2003; hillman and Wan 2005; Meznar and Nigh 1995).2 While these studies enriched our knowledge of the important role of government connections in firms political strategy, they provided little explanation why FIEs in the first place develop government relationships in the context of emerging economy and whether such non-market endeavors equally benefit FIEs. With the exception of Luos study (2001), a majority of the studies primarily con-fined their analyses to either U.S. firms in the American market (Meznar and Nigh 1995) or U.s. MNcs (Blumentritt 2003; Blumentritt and Nigh 2002; hillman 2003; hillman and Wan 2005). Moreover, the existing studies in the context of emerging markets have barely scratched the surface of the impact of both formal and informal institutions on the strategies of foreign entrants (Wright et al. 2005, p. 6). there is a lack of research on the institutional antecedents of post-entry political strategies (Rodriguez et al. 2006; hillman and Wan 2005) and more research is needed to examine the antecedents and consequences of the corporate political strategy (hillman et al. 2004).

To address the deficiencies, we integrate the emergent perspectives of the institution-based view of the iB strategy (Peng 2003; Peng et al. 2008; Peng and heath 1996) and corporate political strategy (hillman and hitt 1999) to develop and test a set of hypoth-eses on the regulative-distance moderated relationship between regulatory uncertainty and government-relationship building and the differential performance implications of cultural origin. acknowledging the multidimensional nature of institutions (Jackson and Deeg 2008), in this study we focus on two regulatory uncertaintiesregulatory complex-ity and enforcement uncertaintybecause these prominent attributes represent unpredict-able turbulences (Peng 2001) and regulatory interferences (luo 2002) that lead to poor investment protection and governance (la Porta et al. 2000) and determine the busi-ness success and failure in a transition economy (Roland and Verdier 2003). hypotheses addressing regulatory uncertainties and institutional distance factors suggested by institu-

581Antecedents to Government Relationship Building

tional arguments are tested using a data set that combines archival reports for the national institutional environment with primary data obtained through the survey of 424 Fies in china. the theoretical perspectives and empirical analyses help augment the exist-ing knowledge by answering recent calls for incorporating various institutional settings towards a better understanding of political strategies of MNcs (eden and lenway 2001; Blumentritt and Nigh 2002; hillman 2005; Rodriguez et al. 2006) and for more attention to institutional contingency in investigating multinational enterprises in emerging econo-mies (Meyer 2004).

china is the empirical setting for three reasons. First, after more than three decades of reform, the fundamental institutional changes and experiments have altered the competi-tive environment for firm operating in China (Keister 2002; Naughton 2007). However, the uncertain institutional environment still remains a key challenge to foreign-invested firms. For instance, based on a recent survey of 434 member firms, The American Cham-ber of Commerce in China identified enforcing contracts, unclear laws and regulations, and inconsistent regulatory interpretation among the top-five challenges (Business climate survey, american chamber of commerce 2011). thus, examining how Fies respond and cope with these dynamic and uncertain regulatory variations in a transition economy like china increases our knowledge in strategic research (child 2000). second, like other emerging economies with direct government interventions in various aspects of business operations (hoskisson et al. 2000; Peng 2000a), governments still continue exercising extensively the distributive power over resources through tax policies, land exploitation laws, and labor market regulations (li et al. 2008). Because the chinese laws ban political lobbying, FIEs are deprived of this venue to directly participate and influ-ence the government regulators by legal means. thus, this unique institutional landscape offers a challenging opportunity to scrutinize, refine, and test the existing management theories (Peng et al. 2001) and necessitates the need to examine why and whether Fies use government-relationship-building as a political strategy. Finally, given that overall governments in emerging economies remain a key resource provider that firms rely on (schipke 2001) and the institutions are less developed (Khanna and Palepu 1997, 2006), our study setting is particularly germane to future research beyond china to include other emerging economies. Theoretically, research findings in China can be corroborated in the context of other emerging economies to increase the validity of the propositions of this study and to add important new insights.

Theoretical Background and Hypotheses

We propose that a firms post-entry political strategy is vital, because regulatory hazards can consequentially undermine the value of already invested assets that are costly to be redeployed. as a regulatory environment constitutes the primacy of exogenous forces shaping corporate strategies (shaffer 1995), Fies in a transition economy engage in government-relationship building as a strategic action to mitigate the potential negative impacts of the institutional environment in order to achieve better performance. as a rela-tionship-based strategy, government-relationship building offers firms benefits such as navigating bureaucracy, accessing government-controlled critical resources, and enjoying


tax reductions (thun 2006). however, the extent to which a Fie engages in developing the relationship with host government depends on the regulatory conditions.

Foreign subsidiaries are embedded in an institutional environment that presents a reality consisting of the totality of physical, social characteristics and artifacts (Milliken 1987). as Rugman and Verbeke (1998) proposed that institutional reality drives the inter-actions between government and business, decision-makers perceptual differences in regulatory uncertainties can result in distinct managerial actions (Weick 1979) by Fies to formulate post-entry non-market strategies (Baron 1995) to actively influence the policy-making of the host government. this proposition is underpinned by the logics of insti-tutional and corporate political strategy perspectives. according to the institution-based view of iB, institutions provide a context that adds to the explanations of the competitions among industries and firms (Peng 2004; Peng et al. 2008). in a transition economy, the fundamental and comprehensive changes introduced to the formal and informal rules of the game affect organizations as players (Peng 2003, p. 275) and state-building of market reform inevitably results in inextricably intertwined interactions between markets and state (Fligstein 1996) that defines the rules of the game that promote certain types of behavior and restricts others through explicit regulative processes: Rule-setting, moni-toring, and sanctioning activities (scott 2001, p. 35). the various levels of government, as key providers of resources and rules/regulations in the social and economic systems, still retain considerable power to influence a firms external environment and their opera-tions (Peng 2000b; luo 2002).

One of the hallmarks of transition economies like china is dysfunctional competition that specifically refers to the extent to which the competition in a firms environment is opportunistic, unfair, or even unlawful in under-developed institutional environment (li and atuahene-Gima 2001). Moreover, the under-developed institution makes interpreta-tion and enforcement of regulations/rules uncertain. Particularly, formal political lobby-ing is banned in the context of china, which deprives FiFs the opportunities to voice their concerns and to directly influence policy-making. Consequentially FIFs have to spend lots of time and efforts in establishing and interacting with various government agencies. For example, a practitioners article published in China Brief of The American Cham-ber of Commerce in china considered developing strong relationship with government a crucial strategy to business operations in China and called for effectively and efficiently nurturing government relationships (christopher and Ou 2000). the very recent events of temporarily closing 13 Wal-Mart stores in china, reported by Wall street Journal, also demonstrated the high regulatory and enforcement uncertainty in china. as local govern-ments become more assertive toward foreign firms, Its clear now that there will be more uncertainty and less predictability of the law going forward, (Burkitt 2011). consistently, the latest american chamber of commerce survey of its 434 members located in vari-ous parts of china (Business climate survey, american chamber of commerce 2011) identified difficulty of enforcing contracts, unclear laws and regulations, and inconsistent regulatory interpretation among the top-five challenges. Thus, the fundamental changes in legal, social, and economic environments typically result in two salient regulatory attributes ( regulatory complexity and enforcement uncertainty) that constitute regulatory uncertainties for business entities. Our analytical model is given in Fig. 1.


Regulatory Complexity

Resulting from the proliferated and diverse regulatory issues, regulatory complexity sub-jects firms to a fragmented institutional setting with multiple institutional agencies with divergent interests. it represents a marked regulatory environment (Peng 2001) within which a large number of regulatory agencies with divergent interests are formed (hare and Davis 1997) and more layers of bureaucracy are added (child and lu 1996). the arguments for the relationship between regulatory complexity and government relation-ship building (GRB) can go both ways3. there are two plausible arguments for the nega-tive relationship. First, Fies may shy away from GRB, because the costs of undertaking GRB can potentially erodes the benefits of it, consequently obscuring the performance impacts. thus, Fies would rather concentrate their efforts and resources on the unam-biguous business activities. second, Fies operating in a complex regulatory environment may be also reluctant in embarking on GRB for fear of potential ethical and legal risks. GRB as a form of Guanxi in china context implies obligations to pay back favors (chen et al. 2004) and there is a dark side of it (Gu et al. 2008). it is warned that when rules and regulations are in flux, large investment in and the devious use of it can potentially result in personal gain or corporate corruption due to unethical manager and bureaucrat behavior (Vanhonacker 2004).

Nonetheless, we expect a positive relationship between regulatory complexity and GRB for the following reason. the heterogeneous actions of regulatory agencies with the absence of pattern aggravate the complex regulatory environment (Dess and Beard 1984) that sends diverse, opaque, and even contradictory signals that increase the cost of transactions and the search for needed information (Williamson 1991). Previous studies show that the imposition of inconsistent and divergent governmental policies and regula-tions on business enterprises (tan 1993), and the incompatibility of the new institutional framework with that of the Western countries further exacerbate the complexity (Boisot and child 1988). in addition, more government intervention through complex regulations leads to increased disruption, contributing to the deteriorating reputation for policy con-sistency and an increase in managers perception of uncertainty (Murtha 1993).

in coping with this regulatory environment, developing a cooperative relationship with local governments can be purposely designed and implemented for reducing ambiguity, gaining trust, obtaining information, and identifying entrepreneurial opportunities (Wong and chan 1999). Boisot and child (1988) stress the importance of establishing face-to-face relationships with members of governments in a transition economy. child (1994) argues that pursuit of this strategy enables foreign firms to have chances to obtain desired knowledge, information, and support from governments and to create a more favorable environment for the firms normal business activities. Thus, when facing a complex reg-ulatory environment, Fies are likely to engage vigorously in government relationship building that offers them the opportunity to communicate with government agencies in order to have a clearer and more precise understanding of the regulatory institutions in the local markets. therefore, we hypothesize:

Hypothesis 1: the more complex the perceived regulatory environment, the greater the extent a Fie engages in government-relationship building.


Enforcement Uncertainty

Enforcement uncertainty is perceptual and it mainly refers to a managers perceived inability to predict the future state of implementing and enforcing a regulation or rules. it often results from the long and slow process of creating a system of effective enforcement and of moral constraints on behavior (North 1990). even when some laws and regula-tions are promulgated, they may not be energetically enforced in a transition economy (amsden et al. 1994). in the context of china, the enforcement uncertainty stems mainly from two sources. The first is the newness of the regulations and policies in China. In the transitioning process, many new laws and rules have been adopted to meet the needs of social and economic development. Nonetheless, these fresh new rules lack precedents for enforcement. thus, without precedence on which to rely predicting the process and outcome, Fies perceive high enforcement uncertainty with respect to how these new laws and rules will be interpreted and applied. the aborted acquisition of Huiyuan Juice Group by coca-cola in 2009 immediately after the anti-trust law of china took effect in 2008 is an example. the enforcement uncertainty resulting from the newness of laws and regu-lations is further compounded by Chinas relatively newly-developed, dual-track legal system (judicial and administrative). the relatively new dual-track system, which lacks the separation of judicial decisions from government administrative decisions, creates enforcement uncertainty as the interrelated relationship between judicial and administra-tive agencies makes the enforcement responsibility ambiguous among agencies. thus, foreign investors often find it hard to determine which agency is in charge (as many bureaucracies can be involved), how long it takes to complete the entire judicial process, and how rigorous the new rules and laws will be applied. For instance, uncertainty affects problem resolution in issues of mortgages and land use rights because the chinese judi-ciary lacks experience in dealing with mortgage issues and there is no clearly independent judiciary (Randolph and lou 1999).

the second source of uncertainty is the retroactive enforcement that makes the enforce-ment unpredictable. For instance, trade union law promulgated in 1992 and amended in 2001 has remained silent about who should be directly responsible for the establishment of the union and there was no specific penalty or incentives for firms to form unions. Wal-

Fig. 1: the analytical model

Cultural Distance (H4 a & b)

Regulatory Complexity (H1)Enforcement Uncertainty (H2)

Government Relationship

Building

Regulative Distance (H3 a & b)

ControlsEntry ModeEthnicityCompetitive intensityZone location

FIE sizeLength of operationJob tenureIndustry accessIndustry dummies


Mart stores in 2006 were caught surprise when the government suddenly applied it to Wal-Mart, requiring it to form 22 labor unions within 4 weeks (www.policyinnovations.org/ideas/commentary/data/walmart_china).

Previous studies show that managers facing unpredictable environment tended to perceive greater uncertainty and have more information-processing needs (Dess and Beard 1984). thus, enforcement uncertainty represents an institutional hazard that fails to make compliance work and contributes to an uncertain environment where it is dif-ficult for a FIE to make decisions about strategic asset investment. Managers of FIEs might, for example, feel uncertain about the protection of their proprietary assets and the sales performance of their products due to the counterfeits of local competitors when the enforcement of intellectual property right laws and regulations are lacking. thus, to reduce enforcement uncertainty, Fies can develop a close linkage with government agen-cies responsible for enforcement for two purposes. First, because regulatory agencies are in a position to influence the interpretations of policies and rules, maintaining a network with government agencies in the face of high enforcement uncertainty in china allows Fies to better understand the position and behavioral patterns of legal enforcing agencies, and, hence, increases the ability of Fies to predict and develop contingent strategies to deal with the lacking enforcement. second, by keeping close contacts with government agencies, FIEs might be able to increase their ability to influence regulatory institutions in the long run. For example, when lack of enforcement prevents the attainment of busi-ness goals, or the presence of specific rules and mandates fails to protect the rights of Fies, a routinely maintained close relationship with government agencies enables Fies to identify quickly and communicate with the right agencies to influence the government to strengthen the enforcement. therefore, we hypothesize:

Hypothesis 2: the greater the perceived uncertainty of enforcement, the greater the extent to which a Fie engages in government-relationship building.

Moderating Roles of Institutional Distance

institutions are the humanly devised constraints that structure political, economic and social interactions. (North 1991, p. 97). Oliver (1997) posited that institutional contexts constrain firms optimal choice and use of resources. Different national institutional arrangements generate a particular systemic logic of economic actions and comparative advantages (Jackson and Deeg 2008) and institutions across various social and economic domains interact to form varieties of capitalisms across nations (hall and soskice 2001). Within different types of capitalism institutions, firms are constrained by institutional structures and context within which economic actions are coordinated differently along the spectrum of market and non-market mechanisms leading to different behavior and capabilities of firms across institutional environment (Hall and Soskice 2001).

MNEs activities inevitably interact with the changes in institutional environment (cantwell et al. 2010). institutional distance (Xu and shenkar 2002) connotes the dis-crepancies between FIEs home and host institutions in the form of rules and regulations (scott and Myer 1991), norms and rituals (DiMaggio and Powell 1991) that influence


their perception, behavior and actions. Following Xu et al. (2004), we focus on two dimensions: Regulative distance (formal) and cultural distance (informal).

Regulative Distance (RD) represents the realistic incongruity that can affect the com-munication, interpretation, and adjustment to institutional requirements (Kostova 1996). there are also competing arguments on the moderating role of perceived regulatory dis-tance4. One argument is that the narrow institutional distance between host and home country may possibly make it easy for firms to undertake GRB. Because FIEs operate in a host country with similar or narrow institutional differences, they may find it easy and convenient in dealing with the host government. For instance, the ability of firms from developing economies to manage in difficult institutional conditions, a capability they acquired in their home countries to survive and be successful there, may be useful in other developing countries that also have similar difficult institutional conditions (i.e., interven-ing government, poor national governance, etc.) and present similar problems.

Nonetheless, we propose that the large institutional distances between FIEs home country and china are likely to heighten the effects of the perceived regulatory complex-ity and enforcement uncertainty on GRB. as the phenomena of institutional distances enact realities (Weick 1995), how the institutional pressures are perceived and handled (Kostova and Roth 2002) can result in distinct managerial actions. When large regula-tive distances exist, the FIEs whose home countries regulatory systems are more fully developed and properly functioning than that of the host market are likely to conceive the local regulatory environment as less supportive and less conducive to their business. For instance, the existing reality of large regulative differences is more likely to amplify perceived uncertainty and risks, such as poor protection of intellectual property rights due to the weak enforcement, hence, prompt Fies to engage more extensively in develop-ing cooperative relationships with local governments to alleviate the potential negative impacts. therefore, we hypothesize:

Hypothesis 3 (a and b): The greater national regulative distance between a FIEs home and host country strengthens respectively the positive asso-ciation between (a) the perceived regulatory complexity and (b) enforcement uncertainty and the government-relationship building.

Cultural distance (CD) reflects the differences in the normative and cognitive domains of institution in terms of the shared values and norms of a group (Kostova and Zaheer 1999). large cultural distance engenders more perceived regulatory uncertainties. it interacts with regulatory uncertainties in two interrelated ways. First, operating in a high context cultural environment, Fies from low context culture are frustrated and are likely to per-ceive the regulatory information ambiguous and less transparent. thus, the regulatory environment is perceived more complex. Second, cultural distance also reflects the dif-ferent orientation towards and tolerance of risks and uncertainty. the more perceived complex regulatory environment due to the cultural distance as discussed the above can further enlarge the perceived uncertainty and risk potential in the regulatory environ-ment because of the different attitudes towards uncertainty avoidance. taken together, large cultural distance between FIEs home and hose country are likely to amplify the


perceived regulative complexity and enforcement uncertainty, thus prompts them to more actively engage in developing relationship with local government as a strategic means to mitigate theses regulatory uncertainties.

Hypothesis 4 (a and b): The greater cultural distance between a FIEs home and host coun-try strengthens respectively the positive association between (a) the perceived regulatory complexity and (b) enforcement uncer-tainty and the government-relationship building.

Method

Data

Data for hypotheses testing were collected by sampling Fies located in two areas of china: the Guangdong Province and shanghai. these areas are the most economically developed in china. We selected Fies from them for the purpose of isolating the possible effects of sub-institutional environments (Brouthers 2002). During data collection, we collaborated with management faculty in a business school in shanghai, as suggested by hoskisson et al. (2000). We used the directory of the foreign enterprise association in the Guangdong Province (containing basic firm-specific information of 3,486 FIEs) and a database maintained by a business school in Shanghai (containing basic FIE-specific information of 976 Fies located in the metropolitan area of shanghai). to build the sam-pling pool, we first selected FIEs from the two databases if they: (1) had operated in china for more than 3 years (time-lag effects of performance) (Peng and luo 2000); (2) were in manufacturing sectors (the service sector faces a very different set of government policies); and (3) invested at least Us$100,000 (small investors behave very differently from MNcs). the application of these criteria in the sample pool yielded 2,014 and 806 FIEs respectively in Guangdong and Shanghai. Then we randomly drew five hundred Fies from each. the questionnaire (described below) was mailed to top managers (deputy general manager/vice president or above) representing foreign investors as the incumbent position allows them to judge realistically the conditions of a regulatory environment that leads to their decisions and strategic choices (amason 1996).

We conducted two waves of mailings in order to increase the response rate. the sec-ond wave of surveys was mailed to those who did not respond three weeks after the first mailing. Leaving out the returned questionnaires that had significant incomplete infor-mation, we obtained 203 useable questionnaires from the Guangdong (39 % response rate = 203/500) and 221 from shanghai (44 % response rate = 221/500). this yielded a total of 424 sample Fies5. to examine the non-response and regional biases, the Kol-mogorov-smirnov two-sample test (siegel and castellan 1988) was run on the variables of subsidiary size and length between the returned and non-returned and between samples from two areas. The results showed no significant differences, indicating the absence of sample selection bias.

to avoid common method bias, we used three approaches. First, as suggested by Pod-sakoff and Organ (1986) and used by previous studies (see tsui et al. 1995), we put


the government relationship-building items before the two regulatory uncertainty vari-ables (independent variables) in our questionnaire to reduce the impact of a respondents implicit effectiveness tendency. second, we conducted a post hoc test by conducting a global factor analysis. None of the variables loaded on a single factor, nor did any single factor dominantly account for the majority of the variance, suggesting the non-existence of serious common method variance threats (Podsakoff and Organ 1986). lastly, the single data source bias was further reduced as the measures of regulative and cultural distance variable were from two different sources.

Measurements

as explained in detail below, with the exception for the questionnaire items for regulator complex and enforcement uncertainty that were developed based on the comprehensive survey of the related literature in transition economy and not from the existing instru-ment, all other research variables were adapted from the existing instruments. the ques-tionnaire was bilingual, double-sided, and reviewed by three scholars in international management and eight Fie managers to examine the content validity of the scale. to enhance the construct validity of measures (appendix 1), pretesting was conducted with twelve part-time eMBa students who hold management positions in Fies to detect weak-ness, clarify ambiguity, and improve the quality of the final version of the questionnaire (cooper and schindler 1998). the pretests indicate that respondents were familiar with and were capable of distinguishing the constructs of regulatory attributes and government relationship-building items.

Government-relationship Building

We adapted the items from hillman (2003), Blumentritt (2003), and luo (2001) as refer-ences to develop four items to assess the extent to which Fies actively engage in govern-ment relationship building. the items anchored with a scale of 1 (strongly disagree) to 5 (strongly agree) (Panel 1, Appendix 1). These items have high reliability ( = 0.895). thus, we used their mean in the analysis.

Regulatory Complexity

three items anchored with a scale of 1(strongly disagree) to 5 (strongly agree) (Panel 2, Appendix 1). The reliability of these items is = 0.842, so the mean is used.

Enforcement Uncertainty

We used three items anchored with a scale of 1 (strongly disagree) to 5 (strongly agree) to measure the enforcement uncertainty. again, we used their mean in the analysis, given the high reliability of the items: = 0.902.


ModeratorsRegulatory and Cultural Distances

We averaged three-year (20002002) scores of three items (regulatory quality, rule of law, and government effectiveness) as calculated by Kaufmann et al. (2009)6. We calcu-lated the regulative distance between china and 21 home countries of the sample using Kogut and Singhs (1989) formula:

where Iijstands for the score for ith regulatory dimensions and jth country, Vi is the vari-ance of the scores of the three regulatory dimensions, c indicates china, and RDj is regula-tive distance of the jth country from china. For cultural distance, it was calculated using the above Kogut and Singhs formula with Hofstedes five cultural dimensions7.

Controls

To account for potential confounds, four firm-specific, two demographic, three indus-try-specific control variables were included. Firm-specifics include: Size (natural log of the number of employees) (hillman and Wan 2005); entry mode (1 = the wholly-owned; 0 = joint venture) (Gomes-casseres 1990); zone (1 = in industrial zone), and length of operation (number of years established in china) (luo 2001). Demographics of respon-dents include: ethnicity (1 = chinese nationals) (Miller 1993) and job tenure (number of years of the respondents incumbency). Industry-specifics include: Industry competitive intensity8 (the data for these measures are from China Industrial Statistical Yearbook and Market Statistical Yearbook of China, 20002004), industry access coded into a dummy (1 = restricted, 0 = encouraged) because our sample firms fall into these two categories as designated by the chinese Ministry of commerce, and industry dummies.

Results

table 1 presents the mean, standard deviation, and correlations of both control and research variables. Following the two-step procedures suggested by anderson and Gerb-ing (1988), first we performed confirmatory factor analysis (CFA) of multi items measur-ing two regulatory constructs and government relationship building. second, we tested the hypotheses in the moderated multivariate regression.

Results of Confirmatory Factor Analysis (CFA)

Following hu and Bentler (1999), we used a fit index of 2, cFi, NFi, and RMsea. cFa results show that the three-factor model (two regulatory factors and government rela-tionship building) fits the data very well. The fit statistics for this model are: 2 = 72.71; D.F. = 59; CFI = 0.994; NFI = 0.99; and RMSEA = 0.028. All factor loadings are significant at p < 0.05. as suggested by Kline (1998) to use the chi-square difference for the discrimi-nant validity test, we also compared this model with a one-factor model (an alternative

RDj =3

i=1

{(Iij Iic

)2/Vi

}/3,


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56

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1314

1516

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(R

c)

4.24

0.66

1

2.

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rcem

ent

unce

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ty

( eU

)

2.87

0.80

0.13

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3.

Gov

t. re

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n-sh

ip b

uild

ing

3.78

0.80

0.15

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32**

1

4.

Reg

ulat

ory

dist

ance

(RD

)1.

590.

690.

120.

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0.17

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5.

cul

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( cD

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762.

090.

110.

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19*

0.09

1

6.

RD

x re

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ry c

ompl

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020.

480.

21*

0.15

*0.

23**

0.12

0.09

1

7.

RD

x

enfo

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ent

unce

rtain

ty

0.03

0.34

0.11

0.17

*0.

29**

0.08

0.13

*0.

081

8.

cD

x re

gula

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ry c

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262.

770.

080.

050.

090.

100.

120.

090.

061

9.

cD

x

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rcem

ent

unce

rtain

ty

0.40

1.86

0.05

0.09

0.11

0.07

0.13

0.09

0.06

0.09

1

10.

Fie

size

(log

#

of e

mpl

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)6.

021.

440.

070.

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0.08

0.04

0.10

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61

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leng

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9.08

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0.10

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0

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110.

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100.

080.

100.

031

12.

entry

mod

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= w

holly

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ned)

1.54

0.59

0.06

0.03

0.08

0.12

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070.

080.

040.

090.

110.

050.

101

13.

Zone

(1=

in-

dust

rial z

one)

0.32

0.41

0

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0

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0

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0.11

0.12

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020.

040.

080.

050.

060.

100.

091

14.

Job

tenu

re4.

372.

520.

050.

08

0.1

10.

020.

030.

080.

090.

100.

110.

070.

100.

050.

021

15.

ethn

icity

(c

hine

se =

1)0.

410.

490.

020.

07

0.1

6*

0.0

30.

070.

090.

110.

040.

090.

070.

020.

02

0.0

30.

061

Tabl

e 1:

Des

crip

tive

stat

istic

s


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12

34

56

78

910

1112

1314

1516

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tens

ity1.

370.

340.

110.

09

0.0

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per m

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0.10

27.

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mic

al fi

ber

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28.

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0

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29.

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al p

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10.

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0

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02

31.

spec

ial

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ose

equi

pmen

t

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13*

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02

32.

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t eq

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ent

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120.

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01

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03

34.

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troni

c eq

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ent

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20.

320.

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0.09

35.

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ent

0.02

80.

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010.

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06

the

num

bers

in th

e to

p ro

w c

orre

spon

d to

the

num

bers

in t

able

1 in

the

pape

r*p

< 0 .

10, *

*p

antecedents to government relationship building and the institutional contingencies in a transition...

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