Competing on Scale or Scope? Lessons from Chinese Firms’ Internationalization

“What determines the international success and failure of the firm?” is the fundamental issue in strategy (Rumelt, 1974; Peng, 2006). In emerging economies, most scholars have paid attention to how multinational enterprises (MNEs) successfully enter and compete effectively in these countries. However, relatively little is known on how firms in emerging economies develop their strategies to survive and thrive in this new world order (Arnold and Quelch, 1998; Li et al., 2006). There has been a debate on whether latercoming international players from emerging economies have varying catchup strategies different from the traditional strategies of MNEs (Dunning, 2006; Mathews, 2006; Narula, 2006). In the strategic behavior of large MNEs, both internationalization and product diversification play a key role. Building on the seminal work of Vernon (1966) and Rumelt (1974), international management scholars have explored the potential explanations for performance difference among MNEs (Stopford and Dunning, 1983; Hitt et al., 1997), and found that MNEs that employ dominant-constrained or related-constrained diversification strategies gain the highest levels of performance. They also found that the degree of internationalization of a MNE is positively correlated to the performance (Geringer et al., 1989). However, strategy management and international business literatures have often ignored the “latecomers” from periphery countries (Mathews, 2006). What are their strategies on internationalization? How can they overcome severe “resource position barriers” (Wernerfelt, 1984) with limited recourses? Based on data collected form China’s listed companies, we analyze how (1) industry dynamics, (2) resource repertoires, and (3) institutional transitions affect the scale and scope of firms to react to the pressure of globalization. We try to answer how the focus strategy or diversification strategy, combined with the degree of internationalization, relates to Chinese firms’ performance.