The international market selection of Chinese SMEs: How institutional influence overrides psychic distance

• Published in: International business review Vol. 29; no. 4; p. 101703
• Main Authors: Yan, Hongmin, Hu, Xiaowen, Liu, Yulong
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01-08-2020
• Subjects: Chinese SMEs; Government support; Guanxi; Home institutions; International market selection; Psychic distance; Government support; Home institutions; Guanxi; Psychic distance; International market selection; Chinese SMEs
• ISSN: 0969-5931; 1873-6149
• DOI: 10.1016/j.ibusrev.2020.101703

•Home institutions override psychic distance in shaping IMS of Chinese SMEs.•The important roles of formal government support and informal guanxi during IMS.•Informal institutions interact with formal institutions to influence IMS.•Nurture business and political guanxi to venture into distant markets.
The purpose of this research is to contribute to the ongoing debate about whether psychic distance still plays a vital role in the internationalisation of SMEs from emerging markets. Drawing on the prior research which suggests the salient impact of institutional factors on internationalisation, we investigate the role of home country institutions in international market selection. Adopting a multi-case methodology, we collected semi-structured interview data from six small and medium-sized manufacturing firms in China. Our findings suggest that while psychic distance is still important in some circumstances, both formal institutions, such as government support, and informal institutions, such as business and political guanxi, enable Chinese SMEs to choose psychically distant markets. Our findings also indicate that informal institutions interact with formal institutions to further influence SMEs’ international market selection. This research contributes to SME internationalisation studies by revealing how formal and informal institutional factors override psychic distance in influencing international market selection.