The globalization of state-owned multinational companies (SOMNCs) has become an important phenomenon, as state-owned enterprises (SOEs) extend their global reach through foreign investments and sovereign wealth funds. Although SOEs were historically seen as inefficient and bureaucratic, pro-market reforms have led to a new breed of competitive SOEs expanding internationally. To understand this trend, we must examine the changing logic and rationale behind SOEs, as well as how conventional theories of the firm like agency theory and transaction cost economics can be extended to analyze SOMNCs’ behavior given the state’s differing objectives as an owner.
Market imperfections and government ideologies drove historical creation of inefficient SOEs
SOEs emerged for two main reasons – addressing market imperfections and government ideologies/strategies. Market failures like public goods, externalities, information asymmetry and natural monopolies required government intervention, including direct ownership of firms instead of just regulation and taxation. This resulted in some inefficient SOEs. Beyond economics, communist, socialist and nationalist ideologies, as well as import substitution approaches, also led governments to create SOEs for political and developmental aims. But reforms have led to greater SOE efficiency.
Pro-market reforms created more competitive SOEs, enabling further international expansion
Traditional SOEs were seen as inefficient, bureaucratic and unfocused. But pro-market reforms compelled SOEs to be more business-minded, operationally efficient and profit-driven, while still fulfilling social objectives. This new breed of SOEs, exemplified by companies like China National Petroleum Corporation (CNPC), are now competitive enough to further expand globally compared to predecessor SOEs. Understanding their evolution is crucial to analyze their motivations and competitiveness as SOMNCs.
SOMNC internationalization extends IB theory and sheds light on state’s new global economic impact
The rise of SOMNCs sits at the intersection between international business (IB) and political economy. SOMNCs’ successful international expansion, despite differing state objectives, help extend IB theory about firm competitiveness. And their unique ownership structures require extending organizational economics theories like agency, transaction costs and resource based view. Overall, examining SOMNCs can reveal much about the state’s new role as an actor in global commerce.
Differing state objectives as SOMNC owner shapes firm behavior and demands tailored analysis
Conventional corporate governance theories have limitations in analyzing SOMNCs, as the state owner is not motivated purely by profit maximization. Its social and political objectives create unique governance challenges like triple agency conflicts between government, SOE execs and regular staff. And internationalization decisions are also affected by non-business goals. Thus analyzing SOMNCs needs a perspective tailored to the state as owner.
The rise of competitive SOMNCs from reformed, commercially-driven SOEs is an important phenomenon demonstrating the state’s increasing global economic impact. Analyzing SOMNC behavior requires extending IB and organizational economics theories to account for the state’s differing objectives compared to private owners. Ultimately, examining SOMNCs promises to reveal much about state capitalism in the 21st century global economy.