Governments as owners: State-owned multinational...

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Governments as owners: State-ownedmultinational companies

Alvaro Cuervo-Cazurra1,Andrew Inkpen2,Aldo Musacchio3 andKannan Ramaswamy2

1D’Amore-McKim School of Business,Northeastern University, Boston, USA;2Thunderbird School of Global ManagementQ2 ,Glendale; 3HarvardQ4 Business School; NationalBureau of Economic Research, Brandeis University,Waltham, USA

Correspondence:A Musacchio, Harvard Business School;National Bureau of Economic Research,Brandeis University, 415 South Street MS 032,Waltham, MA 02453, USA.Tel: 1-617-4960995;emailQ1 : [email protected]

Advance online publication citations for thisjournal have the following format:“Hutzschenreuter, T. & Voll, J. C. 2007. Per-formance effects of ‘added culturaldistance’ in the path of internationalexpansion: the case of German multinationalenterprises. Journal of International BusinessStudies, advance online publication 30 August.doi:10.1057/palgrave.jibs.8400312.”

Received: 28 January 2014Revised: 19 May 20142nd Revision: 11 July 2014Accepted: 12 July 2014Online publication date: •••

AbstractThe globalization of state-owned multinational companies (SOMNCs) hasbecome an important phenomenon in international business (IB), yet it hasreceived scant attention in the literature. We explain how the analysis ofSOMNCs can help advance the literature by extending our understanding ofstate-owned firms Q5(SOEs) and multinational companies (MNCs) in at least twoways. First, we cross-fertilize the IB and SOEs literatures in their analysis of foreigninvestment behavior and introduce two arguments: the extraterritoriality argu-ment, which helps explain how the MNC dimension of SOMNCs extends theSOE literature, and the non-business internationalization argument, which helpsexplain how the SOE dimension of SOMNCs extends the MNC literature.Second, we analyze how the study of SOMNCs can help develop new insightsof theories of firm behavior. In this respect, we introduce five arguments: thetriple agency conflict argument in agency theory; the owner risk argument intransaction costs economics; the advantage and disadvantage of ownershipargument in the resource-based view (RBV); the power escape argument inresource dependence theory; and the illegitimate ownership argument in neo-institutional theory. After our analysis, we introduce the papers in the specialissue that, collectively, reflect diverse and sophisticated research interest in thetopic of SOMNCs.Journal of International Business Studies (2014) 0, 1–24. doi:10.1057/jibs.2014.43

Keywords: state ownership; multinational corporations (MNCs) and enterprises (MNEs);firm objectives; internationalization; resource dependency; transaction cost theory, trans-action cost economics or transaction cost analysis

INTRODUCTIONThe globalization of state-owned multinational companies(SOMNCs) and the wide variety of approaches taken by the state asa cross-border investor has become an important phenomenon.State-owned enterprises (SOEs) from emerging economies such asBrazil, China, India, Kuwait, Malaysia, Russia and Saudi Arabia, andfrom advanced economies such as Denmark, France, Norway andSouth Korea, have extended their global reach (The Economist, 2012).While some of the SOEs in natural resource-based sectors, such asmining and oil and gas, had internationalized in the middle of thetwentieth century, other SOEs – specializing in technology-basedsegments such as nuclear power generation, automobile manufac-turing and telecommunication equipment or in services such asbanking, transportation and construction – have only recently

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expanded outside their domestic borders. By 2010,there were at least 650 SOMNCs with more than8500 foreign affiliates, of which about 44% werefrom advanced economies. Even if such number ofSOMNCs seems small compared to the over 100,000MNCs in the world, SOMNCs are extremely large insize; in 2010 there were 19 SOMNCs among the 100largest MNCs in the world (UNCTAD, 2011: 28).SOMNCs that appear among the 200 largest non-financial MNCs in the world had invested abroad US$1.8 trillion (Sauvant & Strauss, 2012). Foreigninvestments by Sovereign Wealth Funds (SWFs)have emerged as yet another vehicle for channelingstate investments in the global arena (Sauvant,Sachs, & Schmit Jongbloed, 2012). Taken together,the patterns of state investment abroad demandmore focused research attention from internationalbusiness (IB) scholars.Despite the global expansion of SOMNCs, IB scho-

lars’ study of these firms has been limited (with notableearly exceptions like Aharoni, 1986; Anastassopoulos,Blanc, & Dussauge, 1987; Mazzolini, 1979; Vernon,1979; and more recent studies like Buckley, Clegg,Cross, Liu, Voss, & Zheng, 2007; Cui & Jiang,2012; Knutsen, Rygh, & Hveem, 2011; Shapiro &Globerman, 2012; and the papers in this special issue).This gap in the IB literature is perhaps due to the factthat the internationalization of SOMNCs on a massivescale is indeed a relatively new phenomenon. Giventhe usual domestic focus of SOEs, the globalization ofthese enterprises might not have been of sufficientinterest to IB scholars in the past. Further, much of theextant literature in IB has tended to characterizegovernments and business as antagonists, bargainingover shares of rents in host country contexts, asillustrated by Vernon (1979) and Stopford, Strange,and Henley (1992), a perspective that might haveunwittingly limited deeper interest in the internatio-nalization of SOMNCs. Much of the received wisdomon SOEs has therefore originated in the public admin-istration, developmental economics and political econ-omy literatures. Although these fields have developedcrucial insights into the forms and functions of SOEs,we know precious little about their internationalimpacts and aspirations in the global arena.To remedy this gap, in this paper we analyze how

the study of SOMNCs can help extend the literature.We do this in two ways. First, we contend that thestudy of SOMNCs sits at an important crossroadsbetween IB and political economy and that the twofields can benefit from a cross-fertilization of insights;IB phenomena in general are complex in nature andamenable to interdisciplinary approaches (Cheng,

Henisz, Roth, & Swaminathan, 2009). Hence, wepropose that the successful internationalization ofsome SOMNCs can help extend existing theoreticalapproaches and assumptions about the competitive-ness and behavior of SOEs and their evolution intomultinational companies (MNCs). We thereforeintroduce two arguments that reflect this cross-fertili-zation of the IB and SOE literatures. First, we proposethe extraterritoriality argument, which explains howthe MNC dimension of SOMNCs extends the SOEliterature. Second, we introduce the non-businessinternationalization argument, which helps explainhow the SOE dimension of SOMNCs extends the IBliterature.Second, we propose that the study of SOMNCs not

only can extend our understanding of the topics ofMNCs and SOEs via cross-fertilization but also canextend existing theories of the firm by taking intoaccount some of the particularities of SOMNCs thattraditional theoretical arguments have not consid-ered in depth. Specifically, we explain how agencytheory, transaction costs theory, the RBV, resourcedependence theory and neo-institutional theory canbe extended by taking into account the differingobjectives of the state as an owner. We discuss howthese differing objectives modify the predictions ofthe theories in the internationalization of the firmand introduce five arguments: the triple agency con-flict argument to extend agency theory; the ownerrisk argument to extend transaction cost economics;the advantage and disadvantage of ownership argu-ment to extend resource-based theory; the powerescape argument to extend resource dependence;and the illegitimate ownership argument to extendneo-institutional theory.We conclude this introduction with a review of the

articles that compose this special issue, explaininghow as a group they extend theory and providea better understanding of the phenomenon ofSOMNCs. The article serves as an integrative plat-form to help IB scholars address the core issues thatdominate debates on the global role of SOEs, SWFsand state-sponsored foreign direct investment (FDI)sourcing agencies, which are collectively reshapingthe impact of the state in global economic activity.

THE CHANGING LANDSCAPE OF SOEsThe classical view of SOEs has typically been framedaround dimensions of efficiency, productivity andadministrative bureaucracy originating in the conflict-ing operational, financial and social objectives facedby these enterprises. Thus, much of the extant litera-ture tends to view SOEs as inefficient, bureaucratic

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entities that are poorlymanagedwithout coherence intheir strategy and resource allocation decisions, andthat as a result they are less efficient in state than inprivate hands (see a review in Megginson & Netter,2001, and for a recent analysis see Arocena &Oliveros,2012; for a counter argument see Pryke, 1971). How-ever, we contend that the time is ripe to revise thisclassical view because in many of the market econo-mies, SOEs have undergone enormous change spurredmostly by the pro-market reforms that swept throughEurope, Latin America and Asia. Although SOEs haveexisted for a long time, these changes have heraldedthe rise of a new breed of SOEs that have shed some ofthe shortcomings of their predecessors as they focusmore intently on the global arena.Hence, to provide a context for understanding the

global behaviors of SOEs, we now present a briefdiscussion of the fundamental building blocks ofestablished theory on state ownership, the rationalebehind the emergence of SOEs and the contempor-ary changes that have redefined our understandingof these organizations. We acknowledge that thereare differences across countries, industries, SOEs andmanagers, but for the sake of simplification wepresent now some general arguments.

The Logic of SOEsThere are two traditional explanations for the exis-tence of SOEs: an economic one that centers on thesolution of market imperfections and a political onethat centers on the ideology and political strategy ofgovernment officials regarding the private owner-ship of particular productive assets. In practice, mostgovernments use amix of both to justify the creationof SOEs, but here we separate them for analyticalpurposes.

Market imperfectionsIn economics, state ownership of firms tends to bejustified as one solution to market failures. Whenmarkets are unable to efficiently allocate products orresources to the most welfare-enhancing use, gov-ernment officials are compelled to intervene toaddress these inefficiencies using an array of instru-ments such as taxation, regulation or direct owner-ship; the latter instrument resultsQ6 in the creation ofSOEs (see Levy, 1987; Lindsay, 1976; and a review inLawson, 1994). Market failures can take severalforms: public goods, in which the rival and non-excludable nature of their consumption will result intheir depletion; positive externalities, in which theproviders of the externalities are not compensatedfor this effect and thus will underprovide them to

society; negative externalities, in which the genera-tors of the externalities do not have to pay for theseeffects and thus will overprovide them to society;information asymmetries, which result in moralhazard and adverse selection problems; incompletemarkets, in which consumers cannot obtain theproducts even if they are willing to pay their price;and natural monopolies, in which it is more efficientfor society to have one provider than to havecompetition among several firms, and thus there isthe danger of undersupply or overpricing.A government can address market failures via

several mechanisms (see a review in Laffont &Tirole, 1993). It can tax behavior, either with directsubsidies to promote the behavior or with additionaltaxes to discourage it. It can regulate behavior bylimiting the actions of companies or mandating thatcompanies take certain actions. It can also choose tobe the provider of the goods to society. This thirdmechanismmay result in the creation of SOEs, as thegovernment may choose to supply the good directlyinstead of via an SOE. The selection of the bestoption among the mechanisms is rarely clear-cutand will depend on the complexity of the marketfailure as well as the ability of the state apparatus tomonitor and implement the mechanism. Govern-ments suffer from government failures (Le Grand,1991), which can take the form of state capture, lackof technical capacity to run firms and crowding out,ultimately limiting their ability to effectively man-age SOEs.

Ideologies and political strategiesAn alternative to the market failure explanation takesa political point of view and explains the existence ofSOEs as a result of the ideology and the politicalstrategy of government officials regarding privateownership of particular productive assets.1 We candistinguish four types of economic ideologies orpolitical strategies that, despite their differences, allresult in the creation of SOEs2: communism Q7, nation-alism, social and strategic. First is the economiccommunist3 ideology, which justifies the creation ofSOEs and the nationalization of private firms as aresponse to the accumulation of wealth in the handsof private owners at the expense of workers and theneed for the government to address this injustice, asdelineated by Marx (1906) and Marx and Engels(1893). Under this view, citizens are the rightfulowners of companies and land, and the state becomesthe de-facto owner of companies in the name of thecitizens of the country. A milder version is socialism,which induces the creation of SOEs alongside the

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regulation of private enterprise. Second is the eco-nomic nationalist ideology, which argues that thegovernment needs to create SOEs to speed up thedevelopment of the country and address the inabil-ity of private enterprise to achieve this. An alterna-tive political strategy, which can or cannot besustained by a nationalist ideology, relies on importsubstitution models of development (Bruton, 1998)or the need for the government to control the“commanding heights,” that is firms with importantbackward and forward linkages (Jones & Mason,1982; Rodrick, 2007). According to the import sub-stitution approach, the logic of government inter-vention is a mixture of a desire to reduce dependenceon imports and foreign companies, and a desire toreduce the power of the private owners in industry(Cardoso & Faletto, 1979; Prebisch, 1959; Vernon,1979). The commandingQ8 heights view is based onthe idea that local entrepreneurs did notQ9 have thecapacity, interest or foresight to invest in the devel-opment of large-scale projects with important for-ward and backward linkages and that were,therefore, necessary for the industrialization of thecountry. Local firms sold their output in a protectedmarket and both nationalization and the creation ofSOEs filled in the void left by private entrepreneurs.Third is an economic social ideology that proposesthat the government needs to invest in SOEs tofacilitate the achievement of socially desirable objec-tives, such as education, health care, or povertyreduction. In such cases, the political strategy of thegovernment promoted redistribution and ques-tioned the ability of private entrepreneurs to achievesocial objectives. Fourth is the economic strategicideology that justifies the creation of SOEs as beingstrategic for the country, such as defense. The defini-tion of which industries have strategic merit andrequire SOEs varies across countries based on theparticular perspectives and political strategies ofgovernments and politicians.

A Typology of SOEsWhile many of the SOEs across the globe sharefounding objectives that indeed converge aroundthe need to alleviate market imperfections, fosterinvestment in social welfare sectors or generateemployment at home, these organizational formshave witnessed significant transformations as manyhave emerged to become MNCs in their own right.The historical perception of SOEs is rooted in theview that these organizational forms were solelycreated by state capital, managed by politicalappointees and chartered to serve the collective good

of the country at large (Ramaswamy, Renforth, &Ramaswamy, 1995; Ramaswamy, 2001; Shleifer &Vishny, 1998). SOEs such as the Russian oil and gasfirm Gazprom, the Mexican oil firm Pemex or theIndian engineering firm BHEL are examples of suchentities that once typified this genre. As a result,many of these SOEs confined their operations totheir home countries and usually internationalizedvia exports, especially of raw materials or energyproducts, to provide foreign exchange to the homegovernments (Aharoni, 1986; Anastassopoulos et al.,1987; Vernon, 1979).As many capitalist and mixed economies

embraced pro-market reforms, and the centrallydirected economic structures of the communistcountries fell apart in the last quarter of the twen-tieth century (Yergin & Stanislaw, 1998), manyprototypical SOEs were radically redesigned. Theprivatization processes of the late twentieth centuryresulted in a reduction in SOE numbers, through fullprivatization of many such firms, and in the trans-formation of others into partially privatized firms. AsSOEs became minority state owned or fully private,their managerial behavior changed (see Inoue,Lazzarini, & Musacchio, 2013; Ramaswamy, 2001and Ramaswamy and von Glinow, 2000 for a discus-sion of some of these changes in the Indian context).In many instances governments privatized controland kept minority stakes with so-called “goldenshares,” which gave them veto rights over majordecisions such as mergers and acquisitions. Theseprivatization processes resulted in a large interest inthe literature that tended to justify their privatiza-tion by arguing that SOEs were less efficient thanprivate companies (see reviews in Megginson &Netter, 2001; Vickers & Yarrow, 1988). However,the privatization processes did not spell the end ofstate ownership of companies. Instead they markedthe beginning of a new range of organizations thatrepresent innovative hybrids of state and privatecapital, spanning both local and foreign domains,more likely viewed as vehicles for the state toexercise its foreign policy and diplomacy goalsalongside conventional social and financial objec-tives. While some firms became fully independentprivate companies or were sold to private investors,in many other cases governments kept a portion ofthe equity in the privatized firms or kept control ofsuch firms, sharing ownership with a variety ofinstitutional and individual investors via joint ven-tures or via partial sales in the stock market. Addi-tionally, some governments maintained majorityand minority equity positions in firms through

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holding companies, state-owned pension funds,development banks or SWFs (Musacchio & Lazzarini,2014). Other SOEs simply went out of business andtheir assets were sold.At the same time, reductions in trade and invest-

ment barriers coupled with advances in transporta-tion and communication technologies facilitatedthe transformation of many remaining SOEs intoSOMNCs, with SOEs redirecting their attention tothe global economy and investing outside theircountries. Notwithstanding the earlier expansionsacross borders by SOEs in the oil industry, SOMNCsemerged as an important and little understood forcein the global economy, leading to a renewed interestin these firms, both in the popular press (TheEconomist, 2012) and in academic analyses (Buckleyet al., 2007; Cui & Jiang, 2012; Gerard, 2007;Knutsen et al., 2011; Musacchio & Lazzarini, 2014;Shapiro & Globerman, 2012).To clarify the analysis, in Table 1 we introduce a

typology of organizations under government own-ership based on three criteria. The first criterion isthe legal existence of the firm. We distinguishbetween state agencies that behave like companiesbut are not legally separate from the state and havebudgets that are part of the national budget, fromthose that are legally separate companies with theirown budgets. Thus, SOEs can be viewed as enter-prises that produce and sell goods and services, asopposed to government entities in charge of pro-viding public services such as health care, educa-tion or security (Aharoni, 1986).4 The provision ofpublic services can be done by either SOEs or stateagencies. The second criterion deals with how stateownership is exercised: directly via the control offirm shares by the state or indirectly via the controlof shares by state-owned entities, such as SWFs,state-owned pension funds or convertible loansfrom state-owned banks. The third criterion is thedegree of state ownership in the firm. Here we canseparate state ownership into three types: fullyowned, when the government owns all of theshares of the firm; majority owned, when thegovernment own most of the shares of the firm;and minority owned, when the government ownsless than the majority of the shares of the firm; oneparticular type of minority ownership is a goldenshare controlled firm, when the government onlyowns one share that grants it veto power overmajor strategic decisions such as mergers andacquisitions or foreign control. Hence, we defineSOEs as legally independent firms with direct own-ership by the state.

Although we classify SOEs by their level of owner-ship, the analysis of control in SOEs requires addi-tional care because the traditional one-share, one-vote rule that governs voting rights may not be aseffective in the case of SOEs. Although we implicitlyequate ownership control with operating control, werecognize that these two dimensions need not neces-sarily vary in step with each other. We use theconcept of effective ownership to underscore that itis an amalgam of both the level of ownership as wellas the means to exercise control over the entity (e.g.,through golden shares or voting rights provisions). Itis possible that the government can exercise signifi-cant operating control over the SOE even though itmight own a relatively smaller share of the company.The government can operate not only as owner of theSOE but also as regulator and referee for SOE activ-ities. Regulations can be applied in the government’sfavor and at the expense of other shareholders. Thus,even with a minority stake in a firm, and with largerprivate shareholders or even with the SOE beingquoted on foreign exchanges, the government canexercise an influence far above the proportion ofequity it holds. For example, in 2009 the Braziliangovernment, as a minority shareholder, allied withthe pension funds of SOEs and banks to create a blockof shareholders powerful enough to oust the CEO ofthe Brazilian mining firm Vale and to steer thecompany to invest in steel mills (Musacchio &Lazzarini, 2014). Alternatively, it can also be the casethat even in majority-owned firms politicians decideto appoint professional managers to run the SOE andgive them autonomy on business decisions, notinterfering on the actions taken by the firm. Thus,specific predictions regarding expected behavior needto be qualified by the particular characteristics of theSOE and its governance structure.This classification is important not only for clarify-

ing the multiple ways in which the government mayown firms, but also for understanding patterns oftheir potential internationalization strategies. Build-ing on the classification system we have presentedabove, and notwithstanding particular governancestructures of specific SOEs, we propose that the mostlikely types of SOEs that would seek to internationa-lize would be the ones that are effectively whollyowned or majority owned by the state. In these firmsboth government officials and SOE managers havethe incentive to internationalize the firm, althoughpossibly for conflicting reasons: SOE managers mayseek international markets to strengthen and growthe firm, while government officials may be focusedon international political objectives independent of



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SOE competitive outcomes. As the state dilutes itseffective ownership and influence over firms, wewould expect to find firms following strategies andactions that are more likely to focus on financialperformance over any other social or political objec-tives. Hence, fully owned and majority-owned firmsare more likely to pursue non-business objectivesthan minority-owned firms because external share-holders act as a counterbalance to the imposition ofnon-business objectives in the firm. Nevertheless,these firms will not function fully as private firmssince the government may still exert influence overthem. For instance, when the government holdsonly a golden share, it can block crucial internatio-nalization efforts perceived as detrimental to itsinterests even though such efforts might be deemedprofitable by shareholders.In contrast to SOEs, firms that are indirectly owned

by the government via SWFs, state pension funds orstate banks are likely to follow similar behaviors toprivate firms in their internationalization becausethe government has a limited ability to direct theirbehavior; the government is not a direct owner. Infact, it is possible that these firms may even haveadvantages over private firms to internationalize asthey may have access to subsidized capital from thegovernment that they can use to purchase subsidi-aries or open new operations abroad. Moreover,these firms are likely to be more focused on achiev-ing high levels of performance than other state-owned firms (SOEs) because the government inter-mediaries have the mandate to achieve a return ontheir investments. For instance, SWFs need to ensurethe future wealth of the country; state-owned pen-sion funds need to ensure the future payment ofpensions; and state-owned banks need to ensure therepayment of loans. As a result, these shareholdersare more likely to demand that the company achievesuperior performance than what would be expectedof firms that are directly owned and controlled bythe government. Finally, state agencies are not likelyto engage in international markets because, as theyare not independent companies, they are not able tocontract independently from the state. At most theymay be able to import to supply their operations.While the classification suggested here attempts to

capture most of the broad themes that drive finerdifferences across a broad range of SOEs, alternativeclassification schemes may well be able to provideadditional insights. For example, drawing on thenotion of multiple, different recipes (Rodrik, 2007),one could argue that the origins of the SOE (i.e.,whether the enterprise was a de novo creation by theTa

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government, or a product of nationalization of anexisting enterprise) have different implications forthe internationalization pathways and aspirationsthat characterize the SOE. Further, the ownershiproots of the SOE enterprise, whether the SOEs origi-nated in the nationalization of domestic privatelyowned firms or the nationalization of foreign-ownedenterprises, have an important bearing on subse-quent internationalization choices. For example, inthe oil industry, a cursory juxtaposition of the Rus-sian SOE Gazprom and the Saudi SOE Saudi Aramco,which was originally founded as the US-based Cali-fornia-Arabian Standard Oil Company and laternationalized, illustrates the insights that can emergefrom such classification. Gazprom has been a veryardent proponent of global expansion, partly pro-pelled by its history and founding, the politicalcurrents in the country, and its preeminent positionas a generator of foreign exchange for the treasury. Incontrast, Saudi Aramco has been a reluctant globali-zer, being more active in setting up and managingjoint ventures to extend its own value creationopportunities at home. Having benefited from itsorigins as a foreign-owned company, it enjoyed ahead start with respect to technology, standard pro-cess and procedures, and management systems, allareas of weakness among its many SOE peers else-where. These advantages accruing from its ownershipheritage have allowed the company the luxury of abetter planned internalization effort, unlike its peersthat have been forced to go overseas to secure tech-nology inputs among other resources.Having developed a typology of internationaliza-

tion behavior across different types of SOEs, webelieve that the foundation has been laid for inte-grating disparate streams of research in the fields ofSOEs and IB.

SOMNCs AS A LABORATORY FOR EXTENDINGTHEORY

We define an SOMNC as a legally independent firmwith direct ownership by the state that has value-adding activities outside its home country. Thesevalue-added activities can be downstream activitiessuch as production facilities or sales subsidiaries, astend to be assumed when one thinks about a multi-national company, or upstream activities such aspurchasing subsidiaries or design or R&D centers.Although SOEs vary in their level of ownership fromfull to majority to minority, in order to simplify thediscussion we do not dwell on the differences amonglevels of ownership.

Table 2 provides a snapshot of the largest SOMNCsby foreign assets in 2010. This is a limited list of thelargest firms because there is no readily availableranking of the largest SOMNCs akin to the FortuneGlobal 500 or Forbes Global 2000 rankings of pub-licly traded firms. SOMNCs were extremely largefirms and, contrary to the view of SOEs in theprivatization literature, they were actually profitableand highly internationalized, with an average of46% of revenues coming from foreign operations.An additional way to gauge the importance ofSOMNCs is to look at the Fortune Global 500 list oflargest firms by revenues. Of the Top 100 firms in2012, 27 are SOEs and 23 are SOMNCs. The 23SOMNCs among the 100 largest firms in the worldseem to be relatively profitable firms, with an aver-age ROA of 3.44% and an operating margin of 14%.Using data from Fortune Global 500 and S&P, Capi-tal IQ, their performance seems more impressive ifwe consider that the top 73 private firms in theworld have an average ROA and operating marginof 3.19 and 5.7%, respectively.We now discuss two alternative approaches for

extending theory using SOMNCs as a laboratory. Thefirst one takes an interdisciplinary approach andcombines insights from alternative streams of litera-ture to enrich the insights of existing arguments. Thesecond one uses a single theory approach and usesthe setting of SOMNCs to extend the traditionalarguments of the theory and accommodate some ofthe particularities of SOMNCs. These two approachesare reflected in the papers that compose this specialissue, with some incorporating insights from differentliteratures to explain the behavior of SOMNCs whileothers extend one theory by analyzing SOMNCs.

SOMNCs: Extending the Literatures on SOEs andMNCsAlthough there are clear logics that explain theexistence of SOEs, the logics that explain the inter-nationalization of these firms and their transforma-tion into SOMNCs is less obvious. The study ofSOMNCs can extend our understanding of the SOEliterature using insights from the MNC literature andalso extend our comprehension of theMNC literatureby using insight from the SOE literature. This reiter-ates the value of an interdisciplinary approach foranalyzing complex phenomena (Cheng et al., 2009).The result is two arguments that can be analyzed inmore depth and tested in future studies: the extra-territoriality argument and the non-business interna-tionalization argument. Table 3 summarizes them.One clarification is that these arguments focus on



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Table 2 Largest Non-Financial SOMNCs in 2010 rankedQ15 by Foreign Assets

SOMNC Economy Industry Total assets($ millions)

Percentage offoreign assets

Total revenues($ millions)

Foreign revenues(as a percentage of

total sales)

Home governmentownership

stake (as a percentage ofvoting equity)a

Government as a majorityshareholderÉlectricité de France France Utilities 321,431 51 86,311 39% 84.51Vattenfall AB Sweden Electricity, gas and water 80,694 67 29,632 76% 100.00Statoil AS Norway Natural resources 109,728 46 87,144 22% 67.00CITIC China Diversified 315,433 14 30,605 36% 100.00Petroliam Nasional Berhad

(Petronas)Malaysia Natural resources 145,099 27 76,822 45% 100.00

Japan Tobacco Inc. Japan Food/processing 43,108 73 72,273 43% 50.00China Ocean Shipping China Transportation, shipping and

storage36,287 77 27,908 66% 100.00

SingaporeTelecommunications Ltd.

Singapore Telecommunications 27,151 83 11,814 64% 54.46

Qatar Telecom Qatar Telecommunications 23,335 79 6600 77% 55.00Petroleo Brasileiro SA Brazil Natural resources 200,270 7 115,892 25% 66.00Abu Dhabi National Energy

CompanyUAE Utilities 25,009 57 4590 67% 100.00

Petróleos de Venezuela SA Venezuela Natural resources 149,601 8 74,996 43% 100.00China National Petroleum China Natural resources 325,327 4 178,343 3% 100.00Oil and Natural Gas

CorporationIndia Natural resources 37,223 28 21,445 14% 74.14

DP World Limited UAE Transport and storage 18,961 49 2929 40% 80.45b

Axiata Malaysia Telecommunications 10,847 83 3719 52% 97.72Sinochem Group China Natural resources 25,132 32 35,577 77% 100.00China Resources Enterprises HK/China Natural resources 9731 80 8273 89% 51.38China National Offshore Oil

Corp.China Natural resources 75,913 9 30,680 16% 100.00

Sime Darby Berhad Malaysia Diversified 10,061 43 8827 69% 51.93China Railway Construction

CorporationChina Construction 41,444 9 50,501 6% 100.00

China Minmetals Corp. China Natural resources 18,889 12 24,956 16% 100.00Neptune Orient Lines Ltd. Singapore Transportation and storage 5341 41 6516 75% 68.00

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Volkswagen Group Germany Automobile 266,426 63 168,046 77% 20.00GDF Suez France Utilities 246,736 62 111,891 63% 36.50EnelSpA Italy Electricity, gas and water 224,548 54 95,289 57% 31.24Eni Group Italy Natural resources 176,189 61 130,494 51% 30.30Deutsche Telekom AG Germany Telecommunications 170,780 61 82,677 56% 32.00Eads The

NetherlandsDefense 111,153 63 60,599 90% 22.40c

General Motors USA Automobile 138,898 50 135,592 42% 32.00France Telecom France Telecommunications 125,970 50 60,269 41% 26.97Veolia Environnement SA France Electricity, gas and water 68,829 77 46,075 64% 13.74Vale SA Brazil Mining 129,139 38 46,481 82% 39.70d

Deutsche Post Germany Transportation, shipping andstorage

50,458 77 68,187 68% 30.50

Renault France Automobile 93,676 35 51,617 67% 17.86TeliaSonera AB Sweden Telecommunications 37,342 83 14,788 66% 37.30Zain Kuwait Telecommunications 19,863 96 8054 85% 49.20Tata Steel Ltd. India Metal and metal products 24,419 64 21,580 74% 15.74MTN Group Limited South Africa Telecommunications 21,170 68 13,344 64% 17.63Capital and Limited Singapore Construction and real estate 21,495 48 2033 67% 40.90First Pacific Company

LimitedHK/China Electrical and electronic

equipment9397 97 3926 100% 10.37

Sasol Limited South Africa Chemicals 18,977 35 21,676 36% 30.00e

Steinhoff InternationalHoldings

South Africa Diversified 7194 70 5636 62% 14.89

Sappi Limited South Africa Wood and paper products 7297 66 5369 78% 11.90Lenovo Group China Electrical and electronic

equipment8956 44 16,605 52% 42.00f

VimpelCom RussianFederation

Telecommunications 15,725 24 10,117 15% 36.36g

Agility Public WarehousingCompany

Kuwait Construction and real estate 6221 54 5976 58% 15.00

ZTE Corporation China Telecommunications andmanufacturing

10,173 30 8823 50% 32.45

TPV Technology Limited China Wholesale trade 4155 64 8032 70% 35.06

Sources: Sauvant and Strauss (2012), created with data from UNCTAD (2011), and Musacchio and Lazzarini (2009), Tables 2–7 and Figures 1–9.Notes: aMost of the ownership stakes represent the percentage of voting equity the government controls; in other instances the figures represent a percentage of total capital, depending on availability.bOwned by the Government of Dubai.cSOGEADE is controlled by SOGEPA, a wholly owned SOE under the control of the French government.dThe Government of Brazil controls only 6.9% of equity in Vale, through its investment arm BNDESPAR. However, the firm that controls Vale with 53.9% of voting shares, Valepar, is controlled byBNDESPAR (21.2%) and Litel (49%), which in turn are controlled by a consortia of pension funds from SOEs. See Musacchio and Lazzarini (2014), Chapter 9.eOut of which 13.3% is held by the Government Employees Pension Fund.fThe Chinese government holds 36% of Legend Holdings, the controlling shareholder of Lenovo.gShares held by Telenor, a telecommunications company controlled by the Government of Norway.

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SOMNCs as a particular type of MNCs by theirownership; there are many actions and behaviors inwhich SOMNCs behave similarly to private MNCs,which we do not discuss as they do not highlight theuniqueness of SOMNCs.

The extraterritoriality argument: How the MNCdimension of SOMNCs extends the SOE literatureThe twin logics of the existence of SOEs (marketimperfections and ideology/political strategy) workwell in a domestic setting, where the governmenthas the right to impose rules and regulations and theincentive to promote citizens’ welfare. However,SOMNCs’ foreign investments pose a dilemma tothese logics because such investments are made inlocations outside the territory in which the homegovernment can pass laws and regulations, whichquestions the premise that the government acts tohelp its citizens. We call this the extraterritorialityargument.The multinationality dimension of the SOMNC

requires us to rethink the existence of market imper-fections in the home country as the logic for SOEsand consider extraterritorial market imperfections,in addition to traditional factor and market imper-fections that drive both private and SOEs to inter-nationalize as we discuss below. The standardmarket imperfection logic of the SOE solving marketimperfections at home to support the well-being ofits citizens is less applicable when the SOMNCinvests abroad. When the SOE invests abroad, thegovernment is, in effect, increasing the welfare ofcitizens of another country by addressing marketimperfections there, replacing the host country gov-ernment as the solver of such imperfections. Thisrequires an extraterritorial view of the governmentowning firms to address market imperfections.Moreover, a common government view about FDIby domestic companies is that such investments aredetrimental to the home country because they aremade at the expense of domestic investment andtaxes (Dutton, 1982; Joint Committee on Taxation,1991; Stevens & Lipsey, 1992). Therefore, the gov-ernment should not encourage FDI by domesticfirms (e.g., Feldstein, 1994), although this view thatFDI is undertaken at the expense of domestic invest-ment has been challenged (Desai, Foley, & Hines,2005). One can view market imperfections in aglobal context, especially in the case of global publicgoods, that require extraterritorial state ownership toensure the protection of such global public goodsand the solutions of these global market imperfec-tions (Kaul, Grunberg, & Stern, 1999). This ideaTa

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would lead to the existence of firms owned by multi-ple governments rather than one. It is not clear whyone particular government would assume the respon-sibility for solving global market imperfections viaownership when other governments are reaping thebenefits. However, depending on the size of theimperfection and how it affects citizens at home,governments of large countries may decide to addressthe global market imperfections by themselves with-out waiting for other governments to contribute tothe solution. Alternatively, there may be marketimperfections across borders that limit the welfare ofcitizens at home and induce the government toinvest abroad to reduce them, such as ensuring theadequate supply of products or services by foreignproviders when there are incomplete markets.One clarification here is that this argument differs

from the expansion of a SOMNC to address transac-tion costs that exist across borders in the factor orproduct markets and that induce firms to becomeMNCs to ensure the supply of key raw materials orfactors of production or the access to key markets;this is one of the traditional explanations for theexistence of MNCs (Buckley & Casson, 1976; Teece,1977). In some cases, such as in natural resource-based industries, SOMNCs make investments over-seas to reduce transaction costs. For example, theVenezuelan state-owned petroleum company PDVSAfound it beneficial to monetize its heavy crude bybuilding refining capacity in the United States, its keymarket. Since the crude was of a grade that could notbe easily refined at home, this move was seen as alogical attempt to generate revenues for the Venezue-lan government that would not have accrued other-wise. The project generated employment for workersin the host country and possibly contributed taxrevenues to the host government, and these hostcountry outcomes are difficult to justify under thelogic of a government owning firms to solve marketimperfections faced by its citizens. Similar moveshave been undertaken by a host of other SOMNCs inpetroleum, such as Gazprom (Ramaswamy, 2013),Kuwait Petroleum Corporation and Rosneft to namea few (Gustafson, 2012). These foreign expansions aresimilar to those made by private oil and gas firms,which locate refineries near consumption markets toreduce transaction costs, and thus are not specificdrivers of the expansion of SOMNCs.The ideological/political strategy explanation of the

existence of SOEs can be extended with the analysisof SOMNCs. Politicians in a country, especially thosewho are democratically elected, have the ability andright to pass laws in line with their ideology and can

decide to have SOEs in the economy. However, directforeign investments by SOEs add an extraterritorialdimension to the ideology logic, with the govern-ment of one country imposing its ideology towardSOEs in the economy of another government. Thus,SOEs could become an indirect extraterritorialitymechanism to transfer an ideology or policy predilec-tion of high intervention in the economy. Thisextraterritoriality depends, of course, on the relativesize of the home and host countries, with govern-ments of larger home countries being more able toimpose their ideologies and political preferencesvia their SOEs on governments of smaller countriesbecause they can exercise more political and eco-nomic clout to support their SOMNCs.We propose that the use of SOEs to implement

ideologies and political strategies has different impactsdepending on the particular ideology or politicalstrategy followed. In the case of governments follow-ing an economic communist ideology, the use ofSOMNCs may be in line with the logic of replacingprivate with state ownership for means of production,with SOMNCs doing so in another country. Althoughthe communist logic-induced governments to directlyimpose it via invasion or supporting a revolution, amilder instrument could be the use of SOMNCs as ameans of transferring a communist ideology. How-ever, such investments may clash with host govern-ments that follow a different ideology, and the hostgovernment may resort to blocking investments withsuch objectives (Globerman & Shapiro, 2009). Incontrast, if the home government has an economicnationalism ideology, promoting SOMNCs may notconflict with the desires of the host government.Inducing SOEs to invest abroad can be done to obtainraw materials needed for the home country or toreduce the dependence of the home country onimports by private companies. Economic nationalismdoes not carry the desire to impose the ideology in thehost country. Rather, it can be achieved when thehost country does not have an economic nationalisticideology that would induce it to limit control byforeign firms.

The non-business internationalization argument: Howthe SOE dimension of SOMNCs extends the MNCliteratureThe existence of SOMNCs can help extend the logicof MNCs discussed in the IB literature. This literaturetends to assume profit-maximizing private compa-nies becoming multinationals to increase theirprofitability as they seek markets, natural resources,strategic assets or efficiency (Dunning, 1993).



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MNCs are induced to invest abroad by intrinsic andextrinsic drivers (Van Tulder, Lem, & Geleynse,2013). Even if some SOMNC investments may bemade with the profitability and market-seekingmotives in mind akin to those pursued by privateMNCs, in some occasions the governments that ownor control the firms may, alternatively, induce themto invest abroad to achieve political rather thanprofitability objectives. Thus, unlike MNCs thatmeasure the success of foreign investments basedon their contribution to firm profitability metricssuch as return on investment, in SOMNCs theexistence of multiple and possibly conflictingdemands from citizens, politicians and managerscomplicates the definition of success and thus theactions that are taken to achieve such success.We call this the non-business internationalization

argument and explain it by analyzing the sequenceof decisions a manager has to undertake whenconsidering internationalizing the firm: the decisionto internationalize, the selection of the country inwhich to internationalize and the selection of themethod of entry.The internationalization decision at its core repre-

sents a trade-off between the benefits of accessing awider market for the firm’s products and services orgaining new sources of competitive advantage thatcan be deployed elsewhere, and the costs incurred tocapture such benefits (Hymer, 1976). Although thisconceptualization is logical and widely acceptedamong companies that are founded on private capi-tal, it tends to break down when applied to anexamination of SOMNCs’ motivations to internatio-nalize because it does not account for non-value-adding objectives or, at the extreme, even value-destroying motives. Although SOMCs may behavelike private firms in their internationalization, inmany occasions SOMNCs may internationalize toachieve political or economic security objectivesthat have little to do with the business of the firmor performance gains, such as facilitating politicalrelationships between countries, obtaining foreignexchange for the home country, or improving thesphere of influence exercised by the home countrygovernment. For example, the Russian state-ownedgas company Gazprom moved to consolidate itsposition among the COMECON countries and theCentral Asian Republics, many of which were origin-ally aligned with the Soviet Union before its col-lapse. This was seen mostly as a blocking strategythat would prevent Western powers from forminglucrative alliances with these countries that woulddiminish Russian influence.

Having decided to internationalize, the next stepentails the choice of a particular country in which toinvest. Traditionally, the firm selects the country inwhich its resources and capabilities can more easilybe transferred and used, achieving higher profitabil-ity from resources and capabilities it has alreadydeveloped. Alternatively, it will select a country inwhich it can obtain resources and capabilities thatare better than those available in the home country,to increase the profitability of its operations (Dun-ning, 1993). In the realm of SOMNCs, at times thechoice of investment location might not be quite sodriven by profitability. Reasons such as realizing theforeign policy aims of the home government orexpanding its zone of influence among global peersmight be deemed more valuable than merely captur-ing competitive benefits or leveraging comparativefactor cost advantages. For example, some of theChinese SOMNCs in the infrastructure and miningsectors have arguably targeted markets in the Africancontinent as a means of increasing Chinese govern-ment influence there and support relationshipsbetween the Chinese and local governments.Once the location for the foreign investment has

been determined, the focus shifts to identifying theappropriate mode of entry and the type of opera-tions the firm establishes (see a review in Datta,Herrman, & Rasheed, 2002, and a criticism inShaver, 2013). Traditional models argue that thefirm selects the entry mode that enables it to reducerisks and exposure in the country or that facilitatesobtaining resources needed to operate efficientlythere (Johanson & Vahlne, 1977). A wealth of litera-ture in transactions cost economics has yieldedsignificant insights into factors that help an organi-zation choose between various forms of entry ran-ging from licensing to joint ventures and alliances(Anderson & Gatignon, 1986). Much of the receivedwisdom in this regard focuses on observable criteriathat have clear economic implications. In contrast,SOMNCs may select modes of entry and operationsthat enable them to achieve the political objective ofthe government even if such methods and opera-tions are risky or require large commitments to thecountry and do not enable the firms to achieveprofitability. The mode of entry decision may verywell be a product of political calculation rather thaneconomic consideration. For example, the Indian oiland gas company ONGC floated a foreign arm solelyto bid for overseas resources as a means of securingthe country’s energy future. Many of the acquisi-tions came at very high prices that were economic-ally disadvantageous. The government nevertheless



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chose to pursue such opportunities solely to ensureenergy security, an objective that would not havebeen captured in the cost vs benefits calculus ofprevailing models of internationalization.In summary, we contend that the very nature of

ownership and control among SOEs presents a mark-edly different set of parameters that SOMNCs have toaddress as they contemplate their globalization strate-gies. Unlike their private sector counterparts, wherethe decisions are largely driven by the business objec-tives underlying the creation of economic value, andwhich a few SOMCs that enjoy managerial autonomyand constraints on government interferences mayfollow, many SOMNCs have to factor in the politicalgoals and non-business motivations of their stateowners. As a result, they may be more constrainedthan their private sector peers in all aspects of theirinternationalization efforts, spanning the entire rangeof decisions from the benefits of internationalization,to the choice of investment location, to the selectionof entry mode and nature of the foreign operationsthey seek to establish abroad.

SOMNCs: Extending Theories of the FirmIn addition to providing a cross-fertilization of theliteratures on SOEs and MNCs, we argue that theanalysis of SOMNCs can also extend specific theoriesof the firm. The key difference between SOMNCs andother MNCs is that they are owned by the govern-ment. Such ownership modifies some of the assump-tions upon which the theories are built or their usualarguments, which have been developed from theanalysis of private companies. We review some ofthe key theories of the firm and explain how theirtraditional arguments can be extended through thestudy of SOMNCs.5 Table 4 summarizes these ideas.

Agency theory: The triple agency conflict argumentAgency theory focuses on the management of rela-tionships between two parties in which the agent istasked by the principal to perform an action in theprincipal’s name.6 The principal provides incentivesand establishes control mechanisms on the agent sothat the agent complies with the desires of theprincipal and not the agent’s own (Holmstrom,1979; Jensen & Meckling, 1976).Agency explanations of SOE behavior note the

challenges that these firms face from the existenceof a dual agency relationship. This dual agencydiffers from the traditional single agency relation-ships that exist in private, in which shareholders, asprincipals, may fail to control managers, who actas agents with objectives that diverge from the

objectives of shareholders (Fama and Jensen, 1983).In the case of SOEs, there are additional complexitiesbecause of the existence of two agency relationships.First, the company is nominally owned by the citi-zens of the country who, as principals, task politi-cians, as agents, to achieve the social and economicobjectives for which the SOE has been created. How-ever, citizens do not have contractual mechanismssuch as incentive systems or statutory limitations thatenable them to align the objectives of politicians withtheir own objectives. In the case of SOEs, politiciansare not controlled contractually by citizens. At most,citizens can replace politicians who fail to achievetheir objectives after an election, and this happensonly in democratic systems and for elected politi-cians. Second, politicians, as principals, task themanagers of the SOE, who act as agents appointedby the politicians, to achieve their own objectives.The objectives of politicians are likely to differ fromthose of citizens, with politicians wanting to remainin power and citizens seeking better performancefrom SOEs. Both citizen and politician objectives arelikely to differ from the SOE managers’ objectives,who, rather than helping politicians obtain their owngoals, are likely to be guided by their own careerprogression and preferences (Aharoni & Lachman,1982). The result is that SOEs suffer from a dualagency problem. Citizens do not have good controlmechanisms over the misbehavior of firm managersand often have little control over the misbehavior ofthe politicians with SOE authority (Aharoni, 1982).In the case of SOMNCs, there is a third agency

relationship that further complicates the interactionsamong principals and agents: one between the man-agers of the SOMNC, as principals, and the managersof the foreign subsidiary of the SOE, as agents (Roth &O’Donnell, 1996). This results in a set of threeobjectives that are likely to be in conflict: the man-agers at headquarters interested in advancing theirown careers; the politicians interested in remaining inpower; and the citizens interested in achieving thedevelopment of the home country. SOMNC subsidi-ary managers will have to integrate these three sets ofobjectives with their own desires for career advance-ment and independent decision making. Agencymodels need to be extended to account for theinteractions among the objectives of these agentsand principals, especially given that the objectives ofthe principals are not just simple performance mea-sures, but can include development goals in the homecountry that can help politicians increase their poli-tical support. Additionally, in some SOMCsmanagersmay enjoy autonomy and politicians may face



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Table 4 SOMNCs: Extending theories of the firm

Theory Agency Transaction costeconomics

Resource-based view Resource dependence Neo-institutional

Initial arguments Jensen and Meckling (1976),Holmstrom (1979)

Coase (1937), Williamson(1975, 1985)

Penrose (1959), Barney (1991) Pfeffer and Salancik(1978)

DiMaggio and Powell (1991)

Assumption onindividuals’behavior

Bounded rationalityImperfect informationInformation asymmetryAsset specificityOpportunism

Bounded rationalityImperfect informationInformation asymmetryAsset specificityOpportunism

Bounded rationalityImperfect informationInformation asymmetryAsset specificity

Bounded rationalityImperfect informationInformationasymmetry

Bounded rationalityImperfect informationInformation asymmetryAsset specificity

Disciplinary basis Economics Economics Economics Sociology SociologyKey question onownership

How can owners control themisbehavior of managers?

How can owners andmanagers reducetransaction costs in theirrelationship?

How can the firm benefit fromresources provided by ownersand managers?

How can owners andmanagers deal withthe powerrelationship?

How can owners facilitate thelegitimacy of the firm?

Key answer onownership

Owners as principals need tocontrol managers as agents

Owners cannot establishfull contractualrelationships withmanagers

Owners and managers selectunique sources of advantage tothe firm (which can be theowners and managers)

Managers depend onowners for capital andseek support

Owners and managers implementpractices that are legitimate in theenvironment

Key question oninternationalization

How does an MNC ensure thecontrol of managers abroad?

How does an MNCinternalize cross-bordertransactions?

How does an MNC expand andcompete across countries?

How does an MNCdeal with powerrelationships abroad?

How does an MNC solve thelegitimation tensions betweenhome and host countries?

Key answer oninternationalization

Managers at headquarters designincentive and control systems toalign the behavior of subsidiarymanagers with their objectives

MNC uses a hierarchy in across-border transactionwhen the costs of usingcontracts exceed the costsof internalizing thetransaction

Managers use and create firm-specific assets that can betransferred and provide the firman advantage abroad

Managers cooptpowerful actorsabroad into thecompany to reducetheir influence

Managers organize decisionmaking and adopt practices thatprovide legitimacy in the homeand host countries

Potentialtheoreticalextension from theanalysis of SOEMNCs

The triple agency conflict argument:Subsidiary managers makedecisions to accomplishconflicting objectives of threeprincipals: citizens, politicians andheadquarter managers

The owner risk argument:The government as ownercan tolerate higher risk incross-border transactions

The advantage and disadvantageof ownership argument: Managersuse the government as a sourceof advantage abroad but thegovernment can also become asource of disadvantage abroad

The power escapeargument: Managersinternationalize thefirm to reduce theinfluence of the homegovernment

The illegitimate ownershipargument: Company is perceivedas less legitimate abroad becauseof state ownership andideological/political strategyconflicts about state ownership

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constraints on interfering with their business deci-sions, further complicating the agency analysis ofSOEs as these managers enjoy the autonomy thatfew managers of private firms may have.The triple agency problem of SOMNCs is likely to

result in SOMNCs investing in foreign projects thathave lower business value than those selected byprivate MNCs. There are several reasons for this. First,citizens may task the SOEs with a mandate to achievesocial and economic objectives in the home countrythat increase the welfare of citizens at home. Thismandate may not require the firm to invest abroad.However, politicians may task managers with a man-date to achieve political objectives abroad. Thesecompeting demands are not faced by private MNCs.SOMNC managers may not be able to reconcile thesecompeting demands between citizens and politicianswhen investing abroad, because what is perceived as astrategic action by citizens and by politicians is likelyto differ. Citizens and politicians may also differ intheir definition of what constitutes a strategic indus-try. Citizens are likely to focus on their currentwelfare and consumption and deem utilities andinfrastructure of high value, whereas politicians mayfocus on exercising influence over other countries orensuring the long-term supply of inputs such asnatural resources and energy. Thus, managers ofSOMNCs may internationalize and select countriesbased on which group exercises the most influence.The result could be subsidiaries with erratic behavioras SOMNC managers try to meet the objectives ofboth citizens and politicians.Second, politicians may select and task managers

to achieve objectives that are beneficial to the politi-cians themselves but detrimental to the SOE and itshome country citizens. For example, the SOE may berequired to provide subsidized energy or infrastructureto other countries to maintain influence over thosecountries. Such behavior may lead to foreign invest-ments that are unprofitable or too expensive and aredone because the investment is perceived as a way toenhance the international status of the politicians.The Venezuelan government has required the statenational oil company PDVSA to sell deeply subsidizedoil to Cuba, Jamaica, Haiti and Nicaragua, which wasdetrimental to PDVSA’s profitability and to Venezue-lan citizens who effectively paid for the subsidy.Third, managers of SOEs who are poorly moni-

tored and controlled may embark on “empire build-ing” and may purse an internationalization strategythat gives them prestige, but may economically hurttheir firms (Cui & Jiang, 2012; Vernon, 1979). Forinstance, SOEs that internationalize because of the

prestige objectives of their managers may overpay forforeign assets or may buy unprofitable target firms.This is more likely to happen in SOEs that are fullyowned by the government and not publicly traded,since managers may not face any punishment formaking such poor investments. In SOEs that arepublicly traded, investors may penalize the behaviorof managers with lower valuations (Knutsen et al.,2011). The lower valuations may not be enough torealign SOMNC managerial objectives because themanagers are not likely to be subject to the samemarket disciplines as private MNC managers.We summarize these ideas in the following

proposition:

Proposition 1: SOMNCs are more likely to entercountries and invest in projects that have lowerbusiness value than those undertaken by privateMNCs.

Transaction cost economics: The owner risk argumentTransaction cost economics explains firm behaviorbased on the cost of transactions in economic rela-tionships among actors. Transaction costs emergefrom the existence of information asymmetries andimperfect contracting coupled with asset specificityand opportunism (Williamson, 1985). These costscan be identified based on the specificity of the assetsinvolved and the possibility of writing contracts andestablishing controls under imperfect and asym-metric information. Transaction costs tend to beindependent of the actors involved; at most theyare associated with the propensity toward opportu-nistic behavior by economic actors.In the case of SOMNCs, the perceptions of transac-

tion costs differ from those that can be gleaned fromasset specificity, imperfect contracting and asym-metric information. The reason is not because thegovernment is less likely to act opportunisticallythan private owners, but because the governmenthas a different risk tolerance than private owners.Governments have larger budgets and resources thatenable them to take more risks, and they can bemore patient investors (Kaldor, 1980). Additionally,they have control over laws and regulations thatenable them to enforce contracts and reduce risks.Therefore, compared to private firms, SOMNCs are

more likely and willing to make risky investments inthe country environments in which they invest (i.e.,countries with weaker rule of law or higher expro-priation risk), in the industries or fields in whichthey invest and in the risk-profile of the invest-ments. This behavior is explained by two features of



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SOMNCs. First, SOMNCs face a soft-budget constraint(i.e., their home governments can bail them out ifthey run into financial difficulties), an institutionalfeature that may lead these firms and their managersto take on more risk than their private counterparts(Kornai, 1979; Vernon, 1979). Thus, when assessingforeign investments, the SOMNC hurdle rate is ineffect lower than those of private MNCs, as SOMNCscan have access to government support or low-costgovernment capital. This lower hurdle enables themto take projects that are riskier and have a higherprobability of default. For example, it is well known inthe oil industry that Chinese national oil companiesare often willing to accept lower returns than privatelyheld international oil companies.Second, SOMNCs face lower expropriation risk

because they have the implicit backing of theirhome country governments, especially when thosegovernments are powerful (Knutsen et al., 2011).The government can use political relationships anddiplomacy and the creation of bilateral investmenttreaties that favor SOMNCs to reduce the potentialexpropriation of SOMNCs abroad. This is particu-larly the case for governments of large countries,which are in a better position to exercise influenceover governments of smaller countries by threaten-ing to limit the latter’s access to its market or bytaking those host governments to the World TradeOrganization or the International Centre for Settle-ment of Investment Disputes to address the invest-ment and trade disputes of their SOMNCs. A similardynamic can take place in the case of home coun-tries that are important suppliers of raw materialsand energy to the host government, as the homegovernment can threaten to reduce supply if itsSOMNCs are harmed by the host government. Thus,managers of SOMNCs can enter countries that aredeemed too risky for private investors and face lowerprobability of expropriation than private MNCsbecause of the protection they enjoy from theirhome government.These arguments can be summarized in the follow-

ing proposition:

Proposition 2: SOMNCs are more likely to entercountries and invest in projects that are riskierthan those undertaken by private MNCs.

RBV: The advantage and disadvantage of ownershipargumentThe RBV focuses on how firms can develop and useresources and capabilities to serve customers andachieve an advantage over competitors (Penrose,

1959). Companies become multinationals whenthey have resources that can be transferred abroadand that provide them with an advantage over hostcountry competitors in satisfying the need of custo-mers in the host country (Tallman & Yip, 2001).Extending the RBV to the analysis of SOMNCs, we

argue that the state ownership of SOMNCs can beviewed as a resource with a dual influence on theSOMNC’s competitive advantage abroad.7 On the onehand, government ownership or backing can be asource of an advantage when it provides SOMNCswith subsidized credit or diplomatic support to dealwith foreign governments. The government can pro-vide the SOMNC with ample funds for investmentthat may not be available to private firms, enabling itto make larger investments. Moreover, the govern-ment can use its diplomatic relationships with thehost country government to facilitate the expansionof the SOMNC. For example, it can provide subsidizedcredit to the host country to build infrastructure thatwill be used by the home country’s SOMNCs. It canalso negotiate conditions in its bilateral investmenttreaties that are designed to favor the business of itsSOMNCs in the host country, designating specificindustries that are favored for its SOMNCs.We summarize these ideas in the following

proposition:

Proposition 3a: SOMNCs are more likely toinvest in larger projects abroad than are privateMNCs.

On the other hand, government ownership can be asource of disadvantage in the firm’s internationaliza-tion because host country governments or consumersabroad discriminate against foreign governments (Cui& Jiang, 2012). This is different from the broaderdisadvantage of foreignness, in which foreign firms orfirms from particular foreign countries are discrimi-nated against because the government or consumershave nationalistic attitudes (Cuervo-Cazurra,Maloney,& Manrakhan, 2007). The disadvantage of ownershipis about SOMNCs being discriminated against becausethey are SOEs, not because they are MNCs. Thisnegative dimension of ownership is rarely discussed,as owners tend to be viewed positively as providers offinancial resources and in some cases as providersof advice. In fact, SOMNCs can be perceived asa threat to the hosts’ national security because of theirlinks to their home government (Globerman &Shapiro, 2009). Thus, we expect that SOMNCs, incomparison to private MNCs, are more commonlyblocked when they bid for assets that are consideredstrategic by host governments (e.g., natural resources,



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infrastructure, utilities). Additionally, when state own-ership of SOMNCs creates hostility, SOMNCswill tendto increase investment spillovers to compensate forthe disadvantage created by their state ownership.SOMNCs will prefer greenfield operations over acqui-sitions to avoid the controversy associated with a for-eign government-owned company buying a domesticcompany. A wholly owned greenfield investmentredirects attention toward a foreign governmentinvesting in the creation of new productive facilitiesin the host country that can generate additionalemployment and development rather than to thetransfer of existing facilities to a foreign government.We summarize these arguments in the following

proposition:

Proposition 3b: SOMNCs are more likely to facehostility in their foreign investments and are morelikely to prefer greenfield investments over acqui-sitions than are private MNCs.

Resource dependence theory: The power escapeargumentResource dependence theory analyzes power rela-tionships among two parties. One party is able toexercise power over the other when the latterdepends on the former for some resource. The tradi-tional solution to reducing power relationships is toco-opt those that have power and integrate themwithin the company, linking their objectives tothose of the firm (Pfeffer & Salancik, 1978). Hence,in firms that depend on the government for support,for example, to obtain loans from state-owned banksor to get beneficial regulation, managers can co-optthe government by including politicians among itsboard members, perhaps even with pay for perfor-mance schemes, to ensure that their desires arealigned with those of the firm. However, in the caseof SOEs, politicians are alreadymembers of the boardof directors and managers are likely to have beenappointed by the politicians. Thus, politicians maystill try to steer the firm to pursue political objectivesof little value to the firm but of high value to thepolitician.Thus, an alternative way to reduce the influence of

such politicians would be to depend less on govern-ment funds and support (Noreng, 1994), and thisQ10

could be done by internationalizing the firm.8

SOMNC managers, rather than trying to co-optpoliticians and government officials into the com-pany, can use the international expansion of thefirm to escape from the control of politicians. Byinvesting in other countries and obtaining a steady

source of revenues from abroad, the SOMNC canreduce its dependence on the politicians at homeand thus the power that the government exercisesover it. When home country governments are facingtight budget constraints or are reigning in theexpenditures of SOEs, the managers of SOMNCs willseek international expansion to obtain new sourcesof cash flow, either by investing in subsidiariesabroad or by increasing their exports. For example,Trebat (1985) argues that Brazilian SOEs in the 1970sembarked on a process of diversification and inter-nationalization in order to maintain financial auton-omy from the government. This may be moreapparent in firms in which managers enjoy a degreeof autonomy from political influence (Aharoni,1982) and thus managers are freer to deepen theirautonomy by taking the firm abroad.We summarize these arguments in the following

proposition:

Proposition 4: SOMNCs are more likely to inter-nationalize to reduce the power of governmentinfluence than private firms.

Neo-institutional theory: The illegitimate ownerargumentNeo-institutional theory focuses on understandingthe achievement of legitimacy needed to operate in aforeign country. Companies respond to the cognitive,normative and regulatory pressures of the environ-ment and imitate practices that are perceived aslegitimate (DiMaggio & Powell, 1991). As the firmbecomes an MNC, it faces two sets of pressures on itslegitimacy, from the home country headquarters andfrom the host country environment, which can be inconflict (Kostova & Zaheer, 1999).SOMNCs face an additional pressure on their

legitimacy abroad since government ownership canbecome a source of illegitimacy in the host country.The host country government and citizens may viewthe SOMNC as an instrument of another governmentaiming to exercise control in the host country econ-omy. This perception of SOE illegitimacy will dependon conditions such as the level of state ownership orthe ideology or political strategy of the ruling govern-ment in the host country. Thus, SOMNCsmay choosecountries in which they are perceived as more legit-imate, either because there are more similaritiesbetween the home and host governments in theirpolitical ideology and strategies or because the localeconomy is already dominated by host country SOEsand thus state ownership of firms is not perceived asillegitimate.



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We summarize these ideas in the followingproposition:

Proposition 5a: SOMNCs are more likely toselect host countries in which their state owner-ship is perceived as more legitimate than hostcountries in which there is less legitimacy of stateownership.

Nevertheless, SOMNCsmay need to invest in coun-tries in which their state ownership is not perceivedas legitimate because the host country is the appro-priate location for investment. In such countries, theSOMNC may have to engage in more legitimacybuilding than private firms to facilitate its operationin the host country. SOMNCs that are publicly tradedat home or in other financial centers and that followcorporate governance practices that mimic those ofprivate firms may be perceived as less threatening bytheir host governments. Alternatively, SOMNCs mayestablish alliances with local firms that provide themwith local legitimacy and similarity to local firms. Forexample, many of the SOMNCs in the energy sectorhave mitigated the likely negative impact of hostgovernment hostility by entering into mutually ben-eficial alliances with both private and government-owned host country entities. Additionally, SOMNCsmay make greater investments in corporate socialresponsibility to ensure the support of citizens andlocal politicians and increase their legitimacy.We summarize these ideas in the following

proposition:

Proposition 5b: SOMNCs are more likely toengage in legitimacy building actions in hostcountries than private MNCs.

Extension of Theories by the Articles in this SpecialIssueThese proposed extensions of theory by analyzingSOMNCs are accomplished in more detail and depthin the articles included in this special issue. Stateownership opens many questions and potentialresearch avenues, and the articles included in thisspecial issue span theoretical boundaries to createnew frameworks and ideas, extend existing theoriesand enhance our understanding of the complexitiesassociated with state-directed global investments.Although some areas of inquiry, such as the well-established work on privatization, transitional econo-mies and emerging market multinationals, are allcritical areas of work, this special issue exclusivelyfocuses on the internationalization of SOEs and theirimpact on the global strategy landscape.

The initial call for papers on “Government asOwners: Globalizing State-Owned Enterprises” wasissued in October 2012, and we received 55 papers.After two rounds of reviews, the remaining 7 paperswere invited for a conference at Harvard BusinessSchool on 21 September 2013, which was generouslysupported by Harvard Business School, NortheasternUniversity and its Center for Emerging Markets, andThunderbird School of Global Management. At theconference, the authors presented the main ideas ofthe papers and the audience provided suggestionsfor improvement, which were incorporated inanother round of revisions. The final seven articlesprovide unique contributions to the literature byusing the internationalization of SOEs to extendtheories. Table 5 summarizes the papers. We presentthem in order of the theory they extend, startingwith the sociology-based theories of resource depen-dence and institutional theory, followed by theeconomics-based theories of transaction costs eco-nomics, stewardship and agency theory.Choudhury and Khanna (2014) wrote the paper

titled “Toward resource independence – Why state-owned entities become multinationals: An empiricalstudy of India’s public R&D laboratories.” In it theyextend the resource dependence theory by proposinginternationalization as an escape from the control ofthe government over managers. Their analysis ofIndian state-owned laboratories finds that these enti-ties aggressively filed foreign patents and licensedthese foreign patents to multinationals to create acash flow stream independent of government budget-ary support, helping them achieve partial resourceindependence from other state actors.Bass and Chakrabarty (2014), in their paper titled

“Resource security: Competition for global resources,strategic intent, and governments as owners,” exam-ine the cross-border acquisition of resources bySOMNCs in comparison to private MNCs. They buildon resource dependence theory and analyze theglobal oil industry to argue that private MNCs prefershort-term secure resources for immediate benefits,whereas SOMNCs seem to be willing to invest inlong-term secure resources as a safeguard for thefuture. They reason that the owners of SOMNCs –

governments – are concerned with securing access toenergy resources, the lack of which could threaten theeconomy of the home country. These argumentshighlight how state- and private-owned multina-tionals view resource security differently.Li, Cui and Lu (2014), in their theoretical paper

“Varieties in state capitalism: Outward FDI strategiesof central and local state-owned enterprises from



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Table 5 Summary of the Papers Included in the Special Issue

Article Researchquestion

Theory Argument Empirical setting

Choudhury and Khanna (2014). Toward resourceindependence – why state-owned entities becomemultinationals: an empirical study of India’s public R&Dlaboratories

Why do SOEsinternationalize?

Resourcedependence

SOEs internationalize to reduce control by thegovernment

42 national Indianstate-ownedlaboratories,1993–2006

Bass and Chakrabarty (2014). Resource security:competition for global resources, strategic intent andgovernments as owners

How do SOEsinternationalize?

Resourcedependence

SOEs are more likely and pay more for exploration thanexploitation resources abroad

404 cross-bordertransactions in theglobal oil industry,2005–2012

Li, Cui and Lu (2014). Varieties in state capitalism: outwardFDI strategies of central and local SOEs from emergingeconomy countries

How do SOEsinternationalize?

Neoinstitutional

Institutional change in the home country leads centrallyand locally owned SOEs to internationalize differently

Theory

Meyer, Ding, Li and Zhang (2014). Overcoming distrust inhost societies: How SOEs adapt their foreign entries toinstitutional pressures

How do SOEsenter foreigncountries?

Neoinstitutional

SOE are subject to different legitimation pressures thanprivate firms that lead them to use more acquisitions butwith less control

298 foreign subsidiariesof publicly tradedChinese firms, 2009

Pan, Teng, Supapol, Lu, Huang and Wang (2014). Firm’sFDI ownership: the influence of government ownership andlegislative connections

How do SOEsenter foreigncountries?

Transactioncost

State ownership and political connections moderate therelationship between the foreign institutionalenvironment and the level of ownership of foreignsubsidiaries

1617 foreignsubsidiaries of 594Chinese publicly tradedfirms, 2010

Liang, Ren, and Sun (2014). An anatomy of state control inSOEs’ globalization

How much doSOEsinternationalize?

Agency Changes in the institutional environment modify howstate ownership and political connections lead SOEs todifferent levels of internationalization

2394 publicly tradedChinese firms, 2001–2011

Duanmu (2014). State-owned MNCs and host countryexpropriation risk: the role of home state power andeconomic gunboat diplomacy

Where do SOEsinvest abroad?

Agency SOEs are more likely to invest in risky countries and incountries with strong connections to the home country

894 greenfield foreigninvestments by Chinesefirms, 2003–2010

Govern

men

tsas

owners

Alvaro

Cuervo-C

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al19


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emerging economy countries,” discuss heterogene-ity in internationalization among SOEs and explainthat this heterogeneity as the result of institutionalreform processes in emerging economies. Theydevelop a trickle-down theoretical framework link-ing comparative capitalisms and diversity in capital-ism theories to sociological institutionalism byadvancing the idea of “institutions-as-configura-tions” to explain how macro-institutional reformsin the home country can engender institutionaldiversity and evolution of different types of SOEswith distinct behaviors and agendas. They explainhow macro patterns of institutional change result inmicro-level heterogeneity among SOEs and high-light the implications of such diversity for their FDIstrategies, explaining the differences in internatio-nalization by centrally and locally owned SOMNCs.Meyer, Ding, Li and Zhang (2014), in the paper

titled “Overcoming distrust: How state-owned enter-prises adapt their foreign entries to institutionalpressures abroad,” extend the neo-institutional the-ory to discuss the entry mode of SOMNCs in com-parison to private MNCs. SOEs are subject to morecomplex institutional pressures not only at homebut also in foreign investment locations. Govern-ment ownership reduces legitimacy abroad andinduces SOMNCs to use fewer acquisitions and tohave lower levels of control of foreign investments.They test these arguments on a sample of foreignsubsidiaries of Chinese firms.Pan, Teng, Supapol, Lu, Huang and Wang (2014),

in their article titled “Firms’ FDI ownership: Theinfluence of government ownership and legislativeconnections,” incorporate firms’ political connect-edness into the analysis of transaction costs. Theyargue that government ownership and legislativeconnections moderate the prediction of transactioncosts on the relationship between the heterogeneityof foreign institutional environments and firms’foreign subsidiary ownership, testing these argu-ments on a sample of Chinese publicly traded firms.The study adds to a better understanding of the roleof political connectedness in firms’ FDI activities.Liang, Ren, and Sun (2014) wrote the article “An

anatomy of state control in the globalization ofstate-owned enterprises,” which appears in a subse-quent issue of the journal because of space con-straints, in which they identify two types of statecontrol in the globalization of SOEs from emergingeconomies: state ownership control as a regulativeforce and executives’ political connections as anormative force. They argue that changes in theinstitutional environment of the home country alter

the impact of these two types of state control on thelevel of internationalization of SOEs, analyzing theserelationships in a sample of Chinese publicly tradedfirms. By extending the agency perspective andintegrating it with the institutional analysis in poli-tical economy and IB, their state control perspectiveoffers a fundamental understanding of the rise ofSOEs from emerging economies in the global arena.Duanmu (2014), in the paper titled “State-owned

MNCs and host country expropriation risk: The roleof home state power and economic gunboat diplo-macy,” analyzes the risk of expropriation abroad.Building on agency theory, she proposes thatSOMNCs can use the political support of their homegovernments to counter the monopoly power of thehost states and thus reduce expropriation risks. Usinga sample of Chinese foreign investments, she findsthat foreign investment by SOMNCs is less deterredby expropriation risk in the host country, especiallyin countries that have strong political relations withand high export dependence on China.

CONCLUSIONSOMNCs continue to evolve as governments privatizecompanies but keep majority and minority stakes,while new forms of state ownership in the form ofSWFs, state-owned pension funds and state-ownedbanks have emerged. This introduction to the specialissue highlights the importance of SOMNCs as a topicfor analysis to provide a better understanding notonly of these firms, but also of theories of the firm.The analysis of SOMNCs helps extend traditionalarguments of both SOEs and MNCs, leading us tointroduce the extraterritoriality and the non-businessinternationalization arguments. We complementedthese topical extensions with the extensions of fivetheories, introducing additional arguments: the tripleagency conflict argument in agency theory, the ownerrisk argument in transaction cost economics, theadvantage and disadvantage of ownership argumentin RBV, the power escape argument in resourcedependence and the illegitimate ownership argumentin neo-institutionalism. The papers included in thespecial issue provide depth to these and other exten-sions of theories and illustrate how the study ofSOMNCs can be used to extend both our understand-ing of these firms and our understanding of theories.With these ideas we provide an integrative plat-

form to help IB scholars address the core issues thatdominate debates on the global role of SOEs that arereshaping the impact of the state in global economicactivity.



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ACKNOWLEDGEMENTSThe authors would like to thank John Cantwell andthree anonymous reviewers for useful suggestions forimprovement. Cuervo-Cazurra thanks the Walsh Pro-fessorship, the Robert Morrison Fellowship and theCenter for Emerging Markets at Northeastern Univer-sity for financial support. Inkpen thanks the SewardChair in Global Strategy for financial support. Musac-chio thanks the funding from the Division of Researchand Faculty Development at Harvard Business School.Ramaswamy thanks the William D. Hacker Chair inManagement for financial support. All errors are of theauthors.

NOTES1A different discussion is the analysis of the

relationship between managers and policymakers,which has been analyzed under the term “non-marketstrategies” (Barron, 1995). This differs markedly from theideologies or political strategies of politicians that leadthem to create SOEs. Non-market strategies are actionstaken after the firm is created, and can be taken bymanagers of SOEs as well as managers of private firms.

2This approach differs from the varieties of capitalismliterature (e.g., Hall & Soskice, 1991) that classifiedadvanced economies into liberal market economiesand coordinated market economies, because we focuson the ideology regarding ownership of factors ofproduction rather than the broader ideology of thecoordination of labor and capital relationships. For adiscussion of the international dimension of this viewsee Whitley (1998).

3In this discussion we focus on the economicdimension of these ideologies and political strategies.The political implications of communism or socialdemocracy, such as the promotion of totalitarian ordemocratic regimes, are outside the scope of analysis ofthis paper.

4Following Aharoni (1986) we refer to SOEs asproductive firms, which are firms that produce “goodsand services for sale. This function distinguishes SOEsfrom other public sector activities that are more in thenature of public goods (such as defense, police orcourts)” (6). In our view the later organizations shouldbe differentiated from SOEs, thus we include them inTable 1 as government agencies.

5Although many SOMNCs come from emergingmarkets, not all do. In this article we focus on analyzinghow the analysis of SOMNCs can help advance selectedtheories. Reviews of how the analysis of emergingmarket MNCs can help advance theories appear inCuervo-Cazurra (2012) and in Ramamurti (2012).

6A competing view of relationships is stakeholdertheory (Freeman, 2010), which focuses on analyzinghow the different stakeholders of the firm exert com-peting demand and influence firm behavior. A review ofthis theory is outside this paper’s scope of analysis.

7This differs from the analysis of how the country oforigin affects the internationalization of the firm (for ashort review see Cuervo-Cazurra, 2011), as we focus onhow state ownership rather than the particular countryof origin affects international expansion.

8A related idea is the institutional escape argument(Van Tulder & van der Zwart, 2006), in whichcompanies invest abroad to escape the weakinstitutions of the home country (Witt & Lewin, 2007).This institutional escape argument operates at thecountry level, with country-level conditions inducingthe firm to internationalize, and applies both to privatefirms as well as to SOEs which seek countries withstronger institutions. Our power escape argumentoperates at the firm level, with firm-level characteristicsinducing managers to internationalize the firm, and inparticular applies to managers of SOEs aiming toreduce the influence of the role of politicians asrepresentatives of the owners, and can take place incountries with weak as well as with strong institutions.

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ABOUT THE AUTHORSAlvaro Cuervo-Cazurra is a Professor of Inter-national Business and Strategy at Northeastern Uni-versity. He studies the internationalization of com-panies, with a special interest in emerging marketmultinationals, and governance issues, with a spe-cial interest in corruption. He is the Reviewing Editorof JIBS. He was awarded a PhD fromMIT. The authorcan be reached at [email protected].

Andrew Inkpen is the Seward Chair in GlobalStrategy at Thunderbird School of Global Manage-ment. He received his PhD from the Ivey School ofBusiness. His research has focused on various aspectsof international business and multinational compa-nies, including alliance management, knowledgetransfer and organizational trust. The author can bereached at [email protected]

Kannan Ramaswamy holds the William D. HackerChair Professorship in management at the Thunder-bird School of Global Management. His research andteaching focuses on the challenges facing emergingmarket multinationals, management of MNCs, stateownership and business groups in developingcountries.



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AldoMusacchio is an associate professor of businessat Harvard Business School, a visiting associate pro-fessor at the International Business School of Bran-deis University and a Faculty Research Fellow at theNational Bureau of Economic Research (NBER). Hestudies comparative corporate governance, state-

owned enterprises and their internationalization,and the performance implications of different formsof state ownership and support of firms. He has aPhD from Stanford University. The author can bereached at [email protected].



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