Amid a rise in nationalism in China, Chinese multinational enterprises (MNEs) are rethinking their strategies abroad, shifting from adopting local identities to embracing their Chinese roots.
Study: Where Are You From? Home-Country Nationalism and MNEs' Identity Switching
A recent University of Michigan study sheds light on this trend, focusing on its impact in markets like the United States, especially in the context of patent applications and intellectual property rights.
The study, conducted by researchers from U-M, Texas A&M University and the University of Melbourne, examines how rising nationalism in China has led Chinese multinational enterprises, or MNEs, to reconsider their external identity strategies.
Traditionally, many Chinese MNEs engaged in "host-country identity switching," a tactic where they would present themselves as localized entities in foreign markets. This approach allowed them to gain better acceptance from local customers, regulators and investors by minimizing their connections to China. However, the U.S.-China trade war, which began in 2018, significantly altered this dynamic. With escalating tensions between the two countries, nationalism surged within China, pushing Chinese MNEs to emphasize their national identity.
This shift has been particularly evident in the way Chinese firms handle intellectual property in the United States. In the past, many of these companies listed their U.S. subsidiaries as applicants when applying for patents in the U.S. As nationalism rose in China, such actions were perceived negatively by Chinese stakeholders, who viewed them as a signal of disloyalty and alignment with the U.S. To avoid backlash at home, many Chinese MNEs began to file patent applications through their Chinese headquarters or other subsidiaries.
Maxim Sytch, one of the study's authors, explains this shift as a strategic response to rising nationalist expectations from Chinese stakeholders.
"Chinese MNEs are navigating a delicate balance between appealing to international markets and meeting the growing expectations of loyalty from stakeholders back home," said Sytch, U-M professor of management and organizations. "The trade war amplified this tension, making it more difficult for these firms to adopt foreign identities without risking criticism in China."
This strategic pivot comes with significant trade-offs. The study finds that applying for patents through a local U.S. subsidiary often increases the likelihood of approval. By choosing to highlight their Chinese origin instead, these companies risk facing additional challenges in the U.S. patent process, illustrating a tension between maintaining their domestic reputation and achieving success abroad.
While many Chinese MNEs are retreating from host-country identity switching, the study finds that their strategies can vary depending on their economic dependence on foreign markets. Chinese firms with substantial revenue streams from the United States, for example, are more likely to continue using U.S.-based subsidiaries for patent applications, even in the face of rising nationalism back home. These firms, due to their financial ties with the U.S., are better positioned to withstand criticism from Chinese stakeholders.
In contrast, Chinese MNEs that rely less on foreign markets are more inclined to align closely with nationalist expectations, emphasizing their Chinese identity to gain favor with domestic stakeholders. For these companies, maintaining a strong national image is essential to secure support from Chinese consumers, government entities and other local partners.
The rise of nationalism in China has reshaped the global strategies of Chinese MNEs, forcing them to adapt to new realities. While adopting a host-country identity can facilitate smoother operations in markets like the U.S., it can also draw scrutiny and criticism from nationalistic stakeholders back home. This is particularly true for Chinese MNEs whose brand names or corporate identities are closely associated with China.
Such companies face greater challenges in appearing local in foreign markets, as their strong national ties make it difficult to fully blend in. As a result, they are more likely to adopt strategies that reflect their Chinese origins, even when it comes at the cost of potential advantages abroad. For example, the study points out that Chinese MNEs with prominent ties to their home country-such as a name that signifies their Chinese identity-are more likely to forego host-country identity switching after the trade war.
"Chinese multinationals are increasingly being expected to demonstrate their loyalty to China, even as they seek to build their presence abroad," study co-author Yong Kim, assistant professor of management at Texas A&M. "Striking a balance between these competing pressures is key to their future success."
In addition to Sytch and Kim, study co-authors included Ziyi Chen, lecturer of management and marketing at the University of Melbourne.
