Political Risk and Location Choice of Chinese SMEs

Foreign Direct Investment (FDI) by Chinese Small and Medium Enterprises (SMEs) has increased significantly in the past two decades. Yet, research on these firms’ internationalisation is relatively sparse, and we know little about the way in which they select foreign locations and how they react to various and rising political risks overseas. This conceptual chapter aims to explore the influence of political risk on Chinese SMEs’ location choices. To do so, we review the literature on the relationship between political risks and multinational enterprises’ (MNEs’) location choice, examine the theoretical lenses used by prior studies and identify extant gaps. We argue that although research shows large Chinese MNEs tend to be less sensitive to political risks, this may not apply for Chinese SME multinationals. This chapter contributes to the literature by identifying how the OLI paradigm, institutional economics and organizational institutionalism can be applied to understand how political risk affects Chinese SMEs’ location choices, and by developing some avenues for future research.