To what extent do informal institutions influence the business strategy of developed multinational enterprises in China?

Abstract: This paper aims to answer the following research question: “To what degree do informal institutions influence the business strategy of developed multinational enterprises in China?” By using the comparison of existing literature and two primary interviews from strategic professionals, we were able to discover the most important factors for DMNEs to consider when entering China. The Uppsala Model turned out to be very relevant to the Chinese system, because of the significance of trust as a market power. At the forefront of business strategy should be the knowledge-building process; the volatility of the Chinese market means that it is mandatory for DMNEs to be able to predict and accommodate shifts in local conditions or institutional standards. Hence, success in China is a long-term, incremental process if done without merging with a Chinese firm. By scrutinising the informal institutions in China, DMNEs can develop a very capable mix in their strategy that can help them reduce risk, promote their image into the market, protect them from exploitation, maximize efficiency and minimise cost. If DMNEs get a good grasp on how particular informal institutions in China affect specific elements in their business strategy, a capable and flexible business setting may emerge in their favour.