Host Country Network and International Partner Selection: Evidence from Venture Capital Industry

Abstract

We examine how the firms’ position in alliance networks in host country influences their strategic partner selection pattern. We view alliances as dual phenomena which require willingness and attractiveness of both parties to be established. Focusing on focal firms from developed countries entering into emerging markets, we argue that focal firms’ network centrality in the host country can enhance their attractiveness to the host and home country firms; while after a certain point it decreases the focal firms’ willingness to ally with others. We analyzed the data of a population of 250 U.S. venture capital (VC) firms this made 870 rounds of investment in 783 ventures located in mainland China. The results show that network centrality of U.S. VC firms in China has an inverted U-shaped relationship with the likelihood of their syndication with both U.S. and Chinese VC firms. Having a Chinese or U.S. partner in deals increases the likelihood of their syndication with U.S. or Chinese firms. Our analysis also shows that after reaching a certain level of centrality, U.S. VCs tend to invest alone.