Chinese multinationals and entry mode choice: institutional, transaction and firm-specific factors

Abstract

Foreign direct investment (FDI) ownership decision is one of the most researched topics in the international business literature. However, little is known about the extent to which this knowledge can be applied to emerging-economy multinationals. Building on the institutional, transaction cost and resource-based view perspectives, this paper analyzes the determining factors of FDI mode choice between wholly-owned subsidiary (WOS) and joint venture (JV) by Chinese firms. Based on a sample of 139 outward FDI decisions made by large Chinese firms between 2002 and 2009, our results show certain characteristics that differ from the conventional wisdom of the multinational enterprise (MNE). A host country's political risk and cultural distance do not affect FDI ownership decisions of Chinese MNEs, while firm size is negatively related with WOS. However, from a more conventional point of view, technological intensity of the industry is positively associated with WOS.