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Political hazards and entry modes of Chinese investments in Africa

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Abstract

Africa has achieved the fastest growth rate of inward foreign direct investment (FDI) recently. Yet heightened political hazards present substantial challenges to foreign firms in Africa. This study examines the entry strategies that firms may take to mitigate such hazards by exploring the relationship between political hazards and entry mode choices in Africa. We further consider how an investing firm’s host country experience and foreign aid provided by its home country government to host countries in Africa can influence this relationship. In a sample of listed Chinese firms’ investments in Africa from 2000 to 2014, we find that Chinese firms tend to use the joint venture mode when political hazards are high in an African country. This relationship is weakened when they accumulate host country experience and when the Chinese government’s foreign aid to an African country increases. Our findings point to firm-level strategies to mitigate political hazards as well as instruments available to home country governments to help their multinational firms operating in host countries characterized by unstable political environments.

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Acknowledgements

We very much appreciate insightful comments and helpful guidance from Mike Peng in the review process. This study is supported by research grants (National Natural Science Foundation of China: 71402097, 71272165, 71572174, 71372054). All views expressed are those of the authors and not of the sponsoring organizations.

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Authors and Affiliations

  1. The University of Melbourne, Melbourne, Australia

    Jane Wenzhen Lu

  2. School of Management, Zhejiang University, Hangzhou, China

    Wen Li & Aiqi Wu

  3. College of Business, RMIT University, Melbourne, Australia

    Xueli Huang

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  1. Jane Wenzhen Lu
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Correspondence to Aiqi Wu.

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Lu, J.W., Li, W., Wu, A. et al. Political hazards and entry modes of Chinese investments in Africa. Asia Pac J Manag 35, 39–61 (2018). https://doi.org/10.1007/s10490-017-9514-3

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