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Behind ownership decision of Chinese outward FDI: Resources and institutions

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Abstract

This paper examines ownership decision of Chinese outward foreign direct investment (FDI) with a focus on the choice between a wholly owned subsidiary and a joint venture entry mode. Based on literature review and findings from our case study of ten Chinese outward investing firms, we develop a conceptual framework that integrates the resource-based and institution-based views of international business strategy. The framework reflects special characteristics of Chinese outward FDI. On the resource side, Chinese outward FDI is both asset exploiting and asset augmenting, and accordingly, both transaction costs and strategic intents have an impact on the FDI ownership decision of Chinese firms. On the institution side, when investing overseas, Chinese firms adjust their entry strategies to attain regulative and normative institutional legitimacy in host countries. Meanwhile, they also need to comply with the rules set by the Chinese government, which provide incentives to and impose restrictions on Chinese firms’ FDI ownership decisions.

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Authors and Affiliations

  1. School of Management, Marketing, and International Business, ANU College of Business and Economics, Copland Building (24), The Australian National University, Canberra, ACT, 0200, Australia

    Lin Cui & Fuming Jiang

Authors
  1. Lin Cui
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  2. Fuming Jiang
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Correspondence to Lin Cui.

Additional information

The authors are thankful to the journal Editor-in-Chief, Provost’s Distinguished Professor of Global Strategy, Mike Peng and the two anonymous reviewers for their constructive comments and feedback for the paper and the ten Chinese MNCs for their participation and cooperation in this study.

Appendix: Semi-structured interview protocol

Appendix: Semi-structured interview protocol

The interview consists of five parts. In each part, the interviewee is presented with a general question and is encouraged to elaborate his answers. Follow-up questions may be asked to ensure all the issues of interest are sufficiently covered before moving on to the next part.

  1. Part 1:

    General information of firm’s involvement in outward FDI

    Issues of interest: (1) total number of FDI conducted, and the focal FDI project’s (2) timing, (3) location, (4) mode of entry, and (5) type of activity and main line of business.

  2. Part 2:

    Firm’s motives of conducting the focal FDI project

    Issues of interest: (1) general description of major motives (2) competitive positioning motives related to domestic and global industry, (3) strategic motives related to global vs. local orientation, (4) long vs. short term orientation, and (5) assets seeking motives.

  3. Part 3:

    Home government influences on the focal FDI project

    Issues of interest: (1) general role of government, (2) stakeholder status of government, (3) levels of government involved, (4) available government support, (5) approval procedure restrictiveness and associated costs, and (6) firm’s proactive and responsive measures in dealing with government.

  4. Part 4:

    Internal and external factors influencing the ownership decision of the focal FDI project

    Issues of interest: the firm’s (1) global business network, (2) working capital sufficiency, (3) prior FDI experience, (4) proprietary technology, (5) brand value and business reputation, and the host country’s (6) factor condition, (7) demand condition, (8) industry competition intensity, (9) country risk, (10) cultural distance, (11) cultural ethnocentricity, and (12) government restriction.

  5. Part 5:

    Decision making process of the focal FDI project

    Issues of interest: (1) the interviewee’s level of involvement, (2) team vs. individual decision making, (3) influence from prior experience of self, and (4) influence from experience of other firms.

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Cui, L., Jiang, F. Behind ownership decision of Chinese outward FDI: Resources and institutions. Asia Pac J Manag 27, 751–774 (2010). https://doi.org/10.1007/s10490-009-9136-5

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