IDEAS home Printed from https://ideas.repec.org/a/spr/manint/v58y2018i1d10.1007_s11575-017-0332-0.html
   My bibliography  Save this article

Spatial Dependence of the FDI Entry Mode Decision: Empirical Evidence From Emerging Market Enterprises

Author

Listed:
  • Zhi Shen

    (University of Valencia)

  • Francisco Puig

    (University of Valencia)

Abstract

The entry mode and location choices are two fundamental decisions made by firms after they decide to proceed with foreign direct investment (FDI). In previous studies, these two strategic concerns have usually been studied separately as independent decisions. Following recent claims, we extend beyond the macro-environment of the host country or geographical space to study the interdependence between these two decisions by comparing the effects of two different colocation strategies on the establishment mode and ownership structure of investors in FDI. We tested our hypotheses based on a sample of 162 Chinese-owned subsidiaries in Germany and found spatial dependence in the entry mode strategies, where the existing theories regarding ownership structure prediction for the sampled firms had limited explanatory power. We also observed that the experience of investors had a negative moderating effect on these interactions. Our results suggest the following: (1) the FDI strategies of foreign investors consider conditions that vary among countries as well as within the host economy and place; (2) the entry mode and location choices can be alternative strategies for overcoming barriers to entry in FDIs where a trade-off between both is required; and (3) more efforts are still needed to interpret the FDI behaviors of investors from emerging economies.

Suggested Citation

  • Zhi Shen & Francisco Puig, 2018. "Spatial Dependence of the FDI Entry Mode Decision: Empirical Evidence From Emerging Market Enterprises," Management International Review, Springer, vol. 58(1), pages 171-193, February.
    • Handle: RePEc:spr:manint:v:58:y:2018:i:1:d:10.1007_s11575-017-0332-0
    DOI: 10.1007/s11575-017-0332-0
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11575-017-0332-0
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11575-017-0332-0?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Roger Strange & Igor Filatotchev & Yung-chih Lien & Jenifer Piesse, 2009. "Insider Control and the FDI Location Decision," Management International Review, Springer, vol. 49(4), pages 433-454, September.
    2. Jan Johanson & Jan-Erik Vahlne, 2009. "The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsidership," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(9), pages 1411-1431, December.
    3. Arjen H L Slangen & Jean-François Hennart, 2008. "Do multinationals really prefer to enter culturally distant countries through greenfields rather than through acquisitions? The role of parent experience and subsidiary autonomy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(3), pages 472-490, April.
    4. Sanchez-Peinado, Esther & Pla-Barber, Jose, 2006. "A multidimensional concept of uncertainty and its influence on the entry mode choice: An empirical analysis in the service sector," International Business Review, Elsevier, vol. 15(3), pages 215-232, June.
    5. Jaideep Anand & Andrew Delios, 1997. "Location Specificity and the Transferability of Downstream Assets to Foreign Subsidiaries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(3), pages 579-603, September.
    6. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    7. Tung, Rosalie L., 1998. "American expatriates abroad: From neophytes to cosmopolitans," Journal of World Business, Elsevier, vol. 33(2), pages 125-144, July.
    8. Jan Johanson & Jan-Erik Vahlne, 1977. "The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 8(1), pages 23-32, March.
    9. Keith D Brouthers, 2013. "A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(1), pages 14-22, January.
    10. Juan Alcácer & Wilbur Chung, 2014. "Location strategies for agglomeration economies," Strategic Management Journal, Wiley Blackwell, vol. 35(12), pages 1749-1761, December.
    11. Yigang Pan & David K Tse, 2000. "The Hierarchical Model of Market Entry Modes," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 31(4), pages 535-554, December.
    12. Peter J Buckley & L Jeremy Clegg & Adam R Cross & Xin Liu & Hinrich Voss & Ping Zheng, 2007. "The determinants of Chinese outward foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(4), pages 499-518, July.
    13. Christine M Chan & Shige Makino, 2007. "Legitimacy and multi-level institutional environments: implications for foreign subsidiary ownership structure," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(4), pages 621-638, July.
    14. John H Dunning, 2009. "Location and the multinational enterprise: A neglected factor?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(1), pages 5-19, January.
    15. Wang, Chengqi & Hong, Junjie & Kafouros, Mario & Boateng, Agyenim, 2012. "What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks," International Business Review, Elsevier, vol. 21(3), pages 425-438.
    16. Mike W Peng & Denis Y L Wang & Yi Jiang, 2008. "An institution-based view of international business strategy: a focus on emerging economies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(5), pages 920-936, July.
    17. Sergio Mariotti & Lucia Piscitello, 1995. "Information Costs and Location of FDIs within the Host Country: Empirical Evidence from Italy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(4), pages 815-841, December.
    18. Douglas Dow & Jorma Larimo, 2011. "Disentangling the Roles of International Experience and Distance in Establishment Mode Choice," Management International Review, Springer, vol. 51(3), pages 321-355, June.
    19. Charles Dhanaraj & Marjorie A Lyles & H Kevin Steensma & Laszlo Tihanyi, 2004. "Managing tacit and explicit knowledge transfer in IJVs: the role of relational embeddedness and the impact on performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 35(5), pages 428-442, September.
    20. Dunning, John H. & Pak, Yong Suhk & Beldona, Sam, 2007. "Foreign ownership strategies of UK and US international franchisors: An exploratory application of Dunning's envelope paradigm," International Business Review, Elsevier, vol. 16(5), pages 531-548, October.
    21. Jane W Lu, 2002. "Intra- and Inter-organizational Imitative Behavior: Institutional Influences on Japanese Firms' Entry Mode Choice," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(1), pages 19-37, March.
    22. Rolf Sternberg & Timo Litzenberger, 2004. "Regional clusters in Germany--their geography and their relevance for entrepreneurial activities," European Planning Studies, Taylor & Francis Journals, vol. 12(6), pages 767-791, September.
    23. Ron Martin & Peter Sunley, 2003. "Deconstructing clusters: chaotic concept or policy panacea?," Journal of Economic Geography, Oxford University Press, vol. 3(1), pages 5-35, January.
    24. Jan Johanson & Jan-Erik Vahlne, 2006. "Commitment and opportunity development in the internationalization process: A note on the Uppsala internationalization process model," Management International Review, Springer, vol. 46(2), pages 165-178, March.
    25. Jean-François Hennart & Young-Ryeol Park, 1993. "Greenfield vs. Acquisition: The Strategy of Japanese Investors in the United States," Management Science, INFORMS, vol. 39(9), pages 1054-1070, September.
    26. Head, C. Keith & Ries, John C. & Swenson, Deborah L., 1999. "Attracting foreign manufacturing: Investment promotion and agglomeration," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 197-218, March.
    27. Danchi Tan & Klaus E Meyer, 2011. "Country-of-origin and industry FDI agglomeration of foreign investors in an emerging economy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 42(4), pages 504-520, May.
    28. Julian Birkinshaw & Neil Hood, 2000. "Characteristics of Foreign Subsidiaries in Industry Clusters," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 31(1), pages 141-154, March.
    29. Majocchi, Antonio & Presutti, Manuela, 2009. "Industrial clusters, entrepreneurial culture and the social environment: The effects on FDI distribution," International Business Review, Elsevier, vol. 18(1), pages 76-88, February.
    30. Shih-Fen S Chen, 2008. "The motives for international acquisitions: capability procurements, strategic considerations, and the role of ownership structures," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(3), pages 454-471, April.
    31. Stewart R. Miller & Douglas E. Thomas & Lorraine Eden & Michael Hitt, 2008. "Knee Deep in the Big Muddy: The Survival of Emerging Market Firms in Developed Markets," Management International Review, Springer, vol. 48(6), pages 645-666, December.
    32. Zhi Shen & Francisco Puig & Justin Paul, 2017. "Foreign Market Entry Mode Research: A Review and Research Agenda," The International Trade Journal, Taylor & Francis Journals, vol. 31(5), pages 429-456, October.
    33. Hanas Cader & John Leatherman, 2011. "Small business survival and sample selection bias," Small Business Economics, Springer, vol. 37(2), pages 155-165, September.
    34. Folta, Timothy B. & Cooper, Arnold C. & Baik, Yoon-suk, 2006. "Geographic cluster size and firm performance," Journal of Business Venturing, Elsevier, vol. 21(2), pages 217-242, March.
    35. Shih-Fen S Chen, 2010. "A general TCE model of international business institutions: Market failure and reciprocity," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(6), pages 935-959, August.
    36. Birger Maekelburger & Christian Schwens & Ruediger Kabst, 2012. "Asset specificity and foreign market entry mode choice of small and medium-sized enterprises: The moderating influence of knowledge safeguards and institutional safeguards," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(5), pages 458-476, June.
    37. Jonas F Puck & Dirk Holtbrügge & Alexander T Mohr, 2009. "Beyond entry mode choice: Explaining the conversion of joint ventures into wholly owned subsidiaries in the People's Republic of China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(3), pages 388-404, April.
    38. Sjoerd Beugelsdijk & Philip McCann & Ram Mudambi, 2010. "Introduction: Place, space and organization-- economic geography and the multinational enterprise," Journal of Economic Geography, Oxford University Press, vol. 10(4), pages 485-493, July.
    39. Keith D Brouthers, 2002. "Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(2), pages 203-221, June.
    40. Belderbos, Rene & Carree, Martin, 2002. "The Location of Japanese Investments in China: Agglomeration Effects, Keiretsu, and Firm Heterogeneity," Journal of the Japanese and International Economies, Elsevier, vol. 16(2), pages 194-211, June.
    41. Yadong Luo, 2002. "Capability Exploitation and Building in a Foreign Market: Implications for Multinational Enterprises," Organization Science, INFORMS, vol. 13(1), pages 48-63, February.
    42. Lin Cui & Fuming Jiang, 2012. "State ownership effect on firms' FDI ownership decisions under institutional pressure: a study of Chinese outward-investing firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 43(3), pages 264-284, April.
    43. Sergio Mariotti & Lucia Piscitello & Stefano Elia, 2010. "Spatial agglomeration of multinational enterprises: the role of information externalities and knowledge spillovers," Journal of Economic Geography, Oxford University Press, vol. 10(4), pages 519-538, July.
    44. Keith D. Brouthers & Lance Eliot Brouthers, 2003. "Why Service and Manufacturing Entry Mode Choices Differ: The Influence of Transaction Cost Factors, Risk and Trust," Journal of Management Studies, Wiley Blackwell, vol. 40(5), pages 1179-1204, July.
    45. Klaus E. Meyer & Hung Vo Nguyen, 2005. "Foreign Investment Strategies and Sub‐national Institutions in Emerging Markets: Evidence from Vietnam," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 63-93, January.
    46. Zhang, Jianhong & Zhou, Chaohong & Ebbers, Haico, 2011. "Completion of Chinese overseas acquisitions: Institutional perspectives and evidence," International Business Review, Elsevier, vol. 20(2), pages 226-238, April.
    47. Jing Li & Yong Li, 2010. "Flexibility versus commitment: MNEs’ ownership strategy in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(9), pages 1550-1571, December.
    48. Keith D Brouthers, 2013. "Institutional, cultural and transaction cost influences on entry mode choice and performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 44(1), pages 1-13, January.
    49. Keith D Brouthers & Lance Eliot Brouthers, 2001. "Explaining the National Cultural Distance Paradox," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(1), pages 177-189, March.
    50. Naveen Kumar Jain & Tanvi Kothari & Vikas Kumar, 2016. "Location Choice Research: Proposing New Agenda," Management International Review, Springer, vol. 56(3), pages 303-324, June.
    51. Ilya RP Cuypers & Xavier Martin, 2010. "What makes and what does not make a real option? A study of equity shares in international joint ventures," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(1), pages 47-69, January.
    52. Murali DR Chari & Kiyoung Chang, 2009. "Determinants of the share of equity sought in cross-border acquisitions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(8), pages 1277-1297, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Athreye, Suma & Saeed, Abubakr & Saad Baloch, Muhammad, 2023. "The survival of outward investments from China and India: Is there a North-South divide?," Journal of Business Research, Elsevier, vol. 154(C).
    2. Latukha, Marina & Poór, József & Mitskevich, Ekaterina & Linge, Dmitry, 2020. "Human resource management practices transferring from foreign firms to Russia: The case of MNCs subsidiaries," Journal of Business Research, Elsevier, vol. 108(C), pages 476-486.
    3. Hu, Feng & Xi, Xun & Zhang, Yueyue, 2021. "Influencing mechanism of reverse knowledge spillover on investment enterprises’ technological progress: An empirical examination of Chinese firms," Technological Forecasting and Social Change, Elsevier, vol. 169(C).
    4. L. Jeremy Clegg & Hinrich Voss, 2018. "Chinese Outward FDI as a Stimulus to Research in International Business," Management International Review, Springer, vol. 58(1), pages 1-8, February.
    5. Jiatao Li & Maria Tereza Leme Fleury, 2020. "Overcoming the liability of outsidership for emerging market MNEs: A capability-building perspective," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(1), pages 23-37, February.
    6. Urzelai, Berrbizne & Puig, Francisco, 2019. "Developing international social capital: The role of communities of practice and clustering," International Business Review, Elsevier, vol. 28(2), pages 209-221.
    7. Li, Kun-Sha & Xiong, Yong-Qing, 2022. "Host country’s environmental uncertainty, technological capability, and foreign market entry mode: Evidence from high-end equipment manufacturing MNEs in emerging markets," International Business Review, Elsevier, vol. 31(1).
    8. Sengupta, Aditi Sarkar & Kleindienst, Ingo & Hutzschenreuter, Thomas, 2023. "Heterogenous internationalization processes of emerging economy MNEs: A review and research agenda," Journal of International Management, Elsevier, vol. 29(3).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhi Shen & Francisco Puig & Justin Paul, 2017. "Foreign Market Entry Mode Research: A Review and Research Agenda," The International Trade Journal, Taylor & Francis Journals, vol. 31(5), pages 429-456, October.
    2. Surdu, Irina & Mellahi, Kamel, 2016. "Theoretical foundations of equity based foreign market entry decisions: A review of the literature and recommendations for future research," International Business Review, Elsevier, vol. 25(5), pages 1169-1184.
    3. Chenxi Wan & Carlos M. P. Sousa & Jorge Lengler & Qun Tan, 2023. "Entry Mode Choice: A Meta-Analysis of Antecedents and Outcomes," Management International Review, Springer, vol. 63(2), pages 193-246, April.
    4. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.
    5. Hutzschenreuter, Thomas & Harhoff, Philippa-Luisa, 2021. "The accelerating effect of institutional environment unfamiliarity on subsidiary portfolio expansion in a new host country," International Business Review, Elsevier, vol. 30(3).
    6. Dirk Holtbrügge & Sue Claire Berning, 2018. "Market Entry Strategies and Performance of Chinese Firms in Germany: The Moderating Effect of Home Government Support," Management International Review, Springer, vol. 58(1), pages 147-170, February.
    7. Li, Kun-Sha & Xiong, Yong-Qing, 2022. "Host country’s environmental uncertainty, technological capability, and foreign market entry mode: Evidence from high-end equipment manufacturing MNEs in emerging markets," International Business Review, Elsevier, vol. 31(1).
    8. Liedong, Tahiru Azaaviele & Peprah, Augustine Awuah & Amartey, Abednego Okoe & Rajwani, Tazeeb, 2020. "Institutional voids and firms' resource commitment in emerging markets: A review and future research agenda," Journal of International Management, Elsevier, vol. 26(3).
    9. Canabal, Anne & White III, George O., 2008. "Entry mode research: Past and future," International Business Review, Elsevier, vol. 17(3), pages 267-284, June.
    10. Urzelai, Berrbizne & Puig, Francisco, 2019. "Developing international social capital: The role of communities of practice and clustering," International Business Review, Elsevier, vol. 28(2), pages 209-221.
    11. Jane Wenzhen Lu & Wen Li & Aiqi Wu & Xueli Huang, 2018. "Political hazards and entry modes of Chinese investments in Africa," Asia Pacific Journal of Management, Springer, vol. 35(1), pages 39-61, March.
    12. Xie, En & Reddy, K.S. & Liang, Jie, 2017. "Country-specific determinants of cross-border mergers and acquisitions: A comprehensive review and future research directions," Journal of World Business, Elsevier, vol. 52(2), pages 127-183.
    13. Trąpczyński, Piotr & Halaszovich, Tilo F. & Piaskowska, Dorota, 2020. "The role of perceived institutional distance in foreign ownership level decisions of new MNEs," Journal of Business Research, Elsevier, vol. 108(C), pages 435-449.
    14. Martin, Xavier, 2013. "Solving theoretical and empirical conundrums in international strategy research by matching foreign entry mode choices and performance," Other publications TiSEM 7645ea46-0b9a-4fc0-ae33-a, Tilburg University, School of Economics and Management.
    15. Hollender, Lina & Zapkau, Florian B. & Schwens, Christian, 2017. "SME foreign market entry mode choice and foreign venture performance: The moderating effect of international experience and product adaptation," International Business Review, Elsevier, vol. 26(2), pages 250-263.
    16. Christian Schwens & Florian B Zapkau & Keith D Brouthers & Lina Hollender, 2018. "Limits to international entry mode learning in SMEs," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(7), pages 809-831, September.
    17. Michael Nippa & Jeffrey J Reuer, 2019. "On the future of international joint venture research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 555-597, June.
    18. Godinez, Jose R. & Liu, Ling, 2015. "Corruption distance and FDI flows into Latin America," International Business Review, Elsevier, vol. 24(1), pages 33-42.
    19. Alessia Amighini & Claudio Cozza & Elisa Giuliani & Roberta Rabellotti & Vittoria Scalera, 2015. "Multinational enterprises from emerging economies: what theories suggest, what evidence shows. A literature review," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(3), pages 343-370, September.
    20. Del Bosco, Barbara & Cristina Bettinelli, 2020. "How Do Family SMEs Control Their Investments Abroad? The Role of Distance and Family Control," Management International Review, Springer, vol. 60(1), pages 1-35, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:manint:v:58:y:2018:i:1:d:10.1007_s11575-017-0332-0. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.