Expropriation risk has a binding effect on foreign direct investment (FDI). However, state-owned multinational corporation (MNCs) may counter the monopoly power of the host state by leveraging the political influence of their home government. The magnitude of this counter force, we argue, may vary, depending on the strength of political relations between the home and host state, and the level of economic dependence of the host country on the home market. We find supporting evidence of our hypotheses using Chinese firm level FDI information between 2003 and 2010.

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Research Summary: Departing from the extant literature, which assumes that firms pursue strong environmental performance as a differentiation strategy, we analyze the general relationship between firms’ competitive strategy and their response to heightened market competition. We find that, using a large sample of Chinese manufacturing firms between 2000 and 2005, intensified market competition has an overall negative impact on firms’ environmental performance. The negative impact is exacerbated in firms adopting a cost‐leadership strategy, but is attenuated in those adopting a differentiation strategy. The results emphasize the importance of including an examination of the particular competitive strategies chosen by firms in seeking to understand the impact of intensified market competition. Managerial Summary: Advocates of corporate social responsibility (CSR) have long argued for the differentiation role of CSR. However, managers may be misguided if the assumed benefits of differentiation critically depend on certain presumptions. In the Chinese context and focusing on the environmental dimension of CSR, our study finds a negative relationship between market competition and corporate environmental performance. It suggests that firms, to a large extent, cannot escape competition via environmental differentiation. Managers should therefore be cautious about the value of strategic investment in CSR as a viable competitive device.

The upsurge of Chinese and Indian outward foreign direct investment (FDI) raises an unanswered question about locational determinants of direct investment from the two countries. Using an unbalanced bilateral FDI database, we find that Chinese and Indian FDI are attracted to countries with large market size, low GDP growth, high volumes of imports from China or India, and low corporate tax rates. We also find important differences between China and India. While Chinese FDI is drawn to countries with open economic regimes, depreciated host currencies, better institutional environments, and English speaking status, none of these factors are important for Indian FDI. Chinese FDI is also deterred by geographic distance and OCED membership. However, neither of these has any impact on Indian FDI.

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