FDI by firms from newly industrialised economies in emerging markets: corporate governance, entry mode and location

Abstract

Previous studies emphasise that the foreign direct investment (FDI) strategies of firms from newly industrialised economies (NIEs) are different from the FDI strategies of firms from developed economies. It has also been shown that NIE firms are often controlled by founding families who make key strategic decisions, and that they rely heavily on network linkages when developing their FDI strategies. What is less clear, however, is how the corporate governance factors in NIEs, the risk preferences of the main shareholder constituencies, and the network-based business culture affect the decision to undertake FDI in emerging markets. This paper explores the entry mode and location choices of firms from an Asian NIE (Taiwan) in an emerging market (the People's Republic of China). It shows that the choice of equity stake in an affiliate depends upon the extent of family and institutional share ownerships in the parent company. High-commitment entry is found to be positively associated with the affiliate being located in areas with strong economic, cultural and historic links with the parent company. Furthermore, the entry mode and location decisions appear to be interrelated, with the parent's equity stake in the affiliate depending inter alia upon the location within China, and the favoured location depending inter alia upon the equity stake. Journal of International Business Studies (2007) 38, 556–572. doi:10.1057/palgrave.jibs.8400279

Corporate Governance and International Business

“…A number of studies have identified two types of associations between environmental dynamism, governance, content and context of business strategy (Filatotchev et al., 2007;Sanders and Carpenter, 1998). First, multi-point competition associated with international diversification increases both specialist knowledge within top management teams and the ambiguity surrounding managers' actions.…”

“…Foreign institutional investors with globally diversified portfolios and superior monitoring abilities are more likely to encourage high-risk, high-commitment FDI decisions by firms in emerging markets, whereas domestic institutions are more likely to form a coalition with risk-averse family block-holders and insiders in the parent company, supporting a low commitment entry mode (Douma et al, 2006;Filatotchev, et al, 2005Filatotchev, et al, , 2007). Yet both foreign and domestic investors may be heterogeneous.…”

Determinants of Controlling in Foreign Subsidiaries of MNEs: On the Explanatory Potential of the Institutional Perspective

“…Thus, in research on MNEs a considerable amount of attention has been paid to the control of foreign subsidiaries expressed by the parent's share of capital of a foreign subsidiary (see e.g. Beamish & Lee, 2003;Gaur & Lu, 2007;Kim & Gray, 2008), corporate governance in the relationship between the parent and its subsidiaries (Filatotchev et al, 2007;Hoskisson, Wright, Filatotchev, & Peng, 2013), or the effectiveness of parent control through staffing decisions related to management positions in the subsidiary (e.g. Estrin, Baghdasaryan, & Meyer, 2009;Fang, Jiang, Makino, & Beamish, 2010).…”

Foreign Direct Investment from Emerging Economies: Determinants and Strategies

“…Several studies have been discussing patterns and determinants of EMNCs international FDI performance. It is argued that they do not hold the same property structure as those from well developed countries (Filatotchev et al, 2007), which means that factors related to the country of origin might influence significantly the international competitiveness of firms. Cuervo-Cazurra (2007) classified the MNCs from developing countries as those that seek on developing ownership advantages abroad and those that aim on exploring abroad www.intechopen.com the advantages acquired in their domestic market.…”