An analysis of determinants of entry mode and its impact on performance

Chen, Haiyang; Hu, Michael Y.

doi:10.1016/s0969-5931(01)00055-5

Cited by 190 publications

(173 citation statements)

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“…In particular, TRADE, EFI and PRI are significant with a positive sign, meaning that the higher the degree of openness and economic freedom and the lower the property right protection, the more appealing the integrated solution. Similar results can be found in (Pan 2002;Chen and Hu 2002;Smarzynska 2002). Notice that the size of the recipient country -measured by POP -is also significant and negative, namely larger countries tent to be accessed through jointventures rather than wholly-owned subsidiaries.…”

Section: Resultssupporting

confidence: 90%

“…At the same time, it is clear that investors wishing to penetrate the local market -horizontal purpose -are more likely to operate in joint-venture than FDI, in order to take advantage of the partner knowledge of her own country 24 , productive firms -in terms of human capital and technology -get engaged in FDI, while the least productive ones prefer to operate via joint-venture. 22 A different result is obtained in (Pan 2002;Chen and Hu 2002), where sales are shown to be positively correlated with the probability of entering a foreign market alone. 23 We also checked the statistical significance of other regions of origin, but none of them turned out to influence the FDI/joint-venture decision.…”

Section: Resultsmentioning

confidence: 94%

“…While adopting a similar perspective on the role of IAs in driving the international organisational decision, we are more interested in the FDI-JV trade off, than in the choice between horizontal and vertical hierarchies. Finally, our contribution relates to the empirical literature on the choice between WOS and JV, where the Internalisation decision is explained in terms of firm, industry, and country characteristics in discrete dependent variable-models (see, among others: Andersen and Gatignon 1986;Gomes Casseres 1989;Hennart 1991;Agarwal and Ramaswami 1992;Erramilli 1996;Buckley and Casson 1996;Smarzynska 2000;Desai et al 2002;Pan 2002;Chen and Hu 2002;Herrmann and Datta 2002;Brouthers 2002;Guillen 2003). While these papers ground on Coase (1937)'s andWilliamson (1985)'s intuitions and qualitatively extend some DIA arguments to the case of joint-venture, the present contribution is intended to provide a theoretical formalisation of the JV option, and show that a DIA mechanism -similar to the one highlighted for the FDI-licensing choice -also drives the FDI-JV trade off.…”

Section: Introductionmentioning

confidence: 99%

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Firm's Intangible Assets and Multinational Activity: Joint-Venture Versus FDI

Gattai

2005

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper provides a theoretical formalisation of the joint-venture contract, as an alternative to Foreign Direct Investment (FDI), within a Dissipation of Intangible Assets framework. In a two-period, two-country equilibrium model, we discuss how the threat of knowledge spillover shapes the boundaries of a Multinational Enterprise. Similarly to the theoretical findings on the FDI-licensing trade off, we show that Foreign Direct Investment is more likely to emerge when know-how easily spills over -i.e. when firms are endowed with more intangible assets or they belong to high tech industries. Probit estimates, from an entirely new firm-level dataset, constructed by the author, show that the experience of Italian multinationals in Asia is in line with our theoretical predictions.

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Section: Resultssupporting

confidence: 90%

Section: Resultsmentioning

confidence: 94%

Section: Introductionmentioning

confidence: 99%

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Firm's Intangible Assets and Multinational Activity: Joint-Venture Versus FDI

Gattai

2005

SSRN Journal

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“…It is another traditional factor in the literature on entry decisions (Chen & Hu, 2002;Madhok, 1997;Pak & Park, 2004;Randoy & Dibrell, 2002): it can lead to additional costs in obtaining information, and disrupt communication processes, as well as making it difficult for the local subsidiary to integrate, for the company's own routines to be applied and for the product to be adapted.…”

Section: Cultural Distancementioning

confidence: 99%

Chinese Multinationals: Host Country Factors and Foreign Direct Investment Location

Quer¹,

Claver²,

García³

2012

Internationalization of Emerging Economies and Firms

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“…Entry mode is considered as an important determinant of firm performance (Brouthers, 2002; Brouthers, et al, 2003 Brouthers, et al, , 2008Brouthers & Nakos, 2004;Chen & Hu, 2002;Shaver, 1988;Woodcock, et al, 1994). The rationale is that "firms will select the mode that provides the best return on investment" (Brouthers, 2002, p.207).…”

Section: Introductionmentioning

confidence: 99%

What explains the performance of Chinese exporting firms?

Zheng

2015

Journal of Chinese Economic and Business Studies

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Drawing on the entry mode literature and the strategic tripod framework, we examine whether firm performance is influenced by its outward foreign direct investment (OFDI) mode, controlling other firm-, industry-and institution-specific factors. It is found that employing OFDI does not improve an exporting firm's performance. This is not surprising as anecdotal evidence shows that many Chinese firms with OFDI have been making loss in the host country. This may indicate exporting firms employ OFDI to seek complementary and strategic resources/assets, not to improve immediate firm performance. Furthermore, firm performance is influenced by strategic assets, including technology-based capabilities (TBCs) and brands, at the firm level, industry entry barriers at the industry level and the home and host country institutional support at the country level.Keywords: Performance, Exporting Firm, OFDI, Strategic Tripod Framework 2 IntroductionEntry mode is considered as an important determinant of firm performance (Brouthers, 2002; Brouthers, et al., 2003 Brouthers, et al., , 2008Brouthers & Nakos, 2004;Chen & Hu, 2002;Shaver, 1988;Woodcock, et al., 1994). The rationale is that "firms will select the mode that provides the best return on investment" (Brouthers, 2002, p.207). The existing literature has investigated whether some investment modes provide better performance than others (e.g. Brouthers, 2002;Woodcock, et al., 1994). The entry modes under consideration in these studies are often joint ventures (JVs) and wholly-owned subsidiaries (WOSs). Few research considers the performance impact of exporting only versus a hybrid mode of exporting and outward foreign direct investment (OFDI). Given the increasing trend in OFDI, a question arises: Does an entry mode transformation by exporting firms to include OFDI lead to better firm performance? This research aims to fill this research gap. As part of this investigation, other factors influencing firm performance are accounted for by taking an integrative perspective at the firm, industry and country-level.Exporting is often the first stage of internationalization in emerging market firms (EMFs). However, the continuous marketization and liberation in emerging markets motivate firms to undertake OFDI. Exporting helps firms to gain international experiences and to establish linkages in the international market (Mathews, 2006). Yiu et al., (2007) reveal that exporting firms can benefit from learning in foreign markets, 3 accumulating local knowledge, gaining legitimacy and developing local networks.Furthermore, given the home country specific resources (CSRs) such as low labor costs and low production costs, EMFs may benefit from economies of scale by concentrating production at home and then exporting their products to foreign markets.The learning-curve cost advantages suggest that the costs of production fall with the cumulative volume of production, therefore firms moving along the learning-curve can obtain cost advantages over rivals (Wei, et al., 2014). However,...

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An analysis of determinants of entry mode and its impact on performance

Cited by 190 publications

References 41 publications

Firm's Intangible Assets and Multinational Activity: Joint-Venture Versus FDI

Firm's Intangible Assets and Multinational Activity: Joint-Venture Versus FDI

Chinese Multinationals: Host Country Factors and Foreign Direct Investment Location

What explains the performance of Chinese exporting firms?

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