FDI drivers and establishment mode choice of emerging-market MNEs: the role of state ownership

Abstract

Drawing on an institutional perspective, this study analyses how state ownership affects the relationship between foreign direct investment (FDI) drivers and establishment mode choice of emerging-market multinational enterprises (EMNEs). We argue that state-owned EMNEs encounter stronger institutional pressures in technology-and natural resource-rich countries derived from concerns about takeovers of local companies. Moreover, in low-growth markets, state-owned EMNEs do not always behave as pure profitmaximisers since they are usually subject to home government institutional influences and pursue policy goals. For these reasons, we hypothesise that their choice between acquisitions and greenfield investments differs from that of privately-owned EMNEs. Our analysis of 643 FDIs undertaken by Chinese companies confirms that state-owned EMNEs are less likely to choose acquisitions in host countries with a higher technology and natural resource endowment. However, the relationship between host market growth and establishment mode is not influenced by state ownership.

Policy, institutional fragility, and Chinese outward foreign direct investment: An empirical examination of the Belt and Road Initiative

“…That state agencies intervene in the FDI decision of CMNEs, especially state-owned ones, has been established by previous research and is well documented (Quer et al, 2012(Quer et al, , 2018(Quer et al, , 2019(Quer et al, , 2020Li & Alon, 2019). The state engages its multinationals both directly (e.g., ownership and control), indirectly (e.g., regulation and incentives) and in relation to specific markets (e.g., idiosyncratic bilateral and multilateral institutional relationships).…”

The establishment mode of Chinese MNEs abroad and the Belt and Road Initiative: insights from a strategy tripod perspective

“…This is a dummy variable that takes the value of (1) if the firm acquired a local company and the value of (0) if it made a greenfield investment (Barkema and Vermeulen, 1998; Meyer et al ., 2014; Sun et al ., 2021b). The latter category also includes greenfield joint ventures (Brouthers and Hennart, 2007), as this has been the criterion used in some prior studies on establishment mode choice (Barkema and Vermeulen, 1998; Quer et al ., 2020a, b).…”

“…Institutional distance between countries has been widely used in prior studies analyzing the determinants of establishment mode choice. Empirical evidence reports that institutional distance increases uncertainty, leading the foreign investor to prefer an acquisition rather than a greenfield investment (Chen et al ., 2017; Quer et al ., 2020b). This is because the former entails the integration of an existing firm with a management team that knows local conditions, which may reduce the associated uncertainty (Dikova and van Witteloostuijn, 2007).…”

“…Furthermore, MNEs may learn from their mistakes and, instead of continuing to adopt a similar establishment mode, they may switch over to the opposite (Padmanabhan and Cho, 1999). Despite the above, most of the existing empirical studies found that MNEs with extensive greenfield investment experience tend to prefer greenfield investments in subsequent entries, whereas those with extensive acquisition experience are more likely to choose acquisitions (Dikova and van Witteloostuijn, 2007;Drogendijk and Slangen, 2006;Padmanabhan and Cho, 1999;Quer et al, 2020aQuer et al, , 2020bSlangen and Hennart, 2008).…”

“…Extant research on the determinants of establishment mode choice by Chinese MNEs mainly focused on institutional factors (Alon et al ., 2020; Anderson and Sutherland, 2015; Liu and Yu, 2018; Lv et al ., 2022; Meyer et al ., 2014; Quer et al ., 2020a, 2020b; Su et al ., 2023; Sun et al ., 2021b; Wu et al ., 2012). Although some studies also considered firm's resources and capabilities, they did not adopt a theoretical perspective to simultaneously analyze, in a single conceptual model, the influence of firm-, industry- and institution-specific factors.…”