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.
Motivated by previous studies on the effect of corruption on entry strategies of Multinational Enterprises (MNEs), this research examines how corruption distance influences the choice between wholly owned subsidiary (WOS) and joint venture (JV) for MNEs operating in China. We found that MNEs from countries which are less corrupt than China prefer WOS over JV; the higher corruption distance it is between these countries and China, the higher probability their MNEs choose WOS over JV. In contrast, MNEs from equally and more corrupt countries do not prefer WOS over JV; nor the corruption distance affect their entry mode decision. Market orientation has a universal and powerful effect on the entry mode choice regardless which group of countries MNEs are from. It also weakens the tendency for MNEs from less corrupt countries to choose WOS over JV.
Duanmu J, Pittman R (2007) Review of "Contagious Capitalism Globalization and the Politics of Labor in China", Journal of International Management 13 (4) pp. 539-542
Scholars argue that multinational corporations tend to locate their investment in countries with lower labor standards, but empirical results are highly inconsistent. In this paper, we investigate the effect of differential labor standards on the location choice of outward greenfield foreign direct investment (FDI) from Brazil, Russia, India and China (i.e. the BRIC countries). We find robust evidence that while there is a tendency toward the attraction of FDI by lower labor standards in developed countries, such a "race" is absent in FDI directed to developing countries. Location choice is highly path dependent upon previous trading relations between the home and the host country, which hampers the MNCs' ability to arbitrage. Conversely, capital mobility at the industry level is found to intensify the race to lower standards. © 2013 Elsevier Ltd.
De Beule F, Duanmu J (2012) Locational determinants of internationalization: A firm-level analysis of Chinese and Indian acquisitions, European Management Journal 30 (3) pp. 264-277
Access to external finance is found to be a statistically significant factor explaining the probability of privately owned enterprises (POEs) in China undertaking foreign direct investment (FDI). The significance of external finance is magnified in industries featuring a heavy dependence on external finance, high technology, low tangibility, and high inventory. The external finance and FDI linkage is weaker for POEs with group affiliation, but stronger for those with generous employment welfare practices.
Duanmu JL, Fai FM (2007) A processual analysis of knowledge transfer: From foreign MNEs to Chinese suppliers, International Business Review 16 (4) pp. 449-473
This paper investigates vertical knowledge transfers from inward-invested multinational enterprises to indigenous Chinese suppliers in the electrical and electronics industry in Wuxi, China. Through 16 dyadic case studies, a three-stage pathway of relationship development is established in which the types of knowledge transferred evolve as the relationship and the cooperative activities within it, deepen. Contingency factors are found to either accelerate or prolong the relationship development at each stage. We conclude with implications of our findings for academic scholars and managers. © 2007 Elsevier Ltd. All rights reserved.
Duanmu JL, Guney Y (2013) Heterogeneous effect of ethnic networks on international trade of Thailand: The role of family ties and ethnic diversity, International Business Review 22 (1) pp. 126-139
Ethnic networks have been found to have a pro-trade effect in previous research. However, the heterogeneous effect of different ethnicities is under-studied. Drawing on the literature on social structure, this paper attempts to untangle the heterogeneous effect of ethnic networks on international trade using trade data of Thailand. We found that ethnic networks have a positive impact overall on trade, confirming the results of previous studies. However, the magnitude of the positive effect varies across different ethnicities along two dimensions. First, the strength of family ties in the culture of origin accelerates the pro-trade effect of its ethnic networks, suggesting ethnicities with stronger family ties have a cultural preference for trading within their own ethnic community. In comparison, ethnic diversity weakens the positive effect of ethnic networks on trade, suggesting an informational value of diverse ethnic structure in promoting trade between different ethnicities. Our study contributes new evidence of the enduring influence of social and cultural attributes on economic activities. © 2012 Elsevier Ltd.
Using data on 194 location choices in 32 countries for a decade, we investigated locational determinants of Chinese Multinational Enterprises (MNEs). We found that State-Owned MNEs, compared to their peers without controlling state equity, are less concerned about political risk of the host country, but more responsive to favorable exchange rate between Chinese RMB and the host currency. Strategic intent of Chinese MNEs affects their location choice in a way that manufacturing oriented investment, compared to trading subsidiaries, is more attracted to countries with large market size and more deterred by high cost structure of the host country.
Building on the growing debate on political determinants of foreign direct investment, we investigate the relationship between US political influence and the global distribution of China?s outward foreign direct investment (OFDI). Using country-level and firm-level datasets of China?s greenfield investment, we find strong evidence that Chinese state controlled firms strategically reduce investment in host countries under significant political influence of the US. Our results are robust to alternative specification and two falsification tests. The findings suggest that the Chinese government uses FDI as a way of economic diplomacy.
The relationship among organisations is of growing interest due to the development and demands of the markets. Especially, since the formation rate of IORs has dramatically increased in recent years. The aim of this thesis is to explain the influence factors on interorganisational relations (IOR) and how they lead to either long term interorganisational forms with a high dependency, like alliances or joint ventures or to short term interorganisational forms with a low dependency, like networks or spot business.
Based on the existing literature of IOR, three main influencing factors are identified: contracts, trust and frame conditions which lead to IOR forms with different degrees of dependency: spot business, networks, alliances and finally joint ventures. By combining transaction cost theory with the prominent theories and literature of these different research streams on IOR a theoretical model is developed on how these influence factors affect the degree of dependency and so lead to an IOR form with a low dependency or with a high dependency. Questionnaires were used to sample data to test this model using a positivistic approach. The study was conducted within the petrochemical industry where the regions Europe and Asia were compared.
The results of this study illustrate the importance of and which role frame conditions, trust and contracts play on the willingness to enter into IORs with a high dependency. Furthermore, it implies that the VOC model by Hall and Soskice (2001, pp.1) has to be extended to the traditions and culture within a society by demonstrating the influence these have on the development of trust which then has a significant influence on the IORs. In addition, this thesis provides evidence towards the argument within the literature that contracts and trust support and oppose each other at the same time. Finally, evidence is given to support Europe as a coordinated market and Asia as a liberal market.
Interorganisational Relations, Influence Factors, Trust, Contract, Frame Conditions, Environment, Dependency, Petrochemical Industry
Departing from the extant literature which assumes that firms pursue strong environmental performance as a differentiation strategy, we analyse 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 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.
We use micro data on affiliates to Swedish multinational firms (MNEs) to explore the impact of more stringent employment protection legislation (EPL) on foreign direct investment (FDI). We add to the previous literature by exploring the impact of EPL on the extensive as well as intensive margin, and by distinguishing the impact on different types of affiliates. We find that employment and exports in exporting affiliates decline with EPL, and MNEs establish fewer exporting affiliates. In contrast, employment and sales rise with EPL in purely ?horizontal? affiliates. We discuss possible mechanisms explaining this sharp asymmetry.
We examine the wage and employment impact on Chinese firms of an increase in import competition associated with China?s WTO accession in December 2001, with an emphasis on state-owned enterprises (SOEs). We find that both wage and employment are negatively impacted by an increase in import competition, but firms with high state ownership cut employment less and reduce wages more than their private counterparts, suggesting that they prioritize the protection of employment over that of wages. This finding supports the notion that SOEs may have ?multitask? responsibilities in terms of protecting employment as well as achieving efficiency. We also find that firms with higher capital intensity reduce their wages less but cut employment more in response to intensified import competition. This provides empirical support for the efficiency wage theory.