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

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  • Igor Filatotchev

    (King's College London, London, UK)

  • Roger Strange

    (King's College London, London, UK)

  • Jenifer Piesse

    ([1] King's College London, London, UK [2] University of Stellenbosch, Stellenbosch, RSA)

  • Yung-Chih Lien

    (National Taiwan Ocean University, Keelung, Taiwan)

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    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

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.

    Volume (Year): 38 (2007)
    Issue (Month): 4 (July)
    Pages: 556-572

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    Handle: RePEc:pal:jintbs:v:38:y:2007:i:4:p:556-572

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    Web page: http://www.palgrave-journals.com/

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    Cited by:
    1. Choi, Suk Bong & Lee, Soo Hee & Williams, Christopher, 2011. "Ownership and firm innovation in a transition economy: Evidence from China," Research Policy, Elsevier, Elsevier, vol. 40(3), pages 441-452, April.
    2. Li, Dan & Miller, Stewart R. & Eden, Lorraine & Hitt, Michael A., 2012. "The Impact of Rule of Law on Market Value Creation for Local Alliance Partners in BRIC Countries," Journal of International Management, Elsevier, Elsevier, vol. 18(4), pages 305-321.
    3. Andrei Panibratov & Cyril Verba, 2011. "Russian Banking Sector: Key Points of International Expansion," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 2(1).
    4. Demirbag, Mehmet & Tatoglu, Ekrem & Glaister, Keith W., 2009. "Equity-based entry modes of emerging country multinationals: Lessons from Turkey," Journal of World Business, Elsevier, Elsevier, vol. 44(4), pages 445-462, October.
    5. Jean, Ruey-Jer Bryan & Tan, Danchi & Sinkovics, Rudolf R., 2011. "Ethnic ties, location choice, and firm performance in foreign direct investment: A study of Taiwanese business groups FDI in China," International Business Review, Elsevier, Elsevier, vol. 20(6), pages 627-635.
    6. Igor Filatotchev & Gregory Jackson & Chizu Nakajima, 2013. "Corporate governance and national institutions: A review and emerging research agenda," Asia Pacific Journal of Management, Springer, Springer, vol. 30(4), pages 965-986, December.
    7. Lei, Han-Sheng & Chen, Yung-Shuan, 2011. "The right tree for the right bird: Location choice decision of Taiwanese firms' FDI in China and Vietnam," International Business Review, Elsevier, Elsevier, vol. 20(3), pages 338-352, June.
    8. Dirk Christian Dohse & Robert Hassink & Claudia Klaerding, 2012. "Emerging multinationals, international knowledge flows and economic geography: a research agenda," Kiel Working Papers 1776, Kiel Institute for the World Economy.
    9. Henley, John & Kratzsch, Stefan & Kulur, Mithat & Tandogan, Tamer, 2008. "Foreign Direct Investment from China, India and South Africa in Sub-Saharan Africa: A New or Old Phenomenon?," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/24, World Institute for Development Economic Research (UNU-WIDER).
    10. Andrea Calabrò & Donata Mussolino, 2013. "How do boards of directors contribute to family SME export intensity? The role of formal and informal governance mechanisms," Journal of Management and Governance, Springer, Springer, vol. 17(2), pages 363-403, May.
    11. Lien, Yung-Chih & Li, Shaomin, 2013. "Does diversification add firm value in emerging economies? Effect of corporate governance," Journal of Business Research, Elsevier, Elsevier, vol. 66(12), pages 2425-2430.
    12. Lin, Wen-Ting & Liu, Yunshi & Cheng, Kuei-Yang, 2011. "The internationalization and performance of a firm: Moderating effect of a firm's behavior," Journal of International Management, Elsevier, Elsevier, vol. 17(1), pages 83-95, March.
    13. Chung, Henry F.L. & Tung, Rosalie L., 2013. "Immigrant social networks and foreign entry: Australia and New Zealand firms in the European Union and Greater China," International Business Review, Elsevier, Elsevier, vol. 22(1), pages 18-31.
    14. Chung, Henry F.L. & Rose, Ellen & Huang, Pei-how, 2012. "Linking international adaptation strategy, immigrant effect, and performance: The case of home–host and cross-market scenario," International Business Review, Elsevier, Elsevier, vol. 21(1), pages 40-58.
    15. Lorenzo Casaburi & Valeria Gattai, 2009. "Why FDI? An Empirical Assessment Based on Contractual Incompleteness and Dissipation of Intangible Assets," Working Papers, University of Milano-Bicocca, Department of Economics 164, University of Milano-Bicocca, Department of Economics, revised Jul 2009.
    16. Chung, Hsi-Mei, 2014. "The role of family management and ownership on semi-globalization pattern of globalization: The case of family business groups," International Business Review, Elsevier, Elsevier, vol. 23(1), pages 260-271.
    17. Chiao, Yu-Ching & Yu, Chwo-Ming Joseph & Peng, Ju-Tzu Ann, 2009. "Partner nationality, market-focus and IJV performance: A contingent approach," Journal of World Business, Elsevier, Elsevier, vol. 44(3), pages 238-249, July.
    18. Tseng, Chiung-Hui & Lee, Ruby P., 2010. "Host environmental uncertainty and equity-based entry mode dilemma: The role of market linking capability," International Business Review, Elsevier, Elsevier, vol. 19(4), pages 407-418, August.
    19. Li, Peng-Yu & Meyer, Klaus E., 2009. "Contextualizing experience effects in international business: A study of ownership strategies," Journal of World Business, Elsevier, Elsevier, vol. 44(4), pages 370-382, October.
    20. Hsu, Chia-Wen & Lien, Yung-Chih & Chen, Homin, 2013. "International ambidexterity and firm performance in small emerging economies," Journal of World Business, Elsevier, Elsevier, vol. 48(1), pages 58-67.
    21. Liu, Xiaohui & Lu, Jiangyong & Chizema, Amon, 2014. "Top executive compensation, regional institutions and Chinese OFDI," Journal of World Business, Elsevier, Elsevier, vol. 49(1), pages 143-155.
    22. Jia-Wen Liang & Mei-Feng Lin & Chen-Lung Chin, 2012. "Does foreign institutional ownership motivate firms in an emerging market to increase voluntary disclosure? Evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 39(1), pages 55-76, July.

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