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Managing Exposure Of Direct Foreign Investment To Political Risk: The Case Of Food Businesses In China

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  • Liu, Yan
  • Bjornson, Bruce

Abstract

Direct foreign investment (DFI) allows a multinational corporation (MNC) to generate and appropriate extra-normal profits from its unique assets in a foreign market. China has become increasingly attractive for foreign investment over the past 20 years. This entails political risk, but MNCs can reduce the risk by relying heavily on MNC-specific assets, often in the form of tacit knowledge. A joint venture with a local partner creates an incentive for a local stakeholder to shield the DFI from political risks and allows the partner to contribute location-specific assets to the venture, further reducing the MNC's risk.

Suggested Citation

  • Liu, Yan & Bjornson, Bruce, 1998. "Managing Exposure Of Direct Foreign Investment To Political Risk: The Case Of Food Businesses In China," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 1(3), pages 1-14.
    • Handle: RePEc:ags:ifaamr:34511
    DOI: 10.22004/ag.econ.34511
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    References listed on IDEAS

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