Spatial Dependence of the FDI Entry Mode Decision: Empirical Evidence From Emerging Market Enterprises.
| Verfasser | Shen, Zhi |
| Posten | RESEARCH ARTICLE |
1 Introduction
Globalization and the worldwide growth of foreign direct investment (FDI) have attracted considerable interest among management researchers who focus on the FDI strategies of multinational enterprises (MNEs). A core feature of these studies is analyzing how a multinational company tackles the disadvantages compared with national firms that possess better information about their country, such as the economy, language, law, and politics (Hymer 1960). Among the strategic concerns, where to invest and how to select an appropriate entry mode are two fundamental decisions that must be made by MNEs.
In international business (IB) research, the entry mode decision and location choice have usually been studied separately as two independent decisions. However, to some extent, they appear to be correlated, as shown in previous studies (e.g., He 2003; Li and Li 2010; Strange et al. 2009). However in IB research, the location has been considered at the country level (space) rather than using a distinct "regional" (place) approach (Beugelsdijk et al. 2010; Dunning 2009). A similar limitation is also found in studies of the entry mode about the assumption that the behavior of MNEs is homogeneous within a foreign country (Shen et al. 2017). Recent explanations of the foreign location choices of MNEs have aimed to achieve deeper integration among disciplines such as IB and economic geography (Kim and Aguilera 2016). Another limitation is that most previous studies were based on FDIs from developed economies; thus, it is unclear whether the strategic decisions of MNEs from developed economies are similar to those of emerging market enterprises (EMEs), especially when the home country institutional context is distinct from that of the host country (Madhok and Keyhani 2012; Peng et al. 2008).
In the present study, we aimed to obtain insights into the aforementioned issues by focusing on the entry mode trends of MNEs from EMEs in developed countries by considering the locations of the economic activity. In particular, we compared the effects of two important but structurally different types of places, i.e., industry and origin clusters, on both the establishment mode and ownership structure of MNEs in their FDIs. Previous studies have tried to determine why firms tend to colocate with other related firms, including considerations of their agglomeration externalities (Alcacer and Chung 2014; Chang and Park 2005; Jain et al. 2016). We extended these studies by addressing the following questions. How might a colocation strategy influence entry mode choice of foreign investors? Under what circumstances might this influence exist?
We examined the location and establishment modes of foreign investors at the subnational level. We selected 162 Chinese-owned subsidiaries in Germany for the empirical analysis. Our particular context comprised Chinese firms investing in Germany because of the following reasons. First, Chinese firms have been expanding their overseas investments rapidly in the last few years (Clegg and Voss 2012). Due to initial resistance to Chinese investment in the USA, especially via acquisitions, China has increasingly invested in Europe and particularly in Germany, which is Europe's dominant economy and its "locomotive". Second, unlike some other European economies, Germany contains a number of regions and cities where firms cluster, e.g., Munich, Hamburg, and Berlin (Hanemann and Huotari 2015), rather than having one dominant pole. Third, Hennart and Park (1993) criticized many previous entry mode studies because they did not consider the confounding effects of multiple home and/or host countries and they recommended single-country designs by focusing on parent, subsidiary, or industry level factors.
This study makes three main contributions. One, it contributes to the IB literature by bridging two fundamental FDI strategies. The demonstration of "patial dependence" suggests a geo-strategic perspective in the entry mode strategy. Two, this study improves our understanding of agglomeration economies in the context of IB. We compared two different types of places and determined how foreign entrants can benefit from a colocation strategy and the problems that they may encounter when locating in agglomerations. Three, it also contributes to empirical research into EMEs. Increasing attention has focused on outward FDIs from non-developed economies in recent years (Cuervo-Cazurra 2012). When entering Europe, China's outward FDIs are characterized by market-seeking and asset-seeking intentions, which differ from their traditional resource-seeking intentions in other countries in the past.
The remainder of this paper is organized as follows. Section 2 provides a brief literature review and the theoretical background of this study, before we develop hypotheses that focus on the effects of the location strategies (exploiting different agglomerations) and entry mode choices of MNEs. Section 3 describes the empirical method employed in this study and Sect. 4 presents the results of our analysis. In Sect. 5, we discuss the main findings. Finally, we summarize the conclusions of our study and outline potential areas for future research.
2 Theoretical Development and Hypotheses
2.1 Research Background
International entry mode studies have focused on several macro-environment factors in host countries and their effects on decisions, such as the political environment and legal restrictions (Brouthers 2002; Chan and Makino 2007; Lu 2002), economic or market conditions (Chari and Chang 2009; Cuypers and Martin 2010), and cultural aspects (Brouthers and Brouthers 2001; Slangen and Hennart 2008). However, it seems that studies have rarely considered location-related aspects, and they have usually examined the host country's environment as a whole (Dunning 2009) without considering the specific context or place where an economic activity develops (Beugelsdijk et al. 2010). This is important because the space can include specific places, as shown by economic geography research. These places comprise the spatial configurations of the economic activity due to the interactions between diverse actors, which can have different patterns and effects (Anderson 2012).
Strategic management and IB studies have highlighted special geographic and economic concentrations of interconnected companies and institutions in a particular field or activity (Krugman 1991; Porter 1990, 1998). Different industry clusters can be found when observing the space of an industrialized country. In these agglomerations, firms in related industries can colocate via buyer-supplier and supplier-buyer relationships (Porter 1990). These types of agglomerations are called industry clusters in many studies and they are important for local start-ups as well as in the context of IB because they attract foreign investors (Birkinshaw and Hood 2000; Majocchi and Presutti 2009).
However, studies have also focused on another important type of agglomeration where a group of foreign investors with a similar ethnic background colocate with each other. This origin cluster, or country-of-origin cluster according to Tan and Meyer (2011), is a special agglomeration in the context of FDI, particularly in a foreign country with significant institutional and cultural differences compared with the host country. Studies have shown that MNEs prefer these regions for their FDIs (Belderbos and Carree 2002; Head et al. 1999).
Foreign investors are likely to have disadvantages compared with national firms when they enter a new foreign market. These location-specific disadvantages involve a lack of knowledge about the political and legislative, economic and market, and culture-related environments in the host country (Anand and Delios 2002; Meyer et al. 2009). This is the initial layer of disadvantage usually encountered by foreign investors, where Zaheer (1995) referred to as the liability of foreignness. Moreover, they also suffer from a liability of outsidership (Johanson and Vahlne 2009), which comprises the second layer of disadvantage related to outside networks in the local business context. Another important barrier to foreign investors is due to discrimination by the local government, consumers, and suppliers (Zhou 2013), where this is known as the liability of emergingness (Madhok and Keyhani 2012). This may result in a relative lack of legitimacy and social acceptance from local constituents (Zhou 2013) (government, consumers, and suppliers), thereby leading to them being discriminated against, at least compared with investors from more advanced economies (Madhok and Keyhani 2012). To reduce discrimination and institutional pressures, foreign investors need to gain social acceptance in their host country.
IB research has suggested that one way of overcoming these barriers (knowledge and information, networking, and legitimacy) is to establish joint ventures (JVs) with others or to acquire an incumbent firm (e.g., Klossek et al. 2012; Meyer et al. 2009). This can give investors immediate resources and networks, and even a readily available stock of specific knowledge generated by the local partner (Anand and Delios 1997). Foreign investors can also enhance their apparent legitimacy according to the local constituents through their local partners or acquired firms (Meyer and Nguyen 2005).
Another way of overcoming these disadvantages is the colocation strategy. Firms can gain access to the information or resources that they need by locating close to other related firms (Meyer et al. 2009; Tan and Meyer 2011). This geographic proximity and place facilitates the transfer of information and reduces the costs related to the search for information and learning (Hansen and Lovas 2004). Frequent contacts between firms and their employees allow investors to gain access to specific information and enjoy the network externalities.
2.2 Hypotheses
Colocating with investors...
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