Institutional distance, firm heterogeneities, and FDI location choice of EMNEs
Abstract
Purpose
This paper aims to propose an integrated framework combining the cost-reduction rationale and the institution-leveraging rationale to explain how institutional distance, both formal and informal, influences emerging multinational enterprises (EMNEs)’ foreign direct investment (FDI) location choice. This paper also explores the moderating role of EMNEs’ FDI experience and strategic intent on value chain positioning as a reflection of firm heterogeneities, on the link between institutional distance and location choice.
Design/methodology/approach
This paper tests the hypotheses based on a firm-level longitudinal data set of FDI by Chinese EMNEs. The unique data are manually collected from Chinese companies listed on Shenzhen and Shanghai Stock Exchanges, composed of 250 FDI entries of 122 manufacturing firms from 2006 to 2010. The conditional logit model is used to estimate the proposed main effect and moderating effect.
Findings
Cultural distance does not deter Chinese EMNEs’ entrance in general, but firms investing in low value-added manufacturing subsidiaries are more likely to choose culturally similar countries than those investing in high value-added subsidiaries such as in upstream R&D and downstream marketing. Formal institutional distance with positive direction promotes Chinese EMNEs’ entrance, and this effect is enhanced when firms have less FDI experience and have the strategic intent to invest in high value-added subsidiaries.
Originality/value
This paper contributes to the current literature by identifying a holistic view of the institutional influences on FDI location choice of EMNEs and revealing how firm-level heterogeneities, particularly FDI experience and strategic intent of subsidiary value chain positioning, shape the boundary conditions of the institutional effects in different ways.
Keywords
Acknowledgements
This research is under partial support of China National Natural Science Foundation funded project (Project code: 71272178), and China National Planning Office of Philosophy and Social Science (NPOPSS) project (Project Code: ZX20150074). We greatly acknowledge the valuable advice from the review process of Nankai Business Review International. We also thank Prof. Dahui Li for his encouragement and suggestions during the revision process. An earlier version of the paper was presented in 2013 China Goes Global 7th Conference (Bremen, Germany) and 2014 IACMR 7th Biennial Conference (Beijing, China). We thank Prof. Jane Lu, Prof. Klaus E Meyer and Prof. Sunny Li Sun for their peer review comments and inspirations.
Citation
Zheng, Y., Yan, D. and Ren, B. (2016), "Institutional distance, firm heterogeneities, and FDI location choice of EMNEs", Nankai Business Review International, Vol. 7 No. 2, pp. 192-215. https://doi.org/10.1108/NBRI-10-2015-0022
Publisher
:Emerald Group Publishing Limited
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