The Determinant And Sequential Choices Of Chinese Firms' OFDI

There has been a dramatic growth in China's outward foreign direct investment (OFDI) in recent years. This trend has received extensive attention from international business scholars at home and abroad. A voluminous literature has been conducted to examine a series of issues regarding China's OFDI, including OFDI determinant, entry mode choice and location choice. Existing literature has mainly depicted the investment behavior of Chinese firms as being driven by efficiency considerations, such as the desire to increase market power, minimize transaction costs and gain resource access opportunities. Chinese firms are nested within a highly structured cultural and historical context. Although Chinese firms make economically rational choices that are driven by 'profitability and efficiency', they also make normatively rational choices that are driven by 'historical precedent and social justification'. Besides that, most of the existing studies assume the Chinese firms'investment decisions to be an independent decision. However, it is more reasonable to treat a Chinese firm's investment decision as interdependent behavior when its own OFDI experience increases and when more and more other Chinese firms adopt OFDIs. In other words, a Chinese firm's subsequent investment decisions can be influenced not only by other Chinese firms'OFDI behavior, but also by its own prior OFDI decisions. As such, this dissertation attempts to examine interdependent investment decisions between and within Chinese firms based on legitimacy rationale. Specially, three researches are carried out.Research One is conducted to explore the driving forces behind Chinese firms' OFDI from external isomorphism perspective. In this study, OFDI can be viewed as a form of isomorphic behavior which often helps firms obtain external legitimacy from regional governments and market stakeholders in China. Drawing on institutional theory, this study argues that the extent to which Chinese firms engage in the isomorphic strategy of OFDI depends on the influence of external isomorphic pressure and their internal legitimacy-seeking motivation. This argument is tested based on a panel data analysis of 107 Chinese listed firms with 535 observations during 2008-2012. The empirical results suggest that Chinese firms are more likely to implement OFDI strategy in responding to domestic regional isomorphic pressure, as well as in responding to domestic industrial isomorphic pressure. they also show that the positive effect of domestic regional isomorphic pressure on a firm's probability of adopting OFDI strategy is stronger for firms with higher levels of state ownership, while the positive effect of domestic industrial isomorphic pressure on a firm's probability of adopting OFDI strategy is stronger for larger firms.Research Two and Research Three examine the interdependent entry mode choice and location choice of Chinese firms from internal isomorphism perspective. Based on internal legitimacy rationale, Research Two predicts that the probability of adopting joint venture (JV) mode by a Chinese firm will be greater as its own JV experience increases. This study also proposes two moderating factors to this prediction:ownership identities and firm size, and hypothesizes that the probability of choosing joint venture is more affected for state-owned firms and for firms with larger size. These hypotheses are tested using a sample of 126 Chinese listed firms with 571 observations. The empirical findings provide robust support for the hypothesized effects.Research Three examines and extends the institutional logic of internal isomorphism for a better understanding of location choice by Chinese firms. This study contends that the prior experience of investing in developed countries significantly increase the likelihood of a Chinese firm's entry into a developed country when it makes subsequent location choice decision, and this relationship is diminished by cultural distance between home country and host country. On this basis, this study further probe into the joint moderation effect of the cultural distance and the ownership identity. It argues that the effect of cultural distance on internal isomorphism is still greater in non-state owned firms, while diminishes in state owned firms. Based on a sample of 119 Chinese listed firms with 498 observations, the empirical results reveal that the arguments of this study are supported.This dissertation contributes to previous studies of Chinese firms'OFDI mainly in three ways. First, it provides a unique lens of institutional isomorphic perspective to study the topics of Chinese firms'internationalization including driving forces, entry mode choice and location choice. It also extends the isomorphic logic by incorporating two forms of isomorphism-external isomorphism and internal isomorphism, thus allowing to systematically investigate the extent to which the isomorphic logic predicts Chinese firms'OFDI decisions. In addition, this study adds to the literature by showing that Chinese firms are trying to gain legitimacy from both external legitimating actors and internal organizational environment when they make internationalization decisions. Second, unlike prior studies that mainly focus on internationalization decisions of Chinese firms as a series of independent choices, this study treats the Chinese firms' internationalization decisions as interdependent decisions, which offers new insights into Chinese firms'OFDI behavior. Third, it also contributes to the understanding of the effects of firm-specific factors on firms' response to isomorphic pressure, and it especially confirms the strong impacts of ownership type and firm size. Therefore, the findings of this study provide evidence to support the argument that factors internal to firms can influence the firms' institutional process.