The Entry Mode Of Multinational Company And The Reaction Of National Companies

Since the 1990s, the multinational companies (MNC) have gradually increased acquisition activity in China, along with the further opening up of China's market and the improvement of the investment environment. Transnational acquisitions and Greenfield investments have gradually become the two major patterns for China attracting foreign direct investment. In recent years, the country encouraged and guided the foreign firms to participate in the state-owned enterprise reform by the means of acquisition, and successively promulgated a series of policies to expand opening up. The implementation of these policies made the MNC acquire Chinese firms frequently, and the MNC's acquisition, whose share in foreign direct investment (FDI) rise from 5.53 percent to 24.96%, increased from the 2.25 billion dollars in 2000 to the 18.669 billion dollars in 2005 in China.The scale of acquisitions continuing to expand has caused widespread concerns in the industry and the academic community, some domestic firms started to oppose, or even establish union to oppose the MNC acquiring firms in the same industry. So, why did these firms oppose the acquisition of same industry? Why did these firms establish union to oppose? Was the welfare of host country affected? This paper uses the extended G(o|¨)rg (2000), Mattoo and Saggi (2004) models to analyze, and shows that the technology of the MNC not only affects its own choice of entry mode to a foreign market, but also influences the strategies of the firms in host country. If the MNC with high technology and domestic firms with low union cost, to restrain other domestic firms'opposition to acquisition will improve the welfare of host country. If the MNC with comparatively high technology and domestic firms with comparatively low union cost, to reduce the union cost or induce the MNC to enter by Greenfield investment will improve the welfare of host country.