Foreign Direct Investment Into The Study Of Factors Affecting Mode Selection

Based on the eclectic theory developed by Kim & Hwang (1992) andthe retrospection of preceding theories in FDI entry mode strategy area,this study develops an eclectic framework including firm-specific,strategic, transaction-specific and environmental variables. Then thisframework is applied to the analysis of determinants on FDI entry modechoice in China. By using the data of 473 invested manufacturing firms in1996, the study tests the determinants mentioned above and thencompares the degree of these factors affect on FDI entry mode choice.Based on the theoretic and empirical research above, the determinants ofFDI entry mode choice in China are identified. The main conclusionsare as follows. First, the FDI entry mode choice is influenced by theinteraction between firm-specific, strategic, environmental andtransaction-specific variables. Since different variables suggest differententry modes, it is of critical importance that management decision-makersconsider the relative weight of the firm-specific, strategic, environmentaland transaction-specific variables when selecting a mode of entry. Second,it is found that asset-specific factors, psychic distance, knowledgetacitness, location risk and FDI policy factors are the primary factors ofFDI entry mode choice in China, and the degree of their impact on FDIentry mode choice are on the increase accordingly.