OFDI Entry Mode Choice Of China’s Enterprises

In recent years, China’s OFDI has maintained a rapid growth rate. In this process, some China’s enterprises choose the diversification entry mode of Greenfield or M&A to go abroad. Others choose the ownership entry mode of whole owned or joint venture to go abroad. Choosing OFDI entry mode, enterprises will face various factors, such as culture distance, the company own factors, industry factors and the host countries’factors. Have experienced the failed cases of France’s Thomson merged by TCL, IBM acquisitioned by Lenovo, we realized the importance of culture. Culture distance not only affects the entry mode choice, but also the key to success of overseas business. However, there are numbers of literatures about developed countries’OFDI entry mode choice, but few about developing countries’OFDI entry mode choice. China, as a typical developing country, has a rapid trend of OFDI. Therefore, it’s meaningful to study how culture distance has effect on China’s OFDI entry mode choice and how China’s enterprises can make an appropriate decision when faced with complex factors.Firstly, we reviewed the literatures about factors influencing the entry mode choice of OFDI, which is the theoretical foundation of variable selection. Most of the scholars find that factors of company, industry and host country can effect the entry mode choice of OFDI. Secondly, we reviewed the traditional theories such as the transaction costs theory, the internalization theory and the OLI paradigm et al. Meanwhile, we improve the theoretical framework of how culture distance can affect the entry mode choice of OFDI. We learned that culture distance not only can have effect on entry mode choice of OFDI directly, but also can have effect on it indirectly through company factors and the host country factors.Based on the literature and theory review, we studied the overseas subsidiaries, affiliates, and R&D institutions of large enterprises which have OFDI performance, especially the82representative company in13provinces of China. we descriptively analysis the sample by using quantile and scatter diagram, which showed the relationship between culture distance and OFDI entry mode choice. Then, we analysis the relationship of culture distance and ownership (diversification) choice of OFDI entry mode with Logit, Probit and LPM. By using Mlogit, Mprobit and LPM, we analysis how culture distance and other factors have effect on four parallel entry mode choice. The empirical results show that cultural distance is positively correlated to M&A or Joint-venture entry mode choice. From the company aspect, multinational experience will encourage investor to choose Greenfield mode, and the cross term of cultural distance and multinational experience is positively related to Greenfield mode choice. However, company size and the specialization degree are negatively related to the high control entry mode choice. Regretfully, the indirect effect of cultural distance through specialization is not outstanding. From the Industry aspect, if company invests in energy industry or the industry with high technology intensity, investor will choose M&A or joint venture entry mode. But if the company invest in a new industry, it will choose Greenfield mode on the contrary. From the host country aspect, the government management quality of host country is positively related to Greenfield mode choice. The effects of market size and market potential are not remarkable. Meanwhile, cultural distance has indirect effect on the OFDI entry mode choice through company factor. However, the influence degree and direction are depend on the measurement of cultural distance.Based on the empirical analysis, we summarized the effect of culture distance on the choice of ownership, diversification and also four parallel entry mode of OFDI. What’s more, we put forward the corresponding suggestions from the macro, meso and micro aspects in order that our enterprises can make appropriate decision of their entry mode choice of OFDI.