The Ownership Strategy Of Chinese Foreign Subsidiaries And The Effect Of Institutional Distance

Since the21st century, the development of economic globalization and integration, the world economy influences each at a larger scale and a deeper level. As one of the important tools to promote economic development, foreign direct investment (FDI) plays its unique advantages in international trade. As the main mode of international capital movement, foreign direct investment has gradually become an important research topic in the field of international economics. By the end of2012, China has established2.2foreign direct investment enterprises in179countries and regions, with the net foreign direct investment (stock)$531.94billion. When china enterprises make foreign direct investment, they will inevitably face many strategic choice. Ownership strategy is one of the important strategic decision of FDI, whether transnational enterprise ownership pattern choice is science or not will directly affect the enterprise multinational business performance. Selecting wholly owned or joint venture with the host country enterprise will determine the investment enterprises degree of transferring different resources into horizontal technology, risk degree and the degree of controlling over the overseas subsidiaries, which directly affect the success of our multinational enterprises overseas direct investment.The gap or distance between countries is an important problem which multinational company must face in their international business. These differences of different countries in their institutional environment could form institutional distance, institutional distance will have important influence on multinational enterprises strategic decision. The greater institutional distance between the home country and host country, the greater uncertainty the multinational companies will face in the external environment,it also can increase the degree of transnational investment risk and the cost of transnational operation, affect foreign investment in the ownership strategy. How institutional distance affects our country enterprise’s ownership strategy of overseas subsidiaries? How international experience and host country experience affect ownership strategy? The solution of these problems will give some advice to our country enterprise’s going out.We based on Scott’s classification method of institutional distance to classify the institutional distance by the regulative distance, normative distance and cognitive distance, because normative distance and cognitive distance have similarities, the two merged into one, this article studies the regulative distance and normative distance. We use Country’s Political Risk Index in2010and Global Governance Index in2010and Trade Freedom Degree in2010to classify the two institutional distance, set up10classification institutional distance indicators. Enterprises’s learning experience will also impact multinational company’s ownership strategy, so this article will also add two new explain variables: international experience and host country. Using2005-2010our country’ overseas subsidiaries’ownership mode as explained variable, by setting up Logit model, using the Logit mode method to explain the regression equation, and further the study of institutional distance for the ownership decision. The regression results show that when the normative institutional distance between the host country and home country is large, multinational company will prefer to establishing international joint venture subsidiary; When multinational companies have more international experience and more experience in the host country, multinational companies tend to choose wholly owned company, the two are consistent with our hypothesis. But when the regulative institutional distance between the host country and home country is large, the parent company would tend to set up the wholly owned subsidiary, it is opposite to our research hypothesis. Finally, this paper puts forward the corresponding policy recommendations to the ownership strategy of China’s overseas subsidiaries.