Behind ownership decision of Chinese outward FDI: Resources and institutions

Abstract

This paper examines ownership decision of Chinese outward foreign direct investment (FDI) with a focus on the choice between a wholly owned subsidiary and a joint venture entry mode. Based on literature review and findings from our case study of ten Chinese outward investing firms, we develop a conceptual framework that integrates the resource-based and institution-based views of international business strategy. The framework reflects special characteristics of Chinese outward FDI. On the resource side, Chinese outward FDI is both asset exploiting and asset augmenting, and accordingly, both transaction costs and strategic intents have an impact on the FDI ownership decision of Chinese firms. On the institution side, when investing overseas, Chinese firms adjust their entry strategies to attain regulative and normative institutional legitimacy in host countries. Meanwhile, they also need to comply with the rules set by the Chinese government, which provide incentives to and impose restrictions on Chinese firms' FDI ownership decisions.