Study On The Choice Of Multinational Corporation Equity Entry Mode

Generally speaking, the mode entering the international market can be divided into two kinds: non-stock-investment and stock-investment. The first one is mainly including export-entering mode and contract-entering mode, which typically takes licensing for example; the latter one usually means Foreign Direct Investment ( FDI), which is characterized by acquiring or possessing foreign enterprises' operational control-rights aiming at earning profit. From stock-right view, it includes sole-investing and venture two kinds of entering mode. It is a crucial strategic decision for the Multinational Company (MC) to choose a right entering mode. In addition to the economic globalization background nowadays, stock entering mode jumps to be the main measure for the MCs to expand their both international and inner domestic market. Traditionally, in order to strengthen the branch company's management in the foreign market and own the profit exclusively, the MC favored self-investing mode, which is to establish the subcompany in foreign market. Considering the resource and risk etc, the Multinational Company may also choose joint-venture mode when it enters the foreign market. Obviously, it is very important to make the decision of the entering mode in the global operational strategy for the MC. With the changing investment environment in China, the mode they chose is changing accordingly. The general trend is from joint-venture to sole-investing or high-control mode. According to the MC Direct Investment Theory, MC will choose the sole-investing type for the reason of maintaining monopoly situation by dint of ownership (even the local or part ownership advantage). Lots of scholars demonstrate the main factors in entering mode choosing, such as the motive and conditions, from different perspective, including transaction cost theory,strategic behavior theory,eclectic theory,bargaining power theory and enterprises evolution theory in internationalization management, etc. All these theories just tell the reason why the MC chose different mode, such as reducing the cost of dealing, strategic need, knowledge studying, evading risk, accumulating the international experience and negotiating result between the host country and MC, but it hasn't integrated into a systematic theory frame. By studying the advantages, disadvantages, effect factors and preferred conditions in different entering modes, this dissertation centers the stock investment mode (including sole-investing and joint venture) and suggests a general analyzing frame of entering mode for MC. Moreover, it also studies technology transfer and technology effusion effect in different mode. Practically, there are some empirical analysis and countermeasure research for the technology transfer and effusion of MC with different entering mode in China as well. Based on the sound enterprise theory, this essay demonstrates that the different choices lie on the profitability difference when they choose different mode to make investment, and this difference come from the gap in management and supervision in enterprises with different investing mode. Based on this point, make a comparison and contrast concerning the advantages and disadvantages between these two types of entering mode, and also point out the separate suitable situation for each kind. After the comprehensive analysis above, .it further studies the main influencing factors, and sets up a game build on the ill-matched stock right and control right. MC and the local enterprises in the host country, as the target of this game, provide us the inner logic of mode choosing practice. The last part of this chapter suggests a new analysis frame for this entering mode choosing, which demonstrates that it is a strategic decision making process and final results, considering the general conditions, especially core resources and local environment in host country. Then comes the discussion on the relationship between MC's entering mode and the technology effusion effect that may gained by the host country. First, abstract the entering mode and the technology transfer in host country into a model, analyze the multiple connections between these two. The general trend is that, with increasing control level in entering mode, MC will speed up its technology transfer accordingly.This essay then sets up a criticizing frame concerning the relations between entering mode and technology transfer. This frame relates not only factors like different entering mode for MC and according technology transfer level; but also factors in the host country, including learning and innovating ability of local enterprises, market potential and competition environment, as well as the pressure from technology innovation and the host country. The last chapter turns back to the problem of china's reality, which are the entering mode and its utility analysis for the MC coming to China. Recent years, there is a great change in the entering mode for most MCs in china, and the general trend seems to from low control entering mode with low resource input and risk eluding features, to high control mode with more resource input and high strategic-oriented characteristics. According to the analyzing frame in this passage, this dissertation states the changes and trends could be traced in multi-effects from name factors, including the prominence of geographical superiority, MC's strategic self-adjusting and gaining more distinct resource superiority over Chinese enterprises, and some restricts maintained in these Sino-joint-ventures. Under the background of high control entering mode by MCs, although there are some inner factors restricting its technology effusion, in the long run, this particular mode background will generate great influence on technology effusion. Therefore, this essay makes some suggestions for this problem, such as realizing the correct relations between attracting foreign direct investment and strengthening the self-innovation in technology, adjusting the focus of this attracting FDI policy, implementing the favorable policy for technology-oriented, more effectively introducing in the outer competition in the global market and making use of it during the process, taking more rapid steps towards the upgrading of domestic industry structure, and also increasing the learning and innovative abilities of these local enterprises, etc.