The Effection Of Cultural Differences On Location Decisions Of Chinese Foreign Direct Investment-outward

Economic globalization has brought huge space of development andunprecedented opportunities for foreign direct investment of Chinese enterprises, asone Member States of the WTO, China has more opportunities to participate in theinternational market competition. But many enterprises have failed in the foreigndirect investment, mainly not because of capital and technology, more importantly,with the lack of the understanding of local culture, ignoring the influence of culturaldifferences. The cultural environment is extremely important but easily be overlooked,language, institutions and cultural differences are often an invisible barriers to foreigndirect investment.Foreign direct investment location is the primary factor to consider in theenterprise expansion abroad, and foreign direct investment are inevitably affected byculture and system interference of different countries or regions, foreign directinvestment have certain system and cultural identity. Currently academic research paymore attention to the choice of location, but pay less attention to the empiricalanalysis of culture as one of factors influencing investment location. This articleaim to proceed the study from cultural differences on the base of the predecessorscholars, and give a further analysis according to theory and empirical.This article first analyze the present situation of China’s foreign directinvestment of location and found that because of the geographical distance and thesimilar of cultural environment, a large part of China’s foreign direct investmentconcentrated in Asia, especially in Hong Kong which has the similar culture to theMainland of China. As a social activity, Economic activity inevitablly require theparticipation of people, and with the join of people, they would form a certainsystem behavior, such as constraints, these arrangements and constraints on thebehavior of the system would form the cultural environment of each period and oneconomic activity, then have an impact on economic activity. Then this article payattention to the theoretical analysis of the impact of cultural differences on investmentlocation, thinking that because of difference between the country in the language,customs and institutions,inevitably there are cultural differences, and transnationalmanagement is different from the domestic business, due to different culturalenvironment, enterprises need to face additional cross cultural transactions costs, the increases of transaction cost will affect the enterprise’s investment income, therebyinfluencing choice of investment location.This article select the panel data of66countries to which China give foreigndirect investment of year2003-2009, using an empirical model to analyze theinfluence of culture on the location choice of China’s foreign direct investment, andfound that there are significant negative correlation between cultural differences andChina’s foreign direct investment, the greater the cultural differences between Chinaand the host country, the less direct investment to the country. Finally according to theresults of the analysis, in order to better promote the foreign direct investment ofenterprises in China, we give advices from two levels of Government and enterprises.