The Choice Of Foreign Investment Mode In China And Its Performance Research

Along with Chinese open policy and less restrictions on foreign direct investment, more and more multinationals enter Chinese market and have great influence on economic growth in China. Meanwhile, the entry mode choice of foreign direct investment receives more attention. The question of how to set up firm boundaries becomes more and more important. Foreign direct investment has several entry mode choices and can be divided into two categories, contract mode, like export and licensing, and equity mode, like green-field investment and cross-border acquisition. Multinationals must decide how many resources to be input in order to realize competitive advantage in the target market. How to set up effective firm boundaries not only affects the firm’s performance, but also have a significant impact on host country. The main entry modes of foreign direct investment into China are wholly-owned subsidiaries and joint ventures. With time passed, the less the external risks, the more the asset specificity, the less asset intensity, the more likely FDI will choose wholly-owned subsidiaries. Moreover, the target market and investment place will also affect the entry mode choice.This paper is divided into four chapters on top of the introduction part. The first chapter summarizes the foreign and domestic researches on the definition of different entry mode, four major established theories and relevant empirical tests. The second chapter investigates the factors that affect the entry mode choice of FDI into China and brings forth five hypotheses. The third chapter analyses quantitatively, based on binary discrete choice model, the data to demonstrate the validity of the five hypotheses. The final chapter is to analyze the influence of entry mode choice on the multinational’s performance and do a case study of FDI entering one particular industry.