Impact of Institutional Environment on the Choice of Entry Mode: Evidence from Chinese Enterprises

Abstract

This paper studied the influence of institutional environment on selection of entry modes for Chinese enterprises' regarding overseas investment from three dimensions, i.e. regulation mechanism, normalization mechanism and imitation mechanism. Based on a survey of 243 Chinese enterprises with overseas investment and from the selection of establishment mode and ownership mode, this research investigated on the ways these factors influence and also analysis the degree of influence of the key external and internal institutional factors such as governance quality, cultural distance, integration of parent and subsidiary companies and international experience, etc. According to the results obtained for the Chinese enterprises, the regulation mechanism in institutional environment has significant influence on selection of entry mode of overseas investment. The sounder the policies, laws and other formal institutional factors of the host country the more Chinese enterprises tend to select the entry modes of acquisition and wholly owned subsidiary. In respect of normalization mechanism, Chinese enterprises deal with the influence of informal institutional factors including cultural distance mainly through adjustment of ownership mode; the longer the cultural distance between the host country and China the more the Chinese enterprises tend to choose the entry mode of joint venture. In respect of imitation mechanism, the higher the degree of integration of parent and subsidiary companies, the more the enterprises tend to enter the local market through greenfield investment. Different from the situation of transnational enterprises from many developed countries, international experience has no significant influence on Chinese enterprises' selection of entry mode of overseas investment.

Keywords:

• Institutional environment
• entry mode
• Chinese enterprises
• cultural distance
• international experience

Additional information

Notes on contributors

Xianming Wu

Xianming Wu is a professor of International Business and Strategy at the Economics and Management School of Wuhan University, China. He is the director of the Centre for Transnational Enterprise Research of Wuhan University. He received his PhD in World Economics from Wuhan University, and his research interests include internationalization of Chinese enterprises and global strategy.

Xueyuan Liu

Xueyuan Liu is an associate professor of International Business and Operations at the Economics and Management School of Wuhan University, China. He is the director of the Centre for Business Excellence of Wuhan University. He received his BA in English Language and Culture at Nankai University in China, and his MBA and PhD in Management at the University of Salford in the UK. His research interests include cross-cultural & global management, merger & acquisition, innovation, and global supply chain management.

Qihai Huang

Qihai Huang is a senior lecturer of Entrepreneurship and Human Resource Management at the Institute for Entrepreneurship and Enterprise Development, and the deputy director of Lancaster China Management Centre of Lancaster University Business School in the UK. He received his BA in Sociology at Peking University and PhD in management at Bristol University in the UK. His research interests include entrepreneurship, innovation, international human resource management, etc.