Effects of Past Experience, Learning Capabilities and Overall Motivation on the Performance of Chinese Outward FDI and the Mediating Role of Learning

Abstract

Existing theoretical models of internationalization do not fully explain the international venturing of emerging economy private ventures (Yiu, Lau & Burton, 2007; Lu, Liu, & Wang, 2010; Zahra, 2003). Using survey data of midsized private Chinese firms that have already made outward foreign direct investments (OFDI), this paper introduces how past international experiences, learning capabilities and overall motivations of a firm influence the performance of its OFDI. We hypothesize that each of these variables will have a positive effect on the performance of the current OFDI project and that the firm's learning mediates these relationships. Our results show that the relationship between the firm's potential absorptive capacity and its OFDI performance is fully mediated by what the firm learned from the OFDI project. Also we find that the firm's overall motivation has a direct effect on performance and is partially mediated by what the firm has learned. What the firm has learned from the firm's international business in the host country has a direct and positive effect on the performance of the OFI. However, diverging from prior research, our analysis indicates that neither the founder's international experience nor the firm's prior international experience has a direct impact on the OFDI performance.