FDIs by high-tech firms from newly-industrialized economies in emerging markets: The role of resources on entry strategy

Abstract

International investments by firms from Newly-Industrialized Economies (NIEs) in other less-developed emerging economies were increasingly important due to the rise of labor cost in the home economy. This paper investigated how resources of high-tech Taiwanese firms influenced their entry strategy in Mainland China. The results indicated that the parent firms’ knowledge-based and property-based resources impacted their equity ownership in overseas subsidiaries. Taiwanese firms usually with limited resources and capability were concerned about appropriation hazard of their technological know-how in Mainland China market, therefore took larger equity ownership to assume greater strategic control over their subsidiaries. Firms having more marketing resources assumed larger equity ownership to streamline their marketing programs and practices to achieve marketing efficiency in Mainland China, where price competition was intense. Organizational slacks proved to be necessary to buffer firms from unprecedented adverse circumstances as firms occupying more slack were likely to maintain larger equity ownership in Mainland China market. Slack also acted as a substitute for more restricted externally raised financial resources. Besides, firms possessing greater internally generated financial resources, which imposed fewer restrictions of deployment, tended to commit larger equity ownership in their subsidiaries. This study might be generalizable to other NIEs and emerging markets. Key words: Foreign direct investment, newly-industrialized economies, emerging markets, resources, entry strategy, equity ownership, high technology, Taiwan, Mainland China.