Linking Global Value Chain to FDI Establishment Mode of Emerging Market Multinational Enterprises

Abstract

This study draws upon and extends the global value chain (GVC) perspective to examine the establishment mode of foreign direct investment (FDI) of emerging market multinational enterprises (EM MNEs). It addresses how FDI establishment mode is influenced by the value chain extension strategy of EM MNEs. The empirical analysis of 605 FDIs made by Chinese MNEs from 2007 to 2015 shows that EM MNEs are more likely to choose acquisition over greenfield investment if they pursue vertical value chain extension through FDI. Further, EM MNEs pursuing upstream extension of the value chain are more likely to choose acquisition over greenfield investment than those focusing on downstream extension. In addition, the likelihood of EM MNEs choosing acquisition over greenfield investment is greater if they pursue vertical value chain extension in culturally more distant countries.