Abstract
This study seeks to explain how differences in political risk and economic freedom between host and home countries interact with investing firms’ resource-seeking intent to influence the firms’ outward foreign direct investment (FDI) location choice. Using panel data covering Chinese outward FDI in 62 host countries during the period of 2003-2014, we performed panel data regression analysis. The results show that when firms’ resource seeking intention is high, the FDI location choice is negatively associated with the differences in political risk, but positively associated with the differences in economic freedom between China and the host countries. The results also show that there is a substituting effect between political risk and economic freedom in their interactions with resource-seeking intent to influence FDI location choice. The findings suggest that the Chinese firms’ outward FDI location choice is a result of the interplay and the fit between the firms’ external legitimacy in the host countries and the firms’ internal legitimacy within the multinational organization.
Highlights
The results suggest that the control variables, relating to the market and macroeconomic situations at a host country, are able to provide an explanation for location choice of Chinese outward foreign direct investment (FDI)
Recognising that the economy multinational enterprises (EMNEs) are increasingly using FDI activities as a strategic means to improve their competitive advantage and to catch up with their counterparts from developed countries [20] [32] [34] [78] and that institutional arrangements in both host and home countries impose constraints on strategic decisions regarding FDI activities [20] [42] [79], research attention in recent years has been paid to the research on the joint influence of institutional forces and the internal variables drawn from a strategic intent factors
Our study aims to advance international business research by advocating an interactive view of these two approaches and developing a contingency model on FDI location choice through incorporating the institutional and strategic intent perspectives
Summary
The way firms experience institutional demands is a function of the interplay between the firms’ external and internal pressures [17], as firms often face an important trade-off between isomorphism and heterogeneity in their strategic decision in a given operating environment [18]. An integration of different theoretical perspectives in strategic management, especially in an emerging economy context becomes vital for a better understanding of the FDI behavioural patterns for EMNEs [19]
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