FDI Motives Research Articles

Chinese investment in Central and Eastern Europe: Studying the evolution of industrial relations after the takeover of a Slovenian company

The article studies the approach Chinese investors apply to industrial relations at the company level in Central and Eastern Europe. The takeover of a home appliances producer in Slovenia by a Chinese state-owned enterprise and the trajectory of company-level industrial relations are analysed. Adopting a political economy approach, we examine the role played by market-related factors (especially FDI motivation), institutional context, trade union power resources and the Chinese state as an investor. The study contributes in two ways. First, it shows the inadequacy of market-based explanations as host institutions and actors modify transfer outcomes, blurring the ideal types, such as the ‘latecomer’ model and its apparent CEE counterpart. Second, the strategic interests of Chinese SOEs may unwillingly empower local actors struggling to influence transfer outcomes.

Informal institutions’ influence on FDI flows: A configurational fsQCA analysis of corruption as part of the MNEs’ FDI motivation system

Previous research has emphasised the importance of examining institutional influences on FDI attractiveness. There is, however, relatively limited research with conflicting results exploring the relationship between informal institutional effects, such as level of corruption, and FDI motivation. Addressing this gap, we adopt a configurational fsQCA-based approach to link informal institutional influences to FDI motivation driving the presence or absence of FDI flows. Conceptualising corruption as bribery and unfair business practices, we extend our understanding of informal institutional quality impact on FDI inflows. Results reveal that informal institutional effects on FDI vary across regions, with several pathways explaining the presence or absence of FDI, according to the presence or absence of corruption. We add to previous studies by identifying the conditions that, when combined with corruption, are linked to the presence or absence of FDI. Results also indicate that whilst corruption appears unimportant in preventing FDI, and is of only secondary importance in driving FDI, it appears to have importance in determining the type of MNEs’ undertaking FDI. Overall, corruption is likely determining which companies invest in a country, rather than if, traditional reasons for FDI, particularly Resource and Market seeking, being key, with strategic and efficiency-seeking also being of secondary importance.

Analysis of foreign affiliate efficiency and determinants: evidence from Korean multinational firms

Multinational firms establish foreign affiliates to reduce production and transaction costs and open markets. This study was conducted to determine whether foreign affiliates are efficient in production—the efficiency of foreign affiliates established by Korean multinationals through foreign direct investment from 2007 to 2018. DEA efficiency was measured by dividing it into pure, technical, and scale efficiency. An empirical analysis using the panel Tobit and Probit models examined the factors affecting efficiency decisions. It was confirmed that the total number of foreign affiliates’ employees significantly affects their efficiency. In addition, it was analyzed that establishments with traditional FDI motives, such as taking advantage of low wages and promoting exports, harm the efficiency of foreign affiliates.

How do emerging multinationals achieve sustainable development globally? The enabling mechanism of headquarter‐subsidiary structure in subsidiary sustainability

AbstractDespite of the increasing attention on Sustainable Development Goals (SDGs) implementation, emerging multinational corporations (EMNCs), and their foreign subsidiaries, as the promising contributors and main agents respectively to address SDG issues worldwide, have been rarely noticed in theoretical research. Drawing upon the loose coupling theory, this study seeks to address the unique challenges EMNCs facing in managing their foreign subsidiaries' SDG implementation, and informs on tackling the potential conflicts in meeting multiple SDG requirements of home and host countries. Based on a sample of 295 foreign subsidiaries from Chinese manufacturing firms, this study adopts polynomial quadratic regression with response surface analysis to examine the relationship between headquarter‐subsidiary (HQS) coupling structure and subsidiary sustainable development, as well as the role of parent corporate environmental responsibility (CER) and FDI motives in this process. Our findings demonstrate support for the positive effect of HQS coupling structure on subsidiary sustainable development, and the moderating role of FDI motives is confirmed. This study reveals the key mechanisms and contingencies of SDG implementation at the subsidiary level, and provides theoretical insights for EMNCs to tackle SDG issues globally, obtain legitimacy locally and deepen international expansion accordingly.

The Cultural Determinants of FDI Inflows in Tourism: Global Evidence

This study analyses the determinants of foreign direct investment (FDI inflows in tourism with an emphasis on the cultural determinants for a global sample of countries. More specifically, we examine the role of the presence of UNESCO heritage sites as a factor of tourism FDI. The results show that the recognition of UNESCO heritage sites, along with domestic tourism demand are leading factors of tourism FDI. In addition, we document some interesting findings regarding the traditional determinants of tourism FDI. Economic growth, trade openness, and depreciation of the domestic currency are found to have a positive impact, while labor force participation rate, and agricultural share in total output have a negative impact. The study also documents detailed effects of various aspects of institutional quality on tourism FDI. We find a rich set of results, including a positive impact by better government stability, voice, and accountability, and low risk of external conflict, and mixed effects by the other aspects of institutional quality. The results imply that FDI inflows in tourism reflect both common FDI features and tourism-specific FDI motivations.

FDI Motives and Location Decisions of Emerging Country Business Groups: Entry Mode, Ownership and Institutional Environment

The purpose of this paper is to introduce and explain our understanding of the internationalization process of emerging country business groups (EBGs) according to the entry mode choice, ownership structure, and formal institutional environment of the host country. The internationalization models of Dunning and Mathews are integrated with the institutional environment in the internationalization process of EBGs because they are unable to explain the rise of EBGs alone. Content analysis is used to investigate the internationalization strategies of EBGs. The findings of this study revealed three categories of FDI motives: main motives (market-seeking and strategic asset-seeking), sector-based motives (efficiency-seeking and resource-seeking), and facilitative motives (relational asset-seeking). FDI motives, entry mode, ownership, formal institutional environment, and location decisions are investigated together in the context of emerging country dynamics. This exploratory study contributes to the expanding global research on EBGs based on a suggested framework that can provide novel insights regarding the internationalization processes of EBGs.

Why Different Acquirers Generate Different Firm Value From Cross-Border M&As: Evidence From Chinese Multinationals

Multinationals from emerging markets have attracted worldwide attention with their prominent cross￾border mergers and acquisitions (M&As). However, little is known about why emerging-market acquirers experience positive value creation through foreign M&A activity while many advanced country acquirers suffer value destruction. This study draws on institutional theory, the springboard perspective, and the asset exploitation and exploration perspectives to examine the critical determinants of firm value creation for Chinese acquirers. Analysis of data from a sample of Chinese firms over the period 2002–2019 shows unique outward M&A advantages held by Chinese multinationals. These companies benefit from tangible and intangible assets acquired from outward M&As in advanced and institutionally divergent economies. The findings suggest Chinese firms that use M&As to capture strategic assets create higher firm value than firms that are driven by traditional FDI motives.

How History Matters: A Comparison of Indian and Chinese Business Groups’ FDI in Africa

We compare the patterns of Indian and Chinese companies’ FDI in Africa to explain how colonial history matters in international business. FDI activities of the historically colonizing countries are well documented. However, a less understood area is how the prior history of being colonized impacts these countries’ FDI activities. This gap in the literature is receiving greater attention as new emerging economies (i.e., India and China) are playing a more profound role in globalization. Specifically, colonial history and a series of historical incidents reshaped the institutional environment and organizational field where a unique set of isomorphic organizational actions emerged. We find that the patterns and focus of Indian and Chinese FDI in Africa reflect their colonial history as being colonized for their resource or consumer market, respectively. More importantly, this paper shows that given differences in history and institutional context, Indian and Chinese business groups exhibit distinct characteristics in their FDI motivations and strategies. Our study has important implications for MNE managers to overcome market imperfections in emerging markets.

Foreign direct investment inflow: The drivers and motivations in MENA Region

Purpose ― Reasons why Multinational Enterprise (MNEs) engage in foreign direct investment (hereafter referred to as FDI) abroad have been of great interest to policy markets, academia and international portfolio investors. This examines FDI inflow motives to the Middle East and North Africa (MENA) region for the period 2005 to 2019. Design/methodology/approach ― This research paper applies both the static and dynamic panel methodologies such as SYS-GMM, fixed effects, and pooled OLS estimators to investigate the motivational factors of MNEs FDI inflows to MENA countries. Findings ― Although specificity applies to countries, estimated results suggest that MNEs in the MENA region are predominantly interested in serving both home and host markets. Other motives such as efficiency-seeking FDI vary across countries, indicating that FDI motives are not homogeneous among region members. This paper provides useful insight for both firms and host countries in the region. Originality/value ― This research paper investigates the factors that motivate MNEs to consider FDI decisions in MENA countries. Rather than investigate the individual countries within the region as done in existing literature, this research paper simultaneously examines MNEs' investment motivations in the MENA region. The findings are significant, plausible and in line with the economic development of most countries in the region.

A Study on the Analysis of Attracting Factors for Global Foreign Direct Investment Inflows

Purpose - The objective of this study is to investigate what motivates global FDI inflows in the different economic development level and to clarify the FDI motivation type in the level of qualitative economic growth. Design/methodology/approach - Major macroscopic social·economic factors induced FDI inflows were analyzed using fixed-effect panel regression with 30-year panel data of 28 countries from 1985 to 2014. For analysis in the stage of economic growth, two category of developed and developing countries was used. And to analyze FDI motivation type in the level of qualitative economic growth, 4 shares of GDP; consumption·government·investment expenditure and export, was used as explanatory variable. Findings - In developed country, TFP(total factor productivity) and GDP have a great influence on FDI inflows, and consumption and labor compensation have a slight effect. This result indicates that the market seeking-driven, horizontal type investment is shown along with efficiency seeking investment. In developing country, human capital and TFP is shown to have greater impact on FDI inflows and labor compensation, exports, investment and government expenditures also have impacts. Thus it has confirmed that not only efficiency-seeking vertical investment for using low cost well educated laborer, but also government-driven economic growth and export policies could affect the FDI inflows. Research implications or Originality - The FDI investment decision making of multinational companies is decided by their own purpose. But, in the concept of as follows; 1) FDI is a long-term capital flowing for maximization of economic utility with limited global resource, 2) Thus FDI could be affected by macro socio·economic factors of host country. 3) Also such macro factors is different by each economic growth qualitative level. Therefore macro socio·economic factors of each country could be affected by the qualitative level of their own economic growth. To attract FDI inflows, it is desirable to implement differentiated incentive policies in the qualitative level of economic growth. Furthermore in developing countries it is recommended to implement government driven economic growth policies as follows; fostering well educated human resources, improving technology productivity in the relative lower cost labor market compared to developed countries and boosting international export volume.

Foreign Direct Investment and the Role of Institutional Framework: Evidence from Greek Outward FDI

The present study analyses MNEs’ internationalization’s strategic motivation within different institutional and regulatory contexts through a study of Greek firms. Based on home country deficiencies, the study conceptualizes different internationalization motives in different regions, particularly CEECs and Western European countries. We use a unique database consisting of macro- and micro-level data covering the entire population of greenfield investments made from 2003 to 2019. Our analysis is based on Dunning and Lundan’s eclectic paradigm. Empirical evidence resulting from a panel data analysis and the fixed effects method corroborates our conceptualization of dualism on FDI motivations among the regions. In addition, a significant role of investment freedom is identified, which, depending on the region, either reinforces or moderates the importance of firm efficiency.

Evolution of the Motives for Foreign Direct Investments in Poland between 1990 and 2018

Purpose: The main purpose of this study is to identify and evaluate changes in the motivation for making foreign direct investments in Poland between 1990 and 2018. Design/Methodology/Approach: The study was divided into two stages. The first stage covered the period from 1990 to 2008, for which our analysis of the motivation behind FDI in Poland was based on results of studies completed by other authors. The second research stage involved analyses based on our direct survey research conducted according to the CAWI method among 1,965 companies which started economic activity in Poland between 2009 and 2018. The research was conducted using a poll approach and a questionnaire designed by the research authors. Findings: The review of the studies conducted by other researchers suggests that the motives for undertaking FDI in Poland are relatively stable. The key reasons, both in 1990-2008 and 2008-2018, were motives connected with business efficiency (cost-related), market and resources. Significantly, factors within the categories of motives which determine investors’ decisions underwent certain modifications over the time period analysed. Practical Implication: Because of their impact on the socio-economic dimension of economy, foreign direct investments have been the subject of research for many years, in an effort to identify the reasons why FDI are made. Exploring the motives and factors which determine the location of FDI in a given country could provide the information necessary to design a policy whose aim is to shape the volume and structure of foreign direct investments. The goal is to achieve desired economic effects. Originality/Value: The social and economic development is determined by well prospering enterprises, including those with foreign capital. It is still necessary to conduct studies in the FDI motives and determinants area in the aspect of forming their value, especially in view of the fact that the current interest in this situation is still very important

FDI motives and the use of tax havens: Evidence from South Korea

Despite the recent attention in the media and focus in the academic literature on tax havens and tax mitigation strategies, we know very little about how the use of tax havens relates to a firm’s internationalisation strategy. In this paper, we develop a conceptual model that explains how FDI into tax havens relates to the standard FDI motives identified in the literature. We subsequently use a novel dataset that allows us to empirically investigate how these motives impact upon tax haven FDI in the South Korean context, which has experienced very rapid economic development over the last few decades and is now considered an advanced economy. We find that tax haven FDI is strongly linked to market-seeking and efficiency-seeking FDI, whereas its link with resources-seeking FDI is only found with respect to the most secretive tax haven locations. Furthermore, we find no relationship between technology seeking FDI and tax haven use. We argue that as tax haven use increases over time, the economic proceeds of outward FDI leak out and remain offshore.

The Role of FDI Motives in the Link between Institutional Distance and Subsidiary Ownership Choice by Emerging Market Multinational Enterprises

AbstractThis study advances the limited generalizability of previous studies that have focused on developed market multinational enterprises and explores the link between institutional distance and ownership choice of emerging market multinational enterprises (EMNEs). Such studies in the EMNE context have been rare, and we provide key theoretical explanations for EMNEs’ distinct foreign direct investment motives to act as important contingencies in the link between institutional distance and EMNEs’ ownership choices. Analyses of longitudinal data of Chinese firms’ internationalization from 2001 to 2017 reveal that the higher the institutional distance, the lower the level of EMNE subsidiary ownership control with market‐seeking motives; while the higher the institutional distance, the higher the level of EMNE subsidiary ownership control with knowledge‐seeking motives.

Japan's FDI drivers in a time of financial uncertainty. New evidence based on Bayesian Model Averaging

In this paper we analyse the determinants of Japanese outward FDI stock for the period 1996–2017. This period is especially relevant as it covers a process of increasing economic globalization and two financial crises. To this aim, we consider a large set of candidate variables based on the theory as well as on previous empirical analysis. Our sample includes a total of 27 host countries. We select the covariates using a data-driven methodology, the Bayesian Model Averaging (BMA) analysis. Moreover, we also analyse whether these determinants change depending on the degree of development (emerging vs developed) or the geographical areas (EU vs East Asia) of the countries considered. We find that Japan's FDI can be explained by a wide variety of variables, that include not only the typical gravitational ones but also institutional and macroeconomic variables, including those that measure financial development. Moreover, Japanese FDI can be explained by both horizontal and vertical FDI motives in the groups of countries analysed. However, in developed, and more precisely, EU countries, horizontal FDI strategies are predominant, whereas for East Asian and emerging countries, there is more evidence in favour of vertical FDI.

The OLI Paradigm as a comprehensive model of FDI determinants: a sub-national approach

PurposeThis study aims to advance a sub-national perspective within the OLI Paradigm by analyzing how and to what extent the Eclectic Paradigm can serve as a general model to capture region-specific aspects of the location determinants of FDI, encompassing institutional effects that extend beyond the quality of institutions.Design/methodology/approachThe authors conducted a systematic literature review of 41 selected papers published between 1990 and 2019. Using inductive content analysis, they investigated the theoretical choices used to support analyses of the effects of institutional factors on MNEs' location decisions at the sub-national level.FindingsIt was found that, when changing from the national to the sub-national level of analysis, there is no need to change the main assumptions used in the literature, although a different perspective must be adopted. The Eclectic Paradigm permeates most of the studies revised and can serve as a general model to capture the sub-national perspective. It offers a foundation for new perspectives on the dynamics of institutional and political factors and their effects on location strategies and determinants at the sub-national level. Adopting the OLI Paradigm with a sub-national approach could widen the IB literature's prevailing focus on traditional economic factors and institutional quality.Research limitations/implicationsThe authors contribute to extant International Business literature Their paper enhances the literature on FDI location determinants by providing a more specific approach to development of a sub-national perspective within the OLI Paradigm, extending the institutional effects to capture more region-specific factors influencing the location of FDI. Study limitations are related to our analytical focus on the location dimension, excluding motives for FDI or firm-level location strategies. Rather than limiting analysis to quantitative studies, future research that includes qualitative studies and also covers the other dimensions of the OLI Paradigm could open additional new research avenues for advancing the sub-national perspective within the field of IB.Practical implicationsThe authors’ main findings suggest that MNEs' location strategies should include a sub-national perspective, which means that firms need to assess different levels of the location and understand their interaction with nationwide constraints and limitations, as it may affect firms' ability to effectively conduct their value-adding activities. They also contribute elements that can support sub-national governments' actions and policies aiming to enhance locational advantages to attract and retain FDI.Originality/valueThis review specifically analyzes the location determinants of FDI at the sub-national level, in studies published in a broad set of journals, from a variety of fields, prioritizing articles that investigate sub-national institutional determinants. The authors derive implications for the International Business literature and propose that the sub-national dimension should be incorporated into the Eclectic paradigm in order to better understand the influence of institutional sub-national determinants.

On the drivers of UK direct investment in the Spanish regions: A spatial Durbin approach

AbstractThis paper empirically examines the key factors driving UK direct investment in the Spanish regions over the period 2000–2016 and, consequently, tries to unveil its main motivation. Applying a spatial Durbin panel model to capture spatial linkages, the results point to the existence of complementarity between the FDI received by a region and that of the remaining ones. This outcome, along with a positive and statistically significant spillover effect of market potential, reveals that complex‐vertical FDI motivation with agglomeration economies prevails among UK MNEs investing in Spain. Additionally, our findings unveil the role played by some other FDI drivers, such as wages and infrastructure. Furthermore, the paper is unique in decomposing the average direct and spillover effects by region and pairs of regions, so that remarkable differences can be identified. This breakdown has strong significance from a policy perspective since it can guide regional policy makers. In short, our findings point out to the fact that FDI policy should be jointly designed by those regions presenting strong bilateral spillover effects. Thus, greater cooperation among policy makers would be welcome.

FDI and labour share of home-country: empirical evidence from micro data of Chinese enterprises

When an enterprise is operating globally, it will surely lead to the flow of production factors, and thus change the factor income distribution in the home country. This paper studies the influence of FDI on the labour share in enterprises’ home country under the background of continuous economic globalisation. Based on the theory of Heterogeneity of FDI Motivation, this paper first analyzes the influence mechanism of FDI on home country labour share. Then, with the micro data of Chinese enterprises, this paper adopts Mahalanobis distance matching and Difference-in-Differences (DID) estimation to have empirical test on the influence of FDI on the labour share in enterprises’ home country. The results show that, overall, enterprises’ FDI and labour share in the home country present a negative correlation. In terms of heterogeneity of FDI motivation, market-seeking FDI significantly decreases the labour share in the home country, while resources-seeking and technology-seeking FDI significantly increase the labour share in the home country. From the perspective of host country heterogeneity, FDI in developed countries significantly increases the labour share in the home country, while the FDI in developing countries inhibits the increase of labour share in the home country.

An analysis of different Brexit outcomes and their effect on inward FDI to the UK

In June 2016, the UK voted to leave the EU, and the economic implications of 'Brexit' are starting to take on a clearer focus. This paper seeks to outline the patterns of inward FDI to the UK. The paper analyses the possible impacts of different Brexit scenarios on inward FDI to the UK. The paper's key arguments include that 'harder' forms of Brexit are likely to have worse outcomes in terms of inward FDI to the UK, with export platform FDI potentially significantly affected. The effects of Brexit could also be diverse in different industries, given the different motives for FDI, and also diverse in terms of the type of activity of the FDI. Moreover, given the patterns of FDI in the UK, the regional impacts of Brexit will not be evenly spread. The findings have clear policy implications surrounding the Brexit negotiation process.

FDI Motivations and Productivity Premium of Multinational Services Firms

In the context of the services-based global economy and FDI shift to service sectors,it is of more importance to analyze FDI motivations and productivity premium of multinational services firms.However,the service sectors and multinationals themselves are neglected in previous studies of FDI motivations.Based on these defects,this paper focuses on multinational services firms themselves,and employs a large sample of services firms of 135 countries including China from the World Bank from 1999 to 2012 to analyze the FDI motivations and productivity premium of multinational services firms and then compare them with manufacturing enterprises.The results are as follows:firstly,the FDI motivation of multinational services firms is mainly based on market-seeking,but the efficiency-seeking motivation is more significant in the higher income host countries;secondly,most of multinational services firms have significant productivity premium of efficiency-seeking FDI at the whole,nation and industry levels,namely compared with market-seeking FDI,multinational services firms seeking efficiency have higher productivity;thirdly,the FDI motivation of multinational manufacturing firms is mainly based on efficiency-seeking,but multinational services firms have higher strength of efficiency-seeking FDI motivation and productivity premium.The conclusions above-mentioned imply rich policy implications for China's FDI inflows and outflows in service sectors from the perspectives of institution design and advantages exertion.