Determinants of Foreign Entry Modes in China Theories and Evidences

1、thesis proposal for msc in logistics atmolde university collegedeterminants of foreign entry modes in china:theories and evidencessupervisor: arnt buvikauthor: pingping qiudecember 2004contents1. introduction32. literature review42.1 transaction cost analysis (tca) and entry modes.42.2 bargaining po

2、wer theory (bpt) and entry modes.42.3 organizational capability theory (oct) and entry modes.52.4 synthesis of the theories.53. decision framework.63.1 main attributes of entry modes.63.1.1 entry modes and control63.1.2 entry modes and resource commitment.63.1.3 entry modes and dissemination risk.73

3、.1.4 attributes of jvs and wfoes73.2 entry mode decision framework.83.2.1 external environment factors83.2.2 internal environment factors.103.2.3 strategic variables.114. research methodology12references151. introduction since the “open-door” policy was launched in 1979, china has attracted substant

4、ial foreign direct investment (fdi). since 1992, china has been the second largest fdi recipient in the world just behind the united states. with its formal entry into the world trade organization (wto) on december 11, 2001, china continued to keep the momentum to attract massive foreign investment

5、and became the largest recipient of foreign investment in 2003. by the end of august 2004, china has applied foreign investment of us$ 545.029 billion (peoples daily, 2004). the choice of an appropriate entry mode is a critical determinant of the likely success of the foreign operations and has cruc

6、ial impact upon competitive advantage of multinational firms (root, 1994). the purpose of this paper is to theoretically explore the determinants which the foreign firms take into consideration when they decide the proper entry mode into china. and then empirical case studies of several norwegian fi

7、rms in china will be conducted to test the general decision framework. the remainder of the proposal is organized into three parts. section 2 briefly reviews the relevant literatures. after that several propositions and the decision framework are proposed. the last section deals with the research se

8、tting and method.2. literature review 2.1 transaction cost analysis (tca) and entry modes2.2 bargaining power theory (bpt) and entry modes2.3 organizational capability theory (oct) and entry modes2.4 synthesis of the theories3. decision framework3.1 main attributes of entry modes this paper will mai

9、nly focus on the two most often used entry modes in china, i.e. joint ventures (jv) and wholly foreign owned enterprises (wfoe). they have different implications for the degree of control that an mnc can exercise over the foreign operation, the resources it must commit to the foreign operation, and

10、the risk it must bear to expand into the foreign country (hill et al., 1990). 3.1.1 entry modes and control3.1.2 entry modes and resource commitment3.1.3 entry modes and dissemination risk3.1.4 attributes of jvs and wfoesentry modeattributescontrolresource commitmentdissemination riskjoint ventures

11、(jv)medium medium mediumwholly foreign owned enterprises (wfoe)high high low 3.2 entry mode decision frameworkdesired attributesentry modesdeterminants external environment joint venturesinternal environment degree of control resource commitment dissemination riskwholly foreign owned enterprisesstra

12、tegic variables3.2.1 external environment factorsproposition 1. as the external uncertainty typically labeled as “country risk” in china keeps declining, mncs are more willing to take high resource commitments and thus adopt wfoe entry mode. proposition 2. as chinese market potential is huge and mar

13、ket demand keeps on rising, mncs are more willing to take high resource commitments and thus set up wfoes to enter china. 3.2.2 internal environment factorsproposition 3. mncs with little or no host country experience will try to limit resource commitment, and selecting the jv mode is preferable. ot

14、herwise, firms with significant host country experience may prefer wfoe so as to maximize payoffs. proposition 4. mncs whose competitive advantage is based on firm-specific know-how will prefer high-control mode in order to minimize the dissemination risk. 3.2.3 strategic variablesproposition 5. oth

15、er things being equal, mncs that pursue a global strategy will prefer high-control entry modes, and thus wfoe is a better choice. otherwise, firms that pursue a multi-domestic strategy will favor low-control, i.e. jv entry mode.4. research methodologymost of the research in the field of business pro

16、cess has been done by empirical observation and case studis. a number of surveys of businesses in local regions have also been undertaken. much of the development of methods, guidelines and “best-practice” in this rapidly changing field is originating from inspirational “gurus” and management consul

17、tants, working with pioneering organizations. this study will use the embedded multiple-case study approach (yin 1994) to discover relevant principles for multinationals to successfully select the entry mode in china. four case studies will be analyzed to determine the key principles, in addition to

18、 those supported by the literature. the four companies involved, with their subsidiaries in east china, are:o iv group - iv techmould suzhou co. ltd.o glamox group - glamox (suzhou) lighting co. ltd. o borregaard chemicals - borregaard industries ltd. (china)o kenmore international - kenmore refrige

19、ration components (wuxi) co. ltd. the organizations selected for analysis are from a range of business sectors, and vary in the selection of entry modes the common factor is that they have all established manufacturing subsidiaries in china and each of these subsidiaries is regarded as a successful

20、business unit by its parent company. the case studis will be developed using both documentary evidence and qualitative interviews. documentary evidence to be used include joint venture contracts, annual reports, website information, promotional material, parent company documentation, published case

21、descriptions, magazine and newspaper reports, and government printed sources. a qualitative research design will be employed, with the mncs decision process of selecting entry mode in china as the unit of analysis. key informants are selected for interview on the basis of their close involvement in

22、the development of the business unit. each case will be analyzed from the same viewpoint and summarized in the same format. references:agarwal, sanjeev & ramaswami, sridhar n. (1992) choice of foreign market entry mode: impact of ownership, location and internalization factors. journal of internatio

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