AJIBM  Vol.9 No.3 , March 2019
How Institutional Distance and International Experience Affect the Success or Failure of Foreign Direct Investment by Chinese Enterprises?
With the sample of 2571 foreign direct investment of multinational enterprises in China from 2005 to 2016, the Logit model is used in this paper to empirically test the influence of host country system differences and international experience on the success or failure of foreign direct investment by Chinese enterprises. Our empirical findings are: the greater the difference in institutional distance (whether positive or negative), the larger the possibility that foreign direct investment by Chinese enterprises will fail, that is, the institutional distance is featured by “symmetric effect” on the success or failure of foreign direct investment by Chinese enterprises; as a “distance bridging” variable, international experience has regulatory effect that weakens the negative effect of institutional distance on Chinese enterprises’ overseas direct investment success rate in the negative institutional distance, but has no regulating effect in the positive institutional distance, which is featured by “asymmetric effect”; the adjustment of institutional distance to the success or failure of foreign direct investment by Chinese enterprises has industry characteristics. When Chinese enterprises directly invest in “sensitive” industries, the adjustment effect of international experience on the relationship between negative institutional distance and investment success or failure is less obvious than that in “non-sensitive” industries. In addition, the sample data of foreign investment by China’s multinational corporation in the “Belt and Road” countries are examined, which is consistent with conclusions. The research results also show that the host country’s dependence on trade, infrastructure and strategic resources are all important factors affecting the success or failure of foreign direct investment of Chinese multinational enterprises. According to the above conclusions, some suggestions and countermeasures are proposed in this paper.
Cite this paper: Yang, J. (2019) How Institutional Distance and International Experience Affect the Success or Failure of Foreign Direct Investment by Chinese Enterprises?. American Journal of Industrial and Business Management, 9, 512-535. doi: 10.4236/ajibm.2019.93035.

[1]   North, D.C. (1990) Institutions, Institutional Change and Economic Performance. Cambridge University Press, Cambridge.

[2]   Blonigen, B.A.A. (2005) Review of the Empirical Literature on FDI Determinants. Atlantic Economic Journal, 33, 383-403.

[3]   Daniele, V. and Marani, U. (2008) Do Institutions Matter for FDI? A Comparative Analysis for the MENA Countries. MPRA Paper No. 2426.

[4]   Yan, C.L. and Zou, C. (2013) The Host Country’s System Quality and Institutional Distance and the Location of China’s Foreign Direct Investment. Contemporary Finance and Economics, No. 7, 100-110.

[5]   Chen, C.S., Liu, X.D. and Yi, C.J. (2017) The Influence of Overseas Chinese Business Network and Host Country System Environment on China’s OFDI—The Perspective Based on “One Belt and One Road”. Journal of Fujian Normal University (Philosophy and Social Sciences Edition), No. 1, 79-86.

[6]   Buckley, P.J., et al. (2007) The Determinants of Chinese Out-Ward Foreign Direct Investment. Journal of International Business Studies, 38, 499-518.

[7]   Kolstad, I. and Wiig, A. (2012) What Determines Chinese Out-Ward FDI? Journal of World Business, 47, 26-34.

[8]   Li, X.M. and Li, C.M. (2016) Institutional Risks of Countries along the “Belt and Road” and the Economic Logic of Chinese Enterprises to “Go Out”. Contemporary Economic Management, No. 38, 8-14.

[9]   Kostova, T. (1999) Transnational Transfer of Strategic Organizational Practices: A Contextual Perspective. Academy of Management Review, 24, 308-324.

[10]   Habib, M. and Zurawick, L. (2002) Corruption and Foreign Direct Investment. Journal of International business Studies, 33, 291-307.

[11]   Bénassy-Quéré, A., Coupet, M. and Mayer, T. (2007) Institutional Determinants of Foreign Direct Investment. World Economy, 29, 38-53.

[12]   Yan, D.Y. (2011) Research on the Institutional Distance, International Experience and the Success or Failure of Chinese Enterprises’ Overseas Merger and Acquisition. Nankai Economic Research, No. 5, 75-97.

[13]   Guo, S.W. and Huang, H.M. (2010) The Influence of Institutional Distance on China’s External FDI—An Empirical Study Based on Dynamic Panel Model. International Economics and Trade Research, No. 11, 21-26.

[14]   Du, J. and Song, Y.G. (2014) Institutional Distance, Factor Endowment and Chinese OFDI Location Choice Preference—An Empirical Study Based on Dynamic Panel Data Model. World Economy Study, No. 12, 47-52.

[15]   Jiang, G.H. and Jiang, D.C. (2012) Is the Host Country System Important—For China’s Investment in Developing Countries? Management World, No. 11, 45-56.

[16]   Xu, D. and Shenkar, O. (2002) Institutional Distance and the Multinational Enterprise. The Academy of Management Review, 27, 608-618.

[17]   Li, X. and Wan, N. (2016) The Legitimacy Threshold of Multinational Enterprises: The Perspective of Institutional Distance. Management World, No. 5, 184-185.

[18]   Hymer, S.H. (1976) The International Operations of National Firms: A Study of Direct Foreign Investment. Doctoral Dissertation, Massachusetts Institute of Technology, Cambridge.

[19]   Sepulveda, M., Angel, J. and Rodriguez, D. (2014) Geographical and Industrial Spillovers in Entry Decisions across Export Markets. MPRA Paper No. 53249.

[20]   Delios, A. and Henisz, W.J. (2003) Political Hazards, Experience, and Sequential Entry Strategies: The International Expansion of Japanese Firms, 1980-1998. Strategic Management Journal, 24, 1153-1164.

[21]   Pogrebnyakov, N. and Mait-land, C.F. (2001) Institutional Distance and the Internationalization Process: The Case of Mobile Operators. Journal of International Management, 17, 68-82.

[22]   Hernandez, V. and Nieto, M.J. (2015) The Effect of the Magnitude and Direction of Institutional Distance on the Choice of International Entry Modes. Journal of World Business, 50, 122-132.

[23]   Xu, D., et al. (2004) The Effect of Regulative and Normative Distance on MNE Ownership and Expatriate Strategies. Mir Management International Review, 44, 285-307.

[24]   Yang, L., Liu, X. and Zhang, J. (2016) How Bilateral Political Relations Affect Foreign Direct Investment—Based on the Perspective of Binary Margin and Investment Success and Failure. China Industrial Economy, No. 11, 56-72.

[25]   Huang, X., Shu, Y. and Yu, M. (2013) Institutional Distance and Cross-Border Income Gap. Economic Research, No. 9, 4-16.

[26]   Cavalli-Sforza, L.L., Menozzi, P. and Piazza, A. (1994) The History and Geography of Human Genes. Princeton University Press, Princeton.

[27]   Spolaore, E. and Wacziarg, R. (2009) The Diffusion of Development. Quarterly Journal of Economics, 124, 469-529.

[28]   Hilbe, J.M. (2011) Negative Binomial Regression. 2nd Edition, Cambridge University Press, Cambridge.

[29]   Zhou, H. and Zheng, Y. (2015) The Impact of Environmental Regulation on Industrial Transfer—Evidence from the Location of New Manufacturing Enterprises. Southern Economy, No. 4, 12-26.