International establishment mode, ownership structure, and performance of emerging economy MNES: enriching the global value chain perspective with the institution-based view

Abstract

By adopting a global value chain (GVC) perspective and institution-based view, this study examined three key issues of emerging market multinational enterprises (EM MNEs) as they conduct foreign investments: 1) determinants of the decision made concerning the mode of establishment, greenfield or acquisition; 2) determinants of the choice of ownership structure, whole ownership or share ownership; and 3) the impact of mode choices on firms’ foreign subsidiary performance. The study adopted empirical, quantitative research methods for the analysis and chose China as the emerging economy research context. Secondary data were collected from the annual reports of Chinese on-list MNEs from the years between 2007 and 2015. It was found that the value chain extension of investment activities led to different entry modes of foreign direct investment (FDI). For the establishment mode decision, firms conducting vertical value chain extension were more likely to choose acquisition over greenfield. Cultural distance between home and host country strengthened this positive impact of vertical extension. Further, firms were more likely to select acquisition over greenfield when the vertical extension was upstream (design end) as opposed to downstream (marketing end). For the choice of ownership structure, it was found that both the value chain extension of the investment and the state ownership of firms affected the choice made between whole ownership and shared ownership. On the one hand, the value chain extension of the investment showed a very weak impact on shared ownership choices in both acquisition and greenfield. It was also found that the economic freedom of the host market could alleviate the tendency of vertical extension firms to choose shared ownership in both acquisition and greenfield. Moreover, the degree of the home market sub-national marketization can alleviate the tendency for vertical extension firms to choose shared ownership in both acquisition and greenfield, while in acquisition such alleviation effects are more obvious compared to greenfield. On the other hand, a background of state ownership results in a tendency for firms to choose shared ownership over whole ownership in both acquisition and greenfield. In acquisition, this tendency is more obvious compared to in greenfield. It was also found that compared to greenfield, the degree of home market sub-national marketization could alleviate state ownership background firms in choosing share ownership compared to whole ownership. Empirical support was also found for the research model. Foreign operations whose establishment mode and ownership structure choices were selected according to prescribed theory out-performed those whose modes were selected otherwise. Unifying the previous issues raised by the choice of two modes and their impact on firms’ performances in this framework, integrated with an institution-based view, a more relevant test of the global value chain perspective is provided to explain EM MNEs investment activities in the international business arena.

Date of Award	8 Jul 2020
Original language	English
Awarding Institution	Univerisity of Nottingham
Supervisor	Lei Li (Supervisor) & Chengqi Wang (Supervisor)