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Management International Review

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01-10-2013 | Research Article

The Impact of Psychic Distance on Chinese Outward Foreign Direct Investments

Authors: Katarina Blomkvist, Rian Drogendijk

Published in: Management International Review | Issue 5/2013

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Abstract

The aim of this paper is to investigate the value of the well-known construct of psychic distance, developed to explain the internationalization path of firms from developed countries, for the internationalization of Chinese firms.
Our research question is: Does psychic distance and its individual stimuli (differences in language, religion, culture, economic development, political systems, education, and geographic distance) explain Chinese investments abroad?
We test hypotheses on the relation between psychic distance and its stimuli and Chinese outward direct investments with OLS regression analyses.
We find that Chinese OFDI indeed is influenced by an aggregate construct of psychic distance and by certain psychic distance stimuli, but not by all; in particular, similarities or differences with regard to language and culture, the level of industrialization and the level of democracy relate to Chinese firms’ internationalization.
Our findings suggest that psychic distance and its stimuli cannot be ignored as explanatory factors for Chinese outward FDI but that the explanatory value of these constructs depends on the context of the phenomenon under study.
We conclude that it is important to understand how the home country context influences managerial perceptions and thereby patterns of international expansion from different regions.

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The definition of FDI in this paper draws upon UNCTAD, hence FDI is an investment involving a long-term relationship and reflecting a lasting interest and control by a firm in an enterprise resident in a foreign country (UNCTAD, 2005). Moreover, it includes three factors; equity capital, reinvested earnings and intra-company loans or debt transactions (UNCTAD 2005).

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Title: The Impact of Psychic Distance on Chinese Outward Foreign Direct Investments
Authors: Katarina Blomkvist
Rian Drogendijk
Publication date: 01-10-2013
Publisher: Springer Berlin Heidelberg
Published in: Management International Review / Issue 5/2013
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI: https://doi.org/10.1007/s11575-012-0147-y

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