5. Chinese FDI and Psychic Distance Perceptions on Regulations in the German Renewable Energy Sector

Countries are different on various dimensions such as culture, language, business practices, policy-making, and regulation. Research shows that distances on these dimensions between countries impact foreign direct investments (FDIs) flows. The higher the distances, the higher the difficulties for businesses. In this chapter, we analyze the perception of distances between China and Germany, by surveying Chinese managers who invested in Germany in the renewable energy (RE) sector. Our analysis refers to Child et al.’s measure of psychic distance (PD), which consists of 12 dimensions. The RE sector is young and highly dynamic. Regulations, policy-making, and business practices—all dimensions of the PD concept—are under permanent change, and this may lead to wrong perceptions, therefore to failures in FDI decisions. We use a five-company multiple case study and analyze if managers perceive distances on various dimensions, in particular regulation based, and if Chinese managers have correct perceptions or “misperceptions.” Further, we investigate if their perceptions change over time. Findings lead to recommendations for policy-making in the RE sector, for practitioners in the field of FDI to cope with issues of distances, and for international business (IB) scholars by showing that psychic distance should be complemented by a dynamic dimension.