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FDI by firms from newly industrialised economies in emerging markets: corporate governance, entry mode and location

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Abstract

Previous studies emphasise that the foreign direct investment (FDI) strategies of firms from newly industrialised economies (NIEs) are different from the FDI strategies of firms from developed economies. It has also been shown that NIE firms are often controlled by founding families who make key strategic decisions, and that they rely heavily on network linkages when developing their FDI strategies. What is less clear, however, is how the corporate governance factors in NIEs, the risk preferences of the main shareholder constituencies, and the network-based business culture affect the decision to undertake FDI in emerging markets. This paper explores the entry mode and location choices of firms from an Asian NIE (Taiwan) in an emerging market (the People's Republic of China). It shows that the choice of equity stake in an affiliate depends upon the extent of family and institutional share ownerships in the parent company. High-commitment entry is found to be positively associated with the affiliate being located in areas with strong economic, cultural and historic links with the parent company. Furthermore, the entry mode and location decisions appear to be interrelated, with the parent's equity stake in the affiliate depending inter alia upon the location within China, and the favoured location depending inter alia upon the equity stake.

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Acknowledgements

We are grateful to the participants at the 2006 Annual Conference of the Academy of International Business, the editors and two anonymous reviewers for their helpful comments.

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Authors and Affiliations

  1. King's College London, London, UK

    Igor Filatotchev, Roger Strange & Jenifer Piesse

  2. University of Stellenbosch, Stellenbosch, South Africa

    Jenifer Piesse

  3. National Taiwan Ocean University, Keelung, Taiwan

    Yung-Chih Lien

Authors
  1. Igor Filatotchev
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  2. Roger Strange
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  3. Jenifer Piesse
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  4. Yung-Chih Lien
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Corresponding author

Correspondence to Igor Filatotchev.

Additional information

Accepted by Rosalie L Tung and Yadong Luo, Departmental Editors, 2 January 2006. This paper has been with the authors for two revisions.

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Filatotchev, I., Strange, R., Piesse, J. et al. FDI by firms from newly industrialised economies in emerging markets: corporate governance, entry mode and location. J Int Bus Stud 38, 556–572 (2007). https://doi.org/10.1057/palgrave.jibs.8400279

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  • DOI: https://doi.org/10.1057/palgrave.jibs.8400279

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