Is Home-Host Cultural Distance a Risk? Evidence from Outward Foreign Direct Investment by Chinese Enterprises

Cultural distance is always regarded as a “risk” in the decision making of enterprises involved in the outward foreign direct investment (OFDI), however, investment is a powerful driver of productivity growth and increased innovation capacity of enterprises in both countries. Is cultural distance a “risk” ? Using Hofstede's indicators and the Kogut and Singh index (1988), this paper calculates the cultural distance based on six cultural dimensions and further examines the effect of cultural distance on the outward foreign direct investment by Chinese enterprises and its mediating effects on the role of other factors influencing the decisions of multinationals. The results indicate that there is a nonlinear effect of cultural distance and the mediating effect of cultural distance is negative.

The Role of Institutional Linkages and Regional Institutions in the Location Choice of Outward Foreign Direct Investment: Empirical Evidence from Chinese Firms

Differently from the prior studies that look at the determinants of Outward foreign direct investment (OFDI) location choice, based on the institution theory and employing a comprehensive and unique micro-level dataset of Chinese firms, this study is the first to integrate institutional linkages (Confucius Institute) and regional institutions into one framework and looks at the role of the location choices of Chinese OFDI. The results show that Chinese firms prefer to invest in countries with the presence and higher number of Confucius Institutes including Confucius classrooms. Moreover, the institutional linkage of Confucius Institutes can alleviate the possible negative effects caused by the distance between China and the host country, which suggests Confucius Institutes help Chinese firms against liabilities of foreignness and risks and costs of operation in more distant host countries. We also find that the availability and quality of China’s regional institutions have a strong impact on local firms’ willingness and capability of participating.

The role of labour unrest and skilled labour on outward foreign direct investment in Taiwan, Republic of China, ROC

This paper builds an estimation model to test whether improved labour standards necessarily lead firms to send work offshore to countries with lower wages and fewer employment protections; or improved labour standards influence the labour market, where with time, firms attract more skilled workers, which help deter outward foreign direct investment (FDI). When more firms comply with improved labour standards, the industrial relations climate also improves as non-compliance usually causes labour unrest. Using a model built on pooled cross-sectional time-series data from 2008–17, we studied the role of changes in labour unrest and the percentage of skilled workers in the labour force in predicting outward FDI in Taiwan. Per our estimation model, we found the percentage of skilled workers steadily increased as Taiwan maintained improved labour standards. The increase in skilled workers also increased labour costs making it challenging for firms to stay onshore. However, skilled workers helped firms improve productivity, which justified increased labour costs. As a result, firms in Taiwan that complied with labour standards found it less challenging to pay higher wages and stayed onshore. JEL Code: J28, J38, F66

Technological innovation policy and Chinese heterogeneity enterprises' outward foreign direct investment

PurposeThe study aims to analyze the role of the Made in China 2025 (MIC2025) initiative in China's Outward Foreign Direct Investment (OFDI) and the factors affecting the success or failure of Chinese enterprises' OFDI from the perspectives of the heterogeneity of home country enterprises.Design/methodology/approachBased on data on China's OFDI obtained from the China Global Investment Tracker (CGIT), the study uses the difference-in-differences model to analyze 2,670 completed OFDI deals and 211 failed OFDI deals by Chinese enterprises, from 2009 to 2018.FindingsThe study found that the effect of MIC2025 on Chinese enterprises' OFDI varies according to the ownership structure of the home country's enterprises. For successful OFDI, MIC2025 significantly impacted central state-owned enterprises (CSOEs), while it did not significantly influence local SOEs and privately owned enterprises. For failed OFDI, the MIC2025 plan only increased the failure of CSOEs' OFDI for the technology-seeking motivation in high-income host countries. Further, the investment options of local SOEs differ from those of CSOEs. Considering their aim to drive the local economy and seek profits, they are more similar to those of privately owned enterprises.Originality/valueThis study used a new database (i.e. the CGIT) to analyze Chinese enterprises' OFDI. It discussed the role of MIC2025 for different enterprises from the perspectives of successful and failed OFDI. It thus provided a new basis for analyzing policy affecting the OFDI of Chinese enterprises.