Entry Modes of Multinational Corporations into China's Market: A Socioeconomic Analysis

Abstract

The rapid economic growth of China makes it a fast expanding market in the world, which attracts increasing number of multinational corporations (MNCs) to invest. How to enter this huge and newly liberalised market and what entry mode should be taken, are key questions which need to be answered before any investment takes place. This paper is a study of the entry modes of MNCs in the particular Chinese institutional and business environments within the transaction cost analytical framework. It provides not only theoretical discussion but also an empirical investigation ofMNCs entry modes in China. The main findings of this study are: (1) the entry modes vary according to investors' sociocultural backgrounds, the technology intensity of projects and locations. The multiple regression results indicate that cultural proximity, technology content and liberalised economic environment positively affect foreign equity share in foreign-invested enterprises (FIEs). (2) For investors with sociocultural distance from China, a joint venture is the most suitable mode to enter into Chinese market. This is particularly true for investments using standardised technologies, and for investments based on natural resources or oriented the domestic market.