Greenfield or M&A? An institutional and learning perspective on the establishment mode choice of Chinese outward investments

Ilan Alon, Stefano Elia, Shaomin Li

Research output: Contribution to journalArticlepeer-review

44 Scopus citations

Abstract

We develop and test a model of Chinese greenfield investments using institutional and learning theories. Both the host country institutional context and the firm's international characteristics affect the establishment mode. Using 152 Chinese emerging market multinationals (EMNEs) with 401 subsidiaries distributed in 26 countries from 2003 to 2013, we build a database of 284 pairs of host country/Chinese firms to test two hypotheses. We find that, first, governance environment affects the establishment mode: greenfield investments are preferred over acquisitions in relation-based host markets, and M&As are preferred in rule-based countries. Second, the depth of Chinese EMNEs' international experience (i.e. the amount of previous investments in the same host market) moderates the effect of the governance environment on the establishment mode. Firms with greater international depth use more M&As in relation-based markets and more greenfield investments in rule-based markets, suggesting that previous investments in the same host country provide a type of learning that reduces acquisition uncertainty in the former case and increases the self-confidence of Chinese EMNEs in the latter.

Original languageEnglish
Article number100758
JournalJournal of International Management
Volume26
Issue number3
DOIs
StatePublished - Sep 2020
Externally publishedYes

Keywords

  • Emerging markets multinationals
  • Establishment mode
  • Governance environment
  • Greenfield and M&A
  • Institutional theory
  • Rule-based and relation-based

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