Do institutional risk preferences exist in Chinese direct investments in ASEAN countries? A case study of Chinese-funded enterprises in Laos

Siyue Chen, Gengzhi Huang, Hongou Zhang, Yuyao Ye and Qitao Wu

Journal of Chinese Economic and Foreign Trade Studies, 2021, vol. 14, issue 3, 306-324

Abstract: Purpose - Institutional factors play an important and complex role in Chinese outward foreign direct investment (OFDI) location choices that do not seem to be influenced by a host country’s high political risks. Moreover, the location choice for OFDI is key to corporate strategic decision-making on internationalization. Therefore, this study aims to examine the direct investments of Chinese multinational enterprises (MNEs) in Laos. Design/methodology/approach - Combining the purposive sampling strategy and snowball sampling method, the authors interviewed nine market- and resource-seeking Chinese enterprises in Laos. Drawing from the mainstream eclectic paradigm and the theory of new institutional economics, the authors analyzed two key variables – enterprise investment motivation and enterprise heterogeneity. Findings - Chinese MNEs are not insensitive to the regressive institutional quality of host countries; the relationship effect and institutional distance are the location decision pathways along with which institutional factors influence Chinese multinationals’ investments in Laos; political stability is necessary for Chinese-funded enterprises to invest in Laos and the degree of corruption is an overestimated institutional preference factor. Originality/value - The relationship effect is introduced into the analysis framework as an intermediate variable that influences the decision of MNEs to invest in countries with underdeveloped institutions. It verifies the significant roles of bilateral political relations and network relations in the OFDI location decisions of state-owned and private enterprises, respectively.

Keywords: China; Multinational enterprise; ASEAN; Institutional distance; Laos; Relationship effect (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jcefts:jcefts-09-2020-0060

DOI: 10.1108/JCEFTS-09-2020-0060

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