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Article
Publication date: 22 July 2021

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

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…

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.

Details

Journal of Chinese Economic and Foreign Trade Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1754-4408

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