Framework build-up of FDI entry mode selection for China’s state-owned enterprise in EU

Abstract

In the recent years, the world saw a rapid expansion of China’s foreign direct investment (FDI). From the start of the new century, EU as one of the world’s largest economies has enjoyed rocketing growth of FDI inflow from China. As the main force in foreign investment operations, Chinese state-owned enterprises (CSOE) are eager to extend their business to Europe. The issue of investment entry mode selection has been regarded as one of the most important questions that all investors need to answer during decision making process. Study of FDI entry mode selection, therefore, is of great significance for Chinese state enterprise entrepreneurs and investors. With a combination of qualitative method and SWOT analysis, this paper attempts to conduct a systematic study on potential FDI entry mode influencing factors from two perspectives: Chinese state-owned enterprises as ordinary firms and as special government enterprises. It aims at building a macro-level framework of FDI entry mode selection for China’s state-owned enterprises investing in EU and providing theoretical solutions in optimum entry mode selection for their decision makers. Major findings of the paper are as follows: Chinese state-owned enterprises in machinery, textile, light industry and electric appliance sectors should take wholly-owned Greenfield or partly-owned Greenfield investment when entering EU market; Technology, innovation, and brand effect oriented Chinese government enterprises are advised to go under M&A; Chinese state enterprises with the aim of access to foreign natural resource reserves could be most benefited from partly-owned M&A entry mode; Chinese state-owned enterprises with more EU investment experience are in advantageous positions in employing Greenfield; Chinese state-owned enterprises with globalisation development strategies are recommended to employ wholly-owned Greenfield while Chinese state firms with localization strategies would be advised to use partly-owned M&A; Chinese state-owned enterprises with purposes to gain access to Western European high-tech clusters should adopt M&A; other state-owned enterprises with gradual expansion strategy should go Greenfield in EU emerging markets.