Determinants of Entry Mode and Expansion Decisions by Scandinavian MNEs in China

Abstract

In the past decades, China has attracted many multinational enterprises (MNEs) through its continuous economic growth and greater openness towards foreign investment. At the same time, companies that are doing business in China are confronted with various challenges in the external environment. In order to operate successfully in China, firms have to make crucial decisions in regards to their entry mode and expansion strategies. Despite the vast amount of research on entry mode decisions in international business literature, little attention has been drawn to later stages of internationalisation as well as Scandinavian firms in the Chinese market. Therefore, this thesis investigates determinants of entry mode and expansion decisions by Scandinavian MNEs in China. By focusing on five main theories, namely Transaction Cost Theory, the Resource-Based View, the Eclectic Paradigm, Institutional Theory and the Evolutionary Process of Global Market Expansion, we examine internal and external factors which influence these decisions. This is done by applying two complementary research methods. First, a quantitative part concentrates on the entry mode choice between a Joint Venture (JV) and a Wholly Owned Subsidiary (WOS). Thereafter, a qualitative part explores expansion determinants through the application of a multiple case study, including three Scandinavian MNEs. The quantitative analysis shows mostly inconclusive results. However, the qualitative findings reveal that several factors influence expansion decisions in China. We suggest that certain internal and external factors gain influence in later stages of a company’s expansion process. This implies that time plays an important role. Overall, our thesis contributes to a deeper understanding of determinants related to challenges and opportunities of MNEs entering and operating in China.