Theory and Practice
Chapter 5: Market Development and Determining Factors
INTRODUCTION The Chinese government has introduced strict entry criteria, both quantitative and qualitative, that to a large extent limit the options of MNBs’ operational mode in China. Wholly owned operation still dominates MNBs’ entry mode selection. China’s ﬁnancial market is in transition. The markets for knowledge and client relationships are still imperfect; therefore a bank has strong incentives to internalize their ownership speciﬁc and location speciﬁc advantages through the establishment of wholly owned branches or subsidiaries in China. However over a number of years some foreign banks have established multiple branches across the major cities of China, some foreign banks still maintain their operation at representative oﬃce levels. In some rare cases, foreign banks have chosen to exit the Chinese local market. This chapter examines the market development of foreign banks in China using data collected from a postal questionnaire survey of 178 foreign banks in China in 2003. Based on the survey data we investigate the factors that diﬀerentiate and dictate the post-entry development of foreign banks. The structure of this chapter is set out as follows: literature is discussed in the next section, followed by the development of hypotheses. Section 4 discusses data and presents statistical models. A discussion of ﬁndings are presented in Section 5. We conclude in Section 6. LITERATURE REVIEW Casson (1990) argues that one important issue in studying market entry strategy is to examine how banks cope with the fast changing external environments and to identify the determining factors of...
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