Is the US Ready for FDI from China?
- Studies in International Investment series
Edited by Karl P. Sauvant
Chapter 2: Modes of Entry by Chinese Firms in the United States: Economic and Political Issues
Steven Globerman and Daniel Shapiro* INTRODUCTION The purpose of this chapter is to discuss and assess both the strategic and political environments surrounding inward investment in the United States by investors based in China and, tangentially, other emerging markets. In particular we focus on the differences between foreign greenfield entry, and entry by acquisition, and we do so from two different perspectives. First, we consider whether there is any reason for Chinese investors to favor greenfield investments over other modes of expansion in the United States. At the same time we evaluate whether US authorities should be more or less concerned about greenfield investments made by Chinese investors compared to acquisitions of US companies by those investors. Of course, these two perspectives are linked. In choosing an entry mode, firms must account for the possible political opposition that such entry may create. In essence, such political costs are part of the “liability of foreignness” discussed in Chapter 5 by Eden and Miller. These costs may not only alter the choice between greenfield entry and entry by acquisition, but may also alter the choice between full ownership (control) and partial ownership (control). Thus, we also consider the possibility of hybrid entry modes that do not involve full ownership or control. In fact it is now clear that the vast majority of global foreign direct investment (FDI) flows now occurs via mergers and acquisitions (Globerman and Shapiro 2005; UNCTAD 2008). However, Chinese outward FDI has historically concentrated on greenfield and joint venture...
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