Determinants of equity-based entry mode choice in the forest sector: the case of China

The focus of foreign direct investment (FDI) in the global forest sector has shifted from developed to developing economies (currently accounting 73% of total) during the past two decades. China has been the main global driver with its annual FDI soaring from USD 130 million in 2002 to USD 550 million in 2010. In light of international economic and business theories, choice of foreign entry mode is considered the most critical issue in corporate expansion strategy, which, however, has not been empirically studied in the forest sector. To fill this gap, our paper focuses on modeling two equity-based entry mode choices (i.e. wholly owned subsidiary or joint ventures) of foreign investment projects in China based on data from 109 activities of the Top 100 forest, paper, and packaging industry companies. By using logistic modeling, the main determinants of corporate entry mode choice are found to be cultural and geographical distance between the corporate home country and China, duration of corporate presence in China, and spatial concentration of local-level forest industry. Instead, investment project size and local resource availability are found to have no significant impact on corporate entry mode choice in China.