The FDI Model Choice of Chinese Parent Firms: Culture Distance and Host-country Risks

Foreign Direct Investment (FDI) model choice is an important strategy of international expansion. Using a sample of 248 FDI cases of Chinese firms, this paper provides empirical evidence on the role of culture distance and host-country operation risks, in influencing the path of constructing overseas subsidiaries with acquisition or green field investment. The Binomial Logistic model regression results show that the higher the culture distance between China and the host countries, the more likely Chinese firms prefer acquisition. However, the host country risks reverse the strategic decision. As a special consideration of China, the Central Stated-owned Firms (CSFs) have a significant positive tendency to acquisition. Moreover, on the resource-based industry, Chinese firms show a higher probability to make acquisition in international markets.