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Wholly-Owned Subsidiaries and Joint Ventures

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Wholly-Owned Subsidiaries and Joint Ventures
GLOBAL JOURNAL OF BUSINESS RESEARCH ♦ VOLUME 3 ♦ NUMBER 2 ♦ 2009

AN EMPIRICAL STUDY OF WHOLLY-OWNED SUBSIDIARIES AND JOINT VENTURES FOR ENTRY INTO CHINA MARKETS
Yung-Heng Lee, Northwestern Polytechnic University, USA Yann-Haur Huang, Northwestern Polytechnic University, USA Mei-Jane Chan, Northwestern Polytechnic University, USA ABSTRACT The aim of this study is to empirically investigate the effectiveness of The Eclectic Theory in explaining the entry mode choices of Taiwanese Electronic Components firms in China markets during the time period from 2003 to 2005. The annual data includes as many as 267, 324, and 283 firms respectively. This study explores how the ownership, location, and internalization advantages( OLI advantages) influence the entry mode choices between wholly-owned subsidiaries (WOS) and joint ventures (JV) of Taiwanese Electronic Components firms. It also identifies those factors that have an important impact on the choices of entry mode and provides meaningful suggestions for the new firms that wish to invest in the China market. JEL: M16 KEYWORDS: Eclectic Theory, joint ventures, wholly-owned subsidiaries, china markets INTRODUCTION he Eclectic Theory, also called OLI theory, is one of the main frameworks used to explain and examine foreign direct investment (FDI) decisions of multinational firms over the past two decades (Xuemin Zhao and Reinhold Decker, 2004, pp 7-8). Dunning (1977) first introduced the OLI theory. Later the theory was developed by Dunning himself (1980, 1988, 1995, 1998, 2000) and other scholars such as Goodnow (1985), Hill, Hwang, Kim (1990), Macharzina & Engelhard (1991), Agawal & Ramasvisami, (1992), Woodcock, Beamish & Makino, (1994), Brouthers, Brouthers & Werner (1999), Brouthers, K.& L. Brouthers (2000) and Cantwell & Narula (2003). The Eclectic Theory is an attempt to integrate various FDI theories into a general framework to examine the choice of entry mode. This theory proposed that the choice of market entry
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