Market Entry Modes for Direct Investment: A Study of Hong Kong Manufacturing Firms Entering China

Abstract

This paper looks into the variables affecting the FDI entry mode selection process. It argues that most of the existing studies on this issue are based on the experience of multinational corporations of developed countries and thus are not adequate to explain FDI of firms from the newly industrializing economies into their neighboring regions. While most empirical studies have tended to follow a single theoretical perspective, this paper argues that an eclectic approach is more suitable to explain the complex and multifaceted entry mode decision-making process of firms. In view of the overwhelming dominance of Hong Kong manufacturing investment in China, this study attempts to provide an explanation of what factors influence Hong Kong manufacturing firms’ choice of FDI entry modes into China. Following a detailed literature review, this paper proposes an analytical framework that combines strategic, firm-specific, country-specific and transactional variables to guide future empirical investigations.