International pharmaceutical firms' market entry modes decisions into China: a comparison between Early-Entrants and Late-Entrants.ABSTRACT Based on an eclectic e·clec·tic adj. 1. Selecting or employing individual elements from a variety of sources, systems, or styles: an eclectic taste in music; an eclectic approach to managing the economy. 2. mode/developed by combining Root (1994), and Mockler and Dologite's (1997) conventional entry mode theory and Kumar Kumar (from Sanskrit meaning prince or an (unmarried) youth) is an Indian title, given name or family name. As a title it can mean son of a Rājā, prince, or heir apparent and enters in princely compound titles. and Subramaniam's (1997) contingency contingency n. an event that might not occur. entry mode theory, this paper aims to investigate the determinant determinant, a polynomial expression that is inherent in the entries of a square matrix. The size n of the square matrix, as determined from the number of entries in any row or column, is called the order of the determinant. factors that affected international pharmaceutical firms' decisions in choosing either a joint venture or sole venture entry mode into the Chinese Chinese, subfamily of the Sino-Tibetan family of languages (see Sino-Tibetan languages), which is also sometimes grouped with the Tai, or Thai, languages in a Sinitic subfamily of the Sino-Tibetan language stock. pharmaceutical manufacturing industry. It will also compare the perceptions of senior managers from Early-Entrants who entered into China before 1992 and Late-Entrants who started investment in China since 1992 on the impact of firms' international and external variables on the firms' entry mode decisions. The results suggested that China environmental factors and the market factors appeared to be the major determinants of forming joint ventures. Whereas, parent firm's decision task related factors appeared to be the major determinant of establishing a sole venture. The Early-Entrants paid more attention to the China's environment factors, whereas the Late-Entrants concerned more about China's market factors. The importance of foreign investors' ability to adapt products, cost of working capital, and cost of long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. investment capital has been decreased significantly, whereas foreign investors' technology availability has become more important to foreign investors since 1992. 1. INTRODUCTION There are three main entry modes available for a firm to choose from, i.e. exporting, contractual (eg. licensing) and investment (eg. establishing an overseas operation) (Anderson Anderson, river, Canada Anderson, river, c.465 mi (750 km) long, rising in several lakes in N central Northwest Territories, Canada. It meanders north and west before receiving the Carnwath River and flowing north to Liverpool Bay, an arm of the Arctic and Gatignon, 1986; Young, Hamill, Wheeler, and Davies Da·vies , Arthur Bowen 1862-1928. American painter who was the chief organizer of the revolutionary Armory Show in 1913. , 1989; Root, 1987 and 1994). Where firms choose to establish an overseas operation, they must decide whether to pursue the venture alone or with a joint venture partner. This paper seeks to analyse an·a·lyse v. Chiefly British Variant of analyze. analyse or US -lyze Verb [-lysing, -lysed] or -lyzing, these decision processes for international pharmaceutical firms' (IPFs) ventures located in China in the period from 1980 to 1998. By the end of 1998, there were over 1,500 foreign invested pharmaceutical companies (FIPCs) distributed in almost every part of China. IPFs who entered into China during the period from 1980 to 1998 basically chose either a joint venture (JV) or a sole venture (SV) entry mode, and over 84% of IPFs chose a JV rather than a SV, even though foreign investors have been allowed to set up 100% foreign owned SV operations since the passage of "Law of the people's Republic of China Law of the People's Republic of China is the legal regime of the People's Republic of China, with the separate legal traditions and systems of Mainland China, Hong Kong, and Macao. on Enterprises Operated Exclusively with Foreign Capital" by the Chinese central government in April 1986. "For most manufacturers that want to invest abroad, the first-best entry strategy remains the SV, and JV would be a second-best second best n. One that is next to the best. adv. Next to the best. sec  ond-best invest entry
strategy" (Root, 1994, p.148). SV is viewed superior because it
allows investing firms to maximise the returns on ownership-specific
advantages Ownership-specific advantagesProperty rights or intangible assets, including patents, trademarks, organizational and marketing expertise, production technology, and management and general organizational abilities, that form the basis for a company's advantage over other firms. (Caves The following is a partial list of caves. Africa Ethiopia
Main article: List of caves in South Africa
See: Foreign direct investment inflows into China have increased sharply since China's former leader Deng Xiaoping's much publicized pub·li·cize tr.v. pub·li·cized, pub·li·ciz·ing, pub·li·ciz·es To give publicity to. Adj. 1. publicized - made known; especially made widely known publicised tour to the southern provinces in early 1992 and his call for accelerating economic reform and opening up of the economy to the outside world (Jiang
Wei (wā), river, c.450 mi (720 km) long, rising in SE Gansu prov. and flowing E through Gansu and Shaanxi provs. to the Huang He. , 2001). The dramatic changes in Chinese policies and economic development activities may result significant impacts on the investment environment, in turn impacting on international firms' entry mode decisions into China. The findings of the study are both timely, useful, and contribute to a better understanding of foreign direct investment entry mode theories and practices in general. 2. ENTRY MODE LITERATURE Most past studies on foreign market entry modes have emphasised "market imperfection im·per·fec·tion n. 1. The quality or condition of being imperfect. 2. Something imperfect; a defect or flaw. See Synonyms at blemish. imperfection Noun 1. (ownership advantage) theory" (Hymer Hymer is a German motorhome manufacturer. They make all types of motorhome except for high-top and other van based vehicles. They are especially well known for their unique A-Class motorhomes, which often feature a drop down overhead luton bed, situated above the cab. , 1960 and 1976; Kindleberger, 1969), "location specific advantage theory" (Franko Franko may refer to:
A decision by a brokerage to fill an order with the firm's own inventory of stock. Notes: When a brokerage receives an order they have numerous choices as to how it should be filled. theory" (McManus McManus is a family name that may refer to: People:
American writer and editor known especially for his caustic, polysyllabic wit. and Casson Cassons or Casson is the name of a Yokut Native American tribe in central eastern California. The Cassons are also called the Gashowu. The Casson Yokut territory extended from the eastern side of San Joaquin Valley floor eastward to the upper foothills, between the San , 1976), "transaction cost theory" (Williamson Wil·liam·son , Mount A peak, 4,382.9 m (14,370 ft) high, in the Sierra Nevada of east-central California. , 1975; Buckley and Casson, 1976; Casson, 1982; Caves, 1982; Anderson and Gatignon, 1986; Kogut, 1988; Erramilli and Rao RAO Retiree Activities Office RAO Right Anterior Oblique (Radiologic Term) RAO Retinal Artery Occlusion RAO Remedial Action Objective RAO Response Amplitude Operator (mechanical engineering) , 1993), "strategic behaviour approach" (Harrigan Harrigan may be: People:
A theory that provides a three-tiered framework for a company to follow when determining if it is beneficial to pursue direct foreign investment. Notes: " denoted that the choice of entry mode decision is influenced by three types of factors: ownership-specific factors of a firm, location-specific factors of a market and internalization advantages of integrating transactions within the firm. Hill, Hwang Hwang can refer to:
orphan wanders streets of India with lama. [Br. Lit.: Kim] See : Adventurousness (1990) developed their "eclectic theory of the foreign entry mode choice" by combining transaction cost theory, internalization theory and strategic behaviour approach. Bell (1996) created a new eclectic framework to exam Dutch firms' entry mode decision by adding resource based theory into Hill, Hwang and Kim's (1990) eclectic mode. Following Stopford and Wells's (1972) pioneering study on entry mode choice decision between SV and JV using the Harvard Harvard, town (1990 pop. 12,329), Worcester co., E central Mass.; inc. 1732. A Shaker house and cemetery, a Native American museum, and a Harvard observatory are there. Multinational Enterprise Database, a number of important empirical studies Empirical studies in social sciences are when the research ends are based on evidence and not just theory. This is done to comply with the scientific method that asserts the objective discovery of knowledge based on verifiable facts of evidence. have been conducted. These empirical studies revealed that the probability of setting up SVs is positively related to the level of the parent firms' international experience (Gatigon and Anderson, 1988; Erramilli, 1991; Agarwal and Ramaswami Ramaswami is an Indian surname. It may refer to:
JV entry mode would be preferred when cultural distance is large between the host and the home countries (Erramilli and Rao, 1993; Benito, 1996; Barkema, Bell, and Pennings, 1996). The probability of forming JVs is positively related with the level of host country welfare (Gomes-Casseres, 1989 and 1990; Shane Shane a classic, serious western film about a pioneer family protected by a mysterious stranger. [Am. Cinema: Halliwell, 651] See : Wild West , 1993), the level of host government restrictions (Fagre and Wells, 1982; Lecraw, 1984; Gatigon and Anderson, 1988; Gomes-Casseres, 1989 and 1990; Shane, 1993; Padmanabhan and Cho, 1996) and level of competition in the host country (Gomes-Casseres, 1990). Firms would be more likely to establish JVs when the firm enters into a research and development intensive industry (Kogut and Singh For the fictional global crime syndicate, see . Singh is a Sanskrit word meaning "lion". It is used as a common surname and middle name in North India by many communities, especially by the Sikhs and the Rajputs. , 1988b; Mutinelli and Piscitello, 1998), and a growth industry (Hennart, 1991). Bell's (1996) study of 114 Dutch firms' FDI revealed some distinctive findings. It suggested that firms with host country experience have a positive effect on the likelihood of JVs. The level of competition and the size of the foreign subsidiary turned out to have a negative effect on the likelihood of JVs. A host country policy did not have an effect on the choice between a JV and a SV in the case of Dutch firms' direct investment in over 40 countries or regions worldwide. Firms' entry mode decisions may be heavily influenced by a host country's investment policies. Joint ventures, for instance, are popular in China because there are direct or indirect government rules requiring them in some circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or (Davidson Da·vid·son , Jo(seph) 1883-1952. American sculptor best remembered for his vigorous portrait busts of Woodrow Wilson, Franklin D. Roosevelt, and Albert Einstein, among others. , 1987; Eiteman, 1990). Tse, Pan and Au (1997) suggested that longer diplomatic ties between China and investing firm's home country assume more equity-based operations including JV and SV rather than non-equity-based entry modes like exporting or licensing agreements, and firms choosing equity-based entry modes are more likely to work with Chinese municipal governments. Root (1994), and Mockler and Dologite (1997) have elaborated on the factors affecting the decision choice of entry mode. They suggested that an initial concept of an entry mode can be determined by studying host country environmental, market, production, parent firm's home country, parent firm's product and resource commitment factors. However, Kumar and Subramaniam Subramaniam may refer to:
Describes facts outside the control of the firm. Converse of endogenous. factors, but an alternate view could be that certain factors endogenous endogenous /en·dog·e·nous/ (en-doj´e-nus) produced within or caused by factors within the organism. en·dog·e·nous adj. 1. Originating or produced within an organism, tissue, or cell. to the decision task affect the choice of mode of entry. This view holds that a decision made by a manager depends not only on the relevant external factors but also on characteristics of the decision task, characteristics of the manager, and the manager's expectations about the quality of the information available to reach the decision as managers of multinational corporations
["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. when making the decision. 3. CONCEPTUAL FRAMEWORK For the concept in aesthetics and art criticism, see . A conceptual framework is used in research to outline possible courses of action or to present a preferred approach to a system analysis project. This study focuses on FDI entry mode choice between either the JV or SV mode option only. The main reason for this is because JV and SV were the only two entry modes adopted by IPFs in the population from which the sample was drawn. Theories based upon the findings of previous studies are inappropriate for this study for several reasons. The most important of which are: (1) most previous studies on entry mode choice decision cover a wide range of mode options including exporting, licensing, equity-based investment (eg. joint venture and sole venture), etc., whereas the present study focuses on SV and JV entry modes only. (2) As stated earlier, most studies were based on US and European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. firms and some Japanese Japanese (jăp'ənēz`), language of uncertain origin that is spoken by more than 125 million people, most of whom live in Japan. There are also many speakers of Japanese in the Ryukyu Islands, Korea, Taiwan, parts of the United States, and firms' FDI. The present study includes FDI from Non-Japanese Asian countries/regions. (3) The direction of FDI flows in previous studies was "one-to-one one-to-one adj. 1. Allowing the pairing of each member of a class uniquely with a member of another class. 2. Mathematics " or "one-to-many One-to-many in communication is the act of publishing or broadcasting from one sender to many receivers. One-to-many (also known as "to-many") relationships are often used when managing databases. "; i.e. from one country to one or many destination countries. The present study looks at a "many-to-one" situation. Bell's (1996) study is an important contribution to the theoretical framework on entry mode choice decision with only two options either JV or SV. However, Bell's study was based upon Dutch firms' FDI into many different countries (one-to-many). Although Tse, Pan & Au's study revealed some research findings on foreign firms' entry mode choice into China based on "many-to-one" FDI direction, the study concerned the entry modes choice among exporting, licensing and equity-based investment (SV or/and JV). More importantly, a critical shortcoming short·com·ing n. A deficiency; a flaw. shortcoming Noun a fault or weakness Noun 1. of their study is that the study selected investing firms' external factors only with a total of seven variables included in their conceptual framework for the testing, and it ignored investing firms' internal factors. How an investing firm responds to external factors in choosing an entry mode depends on internal factors such as investing firms' product, firms' financial, management resource and commitment factors (Root, 1994). The archival data were used for their study, an important shortage of archival data is that it ignores the managers' perceptions on the entry mode decision. China is a complex society, by virtue of its deeply embedded Inserted into. See embedded system. and multi-layered cultural heritage, its long history, its diverse social and political development, and its vast geographical scale which encompasses both national common characteristics and strong local identities, traditions and distinctive dialects, and so on (Li and Li, 1999). This complexity is one of the critical challenges for most foreign investors when they choose an entry mode for entering into the market. As Bell (1996) noted the real world is so complex, and no single approach can adequately encapsulate en·cap·su·late v. 1. To form a capsule or sheath around. 2. To become encapsulated. en·cap and elucidate e·lu·ci·date v. e·lu·ci·dat·ed, e·lu·ci·dat·ing, e·lu·ci·dates v.tr. To make clear or plain, especially by explanation; clarify. v.intr. To give an explanation that serves to clarify. all the factors that affect the choice of entry mode decision. In this study, the relevance of Kumar and Subramaniam's (1997) contingency approach is acknowledged. As a result, this approach will be incorporated into Root (1994) and Mockler & Dologite's (1997) conventional framework, which serves as a basis for the conceptual framework of this study. Root's (1994) foreign market entry mode framework combined with Mockler & Dologite's (1997) model of decision making on the selection of international market entry mode does not narrow itself into any specific entry mode approach, but emphasises both a firm's internal and external factors, which include host country (China) environmental, market and production factors, parent firm's home country/region, and parent firm's product and resource factors. It recognises the complexity of the international business environment with multinational cross-cultural management considerations. As a consequence, a more complete framework that incorporates China environmental factors, China market factors, China production factors, a firm's product factors, a firm's resource and commitment factors, and a firm's decision task related factors will be used as the conceptual framework for this study on international pharmaceutical firms' FDI entry strategies into China. Most independent variables were identified and selected based on Root's (1994), Mockler & Dologite's (1997), Kumar & Subramaniam's (1997) frameworks, and other previous empirical studies and the researcher's observations based on his extensive experience and knowledge in the industry in China. A couple of variables that were found significant in Tse, Pan and Au's (1997) study were also added into the framework for the present study. FIGURE 1 is an elaboration of the conceptual framework which explains the hypotheses relationships and seven groups of factors in the decision making process of FDI entry mode choice into China. [FIGURE 1 OMITTED] Hypothesis 1 (H1): China's environmental factors would have significant impacts on a firm's FDI entry mode decision. China's environmental factors were measured by a number of sub-groups of factors including political and economic conditions, social-cultural differences, technology conditions, geographic distance between parent firms' home country/region and China, and business operation location in China. Political condition variables comprise of political stability in China, government policies and regulations, import restrictions, level of the Chinese government Ever since Republic of China founded in January 1st, 1912, China has had several regional and national governments. List
income - the financial gain (earned or unearned) accruing over a given period of time , distribution of personal income, changes in employment, relative importance of the pharmaceutical industry in the economy, and the status of economic co-operation between China and parent firm's country/region. Social-cultural variables consist of employees' loyalty to company, hardworking characteristics of employees, language, social society structure, Chinese people's way of life, and way of doing business in China. Technology condition variables concern about availability of infrastructure, quality of infrastructure, availability of qualified scientific and technical personnel, and research and development intensity. Hypothesis 1: The probability for a firm to choose a JV is positively related to the importance of China's environmental factors. Hypothesis 2 (H2): China's market factors would have significant impacts on firms' decisions in choosing a FDI entry mode for entering into the Chinese market. These factors include market size and growth (sales potential) for investment project's product line, competitive situation in the Chinese market, availability and quality of marketing infrastructure, availability and quality of distribution infrastructure, required cost of marketing effort, and export sales potential of investment project's product line. Hypothesis 2: The probability for a firm to choose a JV is positively related to the importance of China's market factors. Hypothesis 3 (H3): Production factors in China would have significant impacts on firms' decisions in choosing an FDI entry mode for entering into the Chinese market. The production factors consist of availability and cost of plant site, availability and cost of local raw materials, effectiveness of energy supply, labour cost, quantity and quality of products of the Chinese domestic producers, quality and cost of transportation facilities, quality and cost of communication facilities, and quality and cost of port facilities. Hypothesis 3: The probability for a firm to choose a JV is positively related to the importance of China's production factors. Hypothesis 4 (H4): A firm's home country/region factors would have significant impacts on the firm's decision in choosing an FDI entry mode for the Chinese market. These factors include the market size and competitive situation in the home market, production costs in the home country/region, government policies on foreign investment and export, and cultural dimension in the home country/region. Hypothesis 4: The probability for a firm to choose a SV is positively related to the importance of the firm's home country/region factors. Hypothesis 5 (H5): A firm's product factors including the ability of the firm to differentiate and adapt products, and research and development capacity for new products would have significant impacts on its decision in choosing an FDI entry mode for the Chinese market. Hypothesis 5: The probability for a firm to choose a SV is positively related to the importance of the firm's product factors. Hypothesis 6 (H6): A firm's resource commitment factors would have significant impacts on a firm's decision in choosing an FDI entry mode for the Chinese market. The resource commitment factors are the size of foreign parent firm, availability and cost of working capital, availability and cost of long-term investment capital, availability and value of the Chinese government's financial incentives, technology availability of foreign parent firms, research and development intensity of foreign parent firms, production skills, management capacity, sales and marketing skills, and foreign parent firm's international business experience. The incentives provided by the Chinese government could be regarded as indirect resources for an investing firm. Hypothesis 6: The probability for a firm to choose a SV is positively related to the importance of the firm's resource commitment factors. Hypothesis 7 (H7): A firm's decision task related factors including characteristics of the decision task, characteristics of the decision-maker, the decision-maker's expectations about the quality of the information available to reach the decision, attitude of the decision-maker and decision-maker's previous FDI experience would have significant impacts on the firm's FDI entry mode choice for the Chinese market. Hypothesis 7: The probability for a firm to choose a SV is positively related to the importance of the firm's decision task related factors. 4. METHODOLOGY 4.1. Population Definition A total of 117 foreign pharmaceutical firm invested pharmaceutical companies (IPFIPCs) in Mainland China were defined as the population for the research based on the following four sources: 1) Catalogue of Chinese Pharmaceutical Enterprises with Foreign Investment which was published by the China Centre for Pharmaceutical International Exchange, an agency of State Pharmaceutical Administration of China. It contains necessary information on over 1,310 FIPCs in China. 2) Market Reports of National Trade Data Bank of the United States Bank of the United States, name for two national banks established by the U.S. Congress to serve as government fiscal agents and as depositories for federal funds; the first bank was in existence from 1791 to 1811 and the second from 1816 to 1836. of America (1998). 3) M/MS Asia (1998) and the report of Shanghai Shanghai (shăng`hī`, shäng`hī`), city (1994 est. pop. 12,980,000), in, but independent of, Jiangsu prov., E China, on the Huangpu (Whangpoo) River where it flows into the Chang (Yangtze) estuary. Pharmaceutical (Group) Corporation (1999). Pharmaceutical companies that had capital investment by non-pharmaceutical firms such as business trading companies, investment development firms, etc. Medical devices or machinery producers were not defined as part of the population for this research. 4.2. Sample Size Over 84% of IPFIPCs were located in the east China's 13 provinces and municipalities including Hainan, Guangdong, Fujian, Zhejiang, Shanghai, Jiangsu, Anhui, Shangdong, Hebei, Tianjin, Beijing, Liaoning and Hellongjiang. Less than 16% of IPFIPCs were distributed in China's middle and west areas. A total of 98 IPFIPCs distributed in the three major regions in east China and which accounted for 83.76% of the population were defined as the sample size for this research. These IPFIPCs in the sample include 29 in South East Region (SER Ser serine. Ser abbr. serine SER smooth endoplasmic reticulum. Ser serine. ), 38 in Middle East Region (MER mer Among the Cheremi and Udmurt peoples of Russia, a sacred grove where people of several villages gathered periodically to hold religious festivals and sacrifice animals to nature gods. ) and 31 in North East Region (NER). The SER comprises of Guangdong and Fujian provinces. The MER covers Shanghai municipality MUNICIPALITY. The body of officers, taken collectively, belonging to a city, who are appointed to manage its affairs and defend its interests. , Jiangsu, Anhui and Zhejiang provinces. The NER consists of Beijing and Tianjin municipalities, Liaoning, Shandong and Hebei provinces Noun 1. Hebei province - a populous province in northeastern China Hebei, Hopeh, Hopei Cathay, China, Communist China, mainland China, People's Republic of China, PRC, Red China - a communist nation that covers a vast territory in eastern Asia; the most . The companies in the sample in SER, MER and NER were centred on Guangdong, Shanghai and Beijing, respectively. 4.3. Data Collection A questionnaire was designed in both English and Chinese versions and was pre-tested with six pre-testing respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. for the data collection. The research fieldwork field·work n. 1. A temporary military fortification erected in the field. 2. Work done or firsthand observations made in the field as opposed to that done or observed in a controlled environment. 3. was mainly conducted in China between early April and late June in 1999. The data was collected through both personal interviews, and a mail questionnaire survey. Personal interviews were conducted with senior executives of foreign business partners in IPFIPCs in China, and the posted questionnaires were addressed to foreign general managers/representatives in IPFIPCs in China. In total 44 companies participated in this research, and 82% of answered questionnaires were obtained through personal interviews. Of the responding firms, 39 firms selected joint venture entry mode including 14 Early-Entrants and 25 Late-Entrants. The rest chose sole venture with 100% share of ownership including 3 Early-Entrants and 2 Late-Entrants. In total, 23 IPFIPCs were invested by western pharmaceutical firms including 9 European and 14 US firms, and 21 IPFIPCs were with Eastern firms' investment including 4 Japanese and 13 Non-Japanese Asian pharmaceutical firms. 3 companies including 2 in Guangdong and 1 in Jiangsu were found to have ceased operations during the fieldwork. Also 1 company in Guangdong had the foreign partner's share sold to its Chinese partner before this survey was conducted. Therefore the real sample size was reduced from an estimated 98 to 94 IPFIPCs, which means that a 46.81% response rate was achieved. 5. DATA ANALYSIS AND RESULTS The reliability of the scales was tested, and Cronbach's alpha Cronbach's  (alpha) has an important use as a measure of the reliability of a psychometric instrument. It was first named as alpha by Cronbach (1951), as he had intended to continue with further instruments. is used as the indicator. The internal consistency In statistics and research, internal consistency is a measure based on the correlations between different items on the same test (or the same subscale on a larger test). It measures whether several items that propose to measure the same general construct produce similar scores. of the scale values
for each one of the seven groups of factors (variables) is found to be
at an acceptable level. The reliability coefficients (Alpha) for the
seven groups of exploratory variables are 0.80 for 'China
environmental factors' (28 items), 0.78 for 'China market
factors' (9 items), 0.76 for 'China production factors'
(14 items), 0.87 for 'Parent firm's home country/region
factors' (6 items), 0.66 for 'Parent firm's product
factors' (3 items), 0.70 for 'Parent firm's resource
commitment factors' (13 items) and 0.60 for 'Parent
firm's decision task related factors" (5 items).The dependent variable (DV) is FDI entry mode choice (SV or JV) which was measured at nominal level This article is about the term used in sound and signal processing. For usage in statistics, see nominal measurement. Nominal level is the operating level at which an electronic signal processing device is designed to operate. . SV was coded as "0", and '1' for JV. The seven independent variables are China's environmental factors, China's market factors, China's production factors, Parent firm's home country/region factors, Parent firm's product factors, Parent firm's resource commitment factors and Parent firm's decision task related factors. Independent variables were measured at ordinal (mathematics) ordinal - An isomorphism class of well-ordered sets. level. The questions were designed using a six-point Likert scale Likert scale A subjective scoring system that allows a person being surveyed to quantify likes and preferences on a 5-point scale, with 1 being the least important, relevant, interesting, most ho-hum, or other, and 5 being most excellent, yeehah important, etc , ranging from "1" not important to "6" very important, for each of the seven group of factors. Two levels of analyses were performed by means of logistic regression In statistics, logistic regression is a regression model for binomially distributed response/dependent variables. It is useful for modeling the probability of an event occurring as a function of other factors. followed by the t-test t-test, n an inferential statistic used to test for differences between two means (groups) only. This statistic is used for small samples (e.g., N < 30). Also called t-ratio, stu-dent's t. . The logistic regression technique was used to test the hypotheses relationship between the dependent variable (FDI entry mode: sole venture or joint venture and the independent variables (seven groups of factors) to detect which group/(s) of factors contributed most to the FDI entry mode decisions. Many recent studies related to entry mode choice have employed logistic regression models (Gatignon and Anderson, 1988; Kogut and Singh, 1988a; Erramilli, 1991; Bell, 1996; Tse, Pan and Au, 1997). Total scores for each of the seven groups of factors that were used for the logistic regression were calculated respectively by summing up all the original scores for each single factor in each one of respective seven groups of factors. Before implementing the logistic regression analysis procedures, the correlation between the seven groups of independent variables, the correlation between dependent variables and independent variables, and descriptive statistics descriptive statistics see statistics. for dependent and independent variables In mathematics, an independent variable is any of the arguments, i.e. "inputs", to a function. These are contrasted with the dependent variable, which is the value, i.e. the "output", of the function. were examined. The results are shown in TABLE 1. The correlation analysis between independent variables showed that a moderate weak correlation (r = 0.314) between parent firm's home country/region factors and parent firm's product factors was found at .05 level. A moderate weak correlation (r=.302) was also found between Parent firm's resource commitment factors and China production factors, which was significant at .05 level. None of the correlation coefficients Correlation Coefficient A measure that determines the degree to which two variable's movements are associated. The correlation coefficient is calculated as: was greater than 0.50, while a correlation coefficient above 0.60 is considered to be rather high (Churchill, 1991; Bell, 1996). Logistic regression analysis results The results of Logistic Regression analysis support hypotheses 1, 2 and 7; i.e. the probability of a firm choosing a JV was positively related to the importance of China's environmental and market factors, and the probability of a firm choosing a SV was positively related to the importance of the firm's decision task related factors. There was not sufficient evidence to support Hypotheses 3, 4, 5 and 6 (refer to TABLE 2). The overall logistic lo·gis·tic also lo·gis·ti·cal adj. 1. Of or relating to symbolic logic. 2. Of or relating to logistics. [Medieval Latin logisticus, of calculation model appeared to be a very good model, as it classifies 95.5% of observations correctly. The -2 log was 10.808 and the model chi-square chi-square (ki´skwar) see under distribution and test. chi-square n. is 20.349 (with df=7) and was significant at .01 level (p=.005), which indicates a good fit of the model. The Hosmer and Lemeshow Goodness-of-fit Test also indicated that the logistic model was a good fit (df=8, p=.997). T-test Results To explore the significant individual variables that differentiated firms that chose a JV or a SV entry mode, and the significant variables that influenced Early-Entrants and Late-Entrants in perceiving the importance of the seven groups of factors to their entry mode decisions, the independent sample t-test (parametric See parametric modeling, parametric symbol and PTC. test) was performed by comparing the mean scores for the two independent groups. In addition to the independent sample t-test, since the sample size is relatively small and the data distribution normality normality, in chemistry: see concentration. may not be exactly met, the Wilcoxon (Mann Whitney) test (non-parametric test) was also used for justifying the level of significance revealed from the t-test. Therefore if the results from both t-test and Wilcoxon test Wilcoxon test a test used in statistics to compare paired data. Has the advantage of incorporating the size of the difference between the two sets of data in the comparison. are fairly similar, then the t-test is considered reliable and the preferred technique as it is more powerful than the Wilcoxon test (Kervin, 1992). Comparison between SV Firms and JV Firms The variables that significantly differentiated firms that chose a SV or a JV entry mode are shown in TABLE 3. The results suggested that 16 variables, including 3 variables with a marginal level of significance, affected international pharmaceutical firms' decisions in choosing either a SV or a JV entry mode. The Chinese government policies and regulations, the different level of the Chinese government to deal with, role the Chinese government played in the economy, the Chinese social society structure, availability of infrastructure and quality of infrastructure in China had significant impacts on the international pharmaceutical firms' entry mode choice towards a JV entry mode. Comparison between Early-Entrants and Late-Entrants The variables that significantly differentiated Early-Entrants and Late-Entrant are shown in TABLE 4. The results suggested that 11 variables, including 3 variables with a marginal level of significance differentiated Early-Entrants and Late-Entrants. The variables of political stability in China, role of the Chinese government in the economy, status of economic co-operation between China and parent firm's country/region, hardworking characteristics of employee, ability of parent firm to adapt products, cost of working capital and cost of long-term investment capital received significant attention from the Early-Entrants. The variables of market growth (sales potential) for investment project's product line, competitive situation in China, technology availability of parent firm, and parent firm's international business experience have become more significant concerns by the Late-Entrants. 6. CONCLUSION AND DISCUSSIONS The majority of international pharmaceutical firms who invested into the pharmaceutical manufacturing industry in China chose to enter via a joint venture with a Chinese partner/(s), even though sole venture, at least on a theoretical basis, appears preferable. In the case of the firms who chose a joint venture, two external factors appeared to be the major determinants of this choice, namely China environmental factors and the market factors. Whereas, in the case of the firms who chose a sole venture, an internal factor appeared to be the major determinant, namely parent firm's decision task related factors. Although a relatively complete legal system for international investment has been developed and foreign investors have been allowed to establish solely foreign owned ventures in China, the enforcement and interpretation of the laws and regulations may differ significantly depending on the interests of different levels of Chinese governments in different regions. Chinese governments may directly and/or indirectly require foreign firms to joint venture with Chinese local business partner/(s) in order to more effectively absorb advanced technology and management skills from foreign investors into local Chinese companies Chinese owned companies can be defined as enterprises within mainland China, Hong Kong, Macau and the Republic of China (Taiwan):
The results of this study on entry mode decisions between SV-Firms and JV-Firms have partially supported Root (1994) and Mockler and Dologite's (1997) conventional entry mode theory. Among the six groups of factors suggested by Root (1994), Mockler and Dologite's (1997) framework, only two groups of factors were found significant. They were China environmental factors and market factors. One of most influential variables of China environmental factors was the Chinese government policies and regulation, which was found significant in the present study. This is in contrast with Bell's (1996) study which suggested that a host country policy did not have an effect on the choice between a JV and a SV in the case of Dutch firms' direct investment in over 40 countries or regions worldwide. The results tended to support Kumar and Subramaniam's (1997) contingency theory Contingency theory refers to any of a number of management theories. Several contingency approaches were developed concurrently in the late 1960s. They suggested that previous theories such as Weber's bureaucracy and Taylor's scientific management had failed because they on entry mode decision; i.e., an entry mode decision made by a manager also depends on characteristics of the decision task related factors, and the decision maker's previous FDI experience seems to be an important contributor to a firm's entry mode choice towards a SV. The results also suggested that Late-Entrants have paid less attention to the majority of China's environmental variables, and the most significant variables were political stability in China, and the status of economic co-operation between China and parent firm's country/region. These findings indicated that the overall environmental conditions have been improving and becoming more favourable to foreign investors, as the importance of the China's environmental condition variables tended to be less important to Late-Entrants. The political condition in China has been improved for foreign investment and China has become more politically stable since 1992. The Chinese government may continuously play an important role in its economy, while seeing that the effect of the role of the Chinese government in the economy tended to have less importance to foreign investors. The market variables in China have however been attracting more attention from foreign investors since 1992. Most notably the competitive situation, and China's market size and growth (sales potential) for investment project's production line have become the most significant concerns to foreign investor who have started investment since 1992. The importance of international pharmaceutical firms' ability to adapt products has decreased significantly since 1992. This may due to the increasing competition in the Chinese market which requires foreign investors' to do more than just adapt products or technology to compete successfully in the market. The importance of cost of working capital and cost of long-term investment capital has also decreased significantly, whereas foreign investor's technology availability has become more important to foreign investors since 1992. However, when applying the results, one needs to consider the following limitations of this research. Firstly, the changes and development of environmental, market and other conditions in China are continuing, and reforms are still on the way. This study was conducted in a certain period of time and only gives insights into the situation at one moment in time in the context of FDI in China during the period of 1980-1998. For a future study on entry mode choice into China, the eclectic framework developed for this study needs to be adapted to fit the prevailing situation at that time. Secondly, the number of joint ventures and the number of sole ventures in both the population and the sample were highly disproportionate dis·pro·por·tion·ate adj. Out of proportion, as in size, shape, or amount. dis pro·por in nature, and some relationships
between dependent and independent variables might exist, but could not
be statistically detected. The findings revealed based on the responses
from SV should be treated with caution. Thirdly, the population for this
research was limited to the international pharmaceutical-firm-invested
pharmaceutical companies in China. Therefore the findings of this
research can only be applicable to explain the FDI entry mode decision
in this particular area. Finally, the study focused on SV and JV modes
only. The eclectic framework needs to be adjusted for a study with more
entry mode options.
TABLE 1: CORRELATION MATRIX AND DESCRIPTIVE STATISTICS
1 2 3 4
Minimum 0 98 29 45
Maximum 1 135 50 65
Mean 0.89 116.82 41.66 53.23
Standard Deviation 0.32 10.26 4.55 5.62
FDI entry modes 1.000
China environment factors 0.375 * 1.000
China market factors 0.403 ** 0.240 1.000
China production factors 0.028 0.109 0.074 1.000
Parent firm's home country/ -0.034 0.077 -0.133 0.046
region factors
Parent firm's product -0.262 -0.216 -0.262 0.225
factors
Parent firm's resource -0.169 -0.127 -0.096 0.302 *
commitment factors
Parent firm's decision task -0.235 -0.178 -0.139 0.216
related factors
5 6 7 8
Minimum 7 10 40 18
Maximum 27 16 56 27
Mean 15.32 12.91 49.32 23.00
Standard Deviation 5.08 1.51 3.59 2.47
FDI entry modes
China environment factors
China market factors
China production factors
Parent firm's home country/ 1.000
region factors
Parent firm's product 0.314 1.000
factors
Parent firm's resource -0.034 0.250 1.000
commitment factors
Parent firm's decision task 0.017 0.156 0.212 1.000
related factors
*: p<.05; **: p<.01; ***: p<.001 (2-tailed)
TABLE 2: LOGISTIC REGRESSION RESULTS (DV: FDI ENTRY MODE)
Factors [beta] S.E. Wald Sig.
Constant -9.500 19.157 .246 .620
China environmental factors * .268 .128 4.363 .037
China market factors * .653 .294 4.925 .026
China production factors .012 .212 .003 .957
Parent firm's home country/region -.020 .270 .006 .940
factors
Parent firm's product factors -.187 .730 .065 .798
Parent firm's resource commitment -.284 .349 .660 .416
factors
Parent firm's decision task -1.091 .591 3.406 .065
related factors ([dagger])
([dagger]): p < .10; *: p < .05; **: p < .01; ***: p < .001.
TABLE 3: PARAMETRIC AND NON-PARAMETRIC TESTS RESULTS (SV VS. JV)
Mean
SV JV
Variables (n=5) (n=39)
China Environmental Factors:
Government policies & regulations 4.00 5.08
Level of the Chinese government to deal 2.60 4.85
with
Role of the Chinese government in the 4.00 5.26
economy
Changes in employment 3.46 4.40
Social society structure 3.60 4.49
Way of doing business in China 4.40 5.21
Availability of infrastructure 2.60 4.33
Quality of infrastructure 2.80 4.49
China Market Factors:
Availability of marketing infrastructure 4.00 5.05
Quality of marketing infrastructure 4.00 4.79
Availability of distribution 4.20 5.00
infrastructure
Quality of distribution infrastructure 3.40 4.67
Required cost of marketing effort 3.00 4.50
Parent firm's resource commitment
factors:
Production skills 4.05 4.80
Parent firm's decision task related
factors:
Attitude of the decision-maker 4.72 5.60
Decision-maker's previous FDI experience 4.67 5.40
T-test
Sig.
Variables t-value (2-tailed)
China Environmental Factors:
Government policies & regulations -2.9522 .0051 **
Level of the Chinese government to deal -6.4927 .0000 ***
with
Role of the Chinese government in the -3.2726 .0021 **
economy
Changes in employment 2.0022 .0517 ([dagger])
Social society structure -2.1759 .0352 *
Way of doing business in China -1.8421 .0725 ([dagger])
Availability of infrastructure -3.7454 .0005 ***
Quality of infrastructure -3.7077 .0006 ***
China Market Factors:
Availability of marketing infrastructure -2.7155 .0096 **
Quality of marketing infrastructure -2.1123 .0407 *
Availability of distribution -2.1917 .0340 *
infrastructure
Quality of distribution infrastructure -2.8856 .0061 **
Required cost of marketing effort -4.2184 .0001 ***
Parent firm's resource commitment
factors:
Production skills 2.2453 .0301 *
Parent firm's decision task related
factors:
Attitude of the decision-maker 2.2309 .0311 **
Decision-maker's previous FDI experience 1.8953 .0650 ([dagger])
Wilcoxon Test
Sig.
Variables W (2-tailed)
China Environmental Factors:
Government policies & regulations 55.50 .0242 *
Level of the Chinese government to deal 21.50 .0002 ***
with
Role of the Chinese government in the 37.00 .0025 **
economy
Changes in employment 826.50 .0493 *
Social society structure 62.00 .0462 *
Way of doing business in China 64.00 .0556 ([dagger])
Availability of infrastructure 25.50 .0030 **
Quality of infrastructure 34.50 .0027 **
China Market Factors:
Availability of marketing infrastructure 56.50 .0237 *
Quality of marketing infrastructure 62.50 .0486 *
Availability of distribution 65.00 .06.09 ([dagger])
infrastructure
Quality of distribution infrastructure 53.00 .0211 *
Required cost of marketing effort 25.00 .0006 ***
Parent firm's resource commitment
factors:
Production skills 831.00 .0593 ([dagger])
Parent firm's decision task related
factors:
Attitude of the decision-maker 821.00 .0241 *
Decision-maker's previous FDI experience 830.00 .0555 ([dagger])
([dagger]): p < 10; *: p < .05; **: p < .01; ***: p < .001.
TABLE 4: PARAMETRIC AND NON-PARAMETRIC TESTS RESULTS (EARLY-ENTRANTS
VS. LATE-ENTRANTS)
Mean
Early-Entrants Late-Entrants
Variables (n=17) (n=27)
China Environmental Factors:
Political stability in China 5.06 4.30
Role of the Chinese government 5.41 4.93
in the economy
Status of economic co-operation 4.41 3.52
between
China and parent firm's
country/region
Hardworking characteristics of 4.41 3.89
employee
China Market Factors:
Market growth (sales potential) 4.94 5.26
for investment project's
product line
Competitive situation in the 4.35 5.15
Chinese market
Parent firms product factors:
Ability of parent firm to adapt 5.35 4.96
products
Parent firm's resource
commitment factors:
Cost of working capital 3.18 2.93
Cost of long-term investment 2.71 2.37
capital
Technology availability of 4.59 5.07
parent firm
Parent firm's international 4.47 4.81
business experience
T-test
Sig.
Variables t-value (2-tailed)
China Environmental Factors:
Political stability in China 2.9861 .0047 **
Role of the Chinese government 1.7986 .0793 ([dagger])
in the economy
Status of economic co-operation 3.1668 .0029 **
between
China and parent firm's
country/region
Hardworking characteristics of 2.4007 .0209 *
employee
China Market Factors:
Market growth (sales potential) -1.9120 .0627 ([dagger])
for investment project's
product line
Competitive situation in the -3.4145 .0023 **
Chinese market
Parent firms product factors:
Ability of parent firm to adapt 2.4787 .0173 *
products
Parent firm's resource
commitment factors:
Cost of working capital 2.0857 .0431 *
Cost of long-term investment 2.2404 .0304 *
capital
Technology availability of -2.5448 .0147 *
parent firm
Parent firm's international -2.0309 .0534 ([dagger])
business experience
Wilcoxon Test
Sig.
Variables W (2-tailed)
China Environmental Factors:
Political stability in China 501.00 .0067 **
Role of the Chinese government 534.50 .0572 ([dagger])
in the economy
Status of economic co-operation 495.50 .0048 **
between
China and parent firm's
country/region
Hardworking characteristics of 521.00 .0219 *
employee
China Market Factors:
Market growth (sales potential) 330.00 .0937 ([dagger])
for investment project's
product line
Competitive situation in the 271.00 .0014 **
Chinese market
Parent firms product factors:
Ability of parent firm to adapt 530.00 .0197 *
products
Parent firm's resource
commitment factors:
Cost of working capital 554.50 .0446 *
Cost of long-term investment 530.50 .0322 *
capital
Technology availability of 287.00 .0071 **
parent firm
Parent firm's international 314.50 .0390 *
business experience
([dagger]): p < 10; *: p < .05; **: p < .01; ***: p < .001.
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Producing or emitting smoke or vapor, as for certain concentrated nitric, sulfuric, and hydrochloric acids. earned his Ph.D in The Australian Australian pertaining to or originating in Australia. Australian bat lyssavirus disease see Australian bat lyssavirus disease. Australian cattle dog a medium-sized, compact working dog used for control of cattle. Graduate School of Entrepreneurship en·tre·pre·neur n. A person who organizes, operates, and assumes the risk for a business venture. [French, from Old French, from entreprendre, to undertake; see enterprise. at Swinburne University of Technology Swinburne University of Technology is a university based in a number of campuses in the eastern suburbs of Melbourne, Australia. In addition to degree programs at Bachelor, Masters and Doctoral levels, the University also operates as a technical college (through its TAFE , Australia in 2002. Currently he is a lecturer lecturer A person who is primarily–if not entirely—involved in the teaching activities of an academic center, who is not expected to perform research or Pt management; in general, lectureships are non-tenured positions and subject convener/coordinator of International Business/Marketing and Strategic Management at Charles Sturt University Charles Sturt University (CSU) is an Australian multi-campus university in New South Wales and the Australian Capital Territory. It has campuses at Bathurst, Albury-Wodonga, Dubbo, Orange and Wagga Wagga. , Australia. |
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