33、Studies in international business and strategy addressing this issue point to the importance of choosing the “right” entry strategy, responding flexibly to the local environment while developing the capacity to adapt to changing circumstances (e.g. Caves, 1996;
Ghemawat, 2003). In the following, we。

34、discuss entry choices and local embeddedness of foreign firms in China respectively, attempting to sort out the major underlying considerations and their dynamic features to understand the behaviour of foreign firms in China. 3. Investing by strategic entry choices3.1. Perspective from international 。

35、 business and management One promising starting point for explaining why China has been chosen by foreign companies or MNCs is the widely accepted Dunnings eclectic approach (1977, 1988). At the core of the eclectic approach lies the question why foreign companies establish subsidiaries instead of e 。

36、xporting their products. Internalizing production in this “eclectic approach” refers to the decision to invest in subsidiaries and is assumed to depend on two further considerations. The first consideration is a location advantage which according to the approach is not limited to differences in reso 。

37、urces or labour cost differentials. The advantage takes also into account the transaction costs in cross-border trade which can be circumvented when the production is located in, lets say, China. The second consideration is an ownership advantage when companies that need to keep control over their f 。

38、irm-specific assets, such as intellectual property rights, brand names, or research and development will forego contracts with Chinese partners but insist on subsidiaries. In other words, the approach suggests behavioural patterns of foreign investors regarding the international production decision. 。

39、 It suggests for example that firms will the sooner establish subsidiaries the higher the value they attach to their firms-specific assets. Likewise, firms will the sooner establish subsidiaries the higher the locational advantage offered by a host country such as China. Firms will the sooner establ 。

40、ish subsidiaries the higher the transaction costs in the conventional foreign trade. In the case of China as described earlier the location decision needs to take into account the differences within the Chinese economy. Therefore, the last question is better formulated as follows: Firms will establi 。

41、sh subsidiaries in that part of China which offers the best comparative advantage with respect to location. Not part of the original Dunning model yet a necessary complement in the case of China is the reference to risk diversification arguments. They suggest that investors or MNCs benefit from loca 。

42、tional diversification when doing so offers scale and scope economies, more flexibility, and learning opportunities (e.g. Hall and Lee, 1999;
Rugman, 1979). Thus, it can be assumed that firms will diversify risks by investing in different locations selected according to their respective advantage. W 。

43、hat is however not explicitly addressed by the Dunning model is the question of how exactly production in China (or any other place) gets organised. Entry mode studies offer further insights when they draw the attention to different forms of ownership and collaboration with Chinese partners. These s 。

44、tudies show that the three dominating ownership modes, i.e. contractual joint venture (CJV), equity joint venture (EJV) and wholly foreign owned subsidiary (WFOE) can be explained by three considerations: transaction costs, capability exploitation/exploration, and institutional constraints. Transact 。

45、ion cost consideration will cause foreign investors to claim more shares and control when confronted with asset specificity and/or opportunism on the one hand;
and on the other hand, firms will opt for less (ownership) shares when facing uncertainty such as political or economic risks (e.g. Anderson 。

46、 and Gatignon, 1986;
Meyer, 2001). Capability exploitation/exploration consideration will cause foreign investors to opt for EJV when they expect additional returns from broadening their resources and knowledge base (exploration) via a Chinese partners distributional networks or local knowledge (e.g 。

47、. Madhoc, 1997). On the other hand, firms will insist on WFOE when they expect higher returns from exploiting their firm-specific resources and capabilities (e.g. Agarwal and Ramaswami, 1992;
Luo, 2001). Institutional consideration reminds firms that often enough the envisaged ownership forms is dep 。

48、ending on (Chinese) regulation, but also on a perceived political (confiscation) risk (e.g. Gomes-Casseres, 1990;
Yiu and Makino, 2002). In what follows it is assumed that both streams of literature, the eclectic approach and entry mode studies, together provide a fruitful guideline for investigatin 。

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标题：Foreign|Foreign firms in China Successstrategic choices( 三 )