Timing of Investment and International Expansion Performance in China
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Investment
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International
Performance
Expansion
China
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YadongLuo* UNIVERSITYOF HAWAII AT MANOA
This study examines the multivariate and univariate performance effects of timing of FDI in an emerging economy at the business unit level. A longitudinal analysis of industrywide, firm-specific data on FDI timing and foreign venture performance in China reveals that timing has a significant influence on overall, as well as on individual, aspects of venture performance. It is observed that
early entrants outperform late movers in terms of local market expansion and asset turnover, whereas late movers are superior to early entrants with regard to risk reduction and accounting return during the initial period of international expansion. Factor analysis confirms that the importance of timing in affecting FDI decisions is as significant as that of internalization, ownership, or location factors.
r liming of foreign direct investment (FDI)plays a critical role in shaping transnational firm behavior, and represents an important source of competitive advantage in international settings (Mascarenhas, 1992). It is associated with the height of entry barriers,evolving industry and market structures in the host country, and degree of access to various indigenous resources (Buckley and Casson, 1981). In today's increasingly integrated global marketplace,
where demand levels, consumption sophistication, factor costs, input characteristics, and rivalry intensity are all changing drastically, the decision of when to embark on FDI is critical for transnational operations (Rivoli and
*
Salorio, 1996). Although Dunning (1981) acknowl-
edged the importance of FDI timing, analyses of the issue were curiously lacking in his eclectic paradigm and in the general literature on FDI and multi-
Yadong Luo is an assistant professor of international management in the College of Business Administration, University of Hawaii. His research interests include international expansion and Chinese management.
The author would like to thank three anonymous JIBS reviewers for their useful comments. This research is supported in part by the RFDC, College of Business Administration, University of Hawaii. JOURNAL OF INTERNATIONALBUSINESS STUDIES, 29, 2 (SECONDQUARTER 1998): 391-408
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TIMING OF INVESTMENT AND INTERNATIONAL EXPANSION
national enterprises (MNEs). Although a few researchers,such as Aliber (1970), Buckley and Casson (1981), and Rivoli and Salorio (1996), have addressed the
economic rationale underlying timing decisions, they have yet to establish a relationship between FDI timing and firm performance. This relationship merits investigation, since early and late investment strategies have different sets of costs and benefits (Mascarenhas, 1992; Mitchell, 1990). These differences seem to be larger in emerging economies, where industry and market structuretransformat
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