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- W1499300575 abstract "This paper analyses the effects of investment characteristics and location choice on the optimum governance structure for foreign-based investment activities on the part of Taiwanese manufacturing firms in China. We use a structured questionnaire to collect the data from Investments in mainland China published by China Credit Information Service, Ltd. 108 questionnaires were valid, the overall response rate in this study is 10.9%. The result shows that a centralized structure can economically restrain middle-level opportunism, that administrative control is a critical principle governing activities where there are high investment risks, and that socialization can mitigate potential conflicts among industry network partners. Introduction The motivating forces for companies to invest abroad include the quest both to secure key supplies, and new market opportunities, and to gain access to relatively low-cost factors of production(Barlett, Ghoshal, and Birkinshaw, 2003). To satisfy such needs and to obtain competitive advantage, the effectiveness and efficiency of location choice and the governance mechanisms in force at those locations are critical issues. Among the major factors affecting location choice is location advantage, which is typically determined by location competence and location risks. Scholars have recently been emphasizing the importance of cluster effects derived from a network of industries and inter-personal relationships as these provide access to and deploy relational capital (Porter, 1998; Kale et al., 2000; Chen, Chen, and Ku, 2004) Location choice aside, institutional arrangements for foreign operational activities are equally important. From the perspective of transaction cost economics (TCE), any transaction requires specific mechanisms for governance so as to be able to resolve possible transaction problems from different transaction characteristics. In this paper, foreign equity investments of firms are treated as foreign transactions. Hence, it is expected that a design based on multiplicity coupled with mechanisms for governance will affect the ability of overseas investors to settle any problems they face with relevant transactions. Dominant equity interests (wholly-owned subsidiaries or majority shareholders) are expected to have the highest degree of control for entrants (Root 1983). Cannice, Roger, and Naniels (2004) have proposed that companies rely both on ownership structure and on alternatives to manage risks resulting from the transfer of international technology. Except for residual claimancy, Chi (1994) also contended that residual control implies the right to reduce opportunism on the part of exchange partners though it is not stipulated in the contract. In fact, international investment activity is closely related to complex management behaviors. This paper examines the pattern of governance mechanisms for overseas investment in China and, in doing so, it asks the following questions: 1. What are the transaction characteristics of foreign investment? What are the factors of major concern with regard to location choice for foreign investment in China? 2. How do transaction characteristics and location choice affect the pattern of governance mechanisms for foreign investments in China? In this paper, we use Taiwan manufacturing enterprises as the sample to investigate the foreign investments of small and medium-sized enterprises (SMEs). We use a canonical correlation analysis and show that the pattern of governance mechanisms differs depending on the characteristics of the transaction and the factors involved in location choice. The remainder of this paper is organized as follows. In the next section, we begin with a literature review and develop the hypothesis. We then introduce the data collection and methodology and proceed by presenting the empirical results and conclusions. Finally, we end with a discussion of the limitations of this research and present our thoughts on future research. …" @default.
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- W1499300575 date "2007-06-01" @default.
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- W1499300575 title "Determinants of the Optimum Governance Structure of Firms Investing in a Foreign Country: An Empirical Study" @default.
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