Locational determinants of internationalization: A firm-level analysis of Chinese and Indian acquisitions

On the basis of a global firm-level dataset of Chinese and Indian acquisitions, this paper analyzes how country-, industry- and firm-specific determinants affect their location choice. Using conditional logit models, the importance and impact of the market and institutional environment, and the natural resource and strategic asset endowment of host countries are assessed for acquisitions in different industries, in particular, the mining and high-tech sectors. While better rule of law, regulatory quality and control of corruption are found to be important for India’s although not for China’s acquisitions, political stability proves to be a negative estimator for both countries. Yet this counter-intuitive effect is fading when the deal is large, and the profitability of the target is high. However, in the mining industry, Chinese and Indian acquisitions are more likely to take place in resource-rich countries with unstable political environments, poor rule of law, and deficient control of corruption. This sends an alarming message that Chinese and Indian corporations invest in countries with poor legal systems and more corruption when acquiring assets abroad in the mining industry. This can be strategically motivated as these companies invest in countries that are similar to their own institutional background, such that they would have less competition and a better chance to succeed. This is also partly driven by the fact that some of their acquisitions in the mining sector in more developed countries have been blocked and they have been forced to direct their investments to less institutionally strong resource rich countries. Besides, these countries also prefer investments from emerging countries that are less inclined to attach conditionality. However, it remains to be seen whether these companies are apt to deal with these conditions. In this respect, companies from India have the advantage of more international experience as compared to their Chinese counterparts, although controlling for the acquiring firm’s experience does not yield any significant results. In more technological markets the results indicate that Indian firms prefer to acquire competitors in less competitive host countries, as indicated by patent and trademark endowments. However, patents and trademarks do attract Chinese acquisitions, but only in high-tech manufacturing sectors. Taken together, this result indicates that Chinese firms seem to be more aggressively targeting technologi