Foreign Investment Strategies and Sub‐national Institutions in Emerging Markets: Evidence from Vietnam*

TLDR

Foreign investors entering emerging markets must decide where and how to set up operations, a choice that must accommodate institutional conditions that vary across countries and within the host economy. The authors propose a theoretical framework to analyze how institutions in an emerging economy influence entry‑strategy decisions. Using this framework, they examine the determinants of location and entry mode for foreign investment in Vietnam. Sub‑national institutional variables significantly shape both dimensions, with scarce resources driving location choice and Greenfield likelihood, and pressures from incumbent state‑owned firms and domestic market orientation favoring joint‑venture entry.

Abstract

ABSTRACT Foreign investors entering emerging markets have to take strategic decisions on where and how to set up operations. These decisions have to accommodate institutional conditions that vary not only between countries, but also within the host economy. We offer a theoretical framework to analyse how institutions in an emerging economy influence entry strategy decisions. On this basis, we analyse the determinants of two key aspects of entry strategy: location and entry mode in Vietnam. We find that sub‐national institutional variables have a significant influence on both dimensions. The availability of scarce resources affects the location of FDI and the likelihood of Greenfield entry. Institutional pressures arising from incumbent state‐owned firms and the domestic market orientation of the investor lead to a preference for joint venture entry.