Managing exposure of direct foreign investment to political risk: The case of food businesses in China |
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Affiliation: | 1. Department of Life Sciences, Ben-Gurion University of the Negev, P.O.B. 653, Beer-Sheva 84105, Israel;2. National Institute for Biotechnology in the Negev, Ben-Gurion University of the Negev, P.O.B. 653, Beer-Sheva 84105, Israel |
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Abstract: | Direct foreign investment (DFI) allows a multinational corporation (MNC) to generate and appropriate extra-normal profits from its unique assets in a foreign market. China has become increasingly attractive for foreign investment over the past 20 years. This entails political risk, but MNCs can reduce the risk by relying heavily on MNC-specific assets, often in the form of tacit knowledge. A joint venture with a local partner creates an incentive for a local stakeholder to shield the DFI from political risks and allows the partner to contribute location-specific assets to the venture, further reducing the MNC's risk. |
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