Learning Foreign Ownership Regulations in China through Networks: Case studies on Japanese subsidiary with post-entry mode change

In order to explore what motivates post-entry mode change of the MNC (Multinational Corporation) in China, this paper proposed a theoretical framework that has highlighted MNC flexibility influenced by learning ownership regulations through relationship networks. A company is embedded in a number of relationships with identifiable counterparts and this web of relationships can be called a network. Learning ownership regulations refers to obtaining, interpreting or confirming foreign ownership regulations in China. In this paper, MNC flexibility is defined as the MNC’s ability to manage the risks and exploit the opportunities that arise from the diversity and volatility of foreign ownership regulations in China; Post-entry mode change is specified as the change from joint venture to wholly foreign-owned enterprise. Japanese subsidiaries in China were studied, specifically, 3 wholly foreign-owned enterprises in Shanghai, all of which were initially set up as joint ventures. The case studies showed that superior networks contribute to excellent learning ownership regulations, which leads to enhanced MNC flexibility, which in turn motivates post-entry mode change. However, the enhanced MNC flexibility by excellent learning ownership regulations through superior networks can motivate not only the change from joint venture to wholly foreign-owned enterprise but also keeping joint venture.