Entry Mode and Performance in a Transitional Economy: a Framework for Foreign-invested Enterprises in China

A conceptual framework is developed, bringing together entry mode, the influence of state officials, and the adoption of a customer-driven orientation in order to explain the performance of foreign-invested firms in a transitional economy. The model is tested on a sample of firms in China across eight provinces and cities, spread across the relatively developed South Coast, the Central Belt formed by Shanghai and the Yangzi basin and the less-developed North and West. We find that the decision to enter through a joint venture reduces the customer focus of the enterprise. Contrary to expectation, however, we find no positive relationship between entry by joint venture and the degree of state influence exerted over the enterprise. It appears that whollyowned foreign enterprises experience just as much involvement by government officials in their activities as do the joint ventures. However, greater customer focus fosters innovativeness, which in turn, leads to higher performance. Managerial implications are discussed for executives responsible deciding on the mode-of-entry: wholly-owned foreign enterprise (WOFE) or foreign equity joint venture (FEJV).