Firm-specific Factors, Location-specific Factors, and Entry Modes of Inward FDI in South Korea Using the GEE Method

This paper examines the impact of inward foreign direct investment on the entry mode into South Korea using a generalized estimating equation. Foreign direct investments have largely been transferred to third countries primarily from the perspective of cost-effective and global management strategies. It may be economically advantageous for a firm to move overseas from the perspective of firm-specific advantages and location-specific advantages. This study examines the effects of relationships of entry modes between the two specific advantages and determines factors affecting a wholly-owned subsidiary (WOS). The existing empirical literature on the macro determinants was reviewed and correlations with key determinations that are subsequently tested in our empirical specification were identified. Hypotheses were derived from previous studies and relevant data were examined by means of a direct survey through decision-makers (CEO and/or senior officers) from February to May, 2012. A Generalized Estimating Equation (GEE) was applied to test two hypotheses with respect to Entry Modes. The GEE model presented highly significant p-values and most of all the coefficients supported our previous studies. This study has found that the mode of entry into South Korea shows highly significant location-specific factors rather than firm-specific factors. However, the firm-specific factors were found to have positive effects on the location of the headquarters, the size of the firm and investment motivation. Likewise, location-specific factors were found to have positive effects on FDI motivation, decision-making processes and GSCM.