Chinese FDI to Germany in the Renewable Energy Sector: Pre- and Post-Entry Psychic Distance Perceptions on Regulations-Related Dimensions
Countries differ on various dimensions such as culture, language, business practices, policymaking, and regulation. Research shows that the amount of "distance" between countries on these dimensions impacts foreign direct investments (FDI) flows. Specifically, the greater the distance the greater the difficulties for investors. In this paper, the authors analyze the perception of "psychic distance" (PD) between China and Germany, by surveying Chinese managers who invested in Germany in the renewable energy (RE) sector. The authors employ a five-company multiple case study and analyze what PD managers perceive and if Chinese managers have correct perceptions or misperceptions. Further, the authors investigate if their perceptions change over time. They find regulation-related dimensions (political system, legal system, and regulations) are most important for Chinese FDI to Germany in the RE sector. They also show that Chinese managers misperceive the relevance and impact of PD differences and that the problem is worse when managers are inexperienced.