Performance aspiration, foreign competition and Outward FDI

This study investigates behavioral explanations for the Chinese firms’ outward FDI by focusing on the effects of performance relative to aspiration level and extends the model of decision making to a competitive context to develop a theory about how foreign competition in domestic markets affects firms’ decision-making. For firms performing above aspirations, we propose that the extent of firms’ outward FDI increases following slack search argument. For firms performing below aspirations, outward FDI was not their matched solution for performance problem which is not consistent with the problemistic search. However, foreign competition increases their probability to do a problemistic search through OFDI by affecting their resource allocation and focus of attention. Our empirical results generally support the predictions.