... Perspectives on China's Outward Foreign Direct Investment Randall Morck Bernard Yeung Minyuan Zhao Abstract Recent economic data reveal that, at the infant stage, China’s outward foreign direct investment (FDI) is biased towards tax haven countries and South East Asian countries and are mostly conducted by State controlled enterprises with government sanctioned monopoly status. Further examination of China’s savings rate, corporate ownership structures, and bank dominated capital allocation suggests that, although a surge in China’s outward FDI might be economically sensible, the most active players have incentives to conduct excessive outward FDI while capital constraints limit players that most likely have value-creating FDI opportunities. We then discuss plausible firm-level justifications for China’s outward FDI flow, its importance, and promising avenues for further research. I. Introduction Barely thirty years ago, most would consider China a poor agricultural economy. In 2008 China is hosting the Olympics to signal its emergence as a major economic power. This phenomenal development appropriately draws international business scholars’ attention. One especially curious characteristic of China’s development path is a recent surge in its outward foreign direct investment (FDI). Successful and not-so-successful foreign acquisitions by companies...
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...Executive summary. The greenfield FDI is a form of direct investment where a parent company starts a new business in a foreign country by setting up new operational facilities. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees. In order to decide which country is better for ‘greenfield’ foreign direct investment via sole ownership, the advantages and disadvantages of the countries should be considered. For example, China is a developing country, and during the past 30 years, China’s rapid economic development shows that China has a strong power in developing economic. In recent decades, China stays on one of the leading positions in direct investment and therefore a lot of investments to this country are considered to be profitable for any company or investor. The reasons are simple: the growth of the economy and a large number of different projects. Foreign direct investment in China, due to stable growth potential of the economy and a huge production resources, aimed at both the external and the internal market.The innovative ability is a great attraction for investment managers around the world. In contrast, a lot of foreign investors had chosen China for investment and this resulted in a very big competition. Nevertheless, USA is a successfully developed country. And its economy is the top one in the world. As the most important country in the first world countries, the USA...
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...Volkswagen’s Entry Strategy in China’s Car Market 21/1/2013 Content Page Table of Contents Abstract 1 Introduction 1 Literature review 2 Volkswagen rational for China – Dunning’s Eclectic Paradigm. 4 Conclusion 6 References 7 Abstract China is one of the most attractive destinations for Foreign Direct Investments in the world. It is first destination for Inward FDI among developing countries (WTO, 2012). China has developed second world’s largest car market after U.S.A. and has been the largest car producer in the world since 2008. German company Volkswagen (hereafter VW) is the world’s second largest motor vehicle manufacturer after Toyota Motor (CNN, 2012) and the biggest manufacturer in Europe. VW is one of the earliest investors and the biggest foreign car maker in China with 15% of market shares. This report, by applying relevant theories, such as Dunning’s eclectic paradigm or Hymer’s internationalization theory, will explain why VW Company decided to invest in China through joint venture rather than acquisition or Greenfield investment. Introduction Chinese car industry, as well as many other branches, is very young, although dynamic and fast growing. In 1978 Chinese government introduced policy of open doors which allowed foreign companies to invest and operate in China. Since then car sector has developed rapidly from an infant to a mature industry. Moreover, Chinese government provides various incentives in order to attract foreign firms...
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...DETERMINANTS OF FDI IN CHINA DETERMINANTS OF FDI IN CHINA Shaukat Ali and Wei Guo1 ABSTRACT Why and how firms take advantage of foreign opportunities, especially via foreign direct investment (FDI) has been much documented. China, as a major emerging market, has attracted significant flows of FDI, to become the second largest receipt. This paper briefly examines the literature on FDI and focuses on likely determinants of FDI in China. It then analyses responses from 22 firms operating in China on what they see as the important motivations for them to undertake FDI. Results show that market size is a major factor for FDI especially for US firms. For local, export-orientated, Asian firms, low labor costs are the main factor. The paper concludes with managerial implications for businesses wish to exploit opportunities in China. INTRODUCTION The past few years has seen a tremendous growth of foreign direct investment (FDI) that has exceeded both world output and world trade. China is by far the largest recipient, and in 2004 surpassed the USA as host destination. It has consequently attracted an increasing attention from multinational businesses. Since China adopted the reform and opening-up policy in the late 1970s, foreign investment has played an increasingly important role in its economic growth. According to the World Investment Report for 2004 by the United Nations Conference on Trade and Development, China absorbed a total of US$53.5 billion worth of ...
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...of foreign direct investment (FDI) on the economic growth of China. Such growth was achieved through China taking in tremendous amounts in FDI, increasing its productivity, especially in the export manufacturing sector of the economy. This paper provides mounting evidence that China’s growth has been largely fuelled by FDI through capital formation, export promotion, technological and skill transfer, increased tax revenues. Similarly, the creation of a larger middle class, encouragement of economic reforms and increased infrastructure spending has fueled the inflow of FDI into China further increasing the growth of China’s economic growth. FDI plays an extraordinary and growing role in global business. Tuan, C., & Ng, L.F-Y. (2007) pointed that FDI has fuelled economic growth in China by attracting capital investments and creation of employment; increasing manufacturing exports; bringing skilled labor and international brand names and transferring knowledge and technology to local economy. FDI has improved developments in infrastructure and expanded domestic market through job creation. The fixed capital investment in economic growth has been considered one of the basic principles in economic. FDI is of special interest for its supposed positive effects on growth (Qi, 2007). In 1980, the ratio of FDI inflow to China’s Gross Domestic Investment was negligible. It had increased to 7% by 1992, and up again to 36% by 2004 (Rising FDI into China: The Facts Behind the Numbers...
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...entrepôt(gudang) for trade in South East Asia and China, indigenous (adat) Chinese firms(perusahaan) based in Hong Kong emerged(munculnya) as MNCs in the early 1950s, thus reflecting(mencerminkan) a longer history by comparison to MNCs from Taiwan and South Korea whose emergence(muncul) can be traced(ditelusuri) to the early 1960s. Hong Kong has grown to become a significant home country(negara asal) of FDI(foreign direct investment) with an outward FDI stock of ,$154.9 billion in 1998, or some 3.8 per cent of the global stock of outward FDI. Indeed, it had become the world’s tenth-largest source of FDI in that year based on the size of outward FDI stock after the United States (with a share of 24.1 per cent of the global stock of outward FDI), United Kingdom (12.1 per cent), Germany (9.5 per cent), Japan (7.2 per cent), the Netherlands (6.4 per cent), France (5.9 per cent), Switzerland (4.3 per cent), Italy (4.1 per cent) and Canada (3.8 per cent). In fact, Hong Kong is almost as important as Canada whose outward FDI stock was $156.6 billion in that year. Thus, Hong Kong had become a significant source of FDI in the world economy, particularly more so in relation to the stock of outward FDI from developing countries where Hong Kong is the single largest home country with a share of almost 40 per cent. Not only is Hong Kong comparable to Switzerland as a home country of FDI in terms of the size of outward FDI stock, the study of the emergence and evolution of...
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...Essay 1 Although the potential market in China is very attractive to FDI, it still have many risks that stopping the FDI decide to invest in China. In order to further attract inward FDI and optimize its structure to meet China’s goals of economic development, there are few measures that the China government should take, including providing more knowledge about the market, providing more networking and connections and enhance the investment environment of China. Taking these measures can effectively attract more inward FDI to invest in China. First of all, many FDI has lack of knowledge about the market which make them afraid of investing in China. Therefore I suggest that the China government can provide more information about the market such as the history of investment of the target market, the development of the target market and the structure of the target market. This can help FDI gaining more knowledge about the target market and thus can lower the risk of failure investment. Moreover, being insensitive to Chinese culture, social norms is also one of the major factor that lead to failure investment for FDI. I suggest that the China government can hold some forums or talks introducing the culture of China and the difference between western and Chinese culture. Secondly, lacking of networking and connections in China will also stop the FDI invest in China. Since most of the FDI has lack of the knowledge about the market, they need to find networking or connections...
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...International Trade Discuss the main determinants of FDI in China compared to Hong Kong. Is a country (or natural person investors Legal person Cross border capital investment) or other factors of production, in order to obtain or control the corresponding enterprise management right Core In order to obtain profits, or for the purpose of scarce production factors Investment activities . Main determinants of FDI in China Obviously, cheaper labour costs were the major determinant for foreign investment in China. Then, in the early 1990s, the Chinese government started to place more emphasis on technology-intensive investment. Nearly 400 of the Fortune 500 firms have invested in over 2,000 projects in China in various industries such as: computers, electronics, telecommunications equipment, pharmaceuticals, petrochemicals, power-generating equipment etc. A recent bright spot for direct investment in China has been represented by the R&D activities, with over 100 R&D centres established by transnational corporations such Microsoft, Motorola, GM, GE, Samsung, Ericson, Nokia, Panasonic, Mitsubishi, Siemens, to name only a few. According to UNCTAD sources, Motorola, for example, has established R&D centres in the area of electronics, based on US$200 million in investment and 650 research personnel. Also, Microsoft invested US$80 million in a Chinese research institute and has announced the investment of a further US$50 million to create a Microsoft Asian...
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...China – entry into WTO * Reduction of trade barriers, and limits to import. * Reduction of goverment subsidies and other form of support. * Equal treatment for foreign and domestic firms. * Trade barriers between provinces removed. * Market size up, opportunity to export. * Opportunity to offshoring and outsourcing. Steel – before 2000 * Many low quality steel mills; subsidies * Overemployment * Only 8 mills reached min efficiency to win profits. * World’s biggest production of steel and iron. * Productivity – 10% of other countries productivity. * China demand for high-end steel: undersupplied, but supply off low-end stell: oversupply. After 2000: Reduce subsidies – small steel mills exit * Acquisitions mergers * Ricardian model: China specializes in low-end steel. * Krugman: small firms should exit * large firms grow * medium firms: characterize supply PC: Before 2000 * China produces low-end products * High growth of the market, focus on education * Price wars in the late 90’s * Competitive with HP, Dell etc. * Profit seekers. After 2000: * Market experience * Competitive with western firms Monopolistic competition. AC falls. Offshoring to China: Hardware and low skilled labor – wage difference TV: Before 2000: Oversupply, saturated market. * Unused capacity * Financial support from the government * Foreign tv producers target high-end...
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...To: Reader From: Nicole Ki Date: June 26, 2014 Re: International Business- Assignment 4 Questions 1. Discuss the implications of globalization on the food industry in China. 2. What makes China so attractive to U.S. food companies? Discuss why it is important to gain 3. Reflect on the standardization versus adaptation debate as it relates to marketing fast food and processed food in China. Using the ‘4Ps’ of marketing, discuss how companies should approach the market. Which elements in the marketing mix can be standardized? Which elements must be adapted to suit local preferences? See http://www.mindtools.com/pages/article/newSTR_94.htm 4. How is Western culture influencing China’s culture? Discuss how companies like Frito Lay and McDonald’s are contributing to this change. What are the implications of this trend? Answers 1. There are four different implications of globalization in the food industry in China. The first implication would be the slow demise of a common understanding of an American way of eating. To be certain, families and other institutions will always have their own food traditions and preferences, and certain food items (e.g., hot dogs or hamburgers) may continue to enjoy long-standing popularity within our culture. But the idea that there will be a "commonly understood" cuisine served at critical ritual occasions such as weddings, parties or summer picnics is quickly becoming a thing of the past. One need merely consider the diversity...
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...Reviews Koichi Iwabuchi, Recentering Globalization: Popular Culture and Japanese Transnationalism. Durham and London: Duke University Press, 2002. 275 pp., including references and index. ISBN 0-8223-2891-7. In this book, Koichi Iwabuchi, a Cultural Studies scholar based in Japan, explores intellectual discourses, marketing strategies and audience consumption of Japanese popular culture in a transnational Asian context. In other words, he examines Japan's encounter with a 'modern' Asia by focusing on the diffusion of its commercialized popular culture. This has been made possible by the globalization of media, which itself encouraged an incipient expansion of a hitherto largely domestic-oriented Japanese media production system to other Asian markets. There have been two results from this expansion of mediated popular culture. In the first place, it brings into question the assumed hegemony of American mass culture (from Disney to McDonald's) and shows how, in East and Southeast Asia at least, Japanese contemporary culture is extremely significant – especially in the global cities of Seoul, Shanghai, Taipei, Hong Kong, Singapore and so on. Second, and more troubling so far as Iwabuchi is concerned, Japan's 'return to Asia' from the 1990s, when it began reasserting its Asian identity, contains echoes of World War II colonialism since Japanese tend to regard themselves as 'above' other Asian countries because of their superior technology and production capacity...
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...is about moving investment and economic activity from its current concentration in China’s south and its coastline, inland to the flourishing mega-cities of the inner western region. TARGETS 'Going out' refers to China’s strategy of growing offshore investment. With food security and safety for a billion people a priority for policymakers, external investment in agriculture and food interests is a high priority for investment targets. Healthcare and education - a bonus for Australian universities - is also a priority, these investments are likely to help China’s pivot from a manufacturing to a service economy. TARGETS 'Going green' is a delayed attempt to address the consequences of growth-at-all-costs. In contrast to Australia, China is making colossal investments in 'cleantech' like renewable energy. Its cleantech outlay currently stands at about US$65 billion a year. Spending on renewable energy alone has been growing at a rate of 77 per cent a year since 2008. TARGETS OTHER TARGETS There are many challenges that arise when...
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...significant foreign interest and investment. • However, while most of the developing nations adopted trends set by the global banking giants, China made its own norms and forced those banking giants to comply with it. • Instead of the traditional mergers and acquisitions practiced in most foreign direct investments, China offered strategic partnerships to a maximum permissible limit of 20%, while total foreign ownership in any bank was capped at 25%. • The global banks developed customized lending policies, banks cards, and asset management products to cater to the huge retail banking market. • The partnership between the foreign partner and the Chinese bank not only needed to be a strategic fit and complementary in nature, but it also had to be in line with Chinese culture and value system and had to gradually modify the system to make it more beneficial for both parties. • Biggest challenge for the strategic alliances came from the alignment of the critical human resource management (HRM) functions such as HR planning, staffing, appraisal, training and development, employee retention, etc., with Chinese culture. Key Issues Differences in Business Cultures • The differences in culture, labor markets, and employments systems between China and other countries created challenges for multinational companies operating in China. • Chinese management style was based on relationship building and development of trust. There was strong overlap between personal and business...
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...The purpose of this paper is to provide a comprehensive analysis on a case study related to a Swedish-based company’s Human Resource Manager, entrusted to craft up strategies to minimize failure rate of expatriation. This case study is specific towards the company’s direction to expand to China by setting up operations in the country. This analysis outlines challenges and strategies in the human resource management, focusing on expatriate management cycle, process of candidates’ recruitment, training and learning development, managing expatriates family in the host country and acclimatising in the host country’s culture. This analysis is critical as it affects the company’s nature of business, its revenue and profits, and its business models...
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...around the world. Thomas Sutherland, the founder of HSBC, realized a demand for local banking facilities in Hongkong and on the China coast. Hence, the Hongkong and Shanghai Banking Corporation was founded in 1865 and the first bank opened in Hong Kong in March 1865 and at the same year, the first branch opened in Shanghai. Nowadays, the business of HSBC is distributed in more than 100 countries and regions and HSBC has over 100 million customers all over the world. Chinese market is quite important and special for HSBC and Shanghai was chose by HSBC and opened the first branch in 1865. Although the founder was a Scot, HSBC still headquartered in Hong Kong until 1980s. In early stage, HSBC hoped to become the local bank of China and gave services to the clients all over the world but now, HSBC preferred to be a global bank to cater to Chinese. Therefore, the China strategy is crucial for HSBC. The China strategy of HSBC can be divided into three stages, which was before Oct, 1949, before China’s accession to the WTO and after China’s accession to the WTO. In the middle of the 19th century, more and more British merchants came to China to do business but Qing government lacked banks or financing institution. Mr. Sutherland recognized the demand and founded HSBC to give services to the Brutish merchants and Chinese merchants. HSBC considered that China was a potential market and few competitors had already entered Chinese market. Furthermore, Qing government signed several treaties...
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