Foreign direct investment (FDI) is an international investment whereby a firm in one economy has control or major influence over the management of another firm in another economy (Xu, 2014). For many years, China has grown to be one of the most attractive countries for foreign direct investments of almost every present organization in the world.. Despite the rise in labour costs and shortages of skilled labour along with greater competition faced by foreign firms in the China market since 2008, China has still succeeded in continuously attracting more FDI as compared to other developing countries. This essay while relating to certain FDI theories (Eclectic theory) will further discuss the general factors that has led to the increase of FDI in China despite many challenges over the years as well as using a firm such as Gap Inc. as a case example to show the main specific factors which influenced the company to undergo FDI in China.

As China's population nears 1.4 billion people (Xinhua, 2010), there are many general 'pull' factors contributing towards the increase of FDI in China. One of the factors would be country's market size as accordance to Cheng & Kwan (2000) whom agreed that market size does attract FDI in China. China's large market size potentially creates huge domestic demand that provides greater opportunity for foreign firms to undergo FDI as firms access into a larger customer base would be made easier, allowing them to increase their productivity and profit of the business. This is supported by Faheem, Dost, Hussnain, Izhar, Raza & Shakeel's (2011) statement regarding the emergence of local economies of China in developing a large market size is positively related to more profitable investments. Following this, firms that invest in China based on this factor are known to be market-seeking investors as they aim to achieve economies of scale through large demands and local productions (Stoian & Filippaios, 2008) to exploit ownership advantages (Culem, 1988). Based on Porter's diamond demand conditions variable, the large market size of China will not only produce large domestic demands but also sophisticated ones that may stimulate firms to constantly innovate to satisfy high standards of products and services (Smit, 2010). This stimulation will provide a competitive advantage for industries in China which is why the country continues to attract FDI.

Furthermore, infrastructure development also plays an important role in attracting FDI into China. This is equivalent to Du, Lu & Tao's (2008) findings which state that regions with quality transportation systems and facilities are more appealing to foreign investors as market infrastructures significantly affects a firms ability to conduct their business activities efficiently (Dunning, 1993). According to Yang (2015), China's infrastructure spending was estimated at 9.8 trillion yuan in the first 11 months of 2014 on transportation, environment and water management with plans to further accelerate 300 infrastructure projects worth 7 trillion yuan. With all the focus on infrastructure development, China has successfully set a platform for foreign firms by making it more convenient for utilization of resources in the country. Faheem et.al (2011) supported this statement by underlying that China is currently focusing their infrastructure development on technological advancement to further increase FDI. Based on Porter's diamond factor endowment variable, China's development of infrastructures are the advanced factors from investments made by companies and governments to maintain competitiveness of the country (Smit, 2010). These developments tend to attract FDI due to it increasing the competitiveness of firms operating in China as it provides an advantage for firms who commit their resources and utilize the latest infrastructures present in the nation.

Besides that, another factor would be the changes in governmental trade policies. Xu (2014) stated that China had change their policy as part of the nation's reform by opening up their economy in inviting foreign investors to improve the investment environment. Tembe & Xu (2012) further supported this statement by highlighting that China has allowed investors to develop their own infrastructure and other investments from funds raised through taxes or business profit. For the benefit of the nation, the government of China has created and implemented policies in order to support and attract foreign investors into the country for business. This is proven by Zhou (2008) whom stated that the Chinese government gives credit support to key overseas investments projects through banks and government agencies in China. It can also be seen that China made efforts to implement preferential policies and policies for promoting exports to increase FDI and reduce tariff on imports by 25.3% from 1992 to 1997 and in 2010, the tariff rate was decreased to 4.2% (Faheem et.al, 2011). In relation to the Eclectic theory (1993), trade policies represent one of the measures for location specific advantages of a country (Dunning, 1993). This means that China whom recently favoured their trade policies towards FDI has acquired a locational advantage as the effect of policies being implemented directly 'pulls' foreign firms into the country as firms are expected to take advantage of this change in policy to market their products and services in China.

Moving on to the case example, Gap Inc. is known to be one of the top international apparel brands in the retail industry having six different brand names which are Gap, Banana republic, Old navy, Piperlime, Athleta and INTERMIX. The organization was founded by Donald Fisher and Doris F. Fisher in 1969, headquartered in San Francisco, California with the current CEO of the company now being Art Peck. In 2014, Gap has earned a total revenue of US$16.148 billion which is up by 3.2% from their previous year earnings while net income had increased by a significant value of 5.1% to US$1.28 billion from the past year (Gap Inc, 2015). According to Bloomberg Business (2015) , the company has a market capitalization of US$ 17.27 billion with more than 150,000 employees at almost 3,700 company operated stores worldwide including countries from the United Kingdom to Malaysia and China. (Gap Inc, 2015). As the retail industry remains a competitive one, Gap Inc main competitors are large and recognised apparel companies such as the TJX companies Inc. and American Eagle Outfitters. Gap Inc. had recently entered the China market late in 2010 and has successfully operated 80 stores in the country with plans to further expand in the near future (Coyle, 2014).

Relating to the company's involvement in China as stated above, there are a few specific factors as to the reason for Gap Inc. entering the China market. One of the specific "push factor" would be the slow growth and struggling of business in the home country of the organization. The US based company Gap Inc. had been suffering lower sales growth from their brands as accordance to Burkitt and Kapner (2014) reporting that Gap Inc.'s focus internationally was due to slow growth at home with brands such as Old Navy and Banana Republic failing to live up to expectation. According to Trefis team (2013), U.S apparel retail market has been week as domestic consumers were cautiously spending and spending pattern were changing leading to U.S apparel companies like Gap struggling with either low or no growth in store sales. The failure of Gap Inc. in competing with their main competitors such as H&M, Zara and Uniqlo which caused the major decrease in sales of stores in the north America region (Sacks, 2015) may have also contributed to the business decline of the company. These factors have influenced Gap Inc. to take action internationally by entering into China's fast consumer growing market and focusing more on international development as continuous losses from sales of the home country would prove too costly to the retail business.

Other than that, the increase spending and emergence of new middle class consumers represents a specific 'pull' factor contributing to the involvement of Gap Inc. in China (Forbes, 2013). The emergence of new middle class consumers means that China's consumer spending power will more likely increase as these consumers will have a higher disposable income due to a rise in household incomes as accordance to Song and Cui (2009) whom asserted that 40% of China's total urban disposable income will be from middle class consumers by 2015. According to Barboza (2010) from The New York Times, many retailers including Gap Inc. are seizing the opportunity to market their products to China's expanding middle class consumers as the Chinese government encourages spending sprees by raising salaries for consumption purposes to boost the future economy. Relating to the Eclectic theory (1993), the capitalization of Gap Inc. on the rise of new middle class consumers in China was to achieve a location specific advantage. This is due to the fact that China's potential consumer demand in the apparel market will increase overtime making it a strategic location for Gap Inc. to invest their resources in as more demand means more business and inevitably more company profit .

In addition, the growth of the e-commerce market in China is another specific 'pull factor' which has led Gap Inc. to undergo FDI in China. This is proven by iResearch (2015) whom reported that China's e-commerce gross merchandise value (GMV) went up by 21.3% from the year 2013 to reach a huge sum of 12.4 trillion yuan in 2014. Following this, Gap was already known for their online retailing expertise as they had an award winning e-commerce division known as Growth Innovation Digital (GID) that comprises of highly talented individuals developing and implementing "omnichannel" strategies for their retail stores such as Ship From store, Find in Store and Reserve in Store (Babcock, 2013 ; Gap Inc, 2013). The company has also increased efforts in being one of the top online retailers in China by partnering with an e-commerce company known as Shanghai Yi Shang Network Information Co Ltd before its first entry to China in 2010 to further improve their knowledge of the country's online retail industry as well as logistics (Gap Inc, 2015). Based on the eclectic theory, Gap Inc. portrays having an ownership specific advantage over its competitors by having the expertise in the e-commerce division as well as making partnerships with others in a familiar field. The company was able to benefit from this efficiency seeking partnership as e-commerce sales shot up by 21.5% in 2013 reaching a staggering amount of US$2.26 billion as compared to the previous year 2012. (Evans, 2014). The organization has successfully build around its ownership advantage in online retailing and has recently applied it to almost every store it operates in, including the most recent one, Old Navy in Shanghai (Reuter, 2014). This ownership advantage has allowed Gap Inc. to expand its business in China and make it more profitable for the company as its presence in China will help increase its competitiveness in the apparel industry.

In conclusion, despite the challenges faced by China during and after the Global financial Crisis (GFC), foreign firms are still willing to undergo FDI in the country as the total benefits gained from the investment far outweigh the cost faced by the firms. China's locational advantages from factors such as market size, infrastructure and changes in governmental policy as discussed above prove to be one of the few important factors in maintaining the attraction of FDI for the country. In some cases, few foreign companies may already have acquired certain advantages before going into a particular country for FDI as proven throughout the discussion of the essay regarding the company, Gap Inc. Gap Inc. was able to flourish in China not only by taking advantage of China's locational advantages but as well as exploiting their own ownership specific advantages which are expertise in e-commerce retailing. Overall, China remains as one of the hot spots for international firms seeking a strategic location for FDI.

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