What Are the Determinants of Outward Fdi from China?

Only available on StudyMode
  • Download(s) : 95
  • Published : April 6, 2013
Open Document
Text Preview
SYED WALEED SHAH (1020876)

DR.MARK COOK

RESEARCHING BUSINESS AND MANAGEMENT ISSUES

“What are the determinants of outward FDI from China”?
Aims and Objectives of my dissertation are to:
1. Find out why Chinese FDI increased during the past ten years. 2. Have the global economies benefitted from an upsurge in Chinese investment. 3. What impact has the economic downturn had on FDI from china? Research questions:

1. Which regions does China target through FDI.
2. What are the reasons for Chinese FDI in these regions.

Literature Review
First in this chapter the most recognized theories in relation to FDI will briefly be introduced, for better understanding about the topic. After that the regions, which China targets, and the factors which determine FDI host country regions are discussed as they happen to be the main research questions of this study. Next the literature of Chinese FDI activities will be reviewed in order to perceive their distinct features compared with FDI in general, which will also include the definition of advantages and disadvantages of the Chinese MNE in their FDI activities. Lastly motives and location factors will be discussed concerning Chinese FDI. Theories of FDI

Economists such as Dunning and Gray have analyzed the varying impact of country, industry and location characteristics of countries as early as 1982. The scholars and researchers in this area aim to examine the determinants of outward foreign direct investment from China. The mainstream perspective in FDI has been developed by Dunning (1981) in which he draws together elements of previous theories to indentify Ownership, Location and Internalisation’s advantages, which motivate OFDI.

According to Dunnings theory, known as the Eclectic paradigm theory, firms which are conducting outward FDI should possess an internally transferable ownership advantage such as superior resources or managerial capabilities which can be applied in a foreign country (Barney, 1991). It has been suggested through literature from other perspectives that firms also move across geographic boundaries for resource and knowledge acquisition as well as capability enhancement. For example China doesn’t possess many natural resources is employing international expansion as a way of seeking resources and to overcome their competitive disadvantage. In relation to Chinese OFDI, Child and Rodriques (2005) argue that the Chinese case conforms more closely to the latecomer perspective than to the analyses derived from the exploitation of firm-specific advantages by firms in the developed economy. Voss (2008) indicates that Chinese firms internationalise when domestic institutions are sufficiently well developed and the institutional environment allows them to exploit their competitive advantages. Macro level factors relating to the government, means the influence provided by them such as government support, government finance, appear to be encourage Chinese firms to conduct OFDI. Chinese firms tend to have a very favorable relationship with their government, it has also been highlighted by Child and Rodrigues (2005), the provision of the acquisition fund and cheap loans from state owned banks influence the investment decision of Chinese firms. Furthermore, Zhao and Wang (2008) also found that firm related advantages, such as governance advantage and easy loan access are at work simultaneously driving the outward movement of private Chinese firms. The theory seems to suggest that home country market imperfections can exert a significant impact on the decisions of foreign investors (Dunning, 1988). Therefore location advantages of an FDI host country can account for determinants influencing investment in foreign states, which may have superior market or production on offer. However unlike industrialized economies, outward Chinese FDI has been triggered by pull factors. Deng (2004) categorized the five investment...
tracking img