Dissertation > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations

Location choice of foreign direct investment in China

Author ZhangJuan
Tutor DaiBingRan
School Fudan University
Course World economy
Keywords Outward FDI Location Value Chain Industrial Cluster Competitive Advantage
CLC F832.6
Type PhD thesis
Year 2007
Downloads 2631
Quotes 8
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Location choice is an important issue in outward FDI (ODI), but there’s no perfecttheory about it. This paper tried to build a research framework from the perspective of valuechain, and rethink the motivation, location, industry and investors about the location choice ofODI. The value added of the segments in value chain is different from each other, then thecompetitive advantage is different for the companies located on the segments, accordingly,their spatial location choice is affected. The unequal endowments distribution throughout theworld, specialization and outsourcing contributed to the spatial fragment of value chain thatcharacterized as "scatter in the whole and agglomerate in the subareas", and mostly thesegments existed as local industrial clusters. Therefore, the spatial concept of industrialcluster was introduced into value chain research. Industrial agglomeration and cluster are alsothe important factors influencing location choice. They fell in the scope of both ODI locationchoice research and value chain research, then connected the two theories with each other.The hierarchy between industrial clusters is determined by the hierarchy between thesegments of value chain. The innovation will be accelerated and the competitive advantagewill be strengthened for companies by embedding in industrial clusters. The characters of FDIagglomeration lead to the embedment and the upgrade of companies in value chain becomesmore possible because of the upgrade of industrial clusters.In recent years, the ODI of Chinese companies attracted the attention from academic andentrepreneurial fields. Qualitative and quantitative researches showed that Chinese companieslocated in the middle and low end of global value chain, and their theoretical research andpractical activites in cross-border operation is at the early stage, many companies were notaware of their competitive advantage and located themselves accordingly which lead to theunclear ODI strategies; Location choices were blind to some extent: The companies pooled insome areas which will not facilitate companies to make use of global resources and strengthentheir competitive advantage; The ODI focused on low value added industry and couldn’tpromote the upgrade of industrial structure at home and boost export; The investors mostlydidn’t pay attention to the cooperation and competition among companies, and couldn’t takeadvantage of agglomeration effects to upgrade in value chain.This paper pointed out that the value chain strategies connected with competitiveadvantage determined the multi-modal ODI for Chinese companies based on the theoreticalframework, positive analysis and the research on foreign companies’ location choices. Ingeneral, ODI will open up new market, extend marketing channel and raise the fame of brands, so they should locate in export countries or the ones with big market size.Technique-searching ODI aimed at acquiring advanced technology and breaking thetechnique monopoly and blockage, developing the technology-intensive industry, especiallyindustries highly value added, e.g. new high-tech industry, so they should locate in developedcountries. The low end value chain strategy determined companies should invest in countrieswith lower cost factors. It’s the case especially for labor-intensive industry.Chinese companies should consider the comparative advantage brought forth byagglomeration effects when they invest in the world according to the factor endowmentabundance. As an efficient ODI investor, the applicable range of big corporation group islimited outside state-owned enterprises. Small and medium-sized companies are more suitableto adopt the clustering ODI mode because of the multified investors in China. The clusteringODI mode has two forms: duplicate industrial clusters in home country, which meanscompanies in industrial clusters follow the leader to invest in foreign countries; individualcompanies in home country invest abroad and embed in local industrial clusters in hostcountries. Therefore, this paper advanced the idea that Chinese companies locate themselvesclearly on the value chain segment and embed in industrial clusters to cultivate and raisecompetitive advantages, which showed a solution for Chinese companies’ ODI locationchoice.

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