Outward FDI from China : Historical development, geographical distribution and the obstacles to subsidiary business success

Abstract

This dissertation discusses about foreign direct investment (FDI) from China, based on in-depth qualitative research on Chinese multinational enterprises (MNEs) in Germany from April 2011 to February 2012, i.e. case studies, over participant observation and 56 interviews, to test the plausibility of traditional FDI theories and to analyze the characters of Chinese MNEs.As a cumulative dissertation, this dissertation is composed of four articles. The first article traces the historical development of Chinese outward FDI and its co-evolution with the FDI regulation. Theoretically, it proves that the FDI development of China still follows the Investment Development Path model; however, the Chinese government has accelerated the whole process through active regulation reform. The second article investigates the geographical image of FDI from China based on the comparison between Chinese outward FDI to developed economies and that to developing economies. Here, I review the pros and cons of two important theories, known as the Ownership-Location-Internalization (OLI) model and the Linkage-Leverage-Learning (LLL) model. Based on empirical research, I believe that neither of them are totally suitable: the OLI model is quite useful for understanding FDI from China to developing economies, while the LLL model is more powerful for explaining the FDI to developed economies. I argue that the companies from China attain a very advantageous position as intermediates in the global economy. They may catch up with the first movers if they integrate OLI-led and LLL-led FDI within one firm.From the third article on, I shift my attention from the general image description to the stream of FDI to Germany. Here, I found that the survival of Chinese firms is critically dependent on managing the differences in the knowledge bodies of the two regions, which is general internationalization process involving knowledge learning. In contrast to network and proximity theories which emphasize efforts of subsidiaries to overcome obstacles via local embeddedness and absorbing local resources, this article shows that a fast and successful process of becoming embedded in the host region can hamper the subsidiary s success, as it may cause conflict with the parent firm. The fourth article is an extension of the third one, which focuses on the cognitive distance concept. Based on qualitative information, this paper discusses factors contributing to cognitive distances between firms in China and in Germany, such as language or institutional and market differences, and shows that FDI is made to serve as a way of reducing or bridging this cognitive distance.This dissertation contributes to the small but growing body of literature on the internationalization of Chinese companies and their knowledge learning and overcoming liability of foreignness in developed countries. It unpacks the possibility of Chinese firms functioning as a global pipeline between China, developed and developing economies. Based on the empirical study in Germany, the research unpacks the concept of global pipelines for knowledge sharing in a local-global context and explores the great difficulties to be overcome for such pipelines to transfer knowledge. I also argue that if the cognitive distance cannot be effectively overcome, a dysfunctional pipeline can impede the success of the investment made, which can be bad for the subsidiary, its host regions and clusters, and can have negative effects for the investing firm as a whole, therefore limiting the positive impact of the investment on the host region. The firm perspective thus offers a complementary view that may contradict what geographers find with an examination of regions and network linkages only.