IDEAS home Printed from https://ideas.repec.org/a/eee/jbrese/v63y2010i5p479-485.html
   My bibliography  Save this article

The determinants of foreign direct investment in China: The case of Taiwanese firms in the IT industry

Author

Listed:
  • Lin, Feng-Jyh

Abstract

This study illustrates the factors that affect a firm's intention to engage in foreign direct investment (FDI) in China, using Taiwanese firms in the Information Technology (IT) sector as an example. By building upon the literature, we investigate a firm's decision to engage in FDI by taking industry and firm factors into consideration. This study applies an event history technique to perform an empirical analysis, taking into account the conditional probability of the element of time. These factors are analyzed in a dynamic context using a sample of 667 Taiwanese firms in 10 industries between 1996 and 2005. We find that network linkages, the expansion of markets, and China's incentive policies positively affect the intention to engage in FDI. A firm with a higher degree of export orientation and larger firm size also has a strong effect on motivating FDI.

Suggested Citation

  • Lin, Feng-Jyh, 2010. "The determinants of foreign direct investment in China: The case of Taiwanese firms in the IT industry," Journal of Business Research, Elsevier, vol. 63(5), pages 479-485, May.
    • Handle: RePEc:eee:jbrese:v:63:y:2010:i:5:p:479-485
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0148-2963(09)00108-8
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 17(3), pages 1-26, September.
    2. Homin Chen & Tain-Jy Chen, 1998. "Network Linkages and Location Choice in Foreign Direct Investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(3), pages 445-467, September.
    3. W Chan Kim & Peter Hwang, 1992. "Global Strategy and Multinationals' Entry Mode Choice," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(1), pages 29-53, March.
    4. Kumar, V. & Subramanian, Velavan, 1997. "A contingency framework for the mode of entry decision," Journal of World Business, Elsevier, vol. 32(1), pages 53-72, April.
    5. Sanjaya Lall, 1980. "Monopolistic Advantages and Foreign Involvement by US Manufacturing Industry," Palgrave Macmillan Books, in: The Multinational Corporation, chapter 1, pages 3-28, Palgrave Macmillan.
    6. Carlsson, Johan & Nordegren, Axel & Sjöholm, Fredrik, 2005. "International experience and the performance of Scandinavian firms in China," International Business Review, Elsevier, vol. 14(1), pages 21-40, February.
    7. John H Dunning, 1995. "Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(3), pages 461-491, September.
    8. Wolf, Bernard M, 1977. "Industrial Diversification and Internationalization: Some Empirical Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 26(2), pages 177-191, December.
    9. Horst, Thomas, 1972. "Firm and Industry Determinants of the Decision to Invest Abroad: An Empirical Study," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 258-266, August.
    10. Robert Grosse & Len J Trevino, 1996. "Foreign Direct Investment in the United States: An Analysis by Country of Origin," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(1), pages 139-155, March.
    11. Nathan Fagre & Louis T Wells, 1982. "Bargaining Power of Multinationals and Host Governments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 13(2), pages 9-24, June.
    12. Trevino, Len J. & Grosse, Robert, 2002. "An analysis of firm-specific resources and foreign direct investment in the United States," International Business Review, Elsevier, vol. 11(4), pages 431-452, August.
    13. C Patrick Woodcook & Paul W Beamish & Shige Makino, 1994. "Ownership-Based Entry mode Strategies and International Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 25(2), pages 253-273, June.
    14. John H Dunning, 1980. "Towards an Eclectic Theory of International Production: Some Empirical Tests," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 11(1), pages 9-31, March.
    15. repec:bla:jindec:v:45:y:1997:i:3:p:341-58 is not listed on IDEAS
    16. John H Dunning, 1998. "Location and the Multinational Enterprise: A Neglected Factor?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 45-66, March.
    17. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    18. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
    19. Chen, Tain-Jy, 1992. "Determinants of Taiwan's direct foreign investment : The case of a newly industrializing country," Journal of Development Economics, Elsevier, vol. 39(2), pages 397-407, October.
    20. Dunning, John H., 2000. "The eclectic paradigm as an envelope for economic and business theories of MNE activity," International Business Review, Elsevier, vol. 9(2), pages 163-190, April.
    21. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    22. Kuo, Hsien-Chang & Li, Yang, 2003. "A Dynamic Decision Model of SMEs' FDI," Small Business Economics, Springer, vol. 20(3), pages 219-231, May.
    23. Gunnar Fors, 1997. "Utilization of R&D Results in the Home and Foreign Plants of Multinationals," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 341-358, September.
    24. NS Siddharthan & Stanley Nollen, 2004. "MNE Affiliation, Firm Size and Exports Revisited: A Study of Information Technology Firms in India," Journal of Development Studies, Taylor & Francis Journals, vol. 40(6), pages 146-168.
    25. Kravis, Irving B. & Lipsey, Robert E., 1982. "The location of overseas production and production for export by U.S. multinational firms," Journal of International Economics, Elsevier, vol. 12(3-4), pages 201-223, May.
    26. Chwo-Ming J Yu & Kiyohiko Ito, 1988. "Oligopolistic Reaction and Foreign Direct Investment: The Case of the U.S. Tire and Textiles Industries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(3), pages 449-460, September.
    27. J Stewart Black & Mark Mendenhall, 1991. "The U-Curve Adjustment Hypothesis Revisited: A Review and Theoretical Framework," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 22(2), pages 225-247, June.
    28. Jan Johanson & Jan-Erik Vahlne, 1977. "The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 8(1), pages 23-32, March.
    29. repec:bla:scandj:v:93:y:1991:i:1:p:101-07 is not listed on IDEAS
    30. Sanjeev Agarwal & Sridhar N Ramaswami, 1992. "Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internationalization Factors," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(1), pages 1-27, March.
    31. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
    32. Feng Li & Jing Li, 1999. "Foreign Investment in China," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-37912-1, December.
    33. Yih-Chyi Chuang & Chi-Mei Lin, 1999. "Foreign direct investment, R&D and spillover efficiency: Evidence from Taiwan's manufacturing firms," Journal of Development Studies, Taylor & Francis Journals, vol. 35(4), pages 117-137.
    34. Chen, Homin, 1999. "International performance of multinationals: a hybrid model," Journal of World Business, Elsevier, vol. 34(2), pages 157-170, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nnaemeka Vincent Emodi & Girish Panchakshara Murthy & Chinenye Comfort Emodi & Adaeze Saratu Augusta Emodi, 2017. "Factors Influencing Innovation and Industrial Performance in Chinese Manufacturing Industry," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 14(06), pages 1-32, December.
    2. Feng-Jyh Lin & Yi-Hsin Lin, 2012. "The determinants of successful R&D consortia: government strategy for the servitization of manufacturing," Service Business, Springer;Pan-Pacific Business Association, vol. 6(4), pages 489-502, December.
    3. Abdisalan Salad Warsame, 2021. "The Location Choice of Foreign Direct Investment and Economic Development in Africa," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(10), pages 1-69, September.
    4. Cesaroni, Fabrizio & Giarratana, Marco S. & Martínez-Ros, Ester, 2012. "Technological capabilities and cost efficiency as antecedents of foreign market entry," MERIT Working Papers 2012-049, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    5. Anwar, Sajid & Sun, Sizhong, 2014. "Heterogeneity and curvilinearity of FDI-related productivity spillovers in China's manufacturing sector," Economic Modelling, Elsevier, vol. 41(C), pages 23-32.
    6. Tomás Silva & Sérgio Lagoa, 2018. "Corporate Taxes And The Location Of Fdi In Europe: The Importance Economic Integration And Project Characteristics," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 63(217), pages 39-74, April – J.
    7. Cai, Huifen & Boateng, Agyenim & Guney, Yilmaz, 2019. "Host country institutions and firm-level R&D influences: An analysis of European Union FDI in China," Research in International Business and Finance, Elsevier, vol. 47(C), pages 311-326.
    8. Haggard, Stephan & Lee, Jennifer & Noland, Marcus, 2012. "Integration in the absence of institutions: China–North Korea cross-border exchange," Journal of Asian Economics, Elsevier, vol. 23(2), pages 130-145.
    9. Arvanitis, Spyros & Hollenstein, Heinz & Stucki, Tobias, 2016. "Does the explanatory power of the OLI approach differ among sectors and business functions? Evidence from firm-level data," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 10, pages 1-46.
    10. Faris Nasif Al Shubiri, 2016. "Determinants Of Foreign Direct Investment: Evidence Of Sultanate Of Oman," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 13(2), pages 7-17, June.
    11. Anwar, Sajid & Nguyen, Lan Phi, 2014. "Is foreign direct investment productive? A case study of the regions of Vietnam," Journal of Business Research, Elsevier, vol. 67(7), pages 1376-1387.
    12. Lo, Fang-Yi & Liao, Pei-Chun, 2021. "Rethinking financial performance and corporate sustainability: Perspectives on resources and strategies," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    13. Lin, Feng-Jyh & Lin, Yi-Hsin, 2016. "The effect of network relationship on the performance of SMEs," Journal of Business Research, Elsevier, vol. 69(5), pages 1780-1784.
    14. Alvandi , Keyvan & Chaminade , Cristina & Lv, Ping, 2013. "Commonalities and differences between production-related FDI (PFDI) and technology-related FDI (TFDI) in developed and emerging economies," Papers in Innovation Studies 2013/47, Lund University, CIRCLE - Centre for Innovation Research.
    15. Yilmaz Kilicaslan & Yesim Ucdogruk Gurel & Gokhan Onder & Zeynep Karal Onder, 2019. "Why Do Turkish Firms Go Abroad to Invest?," EconWorld Working Papers 19001, WERI-World Economic Research Institute, revised Nov 2019.
    16. Chen Siyue & Wei Suqiong & Huang Gengzhi & Zhang Hongou, 2021. "Value chain organization models of Taiwanese electronic information enterprises in Mainland China and their spatiotemporal evolution processes," PLOS ONE, Public Library of Science, vol. 16(7), pages 1-19, July.
    17. Azmeh, Shamel & Nadvi, Khalid, 2013. "‘Greater Chinese’ global production networks in the Middle East: the rise of the Jordanian garment industry," LSE Research Online Documents on Economics 56409, London School of Economics and Political Science, LSE Library.
    18. Chun Ju Lin, 2015. "How Information from Taiwan-based Enterprises in China Influences Investment Decisions of China-based Service Enterprises in Taiwan," Journal of Enterprising Culture (JEC), World Scientific Publishing Co. Pte. Ltd., vol. 23(02), pages 167-197, June.
    19. Nayab Zahra & Danish Ahmed Siddiqui, 2020. "Can Parents be attributed for their Subsidiary Performance?: A Multi-Level Analysis for Performance Determinants of Multinational Enterprises in Pakistan," International Journal of Regional Development, Macrothink Institute, vol. 7(2), pages 1-38, December.
    20. Anselm Komla Abots, 2015. "Foreign Ownership of Firms and Corruption in Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 647-655.
    21. Spyros Arvanitis & Heinz Hollenstein & Tobias Stucki, 2013. "Determinants of Internationalisation - Do they Differ among Sectors and Business Functions?," KOF Working papers 13-348, KOF Swiss Economic Institute, ETH Zurich.
    22. Wei-Kang Wang & Wen-Min Lu & Qian Long Kweh & Yu-Li Liu, 2017. "Decentralized and concentrated investments in China and the performance of Taiwanese listed electronic companies," Applied Economics, Taylor & Francis Journals, vol. 49(25), pages 2443-2455, May.
    23. Lin, Feng-Jyh & Wu, Shang-He & Hsu, Maw-Shin & Perng, Chyuan, 2016. "The determinants of government-sponsored R&D alliances," Journal of Business Research, Elsevier, vol. 69(11), pages 5192-5195.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wei-Kang Wang & Wen-Min Lu & Qian Long Kweh & Yu-Li Liu, 2017. "Decentralized and concentrated investments in China and the performance of Taiwanese listed electronic companies," Applied Economics, Taylor & Francis Journals, vol. 49(25), pages 2443-2455, May.
    2. Chen, Ming-Yuan & Chang, Jing-Yun, 2011. "The choice of foreign market entry mode: An analysis of the dynamic probit model," Economic Modelling, Elsevier, vol. 28(1), pages 439-450.
    3. Hongxin Zhao & Chin-Chun Hsu, 2007. "Social ties and foreign market entry: An empirical inquiry," Management International Review, Springer, vol. 47(6), pages 815-844, December.
    4. Yung-Heng Lee & Yann-Haur Huang & Mei-Jane Chan, 2009. "An Empirical Study Of Wholly-Owned Subsidiaries And Joint Ventures For Entry Into China Markets," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 3(2), pages 9-22.
    5. Reinhold Decker & Xuemin Zhao, 2004. "SMEs' Choice of Foreign Market Entry Mode: A Normative Approach," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(3), pages 181-200, December.
    6. Pease, Stephanie & Paliwoda, Stanley & Slater, Jim, 2006. "The erosion of stable shareholder practice in Japan ("Anteikabunushi Kosaku")," International Business Review, Elsevier, vol. 15(6), pages 618-640, December.
    7. Bartels, Frank L. & Napolitano, Francesco & Tissi, Nicola E., 2014. "FDI in Sub-Saharan Africa: A longitudinal perspective on location-specific factors (2003–2010)," International Business Review, Elsevier, vol. 23(3), pages 516-529.
    8. Robert-Nicoud, Frédéric & Olarreaga, Marcelo & Carrère, Céline & Fugazza, Marco, 2016. "On the heterogeneous effect of trade on unemployment," CEPR Discussion Papers 11540, C.E.P.R. Discussion Papers.
    9. Nayab Zahra & Danish Ahmed Siddiqui, 2020. "Can Parents be attributed for their Subsidiary Performance?: A Multi-Level Analysis for Performance Determinants of Multinational Enterprises in Pakistan," International Journal of Regional Development, Macrothink Institute, vol. 7(2), pages 1-38, December.
    10. Mehmet Demirbag & Martina McGuinness & Hüseyin Altay, 2010. "Perceptions of Institutional Environment and Entry Mode," Management International Review, Springer, vol. 50(2), pages 207-240, April.
    11. Chen, Ming-Yuan & Chang, Jing-Yun, 2011. "The choice of foreign market entry mode: An analysis of the dynamic probit model," Economic Modelling, Elsevier, vol. 28(1-2), pages 439-450, January.
    12. Dirk Holtbrügge & Sue Claire Berning, 2018. "Market Entry Strategies and Performance of Chinese Firms in Germany: The Moderating Effect of Home Government Support," Management International Review, Springer, vol. 58(1), pages 147-170, February.
    13. Reddy, Kotapati Srinivasa, 2016. "Institutional Voids and Tax litigation in Emerging Economies: The verdict of Vodafone cross-border acquisition of Hutchison," MPRA Paper 74264, University Library of Munich, Germany, revised 2016.
    14. Bell, J.H.J., 1996. "Joint or Single Venturing? : An Electric Approach to Foreign Entry Mode Choice," Other publications TiSEM 06f84735-3cf5-432f-8bc8-c, Tilburg University, School of Economics and Management.
    15. Lei, Han-Sheng & Chen, Yung-Shuan, 2011. "The right tree for the right bird: Location choice decision of Taiwanese firms' FDI in China and Vietnam," International Business Review, Elsevier, vol. 20(3), pages 338-352, June.
    16. Iavor Marangozov, 2005. "From Practice to Theory of the International Joint Ventures," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 44-77.
    17. Wrona, Thomas & Trąpczyński, Piotr, 2012. "Re-explaining international entry modes – Interaction and moderating effects on entry modes of pharmaceutical companies into transition economies," European Management Journal, Elsevier, vol. 30(4), pages 295-315.
    18. Dunning, John H. & Pak, Yong Suhk & Beldona, Sam, 2007. "Foreign ownership strategies of UK and US international franchisors: An exploratory application of Dunning's envelope paradigm," International Business Review, Elsevier, vol. 16(5), pages 531-548, October.
    19. Katiuscia Vaccarini, 2014. "Psychic distance and FDI: the case of China," Working Papers 1403, c.MET-05 - Centro Interuniversitario di Economia Applicata alle Politiche per L'industria, lo Sviluppo locale e l'Internazionalizzazione.
    20. Haider Ali Khan & Jyh-Jeng Wu & Chao-Chung Kang, 2004. "Foreign Direct Investment and the Performance of MNCs: Taiwanese Firms' in People's Republic of China and Southeast Asia," CIRJE F-Series CIRJE-F-258, CIRJE, Faculty of Economics, University of Tokyo.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbrese:v:63:y:2010:i:5:p:479-485. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbusres .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.