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Investment strategies by foreign automobile firms in China: A comparative study of Volkswagen, Honda, and Hyundai

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  • Hwy-Chang Moon

Abstract

The main question motivating this research is: why did foreign automakers (i.e. Volkswagen, Honda, and Hyundai) decide to enter different markets within China (Shanghai, Guangdong and Beijing respectively)? We analyze this situation in three steps. First, by applying Dunning's Eclectic (OLI) Paradigm, we show Volkswagen, Honda and Hyundai entered China to exploit their technological firm specific assets. Instead of traditional market instruments, these firms engaged in FDI to access China's large market because of the high regulations on its automobile industry. The second section incorporates the Diamond Model analysis and concludes that Shanghai is the most attractive automobile cluster. Although the OLI predicts all firms to enter the most attractive location, Shanghai, the firms actually entered three separate regions. In the following section, we adopt the Imbalance Theory to clarify the rationale behind choosing alternate locations. The Imbalance Theory conclusively demonstrates that geographical diversification occurred as a direct result of the strategic goals of the individual firms.

Suggested Citation

  • Hwy-Chang Moon, 2005. "Investment strategies by foreign automobile firms in China: A comparative study of Volkswagen, Honda, and Hyundai," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 3(2), pages 151-171.
    • Handle: RePEc:taf:jocebs:v:3:y:2005:i:2:p:151-171
    DOI: 10.1080/14765280500120096
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    References listed on IDEAS

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    1. Chang Moon, H. & Rugman, Alan M. & Verbeke, Alain, 1998. "A generalized double diamond approach to the global competitiveness of Korea and Singapore," International Business Review, Elsevier, vol. 7(2), pages 135-150, April.
    2. 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.
    3. 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.
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    1. Lee, Chaehwa & Wilhelm, Wilbert, 2010. "On integrating theories of international economics in the strategic planning of global supply chains and facility location," International Journal of Production Economics, Elsevier, vol. 124(1), pages 225-240, March.

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