The motives and location
choice of OFDI: the case
This research investigates the location choice of Chinese companies'
outward foreign direct investment (OFDI). It addresses the question of why
companies with similar motivations will invest in different types of locations.
In more details, how a company's motivation affects their location for OFDI,
and what it is about some Chinese companies that allows them to invest in
certain countries. It also seeks to examine the extent to which classical
theories can explain the OFDI from emerging markets in the case of China.
Chinese official data has certain flaws, such as low quality at firm level and
the omission of some important investments due to the data collection
methods. Thus this research uses data collected from a private survey.
Logistic regression analysis was applied to a sample of 129 companies, and
the following conclusions made:
Firstly, a company's investment motivation is the determining factor for their
investment. Chinese MNEs motivated to acquire created assets, such as
brand name, technology and managerial expertise are more likely to invest in
developed countries rather than less developed countries. There is no clear
evidence of efficiency seeking as a motivation for Chinese companies, but
natural resource seeking FDIs are considerable from China.
Meanwhile, this research finds evidence of capital seeking FDI. As a result of
the Chinese government's capital control policy, some Chinese companies
invest overseas to access the host countries' stock market. This kind of
investment is generally performed using some unconventional method, such
as 'reverse takeover' or 'round-tripping'.
Secondly, the Chinese Government plays an important role in Chinese OFDI.
The Government's foreign policy may influence a company's investment
decision making. E.g. companies with a stronger relationship with the
Government are more likely to invest in developed countries rather than
This research also finds evidence that a closer government relationship
enhances companies' competitive advantages when performing the
investment. This research suggests that a strong connection with the
Government acts as an ownership advantage in the case of Chinese firms.
Thirdly, Internalisation of Internationalisation (i2) is suggested and developed
in this research. This term encapsulates the systematic knowledge transfer
that is hypothesised as occurring during the operation of a joint venture or
other form of alliance with foreign investors in China. It is proposed that this
knowledge transfer from foreign firms to the domestic company enables
Chinese companies to acquire knowledge of international operation even
before engaging with the overseas market. This research finds that
companies with exposure to i2 are better prepared and therefore more likely
to undertake OFDI. The thesis concludes that previous participation in
international business collaboration increases the probability of OFDI by
these Chinese firms.
This research finds that classical OFDI theories are still reliable in explaining
the emerging market OFDI in the case of China. However, IB theories should
also draw more attention to the fact that asset augmenting can play a major
role in this investment environment. Moreover, some new concepts such as
capital seeking and i2 should be added into the theoretical framework.