Introduction
The widespread perception of industrialised countries as homes of multinational corporations (MNCs) and emerging markets as hosts of MNCs has been firmly rooted. These were, however, MNCs in the past, which were nowhere near as active or visible as they are
today. In recent years, China and India, major Latin American economies such as Brazil and Mexico, and South Africa have all spawned their own MNCs (Dunning et al. 2007).
The well-established explanation for the emergence of MNCs from developing and transitional economies is the investment development path--a concept first proposed by Dunning (1981a). This put forward the idea that the rise of a country’s income per capita would initially draw in increasing amounts of foreign direct investment (FDI), and subsequently lead to outward direct investment (ODI).
While it is well known that FDI has been one of the important factors contributing to the Chinese economic miracle, it is perhaps less well known that China is now an important player in the global scene of ODI as well. From 2003 to 2009, Chinese ODI flows grew at 55 per cent annually on average. This growth exceeded that of FDI into China during the same period, although the stock of Chinese ODI is still limited.
Studies of Chinese ODI are relatively new, but growing rapidly in number. Most studies have been descriptive in nature, reviewing historical trends, changing composition and the
evolution of government policies (see, for instance, Deng 2003, 2004; Wu and Chen 2001). Some have focused on in-depth case studies, especially of high-profile ODI cases (such as Liu and Li 2002). A number of recent studies examined empirically the determinants of Chinese
ODI (Buckley et al. 2007). All these analyses provided valuable insights into understanding the pattern and characteristics of Chinese outward investment.
Systematic research on the role of China as an outward direct investor remains, however, insufficient and incomplete. For instance, we do not have an accurate measure of the distribution of Chinese ODI in manufacturing by different types of firms, across either countries or industries. We also do not know much about the performance of Chinese ODI firms. This is largely because of the unavailability of comprehensive disaggregated data. The only official data comprehensively reporting Chinese ODI are published annually by China’s Ministry of Commerce, which reports only aggregate data.
To partially fill this vacancy, we collect approved ODI projects reported on the National Development and Reform Commission (NDRC) web site with disclosed investment amounts from 2003 to 2009. The collected number of Chinese ODI projects is 226, in which 104 are made by manufacturing firms. Among these 104 projects, we exclude 30 projects, which invest in mining, quarrying and petroleum, and use the remaining 74 projects as the sample in this chapter.
Based on these data, the questions this chapter explores are: what is the pattern of Chinese manufacturing firms’ ODI? Do Chinese manufacturing firms possess competitive advantages like those from industrialised economies when they began to internationalise, and, if not, what are the advantages of Chinese manufacturing firms? What is their purpose of investing abroad and how do they realise that? And what are the challenges they face?
In this chapter, we find that Chinese ODI in manufacturing is quite different from that in other sectors. The main investors are private firms rather than state-owned enterprises (SOEs). And the majority of investments in manufacturing have gone to industrialised economies. We also find that Chinese manufacturing firms’ ODI is dominantly motivated by seeking technology and other strategic assets—mainly brand names. To achieve this goal, setting up overseas research and development (R&D) centres and joint ventures with incumbent firms, clustering and going abroad, and mergers and acquisitions (M&As) of overseas firms have become the most widely used methods for Chinese firms to invest overseas.
We argue that unlike yesterday’s MNCs from industrialised countries, Chinese MNCs rarely have firm-specific ownership advantages—notably, core technology, organisational and management skills, and brand names. What they do have is a variety of home-country specific advantages, such as financial support from the Government and comparative advantage in certain labour-intensive industries. Compared with ODI by industrialised countries half a century or more ago, Chinese firms today face totally different circumstances—
characterised by globalisation in general and China’s integration into the world in particular.
We also argue that the success of Chinese manufacturing firms’ ODI rests with their capacity to consolidate and to operate the acquired strategic assets, and with their ability to set up win-win relationships with not only target firms but also the local community in the host country.
The widespread perception of industrialised countries as homes of multinational corporations (MNCs) and emerging markets as hosts of MNCs has been firmly rooted. These were, however, MNCs in the past, which were nowhere near as active or visible as they are
today. In recent years, China and India, major Latin American economies such as Brazil and Mexico, and South Africa have all spawned their own MNCs (Dunning et al. 2007).
The well-established explanation for the emergence of MNCs from developing and transitional economies is the investment development path--a concept first proposed by Dunning (1981a). This put forward the idea that the rise of a country’s income per capita would initially draw in increasing amounts of foreign direct investment (FDI), and subsequently lead to outward direct investment (ODI).
While it is well known that FDI has been one of the important factors contributing to the Chinese economic miracle, it is perhaps less well known that China is now an important player in the global scene of ODI as well. From 2003 to 2009, Chinese ODI flows grew at 55 per cent annually on average. This growth exceeded that of FDI into China during the same period, although the stock of Chinese ODI is still limited.
Studies of Chinese ODI are relatively new, but growing rapidly in number. Most studies have been descriptive in nature, reviewing historical trends, changing composition and the
evolution of government policies (see, for instance, Deng 2003, 2004; Wu and Chen 2001). Some have focused on in-depth case studies, especially of high-profile ODI cases (such as Liu and Li 2002). A number of recent studies examined empirically the determinants of Chinese
ODI (Buckley et al. 2007). All these analyses provided valuable insights into understanding the pattern and characteristics of Chinese outward investment.
Systematic research on the role of China as an outward direct investor remains, however, insufficient and incomplete. For instance, we do not have an accurate measure of the distribution of Chinese ODI in manufacturing by different types of firms, across either countries or industries. We also do not know much about the performance of Chinese ODI firms. This is largely because of the unavailability of comprehensive disaggregated data. The only official data comprehensively reporting Chinese ODI are published annually by China’s Ministry of Commerce, which reports only aggregate data.
To partially fill this vacancy, we collect approved ODI projects reported on the National Development and Reform Commission (NDRC) web site with disclosed investment amounts from 2003 to 2009. The collected number of Chinese ODI projects is 226, in which 104 are made by manufacturing firms. Among these 104 projects, we exclude 30 projects, which invest in mining, quarrying and petroleum, and use the remaining 74 projects as the sample in this chapter.
Based on these data, the questions this chapter explores are: what is the pattern of Chinese manufacturing firms’ ODI? Do Chinese manufacturing firms possess competitive advantages like those from industrialised economies when they began to internationalise, and, if not, what are the advantages of Chinese manufacturing firms? What is their purpose of investing abroad and how do they realise that? And what are the challenges they face?
In this chapter, we find that Chinese ODI in manufacturing is quite different from that in other sectors. The main investors are private firms rather than state-owned enterprises (SOEs). And the majority of investments in manufacturing have gone to industrialised economies. We also find that Chinese manufacturing firms’ ODI is dominantly motivated by seeking technology and other strategic assets—mainly brand names. To achieve this goal, setting up overseas research and development (R&D) centres and joint ventures with incumbent firms, clustering and going abroad, and mergers and acquisitions (M&As) of overseas firms have become the most widely used methods for Chinese firms to invest overseas.
We argue that unlike yesterday’s MNCs from industrialised countries, Chinese MNCs rarely have firm-specific ownership advantages—notably, core technology, organisational and management skills, and brand names. What they do have is a variety of home-country specific advantages, such as financial support from the Government and comparative advantage in certain labour-intensive industries. Compared with ODI by industrialised countries half a century or more ago, Chinese firms today face totally different circumstances—
characterised by globalisation in general and China’s integration into the world in particular.
We also argue that the success of Chinese manufacturing firms’ ODI rests with their capacity to consolidate and to operate the acquired strategic assets, and with their ability to set up win-win relationships with not only target firms but also the local community in the host country.