Foreign Direct Investment with Chinese Characteristics：A Middle Path Between Ownership-Location-Internalization Model and Linkage-Leverage-Learning Model

SI Yuefang; Ingo LIEFNER; WANG Tao

doi:10.1007/s11769-013-0603-z

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SI Yuefang, Ingo LIEFNER, WANG Tao. Foreign Direct Investment with Chinese Characteristics：A Middle Path Between Ownership-Location-Internalization Model and Linkage-Leverage-Learning Model[J]. Chinese Geographical Science, 2013, 23(5): 594-606. doi: 10.1007/s11769-013-0603-z

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SI Yuefang, Ingo LIEFNER, WANG Tao. Foreign Direct Investment with Chinese Characteristics：A Middle Path Between Ownership-Location-Internalization Model and Linkage-Leverage-Learning Model[J]. Chinese Geographical Science, 2013, 23(5): 594-606. doi: 10.1007/s11769-013-0603-z

Foreign Direct Investment with Chinese Characteristics：A Middle Path Between Ownership-Location-Internalization Model and Linkage-Leverage-Learning Model

doi: 10.1007/s11769-013-0603-z

1.
Department of Economic Geography, Justus Liebig University Giessen, 35390 Giessen, Germany;
2.
School of Resource and Environment Science, East China Normal University, Shanghai 201204, China;
3.
School of Geography Science, Nanjing Normal University, Nanjing 210023, China

Funds: Foundation item: Under the auspices of National Natural Science Foundation of China (No. 40971069, 41101120), State Scholarship Fund by China Scholaship Council, Ministry of Education of the people's Republic of China (No. 2009614028)

More Information

Corresponding author: WANG Tao,E-mail: wangtaonjnu@yahoo.com.cn
Received Date: 2012-07-23
Rev Recd Date: 2012-10-24
Publish Date: 2013-09-10

Abstract

The majority of multinational enterprises (MNEs) traditionally originate from developed countries. In the last ten years, however, there has been dramatic growth in foreign direct investment (FDI) from China. It is a comparatively new phenomenon that challenges the classic FDI theories. In this paper, we review the pros and cons of two important theories, known as the Ownership-Location-Internalization (OLI) model and Linkage-Leverage-Learning (LLL) model, and use the statistical data and company case studies from China to test the plausibility of these two models. We believe that neither of them suits totally: 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. We 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. This combination can bring together the most advanced knowledge acquired in developed economies with the knowledge about adaptation needs and the needs for cost reduction in production as expressed in developing economies. It may also accelerate the knowledge transfer globally. We thus fill a gap in research into the geographical pattern of Chinese FDI and offer a deeper understanding of the internationalization of Chinese MNEs and revolving knowledge transfer.
- outward foreign direct investment (FDI),
- Ownership-Location-Internalization model,
- Linkage-Leverage-Learning model,
- China

References

[1]	Buckley P J, Clegg J, Tan H, 2004. Knowledge transfer to China: Policy lessons from foreign affiliates. Transnational Corporations, 13(1): 31-72.
[2]	Buckley P J, Ghauri P N, 1999. The Internationalization of the Firm. London: Cengage Learning EMEA.
[3]	CCPIT (China Council for the Promotion of International Trade), 2010. Survey on Current Conditions and Intention of Outbound Investment by Chinese Enterprises 2010. Available at: http://www.ccpit.org/yewu/docs/Survey_on_Current_Conditions_and_Intention_of_Outbound_Investment_by_Chinese_Enterprises.2010.en.pdf. Cited12 April 2011
[4]	Child J, Rodrigues B S, 2005. The internationalization of Chinese firms: A case for theoretical extension? Management and Organization Review, 1(3): 381-410. doi: 10.1111/j.1740-8784. 2005.0020a.x
[5]	Deng P, 2009. Why do Chinese firms tend to acquire strategic assets in international expansion? Journal of World Business, 44(1): 74-84. doi: 10.1016/j.jwb.2008.03.014
[6]	Dunning J H, 1993. Multinational Enterprises and the Global Economy. Wokingham: Addison-Wesley.
[7]	Dunning J H, Kim C, Park D, 2008. Old wine in new bottles: A comparison of emerging-market TNCs today and developed-country TNCs thirty years ago. In: Sauvant P K (ed.). The Rise of Transnational Corporations from Emerging Markets. Cheltenham: Edward Elgar Publisher, 158-179.
[8]	Dunning J H, Lundan M S, 2008. Multinational Enterprises and the Global Economy. Chetlenham: Addison-Wesley, 67-68.
[9]	Ernst D, 2006. Innovation Offshoring: Asia's Emerging Role in Global Innovation Networks. Honolulu: East-West Center.
[10]	Fan P, 2011. Innovation, globalization, and catch-up of latecomers: Cases of Chinese telecom firms. Environment and Planning A, 43(4): 830-849. doi: 10.1068/a43152
[11]	Ghauri P, 2005. Designing and conducting case studies in international business research. In Marschan-Piekkari R et al. (eds.). Handbook of Qualitative Research Methods for International Business. Cheltenham: Edward Elgar Publishing Ltd, 109-124.
[12]	Haggett P, 1965. Locational Analysis in Human Geography. London: Arnold.
[13]	Humphrey J, Schmitz H, 2002. How does insertion in global value chains affect upgrading in industrial clusters? Regional Studies, 36(9): 1017-1027. doi: 10.1080/0034340022000022198
[14]	Kang Y, Jiang F, 2012. FDI location choice of Chinese multinationals in East and Southeast Asia: Traditional economic factors and institutional perspective. Journal of World Business, 47(1): 45-53. doi: 10.1016/j.jwb.2010.10.019
[15]	Kaplinsky R, Morris M, 2009. Chinese FDI in Sub Saharan Africa: Engaging with large dragons. European Journal of Development Research, 21(4): 551-569. doi: 10.1057/ejdr.2009.24
[16]	Klossek A, Linke M B, Nippa M, 2012. Chinese enterprises in Germany: Establishment modes and strategies to mitigate the liability of foreignness. Journal of World Business, 47(1): 35-44. doi: 10.1016/j.jwb.2010.10.018
[17]	Kuemmerle W, 1999. The drivers of foreign direct investment into research and development: An empirical investigation. Journal of International Business Studies, 30(1): 1-24.
[18]	Li P P, 2007. Toward an integrated theory of multinational evolution: The evidence of Chinese multinational enterprises as latecomers. Journal of International Management, 13(3): 296-318. doi: 10.1016/j.intman.2007.05.004
[19]	Li P-Y, Meyer E K, 2009. Contextualizing experience effects in international business: A study of ownership strategies. Journal of World Business, 44(4): 370-382. doi: 10.1016/j.jwb. 2008.11.007
[20]	Liefner I, Broemer C, Zeng G, 2012. Knowledge absorption of optical technology companies in Shanghai, Pudong: Successes, barriers and structural impediments. Applied Geography, 32(1): 171-184. doi: 10.1016/j.apgeog.2011.01.012
[21]	Liu L, Tian Y, 2008. The internationalisation of Chinese enterprises: The analysis of the UK case. International Journal of Technology and Globalisation, 4(1): 87-102. doi: 10.1504/ IJTG.2008.016189
[22]	Mathews A J, 2002. Competitive advantages of the latecomer firm: A resource-based account of industrial catch-up strategies. Asia Pacific Journal of Management, 19(4): 467-488. doi: 10.1023/A:1020586223665
[23]	Mathews A J, 2006a. Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(1): 5-27. doi: 10.1007/s10490-006-6113-0
[24]	Mathews A J, 2006b. Catch-up strategies and the latecomer effect in Industrial Development. New Political Economy, 11(3): 313-335.doi: 10.1080/13563460600840142
[25]	MOFCOM (Ministry of Commerce of the People's Republic of China), NBS (National Bureau of Statistics of the People's Republic of China), and SAFE (State Administration of Foreign Exchange of the People's Republic of China), 2010. Statistical Bulletin of China's Outbound Direct Investment 2009. Available at: http://hzs.mofcom.gov.cn/accessory/201009/128 4339524515.pdf.
[26]	MOFCOM (Ministry of Commerce of the People's Republic of China), NBS (National Bureau of Statistics of the People's Republic of China), and SAFE (State Administration of Foreign Exchange of the People's Republic of China), 2011. Statistical Bulletin of China's Outbound Direct Investment 2010. Available at: http://hzs.mofcom.gov.cn/accessory/201009/1284 339524515.pdf.
[27]	Narula R, 2006. Globalization, new ecologies, new zoologies, and the purported death of the eclectic paradigm. Asia Pacific Journal of Management, 23(2): 143-151. doi: 10.1007/s10490-006-7162-0
[28]	Schueler-Zhou M, Schueler Y, 2009. The internationalization of Chinese companies: What do official statistics tell us about Chinese outward foreign direct investment? Chinese Management Studies, 3(1): 25-42. doi: 10.1108/17506140910946 124
[29]	Sutherland D, 2009. Do China's‘national team' business groups undertake strategic-asset-seeking OFDI? Chinese Management Studies, 3(1): 11-24. doi: 10.1108/17506140910946115
[30]	UNCTAD (United Nations Conference on Trade and Development), 2004. World Investment Report 2003. New York and Geneva: United Nations Press.
[31]	UNCTAD (United Nations Conference on Trade and Development), 2007. World Investment Report 2006. New York and Geneva: United Nations Press.
[32]	UNCTAD (United Nations Conference on Trade and Development), 2011. World Investment Report 2010. New York and Geneva: United Nations Press.
[33]	Wernerfelt B, 1984. A Resource-based view of the firm. Strategic Management Journal, 5(2): 171-180.
[34]	Yeung W-C H, 1999. The internationalization of ethnic Chinese business firms from Southeast Asia: Strategies, processes and competitive advantage. International Journal of Urban and Regional Research, 23(1): 88-102. doi: 10.1111/1468-2427. 00181

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通讯作者: 陈斌, bchen63@163.com

1.
沈阳化工大学材料科学与工程学院沈阳 110142

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Foreign Direct Investment with Chinese Characteristics：A Middle Path Between Ownership-Location-Internalization Model and Linkage-Leverage-Learning Model

1. Department of Economic Geography, Justus Liebig University Giessen, 35390 Giessen, Germany;

2. School of Resource and Environment Science, East China Normal University, Shanghai 201204, China;

3. School of Geography Science, Nanjing Normal University, Nanjing 210023, China

Corresponding author: WANG Tao,E-mail: wangtaonjnu@yahoo.com.cn

Received Date: 2012-07-23

Rev Recd Date: 2012-10-24

Publish Date: 2013-09-10

Key words:

outward foreign direct investment (FDI) /
Ownership-Location-Internalization model /
Linkage-Leverage-Learning model /
China

Abstract: The majority of multinational enterprises (MNEs) traditionally originate from developed countries. In the last ten years, however, there has been dramatic growth in foreign direct investment (FDI) from China. It is a comparatively new phenomenon that challenges the classic FDI theories. In this paper, we review the pros and cons of two important theories, known as the Ownership-Location-Internalization (OLI) model and Linkage-Leverage-Learning (LLL) model, and use the statistical data and company case studies from China to test the plausibility of these two models. We believe that neither of them suits totally: 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. We 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. This combination can bring together the most advanced knowledge acquired in developed economies with the knowledge about adaptation needs and the needs for cost reduction in production as expressed in developing economies. It may also accelerate the knowledge transfer globally. We thus fill a gap in research into the geographical pattern of Chinese FDI and offer a deeper understanding of the internationalization of Chinese MNEs and revolving knowledge transfer.

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Reference (34)

[1]	Buckley P J, Clegg J, Tan H, 2004. Knowledge transfer to China: Policy lessons from foreign affiliates. Transnational Corporations, 13(1): 31-72.
[2]	Buckley P J, Ghauri P N, 1999. The Internationalization of the Firm. London: Cengage Learning EMEA.
[3]	CCPIT (China Council for the Promotion of International Trade), 2010. Survey on Current Conditions and Intention of Outbound Investment by Chinese Enterprises 2010. Available at: http://www.ccpit.org/yewu/docs/Survey_on_Current_Conditions_and_Intention_of_Outbound_Investment_by_Chinese_Enterprises.2010.en.pdf. Cited12 April 2011
[4]	Child J, Rodrigues B S, 2005. The internationalization of Chinese firms: A case for theoretical extension? Management and Organization Review, 1(3): 381-410. doi: 10.1111/j.1740-8784. 2005.0020a.x
[5]	Deng P, 2009. Why do Chinese firms tend to acquire strategic assets in international expansion? Journal of World Business, 44(1): 74-84. doi: 10.1016/j.jwb.2008.03.014
[6]	Dunning J H, 1993. Multinational Enterprises and the Global Economy. Wokingham: Addison-Wesley.
[7]	Dunning J H, Kim C, Park D, 2008. Old wine in new bottles: A comparison of emerging-market TNCs today and developed-country TNCs thirty years ago. In: Sauvant P K (ed.). The Rise of Transnational Corporations from Emerging Markets. Cheltenham: Edward Elgar Publisher, 158-179.
[8]	Dunning J H, Lundan M S, 2008. Multinational Enterprises and the Global Economy. Chetlenham: Addison-Wesley, 67-68.
[9]	Ernst D, 2006. Innovation Offshoring: Asia's Emerging Role in Global Innovation Networks. Honolulu: East-West Center.
[10]	Fan P, 2011. Innovation, globalization, and catch-up of latecomers: Cases of Chinese telecom firms. Environment and Planning A, 43(4): 830-849. doi: 10.1068/a43152
[11]	Ghauri P, 2005. Designing and conducting case studies in international business research. In Marschan-Piekkari R et al. (eds.). Handbook of Qualitative Research Methods for International Business. Cheltenham: Edward Elgar Publishing Ltd, 109-124.
[12]	Haggett P, 1965. Locational Analysis in Human Geography. London: Arnold.
[13]	Humphrey J, Schmitz H, 2002. How does insertion in global value chains affect upgrading in industrial clusters? Regional Studies, 36(9): 1017-1027. doi: 10.1080/0034340022000022198
[14]	Kang Y, Jiang F, 2012. FDI location choice of Chinese multinationals in East and Southeast Asia: Traditional economic factors and institutional perspective. Journal of World Business, 47(1): 45-53. doi: 10.1016/j.jwb.2010.10.019
[15]	Kaplinsky R, Morris M, 2009. Chinese FDI in Sub Saharan Africa: Engaging with large dragons. European Journal of Development Research, 21(4): 551-569. doi: 10.1057/ejdr.2009.24
[16]	Klossek A, Linke M B, Nippa M, 2012. Chinese enterprises in Germany: Establishment modes and strategies to mitigate the liability of foreignness. Journal of World Business, 47(1): 35-44. doi: 10.1016/j.jwb.2010.10.018
[17]	Kuemmerle W, 1999. The drivers of foreign direct investment into research and development: An empirical investigation. Journal of International Business Studies, 30(1): 1-24.
[18]	Li P P, 2007. Toward an integrated theory of multinational evolution: The evidence of Chinese multinational enterprises as latecomers. Journal of International Management, 13(3): 296-318. doi: 10.1016/j.intman.2007.05.004
[19]	Li P-Y, Meyer E K, 2009. Contextualizing experience effects in international business: A study of ownership strategies. Journal of World Business, 44(4): 370-382. doi: 10.1016/j.jwb. 2008.11.007
[20]	Liefner I, Broemer C, Zeng G, 2012. Knowledge absorption of optical technology companies in Shanghai, Pudong: Successes, barriers and structural impediments. Applied Geography, 32(1): 171-184. doi: 10.1016/j.apgeog.2011.01.012
[21]	Liu L, Tian Y, 2008. The internationalisation of Chinese enterprises: The analysis of the UK case. International Journal of Technology and Globalisation, 4(1): 87-102. doi: 10.1504/ IJTG.2008.016189
[22]	Mathews A J, 2002. Competitive advantages of the latecomer firm: A resource-based account of industrial catch-up strategies. Asia Pacific Journal of Management, 19(4): 467-488. doi: 10.1023/A:1020586223665
[23]	Mathews A J, 2006a. Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(1): 5-27. doi: 10.1007/s10490-006-6113-0
[24]	Mathews A J, 2006b. Catch-up strategies and the latecomer effect in Industrial Development. New Political Economy, 11(3): 313-335.doi: 10.1080/13563460600840142
[25]	MOFCOM (Ministry of Commerce of the People's Republic of China), NBS (National Bureau of Statistics of the People's Republic of China), and SAFE (State Administration of Foreign Exchange of the People's Republic of China), 2010. Statistical Bulletin of China's Outbound Direct Investment 2009. Available at: http://hzs.mofcom.gov.cn/accessory/201009/128 4339524515.pdf.
[26]	MOFCOM (Ministry of Commerce of the People's Republic of China), NBS (National Bureau of Statistics of the People's Republic of China), and SAFE (State Administration of Foreign Exchange of the People's Republic of China), 2011. Statistical Bulletin of China's Outbound Direct Investment 2010. Available at: http://hzs.mofcom.gov.cn/accessory/201009/1284 339524515.pdf.
[27]	Narula R, 2006. Globalization, new ecologies, new zoologies, and the purported death of the eclectic paradigm. Asia Pacific Journal of Management, 23(2): 143-151. doi: 10.1007/s10490-006-7162-0
[28]	Schueler-Zhou M, Schueler Y, 2009. The internationalization of Chinese companies: What do official statistics tell us about Chinese outward foreign direct investment? Chinese Management Studies, 3(1): 25-42. doi: 10.1108/17506140910946 124
[29]	Sutherland D, 2009. Do China's‘national team' business groups undertake strategic-asset-seeking OFDI? Chinese Management Studies, 3(1): 11-24. doi: 10.1108/17506140910946115
[30]	UNCTAD (United Nations Conference on Trade and Development), 2004. World Investment Report 2003. New York and Geneva: United Nations Press.
[31]	UNCTAD (United Nations Conference on Trade and Development), 2007. World Investment Report 2006. New York and Geneva: United Nations Press.
[32]	UNCTAD (United Nations Conference on Trade and Development), 2011. World Investment Report 2010. New York and Geneva: United Nations Press.
[33]	Wernerfelt B, 1984. A Resource-based view of the firm. Strategic Management Journal, 5(2): 171-180.
[34]	Yeung W-C H, 1999. The internationalization of ethnic Chinese business firms from Southeast Asia: Strategies, processes and competitive advantage. International Journal of Urban and Regional Research, 23(1): 88-102. doi: 10.1111/1468-2427. 00181

Foreign Direct Investment with Chinese Characteristics：A Middle Path Between Ownership-Location-Internalization Model and Linkage-Leverage-Learning Model

doi: 10.1007/s11769-013-0603-z

Abstract

References

Proportional views

通讯作者: 陈斌, bchen63@163.com

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