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ABSTRACT

By reviewing the existing literature on FDI theories and FDI performance determinants studies, we find the necessity and possibility to provide for a synthetic model to measure FDI performance. This model is not a simple combination of existing theories, but is a reorganization of those theories arranged into a logical theoretical framework. A logical connection between the MNE subsidiary’s ability to realize OLI advantages and the performance of the FDI was found and important extensions of the OLI paradigm have been created. The synthetic model is a split OLI paradigm that includes all FDI performance determinants in its 6 elements. An empirical study of 13 FDI cases in

China was done to test the concept of the synthetic model. This study reveals a high correlation between the hypothesized results and actual results.

Key Words: FDI performance, OLI paradigm, Imbalance theory, Synthetic model

Student Number: 2002-23916

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TABLE OF CONTENTS
1. 2. INTRODUCTION ..................................................................................................... 1 LITERATURE REVIEW ......................................................................................... 3 2.1 2.2 3. 3.1 3.2 3.3 3.4 3.5 3.6 4. 4.1 4.2 4.3 5. 6. General FDI theories ....................................................................................... 3 FDI performance determinants researches...................................................... 4 OLI Paradigm as the Framework .................................................................. 16 Necessary extension to the OLI...................................................................... 17 Split the O dimension ..................................................................................... 19 Split the L Dimension..................................................................................... 20 Split the I Dimension...................................................................................... 21 Overview of the Synthetic Model.................................................................... 23 China is the Best Testing Ground for New FDI Theories............................... 25 Sample Case Review ...................................................................................... 26 Case Analysis by the Synthetic Model............................................................ 28

THE SYNTHETIC MODEL .................................................................................. 16

EMPIRICAL EVIDENCE...................................................................................... 25

CONCLUSION........................................................................................................ 31 REFERENCE .......................................................................................................... 33

Appendix: sample cases brief introduction................................................................... 36

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FIGURES Figure 1 Splitting the O dimension ........................................................................... 20 Figure 2 Splitting the L dimension............................................................................ 21 Figure 3 Splitting the I dimension............................................................................. 23

TABLES Table 1 Linkage between OLI paradigm and the exist performance determinants theories .............................................................................................................. 17 Table 2 Sample cases review..................................................................................... 27 Table 3 Result of the empirical study........................................................................ 30

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1. INTRODUCTION The FDI performance or the Multinational Enterprises’ oversea subsidiary performance is one of those most often discussed topics, but the discussion on environmental determinism versus strategic choice remains contested in the international business management research field. From an academic viewpoint, there is space for developing a new comprehensive model to include the existing theories and to find a theoretical interrelation between them. Theories proposed should be tested in practice. From the recent development of China, we can see that the MNEs’ international business environment has been changing continuously. New changes are observed in several manifestations. MNEs are increasing their investment and expanding subsidiary size. They are also trying to diversify their investment, not only concentrating on the assembly business but also opening new businesses other fields with high value added. They are also injecting more capital and technology contents to build R&D centers in China as local competitors are becoming adapting and improvising. Foreign firms are given more choices on entry mode selection. MNEs may now enter China via international trade or by Joint Venture. The most recent trend is of Merger and Acquisition. All these changes reflect that as China opens its market and shapes it toward a global standard, foreign firms providing FDI to China are given more strategic alternatives to maximize their performance. FDI activities have become more complex for MNEs and any strategies’ final effect on the FDI performance becomes more difficult to forecast. MNE strategy makers need a powerful tool which can provide comprehensive understanding of FDI performance determinants, and by which MNEs can model their FDI-related strategic choices. Therefore, from both the academic and business fields, we see the necessity and value of creating a comprehensive and logical synthetic model for measuring the FDI performance determinant. This model should be able to measure the most important issues related to FDI performance, such as entry mode choice, technical input, cultural distance, partner relation, local government relation, subsidiary size, transactional cost,
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and liability of foreignness. Simply combining all these issues together will not provide a useful academic instrument, as the overlapping and logical connection may be problematic. The new model should not only be comprehensive but also systematic. The importance of providing a framework for the theories cannot be understated. This framework should be able to categorize the existing theories and recognize the interrelation among them. This new model should be based on existing theories, especially those which are better known and accepted. A necessary work is to summarize and arrange these theories into a framework. The framework should be able to analyze most of the important factors and processes of FDI activities. In another word, it should be able to give answers to the questions on who, when, where, and how to do FDI and etc. The new model is examined both theoretically and by realities. To examine the validity of the model theoretically, the core task is to examine the validity of the framework that is used to envelop the existing theories. To examine the model by empirical evidence, we try to use it to explain the FDI performance determinants in some real cases. As the initial idea of this study is to give a powerful business model to those MNEs who is doing and will do FDI in China, the empirical evidences are mainly selected from MNEs’ China FDI activities.

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2. LITERATURE REVIEW

2.1 General FDI theories The international business theories have been developed for decades. Although there is no and cannot be a perfect theory to cover all the aspects of international business activities, the existing theories disclosed the main motivations of FDI and have important implication on MNEs’ oversea operation. Dunning’s OLI paradigm (Dunning, 2000) and Moon’s imbalance theory (Moon 1999, Moon and Roehl 2001) are especially important for this study. These two theories are complementary to each other on explaining the motivations of FDI activities. Dunning provided an eclectic OLI paradigm as envelop of FDI theories and this theory has been regard as the most authorized FDI theory until now. It envelops the FDI theories developed from Hymer’s market imperfection theory (Hymer 1976), Rugman’s internalization theory (Rugman 1980) and many others. The resource based approach (Wernerfelt, 1995) can also be explained by OLI paradigm. Based on the new emergence of upstream FDI from LCD and strategic investment, Moon and Roehl pointed out the existing approach is unsatisfactory in providing adequate explanation for the rich variety of FDI activity. They defined the new types of FDI as unconventional FDI. The unconventional FDI, including LDC firms as well as DC firms that make strategic investment, are trying to redress an imbalance in their competitive or resource position through their investment. It is a lack of advantage, rather than the exploitation of the existing advantage, which drives the investment. Therefore the fundamental motivation for growth is not managerial resources per se, but an imbalance in those resource, and it is true not only for unconventional FDI but for conventional FDI as well. (Moon and Roehl, 2001) The core idea of imbalance theory is to look at both the advantages and disadvantages, or their imbalance, but not just the ownership advantage. The FDI motivation of imbalance theory is not just to search for complementary assets (Teece,
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1992), but also to enhance the productivity of firm-specific assets, which will strengthen the existing advantages and/or create a new advantage with the increased productivity. Thus the FDI is not only an ownership advantage exploitation process but also can be a learning mechanism, a catch-up mechanism, a regulation-bypassing mechanism, and a resource-building mechanism. (Moon, 1999) To formulize their idea, the motivation of FDI can be expressed as the following function: FDI = f (imbalance) = f (|T-T*|, |R-R*|, |M-M*|,...) Where T (R, M) = Actual technology (resources, market share) T* (R*, M*) = Optimal technology (resources, market share) This formula hypothesizes that the imbalance among the firms assets endowment, either advantage or disadvantage, is the source of FDI motivations; the bigger the imbalance among the disadvantage or advantage, the more the firm is willing to make FDI. Another hypothesis, which is excluded from the above formula, is that the basic assets endowment is still important do decide the capability for the firm to make FDI. (Moon and Roehl, 2001) The imbalance theory can be seen as an extension to Dunning’s OLI paradigm. Altogether these two theories can explain the main motivations for firms to participate in international production by FDI, both down stream and up stream. Since the FDI performance determinants are initially decided by the firm’s motivation to do FDI, these two theories have important meaning in this paper. These two theories’ explaining power is the most sufficient to cover main aspects and main types of FDI activities, therefore they can direct the way to generate the framework to envelop the FDI performance determinants theories.

2.2 FDI performance determinants researches There have been plenty of researches done by business scholars all over the world
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referring to the determinants of FDI performance. Their approaches diverse in many ways but their aim are the same – to figure out the most important factor(s) that have decisive impact on the MNEs’ local subsidiary performance. Such researches are being renewed or updated continuously, as the environment and MNEs’ activities change over time. The most frequently discussed factor is the entry mode choice. Firms either choose highly controlled entry mode, such as wholly owned subsidiary, or share the controlling right with local partner, such as cooperative joint venture. They can achieve such kind of entries either by Greenfield investment or by Merger and Acquisition. Another prevalent topic is the liability of foreignness or cost of foreignness. Early from 1960s, Hymer pointed out that MNEs could not avoid certain disadvantages against local competitors when they make FDI. Such disadvantages may come from the shortage of local business experience, culture conflict with local people, or weak relationship with local authorities, etc. Every element of the liability of foreignness has been studied respectively, consequently many new topics emerged, such as relationship with local government, relationship with local partner, cultural distance concern, etc. Also there are researches based on the recipient country or region’s condition, including the country condition and industry condition. The assets endowment of the investing firm, including the technology abundance, capital adequacy, are regarded as anther factor that directly effects the firms’ local subsidiary performance. The transactional cost concern is another approach as well, which is derived from the conventional FDI theory. Such researches cover most the important aspect of FDI performance determinants, but their focuses are different and even focusing on the same factor, their approaches are different. The purpose of this paper is to generate a synthetic model to envelop these existing theories by using a theoretical framework rather than simply combining them. Dozens of theories mention or partly mention the FDI performance related factors, both from eternal factors and external or environmental factors. Not like OLI paradigm in the general FDI theory field, there is no leading theory or general framework in this field. We tried to summarize and categorize the theories to ensure that no important determinants are ignored. This process is very important and meaningful as a preparing
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stage of synthetic model generating. We finally collected the theories categorized into the following 9 groups: a. Firm technology endowment Ji Li, Kevin C.K. Lam, Leonard Karakowsky, & Gongming Qian (2003) examined the technology resources’ impact on the firm’s first-mover advantage and performance, in a background of foreign firm’s FDI into China’s telecommunication industry. In a technologically dynamic industry such as the telecommunication equipment, firms’ culture and technology resources can moderate the relationship between first-mover strategy and firm performance. Specifically, in China’s telecommunication equipment industry, first-mover advantages seem to be contingent upon firms’ culture and technology. For example, only the western firms with technological edge can achieve or maintain first-mover advantages in the industry. On the other hand, among the firms funded by overseas Chinese capital, little evidence is found of first-mover advantages. Here the overseas Chinese firms seem to have difficulties in continuous R&D or technological innovation. Without technological innovation and development, these firms may have little technological edge so that they failed to maintain their first-mover advantages in China’s telecommunication equipments industry. As a result, there was no significant difference in performance between the first movers and followers among the firms funded by the overseas Chinese firms. Walter Kuemmerle (1999) also mentioned those foreign firms were motivated to invest into R&D sector, because of many reasons such as technology leadership, and better network with local government. Because the local policy maker prefer those MNEs with technology spillover effect than those without that. b. Firm assets endowment Firm assets abundance or firm size has been of interest to many researchers because it is an important variable for the purpose of explaining firm strategies. It should affect the way firms set up EJVs abroad. In the literature, firm size has been shown to affect a
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firm’s propensity to innovate, and its performance. Large firms tend to have a more centralized management system and more non-personal mechanisms of control. In many ways, smaller firms have weaker bargaining power than large transnational firms. Franko (1989) founded that smaller U.S. firms were more likely to accept a minority or 50-50 equity position in oversea EJVs than larger U.S. firms were (Yigang Pan & Xiaolian Li, 2000). Large firms have a greater tendency to integrate operations on a regional and global basis. They are able to capitalized on the differences in resources across courtiers, and achieve economies of scale, scope, and learning. According to a comprehensive study by the United Nation (1993), small and medium-sized transnational corporations often suffer from limited financial resources. They have a narrow market scope and are less likely to invest in emerging markets. They have inadequate management and technology capabilities, and lack the necessary international experience. In short, small and medium-sized firms are more likely to pursue short-term goals and short-term outcomes. The size of a firm correlates with the ability to raise the needed resources for large-scale projects, the ability to leverage across country markets and industries, and the ability to plan and act on a long-term basis. This abilities or inabilities either enhance or reduce the firms’ competitive posture and bargaining power. Yigang Pan & Xiaolian Li (2000) studied a sample of 1,298 foreign EJVs in the People’s Republic of China between 1981 and 1998, and found that large transnational corporations bring in large-scale EJV investment to the host country and they also demand a higher level of equity ownership and, with it, more control over the venture. While they are more likely to stay over a longer period of time and is more likely to go into global industries and upgrade the technology, production, and management in the host country. c. Country and industry condition Petra Christmann, Diana Day & George S. Yip (1999) mentioned that country and industry characteristics are mainly outside the control of management, whereas corporate
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characteristics and subsidiary strategy are under management’s control. Their research results show that country characteristics are by far the most important determinant of subsidiary performance, followed by industry structure, subsidiary strategy, and corporate characteristics. Their results support the environmental determinism view more than the strategic choice view and the resource-based view of the firm more than the industry structure view. These results have implications for MNCs regarding the selection of country markets for entry and investment, and in the evaluation of subsidiary managers. The large effect of external conditions on subsidiary performance suggests that an MNC’s ability of picking the right countries for entry and investment should lead to significant competitive advantage. This implies that strategic choice at the corporate level is very important for corporate performance. The large importance of country factors in determining subsidiary performance also suggests a critical skill for MNC corporate management is managing country risk to reduce the negative effects of fluctuations in country political and economic variables on subsidiary performance. The fact that political and economic instability were found to have negative effects on subsidiary performance suggests that MNCs should purchase insurance against political risk and use financial instruments to hedge against exchange rate exposure. d. Relationship with local partner Mehmet Demirbag & Hafiz Mirza (2000) discussed inter-partner relationships and their impact on joint venture performance. Their research explores the changes in the nature of relationships (conflict, commitment, co-operation, trust) which have important implications for the continuity and performance of partnerships. In doing so, it identifies the potential areas of co-operation and conflict, due to both partners’ overlapping interests, and establishes constructs which help explain conflict, commitment and other soft dimensions of joint venture operations. The research findings presented in this paper confirm the view that there is a strong
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connection between the nature of relationships (conflict, commitment, cooperation, trust) and performance (defined both in terms of financial dimensions and “satisfaction”). There are general and specific implications for firms, especially MNEs. At the general level, foreign MNEs entering joint ventures with local partners should be aware that IJVs are, by their very nature, cross-cultural marriages, relying on trust building, long-term commitment and inter-partner co-operation. Understanding this, rather than depending on written contracts and control activities can increase an IJV’s long-term prospect and survival—and therefore both parent firms’ satisfaction with operations. Parent firms should also realize that, an adept handling of conflict situations can increase the quality of inter-partner relations which in turn is likely to affect the performance dimensions of IJV operations. This implies that as the respective managements of partner firms gradually gain a working knowledge of—and trust in—each other, the mechanisms created to protect the existing partnership structure may change. It is best if these dynamic changes lead parent firms into a more organic relationship and a greater understanding of each other’s characteristics, objectives and culture. Given that the quality of inter-partner relations and harmony can influence IJV performance, parent organizations should endeavor to create mechanisms which can resolve conflicts as they emerge. A regular meeting of executives would perforce underlie any effective solution. e. Relationship with local government Rajib N. Sanyal & Turgut Guvenli (2000) studied a survey of managers of American firms in China indicating that they have been able to maintain good relationships with the Chinese government; this is particularly true for larger firms. Statistical results suggest that government interference in the operations of the subsidiary is generally minimal though it is greater in the case of joint ventures as compared to wholly owned firms. The performance of the subsidiary is influenced by the quality of the relationship with the host government. The role of governments, home or host, in international business has been
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extensively studied. While overall trends suggest that more and more governments have embraced the concepts of free trade, unhindered flow of investments, and protection of the rights of foreign firms, the propensity of governments to impede the activities of foreign firms remain. This is particularly true for countries that have embarked on transiting from a socialist economy to one based on free market tenets. Consequently, maintaining good relations with the host government is of great importance to a foreign firm. The foreign firm is anxious to avoid the deleterious effects of changes in government policy; to seek the assistance of the government to address any difficulties it experiences in the host country; and to build up a web of contacts and influences that would immunize it from hostility from host country firms and other interested groups. The host government’s role in the economic environment as perceived by the foreign firm can be both positive and negative. Establishing transparent rules of ownership and contracts, creating an independent judiciary to settle disputes and provide for due process, enacting favorable tax laws, ensuring public policies that are consistent over time, treating foreign firms on the same basis as domestic firms, and removing restrictions on the transfer of resources across borders are some of the positive steps that the government can take to encourage foreign investment. In contrast, the role and behavior of the government can also be such that makes the carrying out of business activities much more difficult. Policies that discriminate against foreign firms or which reserve profitable segments of the economy to domestic firms; policies that change suddenly and arbitrarily; the absence of clear cut rules and guidelines and the subjective interpretation of such rules, precisely because they are ambiguous; the uncertain procedures to settle commercial disputes; and unexpected demands on the foreign firm all create a negative atmosphere for conducting business. Foreign firms have to ensure that the operational climate in the host country remains conducive to profitable business activity and this requires an active management of the relationship with the host government. The goal is to limit the negative influences and accentuate the positive role that the state can play to enhance the firm’s activities. Rajib N. Sanyal & Turgut Guvenli (2000) studied the relationship between US firms
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and the Chinese government at a time of rapid change in China. Maintaining favorable relationships with host governments anywhere is a key task for the managers of multinational firms. The findings of their research suggest that despite the major role of the Communist Party in China and the large size of the public sector, foreign firms, especially those that are large and located in the business-friendly coastal regions, have not encountered major difficulties in their dealings with the government. Most managers acknowledge and recognize the need to cultivate good relations with the bureaucracy and to the extent they are able to do so, the results are reflected in organizational success. f. Cultural distance concern Ji Li, Kevin Lam & Gongming Qian (2001) applied a resource-based view of the firm to analyze data from a sample of 898 joint-venture firms in China, including both joint ventures established by overseas Chinese and by firms from Western cultures. By comparing this two groups of joint venture, they showed that firm’s cultural resource have certain impact on the FDI performance. Their study shows evidence supporting some effects of firm cultural resources. Specifically, the data suggest that Oriental culture is valuable for East Asian firms in terms of efficiency and rapid market entry. Also, JVs established by partners from East-Asian cultures might find it easier than their East-West counterparts to manage human resources in China. This may partially explain why many East-East JVs showed significantly lower capital commitment, which suggests that they had more labor intensive operations than the East-West JVs. Tomasz Lenartowicz & Kendall Roth (2001) found that not only the national culture, but also the sub-culture within a country matters to the performance of FDI. Foreign firms have to consider both the national culture and sub-cultures within the country when they make the FDI. g. Transactional cost concern Transactional cost concern does not affect firm performance directly but uses entry mode as a transition function. That is to say entry modes that designed by transactional
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cost concern promise greater chance for better performance. Keith D Brouthers (2002) pointed out those firms whose mode choice could be predicted by the extended transaction cost model performed significantly better, on both financial and non-financial measures; than did firms whose mode choice could not be predicted by the extended transaction cost model. Based on their analysis, it appears that an extended transaction cost model of mode selection does a good job of predicting entry mode choice. Although not all the transaction cost and cultural context variables were significant predictors of international mode choice, the results suggest that mode selection appears to be driven by a combination of general transaction cost characteristics, institutional context (legal restrictions), and cultural context (investment risk) variables. This study provides additional support for those scholars (Brouthers and Brouthers, 2000; Delios and Beamish, 1999; North, 1990; Kogut and Singh, 1988) who suggested that the explanatory power of transaction cost models of mode choice could be improved by including aspects of both the institutional and cultural context. h. Entry mode choice Entry mode choice is highly related with the topics above and affects the FDI performance more directly and heavily than other factors. Therefore the studies around entry mode choice charge the biggest proportion and most of which are done in the transactional cost framework. Haiyang Chen & Michael Y. Hu (2001) studied the FDI cases in China and their statistic analysis suggests that the wholly owned subsidiaries are more likely to be chosen than contractual and equity joint ventures when the investments involve marketing skills and long planned duration. Also the wholly owned subsidiaries are more likely to be chosen than equity joint ventures when multinationals expanding into markets with high regional growth, high industrial growth, or investing in smaller foreign operations. The result indicates that wholly owned subsidiaries are more likely to be chosen than contractual joint ventures when the investments involve proprietary products or cultural
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distance is large between home and host countries. The findings on the impact of the choice on performance suggest that multinationals select entry modes according to the prescription of the theory are more likely to be successful than those who choose otherwise. Multinationals’ foreign operations with correctly selected entry modes outperform those with incorrectly selected modes. While they also mentioned that their study is not intended to provide a comprehensive model of performance of foreign operations. The performance issue is subject to many factors including entry mode choice. Thus, with only one of the many potential factors, the results shown in their study relating entry mode and performance is quite remarkable. It is evident that the transaction costs associated with entry modes tend to have a lasting effect on the performance of a foreign investment enterprise. Yan Zhang & Haiyang Li (2001) studied the control design and performance in international joint ventures based upon the data from eight IJVs operating in China. Their study contributes to the IJV literature by examining the dynamic nature of the IJV control design and its performance implications. They found that IJV control design tends to evolve over time from shared management types, through dominant parent types, towards independent types, with increasing levels of autonomy. The increased level of autonomy is associated with better performance. This study has significant practical implications. First, from the MNCs’ point of view, IJVs are seen as a rapidly growing means for market entry. Their findings urge MNCs to consider local managers’ thirst for independence and their career concerns, especially in developing countries. Because these local managers are not likely to have their careers inside the MNC’s hierarchy, they seek independence from the MNCs and develop their own empires in the local market. Once they gain independence, it is difficult to take it away. From the IJV manager’s point of view, this study gives some advice on how to manage the relationship between the IJV and the partner firms and how to gain independence in this relationship. They suggest that control and its associated support from partner firms are essential for IJV success at the early stages and the key to gaining independence is to develop the IJV’s own capability.
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i. Liability of foreignness Since Stephen Hymer introduced the concept of disadvantages of foreignness in 1960, this concept has received scholarly attention from various fields. Indeed, most FDI theories assume that foreign subsidiaries are at a disadvantage relative to domestic firms with respect to some aspects of doing business in host countries. Although Hymer’s definition of the liability of foreignness (LOF) seems rudimentary, the concept has helped us to better understand behaviors, decisions, and policies of MNEs during international expansion. To succeed in foreign markets, MNEs need to overcome these disadvantages or liabilities of foreignness through committing and deploying dynamic capabilities that can generate ownership-specific advantages superior to those of local firms. At the beginning of the 21st century, MNEs, whether large or small, are operating in a global environment that differs in many aspects from the international setting of past decades. Many emerging markets provide MNEs with new business opportunities but enormous LOF as well. These liabilities are heightened not only by the complexity and uncertainty of regulatory and legal environments, but also by the specificity and criticality of social and cultural environments. The coexistence of more promising opportunities and more complex LOF in this new international context has many MNEs adjusting their market entry, local operations, and integration strategies. Past research has focused on investigating sources and types of advantages that MNEs must possess to overcome whatever disadvantages they face. While FDI success does depend on such advantages, disadvantages also affect performance. Investigating these disadvantages may uncover ways to minimize LOF and improve FDI outcomes. Deepak Sethi and Stephen Guisinger (2002) surveyed existing literatures on LOF and they concluded that the LOF construct should include disadvantages caused by the MNE’s interaction with (1) the aggregation of all the elements constituting the IBE (International Business Experiences), including those of the meta-environment through it, (2) the increased complexity of the interactions due to both the larger number of elements in the IBE and the vast geographical spread in the multi country, global integration context, (3) the complexity due to the dynamically changing and kaleidoscopic nature of
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the IBE, (4) the relatively greater difficulty in evolving an optimal strategy that has a good ‘‘fit’’ with the IBE compared with domestic firms, (5) the complexity involved in adapting all internal processes to the dictates of the IBE for more effective implementation of that strategy and (6) the greater need for agility and flexibility of internal processes to remain in sync with the rapidly changing IBE.

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3. THE SYNTHETIC MODEL

3.1 OLI Paradigm as the Framework We chose the OLI paradigm as the framework based on which the synthetic model is generated. This is not only because the OLI paradigm is the most widely recognized and agreed theory in FDI research field but also because there is possibility to build the logic connection between OLI paradigm and performance determinants theories. The OLI paradigm explains the motivations of MNEs to do FDI. The ownership, location, and internalization advantages are the sources of FDI motivation. The bigger the three advantages are, the stronger the motivation is; the smaller the three advantages are, the weaker the motivation is. This relation can be expressed by the following formula: FDI motivation = ƒ1 (O, L, I) ……………………………………………………. (1) This means MNEs expect benefit from the three advantages; naturally, the bigger the expectation for benefit, the bigger the motivation for FDI activity, in another word, the bigger the expectation for good performance of foreign subsidiary, the stronger the motivation for FDI activity. From there we can define that an oversea subsidiary performance means how much it can realized the initial motivation of the MNE to do FDI, the more it can realize, the better its performance is, the less it can realize, the worse it performance is. To express this idea in the following formula: FDI performance = ƒ2 (ability to realize the FDI motivation)…………………… (2) To combine (1) into (2), we can see the result: FDI performance = ƒ2 (ability to realize the ƒ1 (O, L, I)) Then FDI performance = ƒ3 (ability to realize O, L, I)……………………………….... (3) Formula (3) discloses the idea that MNEs oversea subsidiary’s ability to realize its ownership, location and internalization advantages respectively determine the performance of it. Therefore the synthetic model should absorb the existing performance theories and categorize them by their contribution to the realization of the three
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advantages. The following table (table 1) shows the linkage between the OLI paradigm and the existing performance determinants theories:

Table 1 Linkage between OLI paradigm and the exist performance determinants theories OLI Existing Performance determinants theories paradigm O advantage L advantage I advantage Firm technology endowment Firm assets abundance Country and industry condition Relationship with local partner Relationship with local gov’t Cultural distance concern Transaction al cost concern Entry mode choice Liability of foreignness

The firm technology endowment and firm assets abundance are by all means two aspects of the MNE’s ownership advantage. The country and industry condition directly represents the location advantage as well. Relationship with local partner, local government, and cultural distance control are the means by which FDI firms reduce the transactional cost, and transactional cost concern should be the starting point for the MNEs to choose the right entry mode. Their aims are the same – to exploit the internalization advantage of FDI activity. Lastly the theory of LOF mainly refers to the risk of policy change or regulatory change of local business environment, which is one side of location advantage (or disadvantage); and the MNE subsidiary’s reaction to these changes; which can be enclosed into the internalization advantage.

3.2 Necessary extension to the OLI Paradigm Is the OLI paradigm enough to envelop all the performance determinants theories? The answer should be no. OLI paradigm itself has some weakness that should be reinforced, as it cannot explain the recently prevalent unconventional FDI. The imbalance theory
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could be an important extension to the OLI paradigm, especially to the ownership advantage. As mentioned before, the imbalance theory points out both the ownership advantage and the disadvantage can be the motivation for FDI activity. The bigger the imbalance is, the stronger the motivation to do FDI. The theory also agrees that to be able to do FDI, firms should have some basic resources; the imbalance does not mean only the ownership advantages, or only the disadvantages. Thus the OLI paradigm should be extended in the ownership advantage side, to concern both the general ownership advantages such as technology endowment and assets abundance, and the structural imbalance among all the firm’s assets. Liability of foreignness theory points out that, for MNEs, the local condition is not always an advantage. The uncertainty of local policy and regulatory change bring great risk to the MNEs’ local operation. Therefore location problem is not only a problem of market size or factor supply base, but also a problem of policy stability and market system sophistication. Thus the OLI paradigm should be extended in the location advantage side, to concern both the size and the sophistication of the location. The entry mode choice theories show that firms choose different entry modes to satisfy their different business strategies. If the general market failure is the only concern of transactional cost and entry mode choice, then all the firms should prefer wholly owned subsidiary rather than other mode of entry such as joint venture. But many of the cases show that making equity JV with local firms sometimes help the foreign firms to get better access to the local market, and to shorten the culture distance, as well as to make good relationship with local government. Therefore the OLI paradigm should be extended in the internalization advantage side, to concern both the general market failure and local partnership accessibility. The synthetic model is then an extension from the original OLI paradigm to give response to the imbalance theory, liability of foreignness, and entry mode choice theory. Each of these three theories requires an extension in corresponding dimension of the OLI paradigm, so that the synthetic model is actually a split OLI paradigm. The splitting of
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each dimension of OLI paradigm is discussed in detail from the next.

3.3 Split the O dimension Considering the extension from the imbalance theory, the ownership advantage of the OLI paradigm should be split into at least two basic dimensions. The traditional understanding of the ownership advantage remains its important roll in this part, as the firm has more capital or technology contents or any other kind of advantages, the more powerful it is and the better performance it can achieve in its international business activities. This is explained by both firm technology endowment and firm assets endowment theories. The imbalance theory shows another important factor in this sector, that is the structural imbalance of the firm’s assets endowment. Firms have more imbalanced assets structure are more motivated than the firms have less, because the FDI can be used as a catch up or factor seeking mechanism to balance the firms’ assets structure. A successful FDI performance requires the assets power of some basic strategic foundation, so that firms can exploit the ownership advantage, and it requires imbalanced assets structure, so that firms are highly motivated to go abroad and their oversea business are more concentrated in seeking some certain factors rather than operating without a clear focus.

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The following figure (figure 1) reflects that the ownership advantage should be spitted into two directions – ownership advantage at the common sense and the assets imbalance of the ownership:

Figure 1 Splitting the O dimension
High

Strong capability

Capable and motivated

Low Low Assets imbalance High

3.4 Split the L Dimension From the LOF (liability of foreignness) concerns, the policy change risk and business and market style and development level all have direct or indirect impact on the FDI performance. Foreign firms must not ignore that besides the size of the local market, the sophistication of it also has the same importance to a better local business performance. Especially in a transactional economy, government policy on foreign investment has more decisive meaning than any other factors. A transparent political system and stable market development are essential to foreign investors. This fact is especially obvious in China, the most attractive FDI target place with many uncertainties. Chinese government’s behavior changed the image of Chinese market to the foreign investors for many times. The restrictions on foreign investment has been released step by step and market oriented economics policies has taken the place of old central planned economy system. By
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General O advantage

Strong motivation

now China has upgraded itself to a better place for foreign investors by building up the sophistication of the market. The original OLI paradigm mainly concentrates on the size of the local market in its locational advantage dimension, while it is still important now, but at least the same level of attention needs to be paid on the sophistication of the location. In order to ensure a better FDI performance, foreign firm should target its investment location at the places where the market size is relatively big, and the political and economic system is relatively transparent and stable. The following figure (figure 2) reflects that the locational advantage should be spitted into two directions – size and sophistication of the location:

Figure 2 Splitting the L dimension
High
Sufficient supply & potential market

Favorable location

Low Low Sophistication of the location High

3.5 Split the I Dimension Firms enter the foreign market by different entry modes because the way they plan to exploit their internalization advantages are different. Original OLI paradigm concentrates on the market failure concern, saying that by expanding their international business network, MNEs can reduce the transactional cost by internalizing the global business operation. This is still true today. Many firms are using FDI as an alternative of
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Size of the location

Transparent and stable

international trade to enter a foreign market. By doing so, they manage to reduce the production outsourcing cost and the cost from tariffs or other trade barriers. If this is the only case, it is clear that MNEs should all prefer highly controlled mode rather than cooperation with local partner. But in the reality, MNEs may not be able to do so as they enter a new market without sufficient local business experience. In these cases, they may try to form a joint venture with local firms, providing capital or technology and gaining local business experiences. A theoretical explanation for this phenomenon is that the market failure exists not only in the process of international trade or international money transfer, but also in the process of FDI because every single market has its own characteristics that differentiate it from others, and MNEs may not be able to deal with all these differences. This is very like the compatibility of computer hardware and software. Usually MNEs are powerful and well experienced, but there management system may not be compatible with their FDI target place. Changing their software to be compatible with the local hardware is a complex and costly procedure without some outside supporters. These outside supporters are the local firms, which can help the MNEs to deal with most of the compatibility issues when build up a partnership with them. Therefore selecting local partnership has been an important factor of MNEs’ local operation. Locally partnership accessibility is then anther factor that determine the local performance of MNEs, in anther word, MNEs have to consider both the local business controlling right and the local partnership accessibility in order to save the most cost from the market failure.

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The following figure (figure 3) reflects that the ownership advantage should be spitted into two directions – ownership advantage at the common sense and the assets imbalance of the ownership:

Figure 3 Splitting the I dimension
High

Highly
General market failure Low Low

Best fit operation

controlled

Locally compatible
Local partnership accessibility High

3.6 Overview of the Synthetic Model The synthetic model integrates the existing performance determinants and categorizes them into the split OLI paradigm framework. The split O dimension explains the determinants at the FDI initiating stage; the firms have sufficient assets capability and strong motivation due to the highly imbalanced assets structure are more likely to achieve better FDI performance rather than those do not have both or either. The spit L dimension explains the determinants at the FDI targeting stage; firms target the potential market with high level of market sophistication are more likely to achieve better FDI performance rather than those target the location with either or none of the conditions. The split I dimension explains the determinants at FDI entry and operating stage; firms choose appropriate entry mode with both general market failure concern and local partnership accessibility concern are more likely to achieve better FDI performance rather than
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those choose the entry mode without concerning the both elements. The implementation of the synthetic model on MNEs may be different from those individual performance determinants theories. This model gives a clear and systematic view of the overall performance determinants through and guides MNEs to make optimal strategic choices on preparing, targeting, entering and operating stages. But for certain individual dimensions or elements, firms may also refer to the existing theories for more detail instruction and techniques. Thus the synthetic model should be regarded as an envelop of the existing theories, so that they are not substitutable or overlapped because they are not on the same level.

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4. EMPIRICAL EVIDENCE

4.1 China is the Best Testing Ground for New FDI Theories China has been a major accepter of inbound FDI from all over the world. China started absorbing FDI from 1979, the starting point of China’s economic reform and open door policy. From 1979 to 1982, the inbound FDI was at its examining stage and it mostly concentrated in the special economic zones. Every year just around 440 million USD flowed in as FDI. Then from 1983 to 1991, the inbound FDI came to its improving stage. Government published more and more inbound FDI favorable policies and regulated the market. At this stage, foreign firms tended to make joint venture with local firms, and the investment also concentrate in the special economic zones in GuangDong province because of the favorite policies. During this 9 year, averagely 2.6 billion USD flowed into China every year as FDI. In 1992, Mr. Deng XiaoPing, then the prime minister of China, announced the market economy plan, and this announcement reinforced the confidence of foreign investors towards China market. After that, FDI flowed in at a rapid growth speed. The inbound FDI growth rate shot up to 152% in 1992, and 150%, and the amount achieved 27.5 billion USD in 1993. After that the growth rate started to fall but the yearly amount kept higher than 40 billion USD. Due to the Asian financial crisis, China received almost zero FDI growth in 1998, and minus growth in the following year. From 2000 China’s inbound FDI started to rebound; the growth rate became 1%, 15%, and 12.6% until 2002. According to the ‘World Investment Report 2002’, released by the United Nations Conference on Trade and Development (UNCTAD), China has been ranking the sixth economy according to the amount of FDI inflow of that year. With the world investment recovers in 2004, high growth of inbound FDI into China is expected by many economists. China is the best testing ground for FDI theories because it almost contains all kinds of FDI from all the famous MNEs around the world. Therefore plenty of samples are available for testing and since the sample size is big, we can choose the samples which
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are the most representative ones without overlapping. Moreover, this testing ground provides dynamic background, because the FDI policy and local market condition are under fast development and MNEs have to face new challenges all the time. Therefore the samples from this testing ground can examine the dynamism of new theories; only the theories with most comprehensive explaining power and great dynamism can explain the samples from China completely.

4.2 Sample Case Review In order to test the synthetic model, we studied some of the successful FDI cases in China from the early J.V. cases in the automobile industry till the most recent M&A cases in diverse industries. The selection of the cases is based three criteria – representativeness, freshness, and information accessibility. Considering the purpose of the case study, we focused on certain aspects of the cases such as parent company FDI motivation, investment target location condition, and entry mode and after entry management. A summary of the samples cases review is provided in the following table (table 2) and more information can be referred in the appendix attached.

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Table 2 Sample cases review
Parent company FDI motivation Market seeking Hyundai Kia GM Honda Toyota Nissan Volkswagen Anheuser-Busch Philips Emerson New bridge capital group Alcatel Ford √ √ √ √ East coast East coast √ √ 31.6% 50% 20% 30% Shanghai Bell Jiang Ling motor √ √ √ √ √ √ √ √ √ √ √ √ √ Factor seeking √ √ √ √ √ √ √ Investment location Geographical position East inland East coast East coast South coast East inland East coast East coast East coast East coast South coast South coast √ √ √ √ √ √ √ SEZ Local business type Controlling right N/A 40% 34% 65% 50% N/A 50% 4.5% 27% 51% 80% N/A 17.8% Beijing motor Dong Feng, Yue Da SCIA Liu Zhou Guang Zhou motor FAW Dong Feng SAIC Qing Dao beer Suzhou peacock Ansheng Huawei SDB Local partner

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4.3 Case Analysis by the Synthetic Model The above 13 successful FDI cases have some characteristics in common, and these characteristics can be explained by the synthetic model as the source of their good performance. First of all, all these 13 foreign investor firms are powerful world class MNEs. Their capital assets are abundant and have leading technology in their own industries respectively. Their oversea subsidiary spread all over the world, from which they accumulate deep experience of international business management. But this does not mean their assets components are perfect, if so, they do not need to do the FDI in China. On the contrary, their assets constructions have different types of imbalance, and these imbalances become their motivation to invest in China. One type of the imbalance is from the lack of market access and the other is from the lack of certain production factors such as working labor. Therefore these firms have strong motivation to seek their missing assets elements and that is their initiation of market seeking and factor seeking FDI in China. Secondly, they target the favorable locations. Their subsidiaries are mainly built in the east or south-east coastland areas, where has the highest income level in China. These areas provide relatively big market potential and sufficient technological, managerial, and working human resources. The coastland areas have better connection with the global market through the harbors, and this provides the convenient condition for export-oriented FDI and international outsourcing. Not only the locations itself have advantage over other areas, the policy implemented in these areas and market development level of them are relatively more sophisticated than other areas. After the economic reform and open door policy, China started to open itself towards the world, and later on, started to transfer from central planned economy system to the market economy system. The central government decided to test all the new policies in some certain areas, instead of implementing the new policy to the whole nation at the same time regardless the cost of possible failure or mistake. Therefore the economic special
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zones are made. Inside the ESZs, market oriented economy system is supported by the political authority, and more favorable policies on foreign investment are implemented. Foreign firms saw the opportunities inside the ESZs, but they still worried about the so frequent policy changes made by the central and local government. Until 1992, after the then prime minister Deng’s announcement of China’s move into market economy system, the market regulation and the related policies are made more transparent, and foreign firms received the signal that China market is now upgraded to the level that worth of investing. The 13 cases above almost happened after 1992, which means the sophistication of the market does matter to the FDI performance. Thirdly, the 13 cases show the importance of entry mode choice concerning the transactional cost and operation strategy. These successful firms mainly designed their market entry and after entry operation as a step by step controlling mode. When they enter the market at the very first time, they tended to make equity joint venture with local firms, especially the local firms that have strong domestic brand image, close relationship with local authorities, and better selling network in the location. Foreign firms can use the joint venture as a learning process of its local operation. The local partners help them to shorten the culture distant, and reduce other types of liability of foreignness. As the learning process went on, foreign firms accumulated more and more experience and the most important business element – ‘guanxi’. Then they started to show the willingness to increase their equity proportion in the joint venture and by M&A negotiations, they achieved to do so. Thinking about both of the general market failure and local partnership accessibility is one of the reasons these firms have good performance over time.

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The following table (table 3) concludes the result of the empirical study of the 13 cases.

Table 3 Result of the empirical study
Synthetic model General O advantage O advantage Assets Imbalance Empirical study of the 13 cases Investing firms are world class strong MNEs with abundant technology, capital, and international business experience, etc. The assets structure of these firms is lack of certain components such as market access or production factor such as working labor and raw materials. The firms all invest in the east and south-east Size of the location L advantage Sophistication of the location coastland area where the market size is relatively large comparing other areas in China. Their investment focus on the SEZs where the market is relatively better developed and they start their investment after the policy and regulation upgraded to certain level. When all the other factors and well prepared, foreign General market failure firm tend to increase its control in the local business in order to reduce the transactional cost. I advantage Local partnership accessibility Firms tend to make equity joint venture with local partner. They can use the J.V. as a learning process of local business experience and reduction of LOF, at the same time, they provide the factors that local partners need, such as capital and technology, etc.

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5. CONCLUSION By studying the existing literatures on FDI theories and FDI performance determinants studies, we find the necessity and possibility to provide a synthetic model of FDI performance. This model is not a simple adding up of existing theories, but is a reorganization of those theories into a well made theoretical framework. Logic connection between the MNE subsidiary’s ability to realize the OLI advantages and the performance of the FDI is found. Therefore OLI paradigm is chosen as the framework base of the synthetic model. OLI paradigm itself has some weaknesses that need extensions by other theories. The imbalance theory shows the necessity to split the ownership advantage into general ownership advantages and assets imbalance. The liabilities of foreignness theories point out the impact of policy and regulation change of local environment on the FDI performance, therefore the location advantage should be split into the size of the location and the sophistication of the location. Transactional cost and entry mode theories show that reducing the cost made by the general market failure is not the only factor firms have to concern when choose the entry mode and after entry operation. Good local partnership should be made to get better access to the local market and reduce the LOF. Therefore the internalization advantage should be split into general market failure and local partnership accessibility. An empirical study of 13 FDI cases in China is done to support the idea of the synthetic model. Although the number of the sample cases is limited, they are significant enough to present the situation in the key industries in China. The study result shows high consistency between the reality and the theory. Generally, the synthetic model is a split OLI paradigm which envelope all the FDI performance determinants into its 6 elements. Therefore this model has its implementation meaning for MNEs’ FDI strategy makers because it can be used as an overall measurement for any FDI strategy. Any existing theories before can not provide an overall measurement; they just focus on some specific aspects. When strategy makers try to evaluate or estimate the effect of their new FDI strategy using previous theories, the
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result is only reasonable on those specific aspects and the effect on overall FDI performance may be somehow biased from such evaluation or estimation. Using the synthetic model to give an overall evaluation on new FDI strategy, or making new FDI strategy based on the synthetic model, strategy makers can highly reduce the risk of bias. The limitation of this research should also be recognized. First of all, the synthetic model is not a new invention or a one-for-all solution. The model is a reorganization of the existing theories and it is comprehensive at figuring out the performance determinants at the initiating, targeting, entry and after entry operating stages of FDI activities but is not in detail of every element. The implementation of this model is not to give ideas on how to improve the performance, but to point out what can be the determinants of the performance. Referring how to improve the performance, business operators still need to refer to the existing theories. Secondly, the empirical studies need to be enlarged in the number of the sample cases, and the approach need more statistics supports. According to the time and capability limitation, we failed to provide more persuasive empirical evidence to the model and this study remains plenty of places for future improvement.

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6. REFERENCE Brouthers, Keith D 2002. Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance. Journal of International Business Studies (2002) 33, 203-221. Chen, Haiyang and Michael Y. Hu 2001. An analysis of determinants of entry mode and its impact on performance. International Business Review 11 (2002) 193–210. Christmann, Petra and Diana Day & George S. Yip 1999. The relative influence of country conditions, industry structure, and business strategy on multinational corporation subsidiary performance. Journal of International Management 5 (1999) 241–265. Demirbag, Mehmet and Hafiz Mirza 2000. Factors affecting international joint venture success: an empirical analysis of foreign–local partner relationships and performance in joint ventures in Turkey. International Business Review 9 (2000) 1–35. Dunning. John H. 2000. The eclectic paradigm as an envelope for economic and business theories of MNE activity. International Business Review. 9: 163-190. Hymer, Stephen H 1976(1960). The international operation of national firms: A study of direct foreign investment. Cambridge: MIT press Kuemmerle, Walter 1999. The Drivers of Foreign Direct Investment into Research and Development: An Empirical Investigation. Journal of International Business Studies 30, 1: 1-24. Lenartowicz, Tomasz and Kendall Roth 2001. Does Subculture Within a Country Matter?
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A Cross-Cultural Study of Motivational Domains and Business Performance in Brazil. Journal of International Business Studies 32, 2: 305–325. Li, Ji and Kevin Lam & Gongming Qian 2001. Does Culture Affect Behavior and Performance of Firms? The Case of Joint Ventures in China. Journal of International Business Studies 32,1: 115–131. Li, Ji and Kevin C.K. Lam, Leonard Karakowsky & Gongming Qian 2003. Firm resource and first mover advantages: A case of foreign direct investment (FDI) in China. International Business Review 12 (2003) 625–645. Moon, Hwy-Chang 1999. A new theory of explaining FDI motivations, global coordination, and entry modes: An imbalance approach to the empirical analysis of Korean firms. AIB conference, November 1999, Charleston, SC, USA. Moon, Hwy-Chang and Thomas W. Roehl 2001. Unconventional foreign direct investment and the imbalance theory. International Business Review 10 (2001) 197-215. Pan, Yigang and Xiaolian Li 2000. Joint Ventures Formation of Very Large Multinational Firms. Journal of International Business Studies 31, 1: 179-189. Rugman, Alan M. 1980. Inside the multinationals: The economics of internal markets. New York: Columbia University Press. Sanyal, Rajib N. and Turgut Guvenli 2000. Relations between multinational firms and host governments: the experience of American owned firms in China. International Business Review 9 (2000) 119–134.
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Sethi, Deepak and Stephen Guisinger 2002. Liability of foreignness to competitive advantage: How multinational enterprises cope with the international business environment. Journal of International Management 8 (2002) 223–240. Teece, David J. 1992. Foreign investment and technological development in Silicon Valley. California Management Review. Winter.2: 88-106. Wernerfelt, Birger 1995. The resource-based view of the firm: Ten years after. Strategic Management Journal. 16: 171-174. Zhang, Yan and Haiyang Li 2001. The control design and performance in international joint ventures: a dynamic evolution perspective. International Business Review 10 (2001) 341–362.

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Appendix: sample cases brief introduction

Case 1: Beijing Hyundai Beijing Automobile Company and HMC realized the long-held ambition of producing passenger cars in Beijing by establishing Beijing Hyundai Motor Company in October 18, 2002. Initial investment amounting to 3.3 billion RMB was conducted in January 2003 and the first year’s sales recorded over 50,000 units. The joint venture firm introduced Avante XD and EF Sonata, which are also manufactured and sold in Korean market. The company aims to simultaneously introduce the newest vehicle for sale in both Korea and China. Case 2: Dongfeng Yueda Kia The formal re-statement of Dongfeng Yueda Kia, established in 1996, was signed by Dongfeng, Jiangsu Yeuda Investment Co., and Kia Motors was signed to divide the equity share into 20%, 40% and 40% respectively. The renewed Dongfeng Yueda Kia Automobile Corporation officially came into being in August 2002 and the new vehicle named “Chenlima” was introduced in December. Case 3: Shanghai GM Shanghai GM was transformed into a joint venture between two Chinese automakers and a foreign firm. The equity share of each party is 50.1%, 34%, and 15.9% for SAIC, GM, and Liuzhou Wuling. Through this transformation, the new Shanghai GM was able to establish three automobile production facilities in China. The main objective of this joint venture is to become the market leader of compact cars’ segment in China. Case 4: Guangzhou Honda The project proposal by Guangzhou Honda for export base was approved by the Chinese government, which marked the actual initiation of the joint venture. This joint venture will churn out 50,000 units per year at the initial period, which will all be exported. The project financing will amount to RMB 1.61 billion, of which Honda Japan will holds 65% equity share. This is the first incident in which a foreign firm will take up the majority share in a Chinese automobile joint venture.
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Case 5: Toyota Tianjin Toyota's ambitions in China are vast, but so are the challenges. The carmaker was late to the game in China, but since 1998 it has invested some $1.3 billion in the country, including the Tianjin operation and commercial-vehicle and parts factories. At this point, it has managed to eke out just a 5% market share in passenger cars -- well behind its chief competitors, Volkswagen and General Motors Corp. But it hopes to double its share by 2010 with a good bit of help from Toyota Tianjin, a 50-50 joint venture with state-owned First Automotive Works Corp. (FAW), China's biggest auto-making group. Clearly, other carmakers in China need to brace for the challenge. Last year, Toyota sold only 50,000 cars in the country, mostly Camrys and Corollas imported from Japan. Industry leader Volkswagen, by contrast, sold 511,000 cars, and No. 2 GM sold 110,000. With the Tianjin plant moving into full swing, Toyota hopes to increase its annual sales in China to 300,000 over the next seven years. Case 6: Nissan Dongfeng Nissan joined forces with Dongfeng Motor Company in order to get a foothold in China. Although Nissan trails its competitors, Honda Motor Co and General Motors, it hopes to make up for lost time with a wider range of products. The Nissan-Dongfeng hookup will produce 220,000 cars and 330,000 commercial vehicles by 2006, according to company executives. In the joint venture it had put up $1 billion in cash while Dongfeng provides assets and factories in an equal amount. The venture is regarded by many as quite risky but Nissan has been forced into it by its slow start. Case 7: Shanghai Volkswagen Shanghai Volkswagen Automotive Company is a 50-50 venture between Volkswagen and the Shanghai Automotive Industry Corporation (SAIC). The largest foreign-invested enterprise in China in terms of sales, Shanghai Volkswagen’s standard Santana model is the best selling sedan in China. The company’s other models include the Santana 3000, the Polo, and the Passat. Shanghai Volkswagen Automotive sells nearly 400,000 cars per year, but in the last two years, the company’s market share has fallen from 30% to 20%.
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The company identified a disconnection with its sister sales company SAIC-VW Sales and the two entities have merged in order to quickly react to market conditions. Case 8: AB-QingDao Beer Anheuser-Busch purchased QingDao Beer share. This is a case between the biggest beer company of the world and the biggest beer company of China. QingDao Beer has a 100 year history in China, and has been the leading company in the beer industry. QingDao Beer and AB formed strategic Alliance and agreed on a deal that AB purchases QingDao Beer’s share in 7 years and eventually increase AB’s share holding from 4.5% to 27%. The purchasing deal is divided into 3 steps, and the total amount of the deal will be 182 million dollars. Case 9: Philips SuZhou Peacock Electronics Philips China increased share in SuZhou Peacock Electronics Group. The deal happened in the August last year, and before that, Philips China already had 51% share holding in the SuZhou Peacock Electronics Group. This time Philips Chinas increased its shareholding from 51% to 80%, using totally 50 million dollars. Case 10: Emerson-Ansheng Electric Emerson Electronic bought Ansheng Electric from HuaWei Group. Ansheng Electric used to be one of the sub-companies of HuaWei Group. To solve the group company’s financial problem, HuaWei sold the Ansheng Electric to Emerson Electronic at a price of 750 million dollars. Case11: New-bridge Capital Group China New-bridge Capital Group bought Shenzhen Development Bank share. This is the first case that foreign strategic investment is accepted in China. New-bridge Capital Group bought 17.8% share of Shenzhen Development Bank, using totally 20 million dollars. Case12: Alcatel-Shanghai Bell Alcatel corp. purchased Shanghai Bell share. Shanghai Bell used to be a joint-venture companies formed up by Chinese investors, Alcatel corp., and Belgium government. After an 18 months’ negotiation, Alcatel corp. bought all the shares of
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Belgium government and some of the shares from Chinese investors, and eventually increased its share holding from 31.6% to 50% plus 1 share. Alcatel got the controlling right of the companies and soon integrate it into its other subsidiaries in China, formed the Alcatel Shanghai Bell corporation. The deal covered 300 million dollars. Case13: Ford-Jiang Ling Ford corp. purchased Jiang Ling automobile corp. share. Jiang Ling automobile corp. is one of the earliest firms that invited foreign investment. The first step of the deal was completed as Ford bought 20% share holding from Jiang Ling automobile corp. using 40 million dollars, and in the next step Ford corp. increased its share holding in Jiang Ling automobile corp. from 20% to 30%, covered 55 million dollars.

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