Answer to Question #79658 in Finance for Justin Jian Hui Lam

Question

Motives for FDI Some MNCs from developed countries are keen to enter dynamic emerging markets such as China. On the other hand, several Chinese companies have set up subsidiaries in developed countries such as Germany. How are the motivations of the Chinese companies different from developed country MNCs?

Answer 1

Over the past two decades, Chinese multinationals have made a huge amount of foreign direct investment abroad, making China one of the world's leading foreign investors. The phenomenon has not been widely studied from a business perspective, however. Given the increasing prominence of Chinese MNCs in global business, this study of both macro and micro data sets out to fill the gap by concentrating on the motives underlying Chinese MNCs to invest abroad, and by examining their unique features, which differ particularly from other MNCs in emerging countries.
Based on mainstream international business literature, there are generally five motivations for multi-nationals to invest abroad: to gain resources, tech-nology, markets, diversification, and strategic assets. Froman in-depth analysis of investment data and cases fromChinese MNCs, we found motivations that are similar butwith some distinctive features. Although we placed eachcase in one category, the distinction was not always clear-cut; a Chinese company could be pursuing multiple ob-jectives from an investment project. Moreover, the motiva-tions for FDI might also change, such as an enterprise be-coming an experienced investor. Initially, some Chinese firms have invested abroad to acquire natural resources orgain access to markets; with increased international opera-tions, however, they may be using their investment activities as a means to improve their global market position byacquiring new sources of competitive advantage.