Jianhong Zhang, Jan P.A.M. Jacobs and Arjen van Witteloostuijn
Multinational enterprises (MNEs) play a dominant role in the international business (IB) literature. Traditionally, by far the majority of IB studies deal with issues at the micro…
Abstract
Multinational enterprises (MNEs) play a dominant role in the international business (IB) literature. Traditionally, by far the majority of IB studies deal with issues at the micro level of the individual MNE, or at the meso level of a sample of individual MNEs in industries. This paper focuses on the impact of MNE behavior through foreign direct investment (FDI) on a country’s international trade, and vice versa. In so doing, this study responds to a recent plea for more macro‐level studies in IB into the effect of MNE behavior on the macroeconomic performance of countries as a whole, particularly developing and emerging economies. In the current study, we focus on the largest developing or emerging economy of all: China. Applying sophisticated econometric techniques, we unravel the causality and direction of FDI‐trade linkages for the Chinese economy in the 1980‐2003 period.
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Yingqi Wei, Xiaming Liu and Chengang Wang
This paper argues that multinational firms can benefit from indigenous knowledge diffusion in a host developing country so that there can be two‐way productivity spillovers…
Abstract
This paper argues that multinational firms can benefit from indigenous knowledge diffusion in a host developing country so that there can be two‐way productivity spillovers between foreign and local firms even in the developing world. This new argument is confirmed by a very large firm‐level data set from the Chinese manufacturing sector. After grouping firms based on their trade orientation, we find that foreign firms have a positive impact on local‐market‐oriented Chinese firms. When the degree of foreign presence is sufficiently high, there will be negative productivity effects on export‐oriented Chinese firms. On the other hand, local Chinese firms have a positive impact on export‐oriented foreign invested firms. After dividing foreign firms according to their sources, we find that the beneficial spillovers between OECD and local Chinese firms are much greater than those between Hong Kong/Macao/Taiwan and local Chinese firms.
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Xiaowen Tian and Shuanglin Lin
Using panel data of 11324 firms in China from 1996 to 1999, the study finds that FDI tends to generate positive technology spillovers to domestic firms within the same industry…
Abstract
Using panel data of 11324 firms in China from 1996 to 1999, the study finds that FDI tends to generate positive technology spillovers to domestic firms within the same industry, but adversely affect productivity of domestic firms in other industries. It is also found that both the positive and the adverse effects are more significant at the local than the national level. Evidence from China thus suggests that FDI technology spillovers are in favor of domestic firms within the same industry rather than domestic firms in other industries, and are most likely to affect domestic firms within the same locality. The finding has significant implications for the study of the interaction between MNEs and local firms in emerging markets.
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Yingqi Wei, Xiaming Liu, Chengang Wang and Jue Wang
Local sourcing from indigenous firms by multinational enterprises (MNEs) is an important channel through which the former may benefit from the positive externalities generated by…
Abstract
Purpose
Local sourcing from indigenous firms by multinational enterprises (MNEs) is an important channel through which the former may benefit from the positive externalities generated by the latter. The purpose of this study is to analyze the extent and determinants of local sourcing of MNEs.
Design/methodology/approach
Employing a survey dataset covering 493 multinational subsidiaries in China during 1999‐2005, this paper applies the two‐limit Tobit model.
Findings
It is found that an MNE's local sourcing decision is influenced by its strategies, characteristics such as size and learning ability and country‐of‐origin. More specifically, export‐orientation strategy, joint venture strategy and networking with local suppliers positively affect local sourcing. Small and autonomous subsidiaries tend to source more locally. Age has a non‐linear effect. The importance of these determinants varies with regions.
Research limitations/implications
Aiming at capacity building and competitiveness of indigenous firms, the Chinese government has initiated local content requirement. This study shows that such policy intervention could be counterproductive. The creation of a more competitive business environment by the government could promote more linkages.
Originality/value
Given its critical role in economic development, local sourcing by MNEs has attracted much attention. Only limited research has been carried out on FDI linkage effects in China, and the location effect on FDI linkages has not been examined. This study aims to fill the gap by using Chinese survey data.
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Kirit Vaidya, David Bennett and Xiaming Liu
The paper assesses the extent to which China's comparative advantage in manufacturing has shifted towards higher‐tech sectors between 1987 and 2005 and proposes possible…
Abstract
Purpose
The paper assesses the extent to which China's comparative advantage in manufacturing has shifted towards higher‐tech sectors between 1987 and 2005 and proposes possible explanations for the shift.
Design/methodology/approach
Revealed comparative advantage (RCA) indices for 27 product groups, representing high‐, medium and low‐tech sectors have been calculated. Examination of international market attractiveness complements the RCA analysis. Findings for selected sectors are evaluated in the context of other evidence.
Findings
While China maintains its competitiveness in low‐tech labour intensive products, it has gained RCA in selected medium‐tech sectors (e.g. office machines and electric machinery) and the high‐tech telecommunications and automatic data processing equipment sectors. Evidence from firm and sector specific studies suggests that improved comparative advantage in medium and high‐tech sectors is based on capabilities developing through combining international technology transfer and learning.
Research limitations/implications
The quantitative analysis does not explain the shifts in comparative advantage, though the paper suggests possible explanations. Further research at firm and sector levels is required to understand the underlying capability development of Chinese enterprises and the relative competitiveness of Chinese and foreign invested enterprises.
Practical implications
Western companies should take account of capability development in China in forming their international manufacturing strategies. The rapid shifts in China's comparative advantage have lessons for other industrialising countries.
Originality/value
While RCA is a well‐known methodology, its application at the disaggregated product group level combined with market attractiveness assessment is distinctive. The paper provides a broad assessment of changes in Chinese manufacturing as a basis for further research on capability development at firm and sector levels.
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George Q. Huang, Abraham Zhang and Xiaming Liu
Global manufacturers have faced unprecedented cost pressures in China because of Chinese currency appreciation, rising labour costs, higher oil prices and reduced value‐added tax…
Abstract
Purpose
Global manufacturers have faced unprecedented cost pressures in China because of Chinese currency appreciation, rising labour costs, higher oil prices and reduced value‐added tax rebates. This paper aims to reassess the decision of operating global manufacturing facilities in China.
Design/methodology/approach
A mixed integer programming model is developed for a typical global manufacturing supply chain that includes production in the Pearl River Delta region and trade in Hong Kong. A case study with a footwear product is used to illustrate model application and present detailed analyses.
Findings
The modelling results affirm the need of relocating labour‐intensive production that mainly competes on low costs. Nevertheless, coastal China offers considerable benefits from industrial clustering and a logistics advantage in comparison with inland China and Asian countries where labour costs are still relatively low. Hong Kong remains a robust location choice for trade operations because of its favourable tax policies.
Practical implications
Retaining production in China faces high risks from Chinese currency appreciation, while relocation to lower‐cost Asian countries is more vulnerable to risks from high oil prices. An intermediate trade operation in Hong Kong can be used to hedge against risks from unfavourable tax policy changes at manufacturing locations.
Originality/value
China has risen to an important position in global manufacturing because of its cost advantages. This paper analyzes the new phenomenon of dramatically increasing cost pressures in China. It develops a first‐of‐its‐kind supply chain configuration model for the popular front‐shop‐back‐factory business model in China.
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In the past two decades, many emerging economies have been witnessed the strong growth of their life insurance industry. While research in the demand for life insurance has…
Abstract
In the past two decades, many emerging economies have been witnessed the strong growth of their life insurance industry. While research in the demand for life insurance has attracted much attention since the 1960s, most studies have focused on cross‐country studies or well‐established markets in developed countries. As a result of cross‐national variations in life insurance consumption, it has been argued in the literature that factors shaping the demand for life insurance are complex and varied from one country to another. This paper aims to examine key determinants of the demand for life insurance in China with a view to explaining the rapid growth of the life insurance industry in China since its economic reform in 1978. Empirical investigation using a time series data analysis has shown that the main factors which have influenced people in China to purchase life insurance products are directly associated with the successful economic reform leading people to progress to higher layers of economic security, the increase in the level of education and the change in social structure. However, this research has not found a negative effect of inflation on life insurance consumption, even China experienced high inflation in the mid‐1990s.
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Neha Saini and Monica Singhania
The purpose of this paper is to investigate the potential determinants of FDI, in developed and developing countries.
Abstract
Purpose
The purpose of this paper is to investigate the potential determinants of FDI, in developed and developing countries.
Design/methodology/approach
This paper investigates FDI determinants based on panel data analysis using static and dynamic modeling for 20 countries (11 developed and 9 developing), over the period 2004-2013. For static model estimations, Hausman (1978) test indicates the applicability of fixed effect/random effect, while generalized moments of methods (GMM) (dynamic model) is used to capture endogeneity and unobserved heterogeneity.
Findings
The outcome across different countries depicts diverse results. In developed countries, FDI seeks policy-related determinants (GDP growth, trade openness, and freedom index), and in developing country FDI showed positive association for economic determinants (gross fixed capital formulation (GFCF), trade openness, and efficiency variables).
Research limitations/implications
The destination of FDI is limited to 20 countries in the present paper. The indicator of the institutional environment, namely economic freedom index, used in this paper has received some criticism in calculations.
Practical implications
The paper enlists recommendations for future FDI policies and may assist government in providing a tactical framework for skill development, thereby increasing manufacturing growth rate. The paper also throws light on vertical and horizontal capital inflows considering resource, strategy, and market-seeking FDI.
Social implications
FDI may bring significant benefits by creating high-quality jobs, introducing modern production and management practices. It highlights how multinational corporations and government contribute to better working conditions in host countries.
Originality/value
The paper uncovers important features like macroeconomic variables, especially country-wise efficiency scores, policy variables, GFCF, and freedom index, for determining FDI inflows in 20 countries using panel data methods and provides a roadmap for developed and developing countries. The study highlights endogeneity and unobserved heteroscedasticity by applying GMM one- and two-step procedure.