Study On Chinese ODI Locaion Choice With Home Country Specific Advantage

Untill2002Chinese ODI attracts attention from all over the world by its burst of growth. Also, plenty of Chinese ODI studies surges in IB (international business, IB) filed during last decade, among of which, most captures the distinctiveness of Chinese ODI. Then comes the question-whether Chinese ODI needs a wholly new FDI theory, or just an extended theory from the existing ones-which is also known as the choice between "Chinese theory of business and theory of Chinese business"(Alon and Child,2011). Though no definite consensus has been reached now, yet almost scholars focus on China’s domestic economic transformation to explain the distinctiveness of Chinese ODI.The Chinese ODI study is not systematization in IB field, to remedy this limitation, this paper bridges the macro home country factors and micro firm behavior by institution compatibility and appropriate technology analysis. This paper use revised HMCFMECM from new-new trade theory to build a generalized model for enterprise ODI location choice, which contains the investment motivation and ownership advantage differences between DCMNE(developed country multinational enterprise, DCMNE) and EMMNE (emerging market multinational enterprise, EMMNE) differences. Besides, we extract the portion of ownership advantage caused by home country and denominate it "home-country specific advantage", which includes two parts, institution embededness advantage and appropriate technology advantage. Thus far, we get the complete logic chain from macro home country factor to micro enterprise ODI behavior, which is so-called home-country specific advantage mechanism. Based on home-country specific advantage mechanism, we explain how China’s domestic economic transformation leads to Chinese ODI location choice preference.Generally speaking, our main conclusions are in the following three aspects:Firstly, home country specific advantage facilitates traditional ODI flows to where the institution and technology environment is close to its home country. Traditional ODI will head for where the foreignness liability is relatively low, in the host countries whose institution and technology environment resembles that of ODI enterprise’s home country, ODI enterprise will face relatively low foreignness liability.Secondly, home country specific advantage facilitates strategic ODI flows to where the institution and technology environment differs moderately from that of ODI’s home country. Strategic ODI will head for where it will gain high reverse technology spillover effect. For one hand, the institution and technology environment difference between host and countries magnifies the potential reverse technology spillover gains, for the other hand, it impairs the technological absorptive capacity. As a result, the net effect of home country specific advantage promotes ODI flows to a host country whose institution and technology environment differs moderately from that of ODI’s home country. Thirdly, in the context of domestic economic transformation, Chinese government augments home country advantage of Chinese ODI, resulting in Chinese ODI concentrates in three groups of host countries in2003-2010, namely:countries or regions rich in natural resources but with high risk, developing countries or regions with abundant of cheap labor, highly developed countries or regions with plentiful sophisticated technologies. For the sake of two national strategic goals, which are national resource security and industry structure adjustment, Chinese government resorts to domestic twist financing system to loan the resource seeking SOE, enhancing their investment capability in those countries or regions where economic risk is relatively high. Also, Chinese government positively establishes foreign economic and trade cooperation zones in both Asian and African developing countries, to facilitate Chinese cheap labor seeking firms’industrial agglomeration advantages. Furthermore, Chinese government increase Chinese firms’ internationalization experience by export oriented policy and foreign investment policy, promoting Chinese firms’investment capability in host countries or regions. So these are the mechanism of how "country-specific advantage" influences Chinese ODI location choice.The possible innovation points of this paper mainly lie in two aspects, as follows:From the theoretical level, we unify the traditional and strategic ODI in one location choice model, providing a systematical ODI enterprise location choice analysis model. Moreover, we propose an original conception, defined as home country specific advantage, adding new analysis angles to the Chinese ODI studies.From the theoretical level, we discover a special empirical fact about Chinese ODI location choice, that is88%-95%Chinese ODI stock concentrated on50countries. What’s more, we find Chinese government plays a key role beneath the empirical fact.