The Research On The Choice Of Export, FDI And Outsourcing For Heterogeneous Firms In Services

The internationalization of service industries is important for a developing country participated in the global economy.<China Services Development Report2012>showed that the increasing of the proportion of service sector was an important criterion for mature economies.<China Services Development Report2013>showed that service industries were the biggest sectors of employment as early as in2011. And utilization of FDI in service is more than in manufacture sector in2011and2012. It is sure that service economy is playing an important role in the national economy and social development. It is essential for a country to improve service level if the country’s service industry can be involved in the process of globalization widely and deeply. Under this background, China’s service industry to participate in globalization is the inevitable choice. There are huge potential for China’s development in service trade, service FDI and service outsourcing. Under this reality, China’s service industry involved in the globalization have been widely concerned by government and academia.Heterogeneous firms trade theory can be called the new new trade theory. It is leading the current and future research directions and trends in international trade and investment. But the theoretical system is still not perfect and it need to expand the research areas. Now most of the research literatures were about the heterogenous firms in manufacturing to participate the international trade and investment activities. The global economy is transferring to services. Under this situation to study the international market enry mode and international production pattern of heterogeneous firms in services is great importment. To promote the development of China’s services and to expand the liberalization of services, and then to establish a new open system. In this paper, under the basic assumptions of heterogeneous firms trade theory, to study the heterogeneity service firms how to participate in international markets, by FDI or export; to study the heterogeneity service firms how to arrenge the production activities in the global through FDI or outsourcing; to study the FDI entry mode of heterogeneity service firms bu cross-border mergers and acquisitions and greenfield investment.In this paper, we used the research methods including the literature review, theoretical modeling, comparative studies, and econoinetrics analysis method to study heterogenous service firms’s choice under service export, service FDI or service outsourcing. On the basis of these research methods, the main research conclusions of this paper are as follows:First, the heterogenous firm trade theory for manufacturing is suitable for the study of heterogeneous firms in services. Under the assumption that the enterprise has made their productivity levels clear and service products are heterogeneous, we found the service firm with higher productivity will carry out FDI in international market; the service firm with little higher productivity will choose services.export to international market; and the firms with the least productive will product and service in the domestic market. Since the model assumes that the firms know their productivity, the choice of business out of the market and therefore do not exist.Second, productivity differences of heterogeneous firms are the important factors that determine firms’ choice between service FDI and services exports, but it is not the only factor. There are different characteristics between services OFDI from developing countries and developed countries. Based on the panel data of China’s service industry, we can test the impact of productivity differences on service firms’ selection of different international markets entry mode.Third, the different elements intensity in service sector, the service firms in this sector will choose a different organizational mode, service FDI or service outsourcing. In the case of incomplete contracts, differences in firm productivity can influence the choice of FDI and outsourcing:the firm with higher productivity will choose FDI, while the firm with lower productivity will choose outsourcing in other countries.Fourth, in the service industry, due to the flow capacity of firm is different in different sectors, so different services multinational companies in different industries will have different choice between Greenfield investments and cross-border mergers and acquisitions. In the R&D-intensive industries, the firm with higher efficiency (productivity) will choose to cross-border M&A. While in human capital-intensive industries, and advertising and marketing-intensive industries, the firm with higher efficiency (productivity) will choose Greenfield investment..This research consists of six chapters. The first chapter is introduction, which introduces the background and purpose of this research, research methods, theoretical framework, structure and contribution. Chapter2is literature review. It synthesizes the existing research by domestic and foreign scholars from theoretical and empirical levels and points out the shortcoming. On this basis, it raises starting point of this study. Chapter3to study heterogenous firms in service how to made choosen between service export and FDI. On the basis of the theoretical framework of Helpman (2004), to catch the conditions of heterogeneous firms wheather services export or FDI; then use the services industry and firm-level data for empirical testing.Chanper4is the selection of the heterogeneity firm in FDI and outsourcing. Based on the theoretical framework of Antras and Helpman (2004), to gain the selected conditions in FDI and outsourcing for heterogeneity service firms.Then using provincial panel data of China to test the impact of incomplete contract on services outsourcing. Chapter5is the selection of heterogeneous services firms in Greenfield investment and cross-border mergers and acquisitions. Based the theoretical framework of Nocke and Yeaple (2007), to get the selection criteria in Greenfield investments and cross-border M&A for heterogeneous service firms. Then using the comparative analysis method to reaearch the different choice between Greenfield investments and cross-border mergers and acquisitions in internal services worldwide. It showes that different firms in different sectors own different elements intensive tend to make different choices. Chapter6is the conclusions and policy recommendations.This paper has done exploratory research in the followiny aspects:First, make the classical model of heterogeneous firms trade theory applied to the study of heterogeneity service firms’choice between export and FDI.The impact of firm heterogeneity in productivity on services exports and FDI. In the empirical study, using the sector-level data from China and the firm-level data from the world’s largest service multinational corportations to validate the theory; and combining heterogeneous firms with OLI paradigm of international investment, to identify the impact factors of China’s service export and service OFDI.Second, to amend the model of heterogeneous firms’ international production organization mode selection, and make it suit heterogeneous services company selected in service FDI and service outsourcing. Under the conditions of incomplete contract, different service sectors due to different intensity of core services, resulting in the different controlling of remaining ownership, and then firms have dfferent choice in FDI and outsourcing. In the empirical analysis, using the province-level panel data from China to test the impact of incomplete contract on outsourcing, the lower the incomplete contract, the bigger scale of service outsourcing.Third, to adjust the heterogeneous firms FDI entry mode model to explain the heterogeneity service firms made choice in Greenfield investment and cross-border M&A. The service sector with different factor intensity, the firms may make different choices in Greenfield investments and cross-border M&A. In the empirical analysis, using data from global M&A database to compare the multinational companies in different sectors have different options, and summed up the general conclusion is consistent with the results of theoretical analysis.