German FDI In China Scale, Scope, And Failures

Every year, several hundred foreign companies establish operations in China. Most succeed, yet a significant number of companies fail or withdraw from China. This is not necessarily because of an inherently bad business model, but can be attributed to a range of factors. These failures currently receive little to no attention, but they can be a valuable tool in identifying and-ultimately-overcoming those stumbling blocks. In order to identify the problems leading to a withdrawal from the Chinese market, the first part of the paper analyses the patterns and problems of FDI in China based on a thorough review of available literature and surveys. It describes the history and structure of FDI in China as well as important factors attracting FDI into China. This part also gives an overview of the effects of FDI on the Chinese economy and common problems encountered by foreign companies. Furthermore, a comparison with India as a competitor for FDI is made. The second part focuses on the characteristics of German FDI into China, highlighting the importance of the Chinese Market for German companies and describing the scale and scope of German FDI in China. The third part consists of research into the problems encountered by German companies when they invest in China. These problems are illustrated by two case studies of recent withdrawals by German companies from the Chinese economy. Case studies have been chosen as an appropriate form, first because the limited number of companies willing to participate in such research made the use of quantitative data impossible and, second, because of the depth of information that can be provided by case studies. The conclusions drawn from these are that investors need to prepare their entry into China diligently and potentially rethink their business model. Also, the pattern of efficiency-seeking FDI from Germany will have to change over the coming years, in order for those companies to stay successful.