Chinese Direct Investment in Europe

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Chinese Direct Investment in Europe

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Title: Chinese Direct Investment in Europe
An analysis of patterns, motives and the applicability of existing FDI theories
Author: Fasshauer, Kirsten
Abstract: Chinese outward foreign direct investment (FDI) in Europe has increased significantly in recent years and has often been met with suspicion in the host country. At the root of this uncertainty lies the fact that Chinese FDI in Europe is still poorly understood and academic literature not yet offers a definite answer as to which theoretical models are best suited to explain the behavior of Chinese investors. This thesis therefore seeks to provide a comprehensive picture on Chinese FDI activities in Europe and to compare results based on company-level data to existing theoretical concepts. The thesis identifies three types of Chinese FDI in Europe, which differ with respect to their characteristics, investment motives and the factors that determine their location decision. The first kind of Chinese FDI, constituting the largest share, consists of small, privately owned Chinese investors that seek to expand their export activities by taking control over downstream activities. Such subsidiaries are typically small in size and are established as wholly owned greenfield projects. Consistent with its purpose, such FDI is located in countries characterized by a large domestic market and a high volume of imports from China. The investors behind the second type of FDI are typically large in size and are active in technologyintensive industries. While successful at home, they lack the technological and innovative capabilities that are necessary to compete internationally. They therefore internationalize with the explicit goal of acquiring strategic assets that can help them overcome their competitive disadvantages. Investment of this kind proceeds stepwise with respect to resource commitment and targets locations or companies in which industry-specific expertise and international sales networks exist. In the short-term, the investors financial resources and low-cost manufacturing capabilities are combined with the knowhow present in the host countries to increase revenues. The ultimate goal of the investor, however, is to slowly absorb knowledge and processes associated with effective innovative capabilities necessary for independent R&D activities. The third investment type identified in the thesis is diverse with respect to the characteristics of both investors and subsidiaries. What the investments share is the motivation to take advantage of easy market entrance, as well as low costs and standards in Eastern European countries. The thesis finds that conventional theories of FDI are well-suited to explain Chinese investment activities in Europe, as long as they are adapted to include the institutional environment and countryspecific advantages. Newly developed theories constitute a very good and more detailed tool for the analysis only of FDI with the objective of acquiring strategic assets.
URI: http://hdl.handle.net/10417/3855
Date: 2013-07-31
Pages: 126 s.
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