What is wrong with contemporary
business history narratives
explaining Chinese ODI?
Lessons from China’s
‘Onward Journey’ FDI
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Background, literature review:
• Growing interest in Chinese ODI (because of growing
volumes, high profile cases) in number of academic
disciplines:
– Case study work
– Econometric studies, some surveys as well
• International business (IB) work finds that ‘strategicasset-seeking’ is important
• Appealing, because it means we need new theories, so
this is the dominant narrative today
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But a problem with contemporary
business history narratives:
• Don’t incorporate ‘onward journey’ ODI
• Most successful privately owned companies looking to
invest overseas use an offshore holding company (BVI,
Cayman Islands, Hong Kong)
• So excluded from econometric studies
• Case studies often focus on SOEs (or ignore
implications of holding company structures)
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Research Questions:
• R1: Is ‘onward journey’ ODI from private Chinese
businesses significant, in terms of volume?
• R2: If so, what motivates it (market seeking,
efficiency seeking etc.)? Destinations/size?
• R3: Does ‘strategic asset seeking’ explanation
apply to these privately controlled Chinese TNCs?
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Method
• Construct a sample of 150 publicly listed but privately
controlled Chinese firms
• 85 from HK stock exchange, 65 from US exchanges
(NASDAQ, NYSE)
• Using most recent annual reports, establish they are
privately owned (weed out H shares etc.)
• Then establish which ones have overseas subsidiaries (noninvestment holding), use notes to consolidated financial
statements
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Results (R1)
• A surprise
– 32 of 85 from HK have ‘onward journeyed’
– 25 of 65 in US sample
• Size: significant investments, totalling $500 million in
10 largest investments alone (R1)
• Sample include some well known companies (Li Ning,
Shenzhou Int., Nine Dragons Paper, Texhong Textiles,
Mindray Medical Int., Wuxi Pharmatech)
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Results (R2)
• Market seeking very important, prior trade links,
establish subsidiary for after sales service etc.
– e.g. Kingdom Group in Italy, linen; Shenzhou Int. in
Cambodia $30 m., counter trade restrictive measures; ND
in Viet Nam); Mindray Medical International ($210 million
takeover of Datascope)
• Efficiency seeking also important
– Texhong Textile in Viet Nam (some of the largest
manufacturing investments); Shenzhou (Cambodia); Nine
Dragons
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Results (R2)
• Unexpected result: TNC global production
networks, facilitating internationalisation
• BYD Electronics (India/Hungary with Nokia);
Minth Group (auto parts, Nissan, Fiat etc.);
Wuxi Pharmatech (biotech)
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Results (R3)
• Only limited evidence of strategic-assetseeking
• Possibly Mindray and Wuxi Pharmatech
• Most look to R&D at home
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Discussion/Conclusions
• Private sector ‘onward journey’ ODI totally missed to
date
• Market seeking/efficiency seeking are important in
these financially constrained firms
• So do we really need new theories about ‘strategic
asset seeking’?
• Business history currently being written, but isn’t it
missing these important companies?
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Policy
• Don’t discourage offshore holding companies?
• Useful for raising capital, helping Chinese
companies expand overseas?
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