FDI scale and firm performance of Taiwanese firms in China

This research explores two questions: “What factors and characteristics contribute to the extent of Taiwanese firms' foreign direct investment (FDI) activities in China?” and “What factors and characteristics contribute to the performance of Taiwanese firms in China?” An integrative framework of factors as antecedents, namely firm specific advantages, external environment attributes in host country, guanxi network factors and the extent to which the multinational enterprises (MNE) is active in that country, is developed. This study empirically tests an eclectic framework to include traditional factors suggested by the literature (i.e., firm specific and host country factors), and the guanxi network factors—both formal (i.e., business and government ties) and informal (i.e., ethnic and friendship ties). The author also intends to understand the regional variations in China as additional explanatory variables of Taiwanese FDI and firm performance.; Survey data were collected from Taiwanese manufacturing firms investing in China. Multiple regression results indicate that firm size, international experience, host country market potential and industrial agglomeration are positive and significant determinants of the extent of Taiwanese FDI in China, while host country investment risk and labor cost show negative and significant effects. International experience, R&D, host country market potential and industrial agglomeration are positive and significant determinants of Taiwanese firm performance in China, while host country investment risk and the extent to which a firm is active in host country show negative and significant impacts.; One interesting finding for guanxi network factors is that a firm's business ties with others have a significant impact on the decision of a firm's FDI scale, but the personal friendship ties across Straits show significant influence on a firm's performance. Both ethnic ties and government ties with officials are insignificant determinants on FDI scale and firm performance. There exist regional variations in the determinants' impact on the FDI scale and firm performance, especially in guanxi network factors.; The results of this research will provide further insights to enrich the understanding of the complexity in FDI scale and firm performance in China, benefiting not only the foreign investors to formulate and implement realistic business and investment strategies tailored to the Chinese context, but also the Chinese national and provincial governments to formulate strategies to attract more foreign investments.