1、Foreign firms in China: Success by strategic choices This paper is part of the research project “MNCs strategies: authority sharing by co-evolution” in the research program “Shifts in governance: local states and private networks in China” sponsored by the Netherlands Organization for Scientific Res 。

2、earch (NWO).Xueyuan ZhangPatrick ReinmoellerBarbara KrugEver since the economic reform started in 1978 China has attracted the attention of Western academics and the business world (e.g. OECD, 2005;
Prasad, 2004). With average annual growth rates of real GDP 9.4 percent between 1979 and 2004 this ca 。

3、nnot come as a surprise. Rather unexpected, however, was the fact that China outperformed the European transition economies. One reason given for this development is the contribution by foreign direct investment (FDI), more precisely the establishment of subsidiaries (i.e. foreign firms hereafter) i 。

4、n China (e.g. EIU, 2003;
Lardy, 1995). China has not only been the largest FDI recipient among developing countries in 2004, she attracted FDI inflows of 60.63 billion US dollar surpassed only by the United States and the UK. This development raises some questions. First, to which extent does Chinas 。

5、 overall development depend on past and ongoing FDI? Second, what actually explains the trend? In what follows an attempt is made to analyse the processes and activities of foreign firms to invest and produce in China. After all, without regarding China as an attractive location for investment and p 。

6、roduction, the observed FDI inflow would not have occurred. If enough foreign firms succeeded in China to induce more firms and/or more capital to follow then we assume that one or more of the following factors must have played a role. (1) A selection effect: By carefully choosing the best suited en 。

7、try strategy only firms with a high probability to succeed invested in China. (2) An integration effect: By acknowledging the specificity of the local business environment and developing complementary capacities the foreign firms can exploit the business opportunities offered in China. It is worth m 。

8、entioning that once production has started and increasingly more since the middle of the 1990s firms are confronted with locally rather than nationally designed constraints and opportunities (e.g. Segal and Thun, 2001). (3) A learning effect: By flexibly reacting to an unfamiliar business environmen 。

9、t characterised by frequent and sometimes drastic changes firms need to employ structures and routines allowing smoothly adapting to new chances and constraints. These three factors are not independent from each other. In what follows they will however be treated separately for analytical reasons. T 。

10、he chapter is organized as follows: after a general overview of the FDI landscape since 1978 (Section 1), the analysis describes the factors why firms invest in China (Section 2). The analysis attempts to identify factors that firms decide on entry choice (Section 3), the local embeddedness and adap 。

11、tation (Section 4). The analysis offers with a dynamic perspective and general outlook (Section 5). 1. Overview The economic reform and open door policy in 1978 broke the wall with the Western world. At the beginning (realized) FDI increased gradually yet remained small. Nevertheless annual realized 。

12、 FDI in 1990 was about four times that in 1983. This picture changed dramatically in 1990s. In 1992 alone the realized FDI added up to 11 billion US dollar, almost three times the amount of 1991. In 2004, it reached more than 60 billion US dollar, which is almost five times the amount of 1992 and 17 。

13、 times that of 1990. To put these figures in perspective it is worthwhile to have a look at the Russia, as the case of another transition economy and India, as a case of another large economy of similar income levels in the 1970s.As Figure 1 shows, FDI inflows in all three economies increased during 。

14、 the 1990s yet those in Russia and India remained far behind China. In 2004 for example China received about 9 percent of the world total FDI inflows, as compared to Russias 1.8 percent and Indias 0.82 percent. Insert Figure 1 about hereFDI inflows mean more than the transfer of capital and technolo 。

15、gy. It changes the ecology of the Chinese economy when more and more foreign firms operate in China (see the column 2 in Table 1), after decades in which China had remained outside the international division of labour. By the end of 2004 more than two hundred and forty-two thousand foreign firms ope 。

16、rated in China yet more than 90 percent of which have started only after 1990. The contribution of these firms became considerable. They became a major source for tax revenue (see Table 1, column 3). In 2004 for example foreign firms generated more than one-fifth of the total tax revenue indicating。

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标题：Foreign|Foreign firms in China Successstrategic choices