Skip to main content
Springer Nature Link
Log in

Foreign direct investment with Chinese characteristics: A middle path between Ownership-Location-Internalization model and Linkage-Leverage-Learning model

  • Published:
Chinese Geographical Science Aims and scope Submit manuscript

Abstract

The majority of multinational enterprises (MNEs) traditionally originate from developed countries. In the last ten years, however, there has been dramatic growth in foreign direct investment (FDI) from China. It is a comparatively new phenomenon that challenges the classic FDI theories. In this paper, we review the pros and cons of two important theories, known as the Ownership-Location-Internalization (OLI) model and Linkage-Leverage-Learning (LLL) model, and use the statistical data and company case studies from China to test the plausibility of these two models. We believe that neither of them suits totally: the OLI model is quite useful for understanding FDI from China to developing economies, while the LLL model is more powerful for explaining the FDI to developed economies. We argue that the companies from China attain a very advantageous position as intermediates in the global economy. They may catch up with the first movers if they integrate OLI-led and LLL-led FDI within one firm. This combination can bring together the most advanced knowledge acquired in developed economies with the knowledge about adaptation needs and the needs for cost reduction in production as expressed in developing economies. It may also accelerate the knowledge transfer globally. We thus fill a gap in research into the geographical pattern of Chinese FDI and offer a deeper understanding of the internationalization of Chinese MNEs and revolving knowledge transfer.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
$34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Explore related subjects

Discover the latest articles and news from researchers in related subjects, suggested using machine learning.

References

  • Buckley P J, Clegg J, Tan H, 2004. Knowledge transfer to China: Policy lessons from foreign affiliates. Transnational Corporations, 13(1): 31–72.

    Google Scholar 

  • Buckley P J, Ghauri P N, 1999. The Internationalization of the Firm. London: Cengage Learning EMEA.

    Google Scholar 

  • CCPIT (China Council for the Promotion of International Trade), 2010. Survey on Current Conditions and Intention of Outbound Investment by Chinese Enterprises 2010. Available at: http://www.ccpit.org/yewu/docs/Survey_on_Current_Conditions_and_Intention_of_Outbound_Investment_by_Chinese_Enterprises.2010.en.pdf. Cited12 April 2011

    Google Scholar 

  • Child J, Rodrigues B S, 2005. The internationalization of Chinese firms: A case for theoretical extension? Management and Organization Review, 1(3): 381–410. doi: 10.1111/j.1740-8784.2005.0020a.x

    Article  Google Scholar 

  • Deng P, 2009. Why do Chinese firms tend to acquire strategic assets in international expansion? Journal of World Business, 44(1): 74–84. doi: 10.1016/j.jwb.2008.03.014

    Article  Google Scholar 

  • Dunning J H, 1993. Multinational Enterprises and the Global Economy. Wokingham: Addison-Wesley.

    Google Scholar 

  • Dunning J H, Kim C, Park D, 2008. Old wine in new bottles: A comparison of emerging-market TNCs today and developed-country TNCs thirty years ago. In: Sauvant P K (ed.). The Rise of Transnational Corporations from Emerging Markets. Cheltenham: Edward Elgar Publisher, 158–179.

    Google Scholar 

  • Dunning J H, Lundan M S, 2008. Multinational Enterprises and the Global Economy. Chetlenham: Addison-Wesley, 67–68.

    Google Scholar 

  • Ernst D, 2006. Innovation Offshoring: Asia’s Emerging Role in Global Innovation Networks. Honolulu: East-West Center.

    Google Scholar 

  • Fan P, 2011. Innovation, globalization, and catch-up of latecomers: Cases of Chinese telecom firms. Environment and Planning A, 43(4): 830–849. doi: 10.1068/a43152

    Article  Google Scholar 

  • Ghauri P, 2005. Designing and conducting case studies in international business research. In Marschan-Piekkari R et al. (eds.). Handbook of Qualitative Research Methods for International Business. Cheltenham: Edward Elgar Publishing Ltd, 109–124.

    Google Scholar 

  • Haggett P, 1965. Locational Analysis in Human Geography. London: Arnold.

    Google Scholar 

  • Humphrey J, Schmitz H, 2002. How does insertion in global value chains affect upgrading in industrial clusters? Regional Studies, 36(9): 1017–1027. doi: 10.1080/0034340022000022198

    Article  Google Scholar 

  • Kang Y, Jiang F, 2012. FDI location choice of Chinese multinationals in East and Southeast Asia: Traditional economic factors and institutional perspective. Journal of World Business, 47(1): 45–53. doi: 10.1016/j.jwb.2010.10.019

    Article  Google Scholar 

  • Kaplinsky R, Morris M, 2009. Chinese FDI in Sub Saharan Africa: Engaging with large dragons. European Journal of Development Research, 21(4): 551–569. doi: 10.1057/ejdr.2009.24

    Article  Google Scholar 

  • Klossek A, Linke M B, Nippa M, 2012. Chinese enterprises in Germany: Establishment modes and strategies to mitigate the liability of foreignness. Journal of World Business, 47(1): 35–44. doi: 10.1016/j.jwb.2010.10.018

    Article  Google Scholar 

  • Kuemmerle W, 1999. The drivers of foreign direct investment into research and development: An empirical investigation. Journal of International Business Studies, 30(1): 1–24.

    Article  Google Scholar 

  • Li P P, 2007. Toward an integrated theory of multinational evolution: The evidence of Chinese multinational enterprises as latecomers. Journal of International Management, 13(3): 296–318. doi: 10.1016/j.intman.2007.05.004

    Article  Google Scholar 

  • Li P-Y, Meyer E K, 2009. Contextualizing experience effects in international business: A study of ownership strategies. Journal of World Business, 44(4): 370–382. doi: 10.1016/j.jwb.2008.11.007

    Article  Google Scholar 

  • Liefner I, Broemer C, Zeng G, 2012. Knowledge absorption of optical technology companies in Shanghai, Pudong: Successes, barriers and structural impediments. Applied Geography, 32(1): 171–184. doi: 10.1016/j.apgeog.2011.01.012

    Article  Google Scholar 

  • Liu L, Tian Y, 2008. The internationalisation of Chinese enterprises: The analysis of the UK case. International Journal of Technology and Globalisation, 4(1): 87–102. doi: 10.1504/ IJTG.2008.016189

    Article  Google Scholar 

  • Mathews A J, 2002. Competitive advantages of the latecomer firm: A resource-based account of industrial catch-up strategies. Asia Pacific Journal of Management, 19(4): 467–488. doi: 10.1023/A:1020586223665

    Article  Google Scholar 

  • Mathews A J, 2006a. Dragon multinationals: New players in 21st century globalization. Asia Pacific Journal of Management, 23(1): 5–27. doi: 10.1007/s10490-006-6113-0

    Article  Google Scholar 

  • Mathews A J, 2006b. Catch-up strategies and the latecomer effect in Industrial Development. New Political Economy, 11(3): 313–335. doi: 10.1080/13563460600840142

    Article  Google Scholar 

  • MOFCOM (Ministry of Commerce of the People’s Republic of China), NBS (National Bureau of Statistics of the People’s Republic of China), and SAFE (State Administration of Foreign Exchange of the People’s Republic of China), 2010. Statistical Bulletin of China’s Outbound Direct Investment 2009. Available at: http://hzs.mofcom.gov.cn/accessory/2201009/1284339524515.pdf.

    Google Scholar 

  • MOFCOM (Ministry of Commerce of the People’s Republic of China), NBS (National Bureau of Statistics of the People’s Republic of China), and SAFE (State Administration of Foreign Exchange of the People’s Republic of China), 2011. Statistical Bulletin of China’s Outbound Direct Investment 2010. Available at: http://hzs.mofcom.gov.cn/accessory/201009/1284339524515.pdf.

    Google Scholar 

  • Narula R, 2006. Globalization, new ecologies, new zoologies, and the purported death of the eclectic paradigm. Asia Pacific Journal of Management, 23(2): 143–151. doi: 10.1007/s10490-006-7162-0

    Article  Google Scholar 

  • Schueler-Zhou M, Schueler Y, 2009. The internationalization of Chinese companies: What do official statistics tell us about Chinese outward foreign direct investment? Chinese Management Studies, 3(1): 25–42. doi: 10.1108/17506140910946124

    Article  Google Scholar 

  • Sutherland D, 2009. Do China’s ‘national team’ business groups undertake strategic-asset-seeking OFDI? Chinese Management Studies, 3(1): 11–2 doi: 10.1108/17506140910946115

    Article  Google Scholar 

  • UNCTAD (United Nations Conference on Trade and Development), 2004. World Investment Report 2003. New York and Geneva: United Nations Press.

    Google Scholar 

  • UNCTAD (United Nations Conference on Trade and Development), 2007. World Investment Report 2006. New York and Geneva: United Nations Press.

    Google Scholar 

  • UNCTAD (United Nations Conference on Trade and Development), 2011. World Investment Report 2010. New York and Geneva: United Nations Press.

    Google Scholar 

  • Wernerfelt B, 1984. A Resource-based view of the firm. Strategic Management Journal, 5(2): 171–180.

    Article  Google Scholar 

  • Yeung W-C H, 1999. The internationalization of ethnic Chinese business firms from Southeast Asia: Strategies, processes and competitive advantage. International Journal of Urban and Regional Research, 23(1): 88–102. doi: 10.1111/1468-2427.00181

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economic Geography, Justus Liebig University Giessen, 35390, Giessen, Germany

    Yuefang Si & Ingo Liefner

  2. School of Resource and Environment Science, East China Normal University, Shanghai, 201204, China

    Yuefang Si

  3. School of Geography Science, Nanjing Normal University, Nanjing, 210023, China

    Tao Wang

Authors
  1. Yuefang Si
    View author publications

    Search author on:PubMed Google Scholar

  2. Ingo Liefner
    View author publications

    Search author on:PubMed Google Scholar

  3. Tao Wang
    View author publications

    Search author on:PubMed Google Scholar

Corresponding author

Correspondence to Tao Wang.

Additional information

Foundation item: Under the auspices of National Natural Science Foundation of China (No. 40971069, 41101120), State Scholarship Fund by China Scholaship Council, Ministry of Education of the people’s Republic of China (No. 2009614028)

Rights and permissions

Reprints and permissions

About this article

Cite this article

Si, Y., Liefner, I. & Wang, T. Foreign direct investment with Chinese characteristics: A middle path between Ownership-Location-Internalization model and Linkage-Leverage-Learning model. Chin. Geogr. Sci. 23, 594–606 (2013). https://doi.org/10.1007/s11769-013-0603-z

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11769-013-0603-z

Keywords

Profiles

  1. Ingo Liefner View author profile