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Liu, Y. (2009). Factors Influencing the Decision Making of Western Australian Investors in the Chinese Marketplace, Research and Practice in Human Resource Management, 17(2), 94-108.
Factors Influencing the Decision Making of Western Australian Investors in the Chinese Marketplace
Western Australian (WA) firms are increasingly conducting businesses with Mainland Chinese companies, and yet understanding the underpinning to engage in these business encounters is in the early stages of development. To investigate the drivers of the decision making process a study was undertaken with 43 executive managers from 34 WA companies that were either engaged in business or were seriously contemplating to commence business operations with Chinese firms. A comprehensive study design, which integrated quantitative and qualitative approaches, was employed to test the responses of these decision makers within a framework that was generated from the relevant literature. The results demonstrate market size, infrastructure, lower labour cost and business ethics were important factors when making an investment decision. The study observations have potential to assist decision makers of WA companies to better understand those factors that are critical for the development of business strategies with Chinese firms. Furthermore, the findings may also guide decision makers when formulating effective HRM policies and practices for business engagement in the contemporary Chinese marketplace.
Liberalisation of the Chinese marketplace has led to an intense inflow of foreign direct investment (FDI). In fact, the Chinese marketplace is the largest FDI recipient among developing countries (Dang 2008), and the accumulated inwards FDI to China had reached US$524 billion by the end of 2006 (Xu, Liu & Qiu 2009). The popularity of inwards FDI to China from Australia further highlights the important feature of China’s economy. According to the Australian Government Senate (2005), China has become one of Australia’s main trading partners. The ABC News (2007) reported that China overtook Japan and became Australia’s largest trading partner by March 2007. Historically, the United Kingdom, the United States of America and New Zealand were Australia’s top off shore investment destinations. However, with the rising economic power in East Asia, Australian investors have over time shifted their investment focus to less familiar markets including Indonesia, Malaysia, Singapore, China and Vietnam (Marsh 1996). Not surprisingly, Australian companies have shown a particular interest to the emerging and dominate Chinese market. This notion has been further documented in an Australian Government (2007) report there is an increasing business potential between Australia and China. According to Ma, Yang and Zhang (2008: 71), the investments flows to China from Australia has grown by more than tenfold during the period of 1992 to 2005, and “…both China and Australia have clear interests in promoting cross-border capital flows”. More recently, the Gorgon project in the mining sector has further strengthened the relationship between the two nations.
Although there is a general agreement that Australia’s offshore investment in China has grown steadily, relevant literature examining this notion is scant. Only until recently was a study conducted by Ma and colleagues (2008) using secondary data, to investigate the determining factors of Australia’s FDI inflows to a particular location in China. Clearly, a more comprehensive examination of the determinants of Australia’s FDI flows to the Chinese marketplace is required. Much of the research determining the factors of inwards FDI to China has been conducted with North America and Japanese investment (Beamish 1993, Pan 1994), and WA off shore investment has received less attention (Sim & Teoh 1994, Fittock & Edwards 1998). Hence, in view of this knowledge gap it is, therefore, important to investigate the determinants of Australian foreign investment, especially from WA to China. The primary focus of this paper is to closely examine the relationships of (a) market size, (b) infrastructure, (c) labour cost, and (d) business ethics with the intensity of WA’s foreign investment in China.
The structure of this paper is in five parts. In the first part of this paper the historical development of inwards FDI to China, is presented. In the second part, the determinants of FDI in China are delineated. The third part discusses the methodology of the study; and in the fourth part, the results are documented. In the final part, implications of the findings for managers and owners or decision makers in making investment decisions in the Chinese marketplace are presented.
Foreign Direct Investment in China
The large amount of FDI inflows to China has contributed significantly to China’s rapid economy development. At the end of the 1970s, China implemented economic reforms and liberalised the marketplace thereby welcoming overseas investment (Hou 2002, Xu, et al. 2009). The accumulated FDI inflows to China reached US$ 1.755 billion between 1979 and 1983 (Li 2005), and with the development of special economic zones (SEZ) an environment conducive to foreign investor operations to facilitate export and import activities was created (Tan 1999). Consequently, the level of FDI flows to China had increased dramatically. Expansion of the SEZ to 14 coastal cities, during 1984, further promoted the Chinese marketplace. In fact, FDI inflows in China reached US$10.301 billion from 1984 to 1988, and by 1991 the total amount of FDI had amounted to US$11.245 billion (Li 2005). But further expansion was to follow.
Following Deng Xiaoping’s 1992 south China tour reaffirmed the economic reformation, which led to unprecedented FDI inflows (Fung, Iizaka & Parker 2002, Ho 2004). During the period of 1992 to 1999, China received a total of US$282 billion inwards FDI, and the total FDI inflows in China reached US$254 billion between 2000 and 2004 (Li 2005). While Australia still remains as a ‘small’ global player in the Chinese marketplace, China has become the largest FDI recipient among developing countries since 1992 (Ali & Guo 2005, Ma, et al. 2008). In the case of WA, as Lopez (2007: (a) indicated “China has overtaken Japan as the top destination, accounting for 28 percent of Western Australian exports. For the year to April 2007, WA exports to China were worth $13.3 billion, up 41 percent from the previous year, 317 percent in the past five years and a staggering 966 percent over a decade”. This foreign investment growth continued with China’s unique advantages, such as market size, and has turned into an extremely attractive location for foreign investment (Zhang 2001) including Australia. Despite some interest in Australia’s foreign investment in China, a narrower focus from the WA perspective is almost non existent. Consequently, this paper gives particular attention to an investigation of the determining factors of WA’s foreign investment in China.
Predictors of FDI
Studies on the determinants of a host country’s market size and the level of inwards FDI have been extensive in the last decades (Na & Lightfoot 2006). For example, Coughlin, Terza and Arromdee (1991) used per capita income as a measure of market size and indicated there is a positive connection between FDI inflows to the North American continent and its market size. Furthermore, Scaperlanda and Balough (1983), and Culem (1988) employed Gross Domestic Product (GDP) or Gross National Product as a measure of market size and demonstrated that FDI decisions are positively associated with the lagged GDP and their rate of growth. Within the Chinese context Tan (1999) indicated that market size has a statistically significant positive impact on the level of FDI inflows to China. Moreover, Liu, et al. (1997), and Tseng and Zebregs (2002) demonstrated that investors from the US and Europe are attracted to China’s large and potential market size.
In an effect to gain understanding of the determinants of FDI inflows, studies have also paid attention to the effect of infrastructure. For example, Caughlin, et al. (1991), and Tseng and Zebregs (2002) suggested that host country infrastructure plays a critical role in attracting foreign investment. In fact, Loree and Guisinger (1995) further emphasised infrastructure, such as telecommunication and transportation have a positive impact on FDI flows to the North American market. Moreover, Na and Lightfoot (2006) point out that a host nation with relatively better infrastructure, tends to attract more inwards FDI to the Chinese marketplace. Head and Ries (1996), and Cheng and Kwan (2000) also reported Chinese provinces with better developed infrastructures have received more FDI. Consequently, an assumption can be made the level of infrastructure within a host nation may influence a company’s location decision of where to undertake FDI (OECD 2000).
A number of investigators (Mody & Srinivasan 1998, Belderbos & Carree 2002) have emphasised the effect of labour cost on a firm’s FDI decision. For instance, Fung, et al. (2000) pointed out that foreign investors would prefer to undertake FDI in countries where labour costs are relatively low. Nevertheless, the relationship between labour costs and FDI remains ambiguous. Cheng and Kwan (2000), Wei and Liu (2001) as well as Belderbos and Carree (2002) claim that high labour costs will deter companies to undertake FDI in China. Others, however, failed to find a relationship between the inflows of FDI and labour cost (Chen 1996, Broadman & Sun 1997). In contrast to both arguments, some studies have revealed a positive relationship between labour cost and the level of FDI inflows (Zhao & Zhu 2000). Although earlier studies (Wei, et al. 1999, Cassidy 2002) have tried to reconcile the controversial findings regarding the relationship between the effects of labour cost on FDI inflows equivocal findings still exist. For example, Shi (1996) showed that ‘cheap’ labour in the Chinese market is the main determinant for Hong Kong and Taiwan investors, whereas labour productivity is the primary focus of investors from the US and Europe (Zhao & Zhu 2000). For Australian investors, cheaper labour cost in China was not the primary investment incentive (Fittock & Edwards 1998). Due to the conflicting findings in the literature, there is merit to identify the determining factors for WA FDI in China, especially in terms of the effects of labour cost on Australian investors’ FDI decisions
The concept of business ethics has gained importance when undertaking FDI in China a notion that appears to have been ignored by researchers (Wei 1999). In earlier studies most researchers (Fitzpatrick 1983, Minor 2003, Click 2005) emphasised a need for understanding the influences of the political environment on FDI inflows. For example, Minor (2003) indicated dimensions of political risk including shifts in government policies, economic instability and a lack of infrastructure or endemic corruption may influence an organisation’s global investment decisions. In addition, Click (2005) explained that political instability in a host country is likely to increase economic environment uncertainties. These uncertainties may influence production and reduce cross border engagements. Arguably, a comprehensive understanding the concept of business ethics in conducting investment in China is warranted (Brand & Slater 2003). It is suggested that businesses considering foreign investment in China might benefit by giving attention to issues that relate to business ethics such as bribery and other non ethical behaviours. Hence, a focus on managerial aspects regarding the perceived importance of business ethics on Australian companies’ FDI decision is crucial and valuable.
The study model was developed after comprehensively examining the relevant literature. This theoretical framework, shown as Figure 1, consists of a set of independent variables, including market size, infrastructure, labour cost and business ethics, as well as one dependent variable (i.e., the intensity of foreign investment). It is further forecasted in Figure 1 that there will be positive associations between market size, infrastructure, lower labour cost, business ethics and intensity of foreign investment. This study model was employed to test primary perceptual information rather than the secondary data of more blunt values such as GDP. A pluralist design that had quantitative and qualitative dimensions was employed.
The Study Model
Site and Subjects
The quantitative study was conducted with 43 respondents in 34 WA companies. Nine of the respondents were Vice Presidents in five of the companies. Thus, the unit analysis was at the individual level. A salient feature of the study companies is that they either have capabilities to invest or are already investing in Mainland China. These companies are involved in manufacturing and services industries, such as mining, education, banking, and insurance. The study respondents were owners or senior managers of the study companies. According to Kim and Hwang (1992), and Chandprapalert (2000), the reason for selecting this group of respondents is because they are information rich individuals, who are also involved in global investment decision making processes.
To empirically investigate the determining factor for undertaking investment of WA companies in China, this study employed both quantitative and qualitative approaches. The use of the quantitative approach is deemed as a suitable, partial approach, which assists in determining the statistical relationships between the investigated variables. The primary data were obtained from decision makers of WA companies by the administration of a questionnaire. Given the dynamic business environment in China, the use of a qualitative approach has potential for gaining a more comprehensive understanding of the results of quantitative analysis of data obtained from the administration of a questionnaire. Hence, a qualitative approach was used with the purpose of complementing the understanding of the quantitative results. Due to the complexity and diversity of the global business environment, a qualitative approach provides rich information. This pluralist strategy (i.e., quantitative and qualitative) has potential to gain a more thorough understanding of determining factors of the inwards investment from WA to China.
The study design had three stages. First, a pilot study was conducted prior to the main administration of the questionnaire. This pilot test was conducted among 10 respondents whose companies are currently investing in China. In the second stage the refined survey questionnaires were personally delivered by the researcher to the study companies in WA. In the third stage, personal interviews were conducted after examining the quantitative data. The face-to-face interviews were undertaken with senior managers or owners, separately. In order to avoid inter tension with some participants, the interviews were only electronically recorded when it was acceptable by the interviewee before conducting interviews.
The research instruments for measuring the five variables were adapted from earlier relevant studies. For example, five items were adapted from a study conducted by Chandprapalert (1999) to measure market size. In addition, the variable of infrastructure was assessed with one item that includes five sub items, which was adapted from the work of Tseng and Zebregs (2002). The instrument for measuring the degree of labour cost was adapted from Huang (2002). Five items containing two dimensions (a) managerial perception of cheap labour, and (b) the operation cost reduction) were employed, and two were reverse scored. For evaluating business ethics, a total of seven items was adapted from Armstrong (1992), who redefined the items from an earlier study that was conducted by Armstrong, et al. (1990). Respondents were asked to indicate their perceptual views about the four variables on a seven point Likert scale. The responses ranged from 1 = ‘Strongly disagree’ to 7 = ‘Strongly agree’. A total of 16 items was adapted from Hansson and Hedin (2007) to measure the intensity of foreign investment. Participants’ views about the importance of each item were obtained with a seven point Likert scale that ranged from 1 = ‘Extremely unimportant’ to 7 = ‘Extremely important’. A copy of the questionnaire can be obtained from the author on request.
The captured quantitative data from questionnaires were assessed with several statistical tools. To determine the robustness of the data factor analysis and reliability assessments were conducted. The Principle factor analysis with the Varimax option was performed to test the validity of the scale items for the four independent variables, and four factors were obtained. The content of Table 1 presents the four factor loadings. Factor analysis with the Varimax option was used to examine the construct properties of the intensity of foreign investment variable, and four factors were obtained. However, Hansson and Hedin (2007) claimed the intensity of foreign investment is one individual construct, and consequently, in this study the dependent variable was treated as one factor. The results of the factor analysis for the intensity of foreign investment are documented in Table 2. Reliability assessments were undertaken based on the factor analysis results. A broad assessment of the bivariate relationships that are presented as arrow headed lines (in Figure 1) was obtained with correlational analysis. To analyse the qualitative data, a manual content analysis was adapted in accordance with a study conducted by Pearson and Chatterjee (2004). The findings captured through both quantitative and qualitative data are documented next.
Data analysis revealed that four factors emerged as illustrated in Table 2. Initially, five items were adapted from Huang (2002) to evaluate labour cost construct, and item C23 (i.e., Spreading operational cost through geographical dispersion) was removed for later analysis as it loaded onto other factors. Moreover, five items were adapted from Chandprapalert (1999) to measure the market size construct, one of which did not contribute to the measurement. As this item was leaked onto other factors, the decision was made to eliminate this item. Similarly, five items were adapted from Tseng and Zebregs (2002) to assess the infrastructure construct, and it was revealed that item B6a (i.e., My company’s products are impacted by Chinese transportation facilities) was loaded onto other factors, and hence, was deleted. In addition, seven items were adapted from Armstrong (1992) to measure the business ethics construct. Four items were found to be loaded onto other factors, and hence, these items were removed. Three items were retained, which clustered to form the last factor. The retained items are listed in Table 1, and these sets of items were used for further empirical analysis.
|Variables||Questionnaire item (#)||Factor 1||Factor 2||Factor 3||Factor 4|
|Percentage of variance explained||22.05||18.72||18.06||14.13|
|Cumulative percentage of variance explained||22.05||40.78||58.84||72.96|
|Labour cost||Item C 3 Reduced operational cost.||.786||.230||.195||-.010|
|Item C 7 Cheaper labour cost.||.888||.029||.044||.163|
|Item C14 Avoiding higher labour cost in the home market.||.921||.063||.052||.175|
|Item C17 To avoid higher operational cost in the home market.||.825||.073||.021||.246|
|Market size||Item B1 China sets the demands for my company’s products.||.247||.685||.333||.013|
|Item B2 China is likely to impact the industry in which my company is engaged.||.072||.840||.172||.053|
|Item B3 The growth of my company will be impacted by Chinese trade||.194||.843||.040||-.021|
|Item B8 The large size of the Chinese market will significantly increase demand for my company’s products.||-.109||.754||.198||.174|
|Infrastructure||My company’s products are impacted by Chinese:||.051||.106||.809||-.169|
|Item B6b Communication services||-.054||.152||.901||.023|
|Item B6c Information technology||.276||.231||.724||.073|
|Item B6d Financial institutions||.078||.233||.677||.361|
|Business ethics||Item B6e Political stability||.307||-.017||-.067||.826|
|Item C4 Knowledge of pressures to engage in small scale ‘bribery’.||.055||.022||.038||.883|
|Item C9 An awareness of possible bribery activities in China.||.268||.383||.169||.584|
Notes: a. N = 43.
b. Factor 1 = Labour cost, Factor 2 = Market size, Factor 3 = Infrastructure, Factor 4 = Business ethics.
Table 2 presents the relevant information for the factor analysis and reliability assessments of the dependent construct, namely intensity of foreign investment. The instrument for measuring the construct of the intensity of foreign investment was adapted from Hansson and Hedin (2007). The study conducted by Hansson and Hedin (2007) employed 23 items with no reversed items to measure the construct of the intensity of foreign investment. In this study, these 23 items were adapted to form a 16 item multi facet scale. When this scale was factor analysed four factors emerged as the sub items of the intensity of foreign investment. Despite the emergence of the four factors in the factor analysis, these factors did not stringently conform with the multi item constructs for foreign investment as presented by Hansson and Hedin (2007). For example, items C8, C13, C16 and C22 were employed to measure market opportunities in China, but as shown in Table 2 items C16 and C22 leaked. Presumably, the factor items of Table 2 are different to the patterns proposed by Hansson and Hendin (2007). Arguably, differences will be encountered, not only because the Hansson and Hendin study has 23 items, whereas this study employed 16, but their study was conducted in Sweden, which is a Western community. In contrast the study reported in this research was conducted with respondents who were operating with partners who were conducting business in a non Western context. Given the fact that Hansson and Hedin (2007) have treated the intensity of foreign investment as one individual construct the decision was made to treat this variable as one factor.
|Variables||Questionnaire item (#)||Factor 1||Factor 2||Factor 3||Factor 4|
|Percentage of variance explained||28.67||25.69||11.85||10.35|
|Cumulative percentage of variance explained||28.67||54.35||66.21||76.56|
|Business framework & efficiency||Item C10 Efficient support service systems in China.||.834||.110||.119||.293|
|Item C12 Operating within the regulatory framework in China.||.836||.096||.345||.044|
|Item C24 The stability of institutional and legal frameworks in China.||.874||.166||-.003||.105|
|Item C25 Efficiency of infrastructure in China.||.848||.353||.231||.102|
|Item C28 Availability of basic infrastructure (energy, water) supply in China.||.718||.474||.203||-.119|
|Cost reduction||Item C11 Establish an advantage through cheaper resources||.171||.841||-.209||.034|
|Item C15 Minimising taxes through creative accounting practices.||.002||.743||.004||.222|
|Item C18 Seeking opportunities to shorten bureaucratic procedures.||.374||.642||.250||.360|
|Item C19 Avoiding high cost labour in the home market.||.358||.626||.097||.276|
|Item C21 To reduce non labour cost.||.293||.738||.225||-.055|
|Item C27 Accessing to cheap labour in China.||.235||.875||.086||-.022|
|Market opportunities in China||Item C8 To secure developing existing markets in China.||.147||.249||.860||.086|
|Item C13 Entering new markets, seeking opportunities in China.||.251||-.133||.856||.082|
|Production opportunities in WA||Item C16 Achieving economies of scale.||.454||.269||.114||.647|
|Item C22 Complementing a limited / saturated home market.||.055||.046||.061||.847|
Notes: a. N = 43.
b. Factor 1 = Business framework and efficiency, Factor 2 = Cost reduction, Factor 3 = Market opportunities in China, Factor 4 = Production opportunities in WA.
The demographics of the study respondents can be summarised into three key features. The first feature of the study sample was that male leaders play a dominate role in senior manager levels within WA companies when making investment decision to conduct business in China. The second feature of the sample was half of the study companies were involved in service related industries such as education and banking, and the rest of subjects were engaged in the manufacturing sector. The third feature of the investigated companies was they either entered the Chinese market through exporting or joint partnership. These two types of entry forms have further indicated the intensity investment in China from WA was relatively low.
Table 3 presents the bivariate relationships among the five key constructs. It is indicated in Table 3 that the four predicted relationship were significant at different levels. The content of Table 3 reveals that Western Australian investors perceived that China’s large market size, lower labour costs and business ethics were important factors when making a decision to invest in the Chinese marketplace. The significant result at the p < 0.01 level provides strong support for the three investigated connections. In addition, the significant relationship at the p < 0.05 level provides somewhat support for the study relationship between infrastructure and the intensity of foreign investment.
|Variables||Intensity of foreign investment|
Note: * p < 0.05, and ** p < 0.01.
The quantitative findings of this study can be summarised as four major points. First, China’s large market size provides investment opportunities, which attract WA investors to be present to explore the market. This observation indicates there is a positive relationship between market size and intensity of foreign investment. Second, this research reveals that the level of infrastructure in China perceived to be an essential element for WA companies. This finding supports the initial research question that the level of infrastructure plays a significant positive impact on foreign investment decisions in China by WA companies. Third, the results indicate that the effects of labour cost on investment decisions should be separately based on the investment types. For example, for services companies or exporting companies in WA, the effects of cheaper labour cost in China have a non significant impact on the investment decision. In contrast, for WA manufacturing companies in China, seemingly cheaper labour cost may be seen as an advantage for investment and competing in the global market. This observation could be understood from two perspectives. When companies are involved in exporting, and not manufacturing activities in China, cheaper labour had no substantial impact on foreign investment in the Chinese marketplace. In contrast, companies that are engaged in labour intensive industries, such as manufacturing in the Chinese mainland tend to show preference to China’s relatively cheaper labour cost. Fourth, WA investors perceived that business ethics was an essential area for consideration when making investment decisions in China. Hence, business ethics is positively related to the intensity of foreign investment. Collectively, these findings provide support for the predictions shown in Figure 1.
The qualitative findings of this study can be summarised into five features. The first feature is that most of the respondents took the position that market opportunities in China may continue to attract foreign investors to conduct business in the future. And indeed, the Chinese market opportunities attracted a number of WA businesses. Moreover, the second feature was potential investment opportunities may drive investors to be present in the Chinese marketplace to satisfy increasing local demand, and clearly, there was a strong attraction for WA companies. A third feature demonstrated China was perceived by the respondents as a growing nation and offers major market opportunities to which market expansion for some WA companies is focused. The fourth feature of the qualitative assessments was that cheaper labour cost may have an impact on the investment decision, particularly when WA companies are involved in manufacturing in China, but not in other industries. The fifth feature was an indication of the study managers that business ethics is a critical aspect to consider by WA companies when making investment decisions in China.
Two latent features emerged from the qualitative findings from the representatives of the study sample. First, the level of infrastructure was perceived to play a significant role in the decision to invest in China by WA companies. In addition, networking or relationships was perceived to be an important area for WA companies when engaging business involvement in the Chinese marketplace. In other words, the phenomenon of guanxi in the Chinese society plays a dominant role in facilitating business operations in China. These two dimensions were frequently mentioned during the interviews. A summary of both quantitative and qualitative findings is presented in Table 4.
|Quantitative findings||Qualitative findings|
Three prominent features were obtained from the study participants and representatives. Although the perceived intensity for Western Australia’s investment in China was low as most of companies engaged in exporting or joint partnership, the larger Chinese marketplace offers potential business opportunities. The increasing number of middle class Chinese consumers with their significant levels of purchasing power provides a platform for overseas investors especially from WA to further explore the market (Hodgson 2007). The increasing potential within China may drive Australian investors to be more engaged in strengthening the relationship between the two nations. For example, a shift from exporting orientated to more complex business engagements like strategic alliance or even wholly owned subsidiaries can be predicted to be the trend of future trading relationship. Therefore, it is reasonable to predicate that the trading relationship between the two nations may be intensified when more trade or investment is involved.
The second feature revealed from the study representatives was that China has been perceived as a fast growing nation with relatively cheap labour resources. This predominate feature has been widely recognised by foreign investors, and thus, attracted a large amount of inwards investment. However, with the rapid economic development in China, the historical and ‘stereotyped’ perception towards China’s low labour cost has overtime changed. In fact, Chinese consumers are more quality oriented as they are not simply accepting what producers believe will be accepted, but the general population is becoming more sophisticated in choosing their products. Due to such changes, overseas investors have also shown interests in providing quality services or products to meet the local demand rather than simply seeking for cheaper labour cost. This transformation has enabled China to move away from a central bureaucratic market to a modern, competitive and socialistic marketplace. Therefore, it could be argued companies that are planning to engage in China need to fully address and comprehensively understand the new changing business environment in order to successfully expand to the Chinese marketplace.
The third feature that attracted attention was the participants’ comments on the effects of demographic characteristics, such as personal and organisational attributes on the intensity of foreign investment. The use of personal attributes such as gender may have an impact on the decisions to invest in China by Australian companies. Such examination may be fruitful for understanding how individual similarities and differences affect an organisation’s decision to invest in China. In addition, the importance of organisational attributes, such as organisational size may play a role in business engagement in the Chinese marketplace. Given the fact that organisational size may often be reflected by factors like financial capability, general management skills and international selling ability are more likely to affect foreign investment decisions. Hence, an assessment of organisational size in relation to business engagement decisions in China is likely to advance the understanding of determinants of Australian foreign investment in the Chinese marketplace. It may, therefore, be argued that a comprehensive understanding of the effects of demographic characteristics on investment decisions could potentially benefit the appreciation of the determinants of Australian foreign investment in general, and in the Chinese marketplace in particular.
The results of the study provide four main implications. Firstly, this study may provide some extension to the existing body of knowledge. For instance, this study investigated the likely relationships between four independent variables (i.e., market size, infrastructure, lower labour cost and business ethics) in China and the intensity of foreign investment of WA companies. The research revealed that China’s large market size plays a positive role in attracting investments from WA to China. Similarly, the adequate level of infrastructure and the level of familiarity of business ethics in China tend to somewhat encourage WA investors to conduct business in China. In contrast, China’s relatively cheaper labour cost was not the primary driver (of the respondents) that motivates WA companies to invest in China. This observation may attract future researchers to clarify this notion. These findings may specifically offer some insight to help business managers or owners to undertake better planning of their investment decisions.
Secondly, this study may offer additional insight to those WA companies that are operating or other businesses that are planning to invest in the Chinese marketplace. For example, this study may be particularly useful for international managers or owners, as it may provide some fruitful information to assist a better understanding of the issues that relate to business ethics with Chinese operations. Furthermore, with China’s increasing economic power and development in East Asia, there is merit to be gained by having a more comprehensive appreciation of the determinants of Australia’s investment in China. Hence, the present study has been undertaken to empirically examine the drivers that promote Australian companies especially from WA to conduct business in the Chinese marketplace. Such action may potentially minimise the existing knowledge gap of relatively limited studies conducted to examine Australian managers’ or owners’ perception in relation to their decisions to invest in China.
Thirdly, this research has determined cultural difference exist between Western and Asian societies, which may lead to differences in business standards and practice. It is reasonable to assume that companies that are planning to invest in China may need to gain an indepth and comprehensive understanding of the diverse range of management practices in order to effectively operate in the competitive Chinese marketplace. For example, the phenomenon of guanxi in China has been considered as a major determinant for facilitating business engagement. Thus, in managing human resources (HR) at the work environment, a comprehensive understanding of the concept of guanxi may help managers to increase the possibility of forming interpersonal relationships within organisations. Such action has potential to influence HRM policies and practices in organisations, particularly with WA organisations that are dealing with Chinese mainland parent companies. It may, therefore, be argued that the phenomenon of guanxi in assisting business operations in China has become increasingly important, and international managers or owners may need to gain a deeper understanding of this phenomenon.
Fourthly, a large amount of studies have investigated the determinants of inwards investment in China. However, examining this notion from an Australian perspective is relatively restricted, and in particular, what factors motivate or deter owners / managers of Australian companies from undertaking foreign investment in China. Moreover, in the Australian context, some researchers (Bryan 1989, Edington 1990, Sim & Teoh 1994, Yang, Groenewold & Tcha 2000) have paid a considerable amount of attention to the understanding of the determinants of inwards investment to Australia. In understanding the determinants of foreign investment in China, the focus has been limited in countries such as the North American marketplace and Japan (Beamish 1993, Pan 1994). In addition, much of the research on the determinants of China’s inward flows has been based on secondary data with a narrow focus on provincial or city level. A strength of the observations of this study is the use of primary data, which employed both quantitative and qualitative approaches.
The study investigated the perceived intensity of determinants of WA’s foreign investment in China. Specifically, the study was to examine a set of constructs, namely (a) market size, (b) infrastructure (c) labour cost, and (d) business ethics in relation to Australia’s foreign investment in the Chinese marketplace. A study model was developed after a comprehensive reviewing of the literature that related to the determinants of foreign investment in China. Four observations were revealed from the study findings; market size, infrastructure, lower labour costs and business ethics play somewhat of a dominant role in decisions to invest in the Chinese marketplace by Australian companies, especially from WA.
A significant contribution of this study is the application of a questionnaire for cross cultural research. The study tested an instrument that was comprised of scales, which were generated from Western literature, and most were used in Western contexts. A salient departure of the work reported in this paper is the use of these scales to obtain primary perceptual information from decision makers who have or are about to invest in the Chinese marketplace. Hence, the findings of the study have creditability for other managers when undertaking decisions to engage with Chinese business endeavours.
The implications of this study have been evaluated from both theoretical and empirical perspectives. Relatively limited studies have been previously conducted based on the primary data, such as survey and interview to examine the determinants of Australian foreign investment in China. The findings obtained from this study may offer additional knowledge to the understanding of the determining factors that inspire WA companies to invest in China. For instance, the Chinese marketplace offers significant market opportunities, but it also presents challenges as the business standards and practices are different between Western and Eastern Asian societies, especially for the Chinese society. Consequently, this may require mangers to gain a comprehensive understanding of the issues that relate to business practices in the Chinese marketplace before conducting business in China. Further, the study findings may be particularly useful for international managers to make HRM policies and practices in the Chinese marketplace as international managers may need to gain more appreciation to the phenomenon of guanxi. From a narrow perspective, the study findings have implications for HR managers or practitioners to facilitate relationships in the organisations. For example, guanxi or relationship plays an important role in Asian countries, hence, managers or business practitioners could use this strategy to build a harmonious relationships at workplace. For a wider perspective, the concept of guanxi has been considered as an important strategy for facilitating business operations within China and may enable foreign companies to successfully operate in the Chinese marketplace.
Ms.has completed her Master of Philosophy degree at Curtin University of Technology. She is currently undertaking her doctoral degree in the School of Management, Curtin Business School. Her research interests include International Business and Management, Human Resource Management, and Foreign Direct Investment.
Email : Yi.Liu@cbs.curtin.edu.au
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