Fdi Scale and Performance of Taiwanese Family Firms in China:a Resource Based Perspective

In the present study we have used data from 276 family-owned Taiwanese manufacturing firms that invest in China in order to examine the effect of firm resources in Taiwanese firms on FDI performance in China. Hypotheses were developed and it was found that firm-specific advantages like firm size, R&D intensity, international experience, and managerial capabilities had a positive influence on both the degree of a firm’s FDI involvement and its performance in Mainland China with previous business experience being found to be the most important in influencing family business people to invest in China (and on their performance in China). Implications for future research are discussed. Introduction With nearly one-quarter of the world’s population and one of the fastest rates of economic growth, China has become an attractive target for business expansion by many foreign businesses (Hsiao & Hsiao, 2004). The record $143 billion inflows in Asia in 2000—a 44 percent increase over 1999—was due primarily to an unprecedented FDI boom in Hong Kong and China. FDI flows to China of $41 billion remained fairly stable (Hatemi & Roca, 2004; UNCTAD, 2001). During this time, there has also been significant conceptual and empirical progress in literature pertaining to the causes and outcomes of foreign direct investment (FDI). However, the determinants of FDI scale and its relationship to firm performance remains largely unclear, especially in China and other emerging countries (Chuang & Hsu, 2004; Deng, 2001; Gaba, Pan & Ungson, 2002; Weldon & Vanhonacker, 1999). There is evidence to suggest that a firm’s level of FDI is a function of its ability to amass and develop strategically relevant resources (Child & Tse, 2001). The role of resources is encapsulated in the resource-based view of the firm (RBV) asserts that the differences in a firm’s ability to accumulate and deploy unique resources drive to sustained competitive advantage and superior firm performance (Amit & Schoemaker, 1993; Barney, 1991; Dierickx & Cool, 1989; Mahoney & Pandian, 1992; Wernerfelt, 1984; Yang, Lee, Lin, & Chung, 2004). The present study examines the effect of firm resources in Taiwanese firms on FDI performance in China. The remainder of the paper begins with an overview of the resource-based perspective and recent developments concerning Taiwanese FDI in China. Hypotheses are developed and the results of an empirical analysis presented. Findings, conclusions, and implications for future research are elaborated.