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Mathematics & Economics
Dissertation Review
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The Examination of the Influence of FDI on China Automobile Industry (Dissertation Review Sample)


Discussion, Management The examination of the influence of FDI on China automobile industry


Dissertation Chapter - Discussion, Management
The examination of the influence of FDI on China automobile industry
Name of Student:
The majority of the biggest international players see China as the most attractive destination to invest. One of the reasons behind the attraction is because of the environment that the Chinese government has created to encourage foreign direct investment. The favorable drivers, sustainable trends and the saturation in the US, Japan, and Europe has pushed the major automobile manufacturers to invest in China. The purpose of this dissertation is to explore the major effects of foreign direct investment in the automobile industry in China and the effects and role of government policies. The objective of this paper is to carry out an identification and examination of the contribution of FDI in terms of the determinants and various drivers.
Literature review findings
Foreign direct investment has made the Chinese automobile industry to flourish and become a leading industry that has sees it overtake Japan and the US (Yongnian, 2014). The FDN has made the Chinese automobile industry to become a new landmark that influences its GDP, employment, technological advancement, taxation, and trade. However, it has been accompanied by other negatives and complexities. It was in the early 1950s that the Chinese automobile industry was initiated with the production of its first truck. As the local market flourished, demand grew hence there was need to increase the number of production plants and bases that formed the growth stage of the industry. In the late 1970s, the Chinese economy opened up, and the local demand for cars and trucks was high yet the industry was unable to meet the growing demand (Yongnian 2014).
The Chinese government had to allow foreign direct investment in setting up joint ventures to meet the demand (Buckley et al. 2007). Several components, however, had to be acquired from the international market thus increasing the level of competition in the local market. Yu (2012) argued that China attracted Foreign Direct it was because its automobile industry was technology and capital intensive. The foreign investors thus got attracted to acquire management techniques in manufacturing technological innovation. The Chinese government encouraged FDI making it easier for the multinational automobile manufacturers to gain access to the resources and markets in the Chinese automobile industry.
The importance of the FDI in the automobile industry was evident with the Chinese economy having a significant change in its total GDP. The Chinese government thus took much interest in the affairs of its automobile industry because it contributed heavily towards the development of its economy (Zhang 2014). According to Zebregs (2002), it is evident that foreign direct investment has been the fundamental reason contributes to the flourishing of the Chinese automobile industry. FDI has created employment opportunities through the joint ventures. The Chinese economy also benefits from the spillovers in the car components and parts sector. So as to meet the requirements and standards of the foreign investors, Chinese manufacturers were compelled to become competitive through the improvement of products' quality and cut costs. The Chinese automobile industry benefited in the form of high production efficiency through the technological advancement. FDI created foreign links that were beneficial to the local producers since they were presented with opportunities to coordinate with foreign affiliates. The local producers were able to imitate the ways of the foreign automobile companies and thus become more productive. The local workers also got training on ways to improve their efficiency and product quality (Fosfuri 2001).
On a negative side, foreign direct investment has failed to stimulate new economic developments and leads to low domestic skill formation and innovation in the long run (Moran 2005). The technological equipment brought in through FDI led to a shortage of jobs since machines rendered the locals jobless thus disrupting the labor market. The foreign firms also bring in advanced methods but fail to invest in the local research and development initiatives Deng (2007). The government policies in China allowed FDI but did not give considerations to the adverse effects it has in terms of the risk it poses to the local investment structures and economies.
Research implications
1. Practicing managers
From the research, practicing managers need to be aware of the labor supply, costs and output in the host country. Factors such as energy consumption, regional income differences, and the exchange rates are also vital to understand since they are the determinants of FDI decisions. The location of FDI will be influenced by the infrastructural level, education level, wage cost and the available policy designations. The practicing managers must know the pattern of FDI by analyzing the economic size and labor productivity of the host country. It will enable them choose a location that has fewer trade constraints and transactional costs.
2. Policymakers
The research and examination of the influence of FDI on China automobile industry allow policy makers to consider that allow for trade openness and incentive. It is because incentive policies that a host country presents positively attract FDI (Zhang 2014). Zhang observed that incentive policies were more important in attracting FDN emerging markets in development countries rather than established markets in developed countries. Different taxation policies will have an influence on FDI activities in varied ways. For instance, indirect taxes on businesses would affect DFI in a different manner as compared to corporate income taxes policies. An FDI that is export-oriented will be promoted by more favorable investment tax policies that are less sensitive. On the other hand, FDI that is market-oriented will be favored by tax policies that are focused on cost minimization. Market orientation always tends to favor and promote other protectionist policies and incentives. As such, the formulation of the FDI policies should be protectionist in nature to the local market and economy.
3. Academic-implications for research and teaching
The scope of the research is towards making further contributions to the existing research concerning the topic. The research fulfills its objective through analysis of relevant theoretical sources as a fundamental basis. The research on the recent current literature brings up to date the operations in the Chinese automobile industry. Academic studies should focus on the limitation of the resear...
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