An examination of strategic foreign direct investment decision processes: the case of Taiwanese manufacturing SMEs

Abstract

Proposes that due to the worsening business environment in Taiwan in the 1980s many manufacturing enterprises, the majority being labour‐intensive small and medium‐sized enterprises (SMEs), were moving out to other developing countries. Explores how owner managers in the Taiwanese Electronic and Electric Appliances industry make a foreign direct investment (FDI) decision. Two semi‐structured questionnaires were designed to gather data about the respondents’ decision‐making processes. Field research was undertaken in Taiwan by personal interview over a period of three months and in total 35 companies participated. Discusses how a company’s internationalization experience and its size in terms of sales significantly influence the likelihood of a positive FDI decision. The likelihood of a positive FDI decision is also affected by owners’ personal characteristics. Additionally the decision makers appear to be influenced by friends and partners. States that the companies that make a positive FDI decision perceive the work ethic in Taiwan as deteriorating. Posits that 78 per cent of the most recent FDIs are in China: the major benefits being sought are low production costs and abundant labour supply. Says the most important reason for selecting China as the host country is the same language and cultural similarities. Explains that most FDIs are to produce products which have a price advantage; hence the FDI creates a vertical integration with the mother company in Taiwan. Seems that Taiwanese manufacturing SMEs will continue investing overseas to seek competitive advantages.