Korea's Direct Investments in China: Technology, Experience, and Ownership Factors in Performance

Abstract

This paper is designed to empirically examine what determines the performance of Korea's foreign direct investment (FDI) in China. Three main determinants are hypothesized to influence the performance of Korea's FDI. They include technology, internationalization experience, and ownership patterns associated with Korea's investments in China. Data were collected from surveys with 91 Korean investors. Our empirical analysis suggests that the labor intensity of technology involved in FDI and the appropriateness of manufacturing technology to the local conditions influence the investment performance. In addition, the results indicate that the internationalization experiences of the Korean investors also affect the profitability of FDI. Another finding of note is that the level of local ownership had a positive impact on performance. But, more interestingly, its effects were moderated by the investor's prior internationalization experiences; in other words, the investors with limited internationalization experiences performed well on a minority ownership venture.