Product cycle theory and telecommunications industry—foreign direct investment, government policy, and indigenous manufacturing in China

Abstract

Focusing on China's telecommunications manufacturing sector, this paper first reviews the major theoretical positions regarding the impacts of foreign direct investment (FDI) and the relevance of product cycle theory. The paper then discusses how the Chinese government formulates its policy and regulations regarding FDI, and how it integrates its FDI policy with its industrial policy in the telecommunications manufacturing sector. Taking the manufacturing of central office switches as a special case and the telecommunications manufacturing sector as a broad case, the paper examines the interaction among government policy, FDI, and the indigenous manufacturing industry in the past 20 years. Based on the findings, this paper proposes a dynamic adding-and-downgrading model that explores the interaction between FDI investors and host developing nations and enriches the current product cycle theory.