Re-examining location antecedents and pace of foreign direct investment: Evidence from Taiwanese investments in China

Abstract

The objectives of this study are to examine variations in the preferences of location antecedents and the pace of foreign direct investment (FDI) by multinational enterprises’ (MNEs) in relation to increased FDI experience and evolved strategic intentions. Using a rank-ordered logit model (ROLM), this study analyzes a total of 2688 investments in China from 731 Taiwanese-listed firms (TLFs) during 1997–2007. The results show that TLFs demonstrate distinct preferences for location antecedents at different stages of their FDI in China. In the early stages, TLFs attempt to exploit their existing competency and favor locations with advantages in infrastructure, labor cost, market size, and openness. In the later stages, locations with better production efficiency, labor quality, and R&D capability are more attractive because TLFs have become accustomed to the local business environment and intend to explore capabilities that create sustainable competitiveness in the face of competitive challenge. The results show that two antecedents, agglomeration and policy incentive, have consistent influence on location choice during the entire FDI process. The results also show that greater FDI experience contributes to a more intensive inter-investment time span and accelerates a TLF's investment pace.