Signalling intent : FDI strategies of state - owned and privately held automobile companies in China.

Abstract

State-owned automobile companies in China tend to engage in inward oriented Foreign Direct Investment (FDI) strategies such as joint ventures while privately-held automobile companies tend to engage in outward-oriented FDI strategies such as the acquisition of foreign subsidiaries. This paper argues that the flexibility of prices and employment faced by state-owned and privately-held companies affect the type of FDI strategy pursued. This paper focuses on the Shanghai Automobile Industry Corporation (SAIC) and Geely. Two conclusions are reached: SAIC engages in joint ventures as a cheap source of technological advancement as well as to retain production and employment within China, due to government pressures to keep vehicles affordable and to maintain high employment levels in China. In contrast, Geely acquires foreign subsidiaries for product enhancements, which allow for a premium on prices, and operates these subsidiaries at their overseas sites in order to reduce training and employment costs in China. Outsourcing is also used to keep prices and employment flexible.