Author: Jong, Abe Pui Lam
Title: Three essays on Chinese reverse direct investments : theory and performance outcomes
Advisors: Yeung, C. L. Andy (LMS)
Lo, K. Y. Chris (ITC)
Degree: Ph.D.
Year: 2023
Subject: Investments, Chinese
Investments -- Environmental aspects -- China
Hong Kong Polytechnic University -- Dissertations
Department: Department of Logistics and Maritime Studies
Pages: 233 pages : color illustrations
Language: English
Abstract: China has transformed from a recipient to a contributor to the world’s outward foreign direct investment (OFDI; Wang & Li, 2017). OFDI from China has more than doubled from 56,529 million USD in 2009 (UNCTAD, 2010) to 143,040 million in 2018, the world’s second-largest contributor in OFDI, right after Japan (144,982 million) and followed by France (102,042 million) (UNCTAD, 2018). Notably, China has been increasing its reverse direct investment (RDI) in more developed economies (Deng et al., 2017). China’s RDI stock increased from 94 billion USD in 2013 to 254 billion in 2020 (MOFCOM, 2014, 2021). European Union (32.7%) is the most popular developed country for China’s OFDI, followed by the United States of America (31.5%) and Australia (13.6%) (MOFCOM, 2021).
Understanding the RDI of Chinese firms is essential to the prospect of China’s transformation from a labor-intensive manufacturer to a technology-intensive innovator. First, RDI allows Chinese firms to access advanced technology, knowledge, and expertise to improve their technologies, capabilities, and competitiveness during globalization. Second, FDI enables China to diversify its industries and rely less on labor-intensive manufacturing. Third, the Chinese manufacturing industry has traditionally suffered criticism of its ethics, including its consciousness of environmental management and labor rights. RDI allows Chinese firms to enhance their image and reputation, which is crucial for sustainable competitiveness and long-term success as a global player.
In this thesis, I investigate the impact of RDI, particularly on environmental management performance and shareholders’ value. RDI provides opportunities for firms to enhance their environmental management performance by allowing exposure to better practices and technologies across their operations management. Improvements in operations imply better environmental management and sustainability outcomes, which can enhance a firm’s reputation and increase its shareholder values as investors are increasingly concerned about its sustainability performance when making investment decisions. Therefore, it is crucial for firms to strategize their RDI to result in better environmental performance and increase shareholder value.
Environmental management has become one of the firm’s core focuses because it has proven essential for sustainable competitive advantages. At the macro level, it is vital for a nation’s economic development and the world’s common good. Achieving efficient environmental management is especially crucial yet challenging for emerging countries like China, whose manufacturing industry used to be a destination for heavy polluting processes of other developed countries. Although China has been focusing on initiatives to ease the environmental issues along its internationalization journey, as a latecomer in environmental management, Chinese firms often seek advanced environmental knowledge and skills externally, which makes RDI an ideal platform for knowledge transfer.
Study 1 provides a knowledge foundation for the hypothesis development of Study 2. I systematically reviewed 178 journal articles to examine how the linkage between sustainable supply chain management and organizational learning (OL) is studied in the operations management field. The study first presents descriptive statistics and then develops a citation network analysis. Four research domains were identified, they are (a) environmental collaborations and environmental learning, (b) tensions and risks in sustainable global supplier management and OL, (c) sustainable supply chain learning, and (d) OL in social sustainability supply chain practices. Main path analysis of each domain was conducted to explore the knowledge structure further. The research concludes with future research recommendations.
Study 2 examines the impact of RDI on the firm’s environmental performance through the lenses of the OLI paradigm (ownership, location, and internalization), OILL paradigm (OLI plus learning), and OL theory. Data from 1,739 publicly listed manufacturing firms from 2008 to 2017 in the Shanghai and Shenzhen Stock Exchanges were considered for empirical analysis. Our results indicate that RDI improves the environmental performance of Chinese firms. I further examined the moderating effects of cultural similarity and private ownership. Overall, it was found that RDI is more beneficial to the environmental performance of firms with higher private ownership and when they expand to culturally similar destinations.
By understanding the dynamics between RDI and shareholders’ value, firms can better manage their firm’s performance and ensure their long-term survival. Study 3 uses a sample of 236 RDI announcements from Chinese manufacturing firms to explore the effect of RDI on firms’ stock market value. It captures positive abnormal changes in stock price, which indicates investors consider RDI beneficial to the future cash flow of firms. The results show a positive contingency effect of the external dynamics of the destination’s talent resources and its regulatory environment for FDI on the impact of RDI on shareholders’ value. At the same time, the results concluded a negative contingency effect of the internal dynamic with financial risk.
This thesis contributes to the FDI literature by shedding new light on the positive impact of Chinese RDI on a firm’s long-term competitive survival. The majority of FDI research focuses on investments from developed countries. Many scholars have pointed out that the conventional FDI frameworks do not adequately explain the unconventional RDI of emerging countries as their motivations differ. Existing literature on FDI from developed countries overlooks the unique characteristics of emerging economies’ RDI. As the motivation, the challenges, and the desired outcomes can differ from traditional FDI from developed countries, more specific attention should be paid to RDI. I enrich this by investigating specifically RDI. Most emerging studies investigating the implication of China’s RDI use province-level panel data and yield mixed results. I utilize firm-level panel data in this thesis to contribute a micro perspective to the issue. In addition, existing studies that investigate RDI overwhelmingly focus on R&D and technology. For a more sustainable approach, this thesis points out that RDI can serve as an effective measure to improve the environmental performance of firms from emerging countries. The results of this thesis also show that RDI yields a positive market reaction. Besides contributing to the relevant literature, this thesis has significant practical implications for manufacturing managers, the government, and investors.
Rights: All rights reserved
Access: open access

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