A New Approach to Evaluate the Location Factors Affecting FDIs’ Operations: A case of the NETD Kristianstad University The Department of Business Studies FEC 685 Master Dissertation Public administration & International Business Program May 2005 Tutors: Bengt Ferlenius Authors: Liu Wenke Huang Jianhua Annika Fjelkner Zhou Jingfeng Acknowledgments The municipality of Ningbo provided us a very precious opportunity to study here at Kristianstad University. During our education, we have gained much valuable knowledge and experience in international business and public administration from all our teachers and guest lecturers. The time we have experienced here must be memorable in our life. In the past several months, our group has worked together with a great interest to carry out our dissertation. This dissertation is a challenge to us. We have learned how to collaborate with each other, how to find a new research question and how to solve it in a scientific way. We would like to express our sincere gratitude to our tutor Bengt Ferlenius. His broad knowledge and generous devotion made it possible for us to complete this dissertation. During the period of study here, our families have been giving very much their love and encouragement to spirit us finishing our study, a lot of thanks to them. We also would like to express our thanks to Annika Fjelkner, our English teacher, for her revising our paper; to our colleagues, for their help to conduct the questionnaire survey in the NETD; to all respondents, for their reply to our survey; to Lisa Nilsson, for her kind help in our study; to all our classmates, for their help in many ways. Kristianstad May, 2004 Winkle Liu, Jeanwar Huang and Jassy Zhou Abstract Purposes: The aim of this dissertation is to find an applicable theoretical framework that could describe the factors affecting the operations of the established FDIs rather than the factors influencing the FDIs’ location decisions. The theoretical framework is also expected to be applicable in evaluating the investment environment for a specific area. Research questions: z Can Dunning’s OLI theory and Porter’s Diamond theory be applicable to explain the factors that affect the established FDI operations in an EPZ? z Can the factors relating to the location decision of FDI activities be used to construct our research framework? z What conclusions can we draw through our research? Theoretical framework: Based on Dunning’s OLI theory and Porter’s Diamond theory, as well as some empirical studies’ results, we have established a factor hierarchy, in which six principal factors are presented at the first level of the factor hierarchy, and the six principal factors are further decomposed into 25 sub-factors at the second level of that hierarchy. A questionnaire was designed according to the theoretical framework, and a survey was conducted in the NETD. Results: The collected data from the survey was analyzed through the AHP approach. We have calculated a composite weight to each factor and put all the factors in order based on the weight that each factor has got. The finding in our study suggests that the NETD should further upgrade its working efficiency in order to create a more sustainable advantage. Also, our result further confirm that the government can play a significant role in creating competitive advantages in the age that the natural endowment becomes less important. Key words: OLI theory Diamond theory EPZ Factor AHP Composite weight Table of Content 1.Introduction...............................................................................................1 1.1 Background ............................................................................................................................... 1 1.2 Problem ..................................................................................................................................... 2 1.3 Purpose...................................................................................................................................... 3 1.4 The Selected Perspective........................................................................................................... 3 1.5 Limitations ................................................................................................................................ 3 1.6 Research Questions ................................................................................................................... 4 1.7 Definition of Some Terms ......................................................................................................... 4 1.8 Outline....................................................................................................................................... 5 2.Literature Review .....................................................................................7 2.1 Introduction............................................................................................................................... 7 2.2 Dunning’s Eclectic Paradigm Theory (OLI) ............................................................................. 9 2.2.1 Ownership Sub-Paradigm (O)...................................................................................... 10 2.2.2 Location Sub-Paradigm of Countries (and Regions).................................................... 11 2.2.3 Internalization Sub-Paradigm (I).................................................................................. 13 2.2.4 Summary of the Eclectic Paradigm Theory (OLI) ....................................................... 14 2.3 Porter’s Diamond–Determinants of National Competitive Advantage ................................... 14 2.3.1 Factor Conditions .........................................................................................................15 2.3.2 Home Demand Conditions........................................................................................... 16 2.3.3 Related and Supporting Industries ............................................................................... 16 2.3.4 Firm Strategy, Structure, and Rivalry........................................................................... 16 2.3.5 The Role of Governments ............................................................................................ 17 2.3.5 Summary ...................................................................................................................... 19 3.The Development of EPZs......................................................................20 3.1 A Brief Review on the Relevant Studies to the EPZs.............................................................. 20 3.2 The Global History and Development of EPZs....................................................................... 21 3.3 Different Types of EPZs in China ........................................................................................... 23 3.4 The Development of the National ETDZs in China................................................................ 26 3.5 The Ningbo Economic and Technological Development Zone (NETD) ................................ 27 4.Theoretical Framework and Research Model ......................................29 4.1 The Modification of Dunning’s Theory and Porter’s Diamond Model................................... 29 4.2 Other Related Empirical Researches and Detailed Factors..................................................... 32 4.3 A Factor Hierarchy and a Modified Model ............................................................................. 33 5.The Empirical Study……………………………………………………39 5.1 Defining Research Objectives................................................................................................. 38 5.2 Methodologies, Communication Approach and Feasibility .................................................... 38 5.3 Selected Sample ...................................................................................................................... 40 5.4 Design of Questionnaire.......................................................................................................... 40 5.4.1 Data Type ..................................................................................................................... 40 5.4.2 Question Structure........................................................................................................41 5.4.3 Techniques for Improving the Response Rate ............................................................ 41 5.4.4 Respondent Bias...........................................................................................................42 5.5 Pilot Test and Revise............................................................................................................... 43 5.6 language of the questionnaire.................................................................................................. 43 5.7 Conducting The Questionnaire Survey ................................................................................... 43 6.Analyzing the Collected Questionnaires................................................44 6.1 The principal background information about the targeted companies and the respondents.... 44 6.1.1. The companies’ running time in the NTED................................................................. 45 6.1.2 The industrial sectors distribution among the companies ............................................ 45 6.1.3 The turnover of the companies....................................................................................