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Factors Influencing the Location and Control of Foreign MNEs inChina: The Case of Liaoning Province.

Yinghui Liu

The location and control decisions of multinational enterprises are at the core of managerial decision-making and academic theorizing in international business (Buckley et al., 2007). For each activity the MNE undertakes, it has two critical decisions to consider: (1) where should the activity be located, and (2) How should it be controlled (Buckley and Carter, 2004)? In line with these arguments, the present research analyses the complex characteristics of MNEs from different source countries related to their choices of location and control decisions in northeast China's Liaoning province for companies established during the period 1979 to 2006. The aim is to obtain a clearer understanding of how firms operate effectively to gain an overall satisfactory performance based on their location choices and investment motivations. The importance of selecting Liaoning province (LN) in China in this study is that we do not know much about FDI in the North-Eastern region of China. We also know little about MNE foreign ventures: why they were established? How they operate? There are important public policy issues involved such as how do provinces in less developed or early transition periods attract FDI? How do provincial authorities understand the operation of MNEs? How have MNEs foreign location choices changed in the last two decades? In the present study, we seek to contribute to this important field of research.

The investment decision variables investigated in this study include: location decisions, MNE motivations (business strategies and technology transfer decisions), management control decisions and human resource management decisions. In this research we draw upon the theories of transaction costs,location decisions, resource-based and knowledge-based theories and several conceptual models related to the preference structures of managers, either actively or potentially actively involved in FDI location and management control choices in northeast China. We further test the impact of control and human resource management on firms' performance. Our analysis also provides a more direct comparison between types of FDI (JVs vs. WOs),source countries (Asian countries vs. Non-Asian countries) and investment ages (entry before 1995 vs. after 1995) by their location choices and management control strategies decisions.

Survey data regarding investment information for a sample of MNEs operating in Liaoning province from 1979 through 2006 was obtained from the Liaoning Statistical Bureau. This study employs statistical analysis to run test results using SPSS software and employs ANOVA, Mann-Whitney, Kruskal-Wallis and Pearson correlation analysis. Paired Samples T-Tests and Wilcoxon Testsare also used for data analysis and hypothesis testing.

The results of this research reveals that location variables, business strategy variables, different management control styles and various human resource management practices are significantly related to the choices of firms locations and control of operations. However, firms from different source countries (Hong Kong & Macao, Japan, other Asian countries and Western countries); different entrant years (before and after 1995) and different types of investment (JVs and WOs) are found to have no significant difference in respect of the important of location factors influencing their choice to invest in Liaoning. On the other hand, significant differences are found in their investment motivations, management control strategies and HRM practices.

An important contribution of this study is in bringing location factors and MNEs capabilities into a unified framework and examining the relationships between them as two related aspects of MNEs location choices. Based on this analysis, we further test how these choices contribute to firms' performance by gaining a more profound understanding of how firms operate. This study makes important contributions to the literature on location decisions, MNE motivations, management control and decision making.


Ben Tipton and Sid Gray are supervising this project.