A new tale of two cities: Japanese FDIs in Shanghai and Beijing, 1979–2003

• Published in: International business review 2007-04, Vol.16 (2), p.207-228
• Main Authors: Ma, Xufei, Delios, Andrew
• Format: Article
• Language: English
• Subjects: China; FDI location choice; FDI location choice Foreign subsidiary survival Institutions Transitional economy China; Foreign direct investment; Foreign subsidiary survival; Historical analysis; Institutions; Investment decision; Japan; Location of enterprises; Multinational enterprises; Subsidiary; Transition economies; Transitional economy
• ISSN: 0969-5931; 1873-6149
• DOI: 10.1016/j.ibusrev.2007.01.009

Transitional economies can be characterized by considerable sub-national variation in economic and political characteristics. We investigate how this variance influences the timing of entry, entry mode, industrial traits, and survival rates for Japanese foreign direct investments (FDIs) made in China's two major metropolises—Shanghai, the economic center, and Beijing, the political capital. Using a sample of 1610 subsidiaries of Japanese firms established during the 1979–2003 period, our empirical results show that Japanese multinational enterprises (MNEs) tended to choose an economic-oriented rather than a political-oriented city as their investment location, with the consequence being higher survival likelihoods in Shanghai than in Beijing. This location choice helped Japanese firms avoid policy uncertainty and political hazards in China's transition economy. Our findings highlight the point that fundamental features of institutional environments at sub-national levels should be analyzed when looking at investment strategy and performance in transitional economies.