Market Entry Strategy Selection in China

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Market Entry Strategy Selection in China

Introduction Foreign firms deciding to entrer a host country face numerous options of entry modes, which include equity joint ventures, wholly foreign owned enterprises, acquiring existing firms, franchising and licensing, contractual joint ventures, representative offices, build-operate-transfer and so forth. However, the most important process a foreign company should do before deciding an entry modes is to make sure it know the targeted market very well by considering the production factor, the market factor, and environment factor in host country. This essay will give a general introduction about the location choice of foreign direct investment (FDI). After that, it will focus on
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Last but not least, apart from the above factors, geographical conditions, cultural diversity factors and other factors also have important influence on the locational choice of FDI (Guiming, 2002).

2. Location selection factors of FDI in China Regional differences of FDI in China are the result of various economic and non-economic factors. Dunning divided the locational factors whicn affect FDI into four groups: market factors, trade barriers, cost factors and the investment environment. According to FDI location mentioned in the first part, the location selection factors influencing FDI can be classified into four groups below: cost factors, policy factors, market factors and centralization economic factors. The essay will focus on the influence of market factors and centralization economic factors. 1. Cost factor Cost factor is comprised of labour cost, transaction cost and information cost, among which the labour cost is the most important one. China, as the most populous country, owes abandence and cheap labour resources, which largely appeals to multinational companies as a kind of cost competing advantage. Besides cost factors, labor quality also directly affect the labor productivity. Especially in a host country, lower labor costs often means low labor productivity. the location with higher productivity and low cost is more attractive than those with low labor productivity and cost.

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