A study of the impact of foreign direct investment on firms in the Chinese wine industry

Abstract

The purpose of this thesis is to examine the process by which emerging market firms leverage foreign resources and capabilities through linkages with foreign affiliates in the home country. This is achieved through a thorough examination of the inter-firm transfer of firm Ownership-specific advantages, resources and capabilities from locally-based foreign affiliates to local Chinese firms via joint ventures and non-equity-based collaborative partnerships. The theoretical foundation of this study draws on the Linkage, Leverage and Learning (LLL) framework (Mathews, 2006a; 2017) within the broader contextual frameworks of the Investment Development Path (IDP) framework (Dunning & Narula, 1996) and the Ownership, Location and Internalisation (OLI) paradigm (Dunning, 2000; 2001). The particular focus of the study is on the Linkage and Leverage constructs. A case study method, focused on the Chinese wine industry and its participants, is employed. Qualitative data was collected through 48 in-depth semi-structured interviews with firms (including wine producers, suppliers and distributors), wine institutes and wine bureaux. This thesis finds that the leverage process encompasses three phases: a) Application, or directly utilising foreign resources and capabilities without change; b) Adaptation which involves incrementally changing foreign resources and capabilities and/or adjusting the existing resources and capabilities of local Chinese firms to better utilise foreign resources and capabilities; and c) Amelioration, or remodelling original foreign resources and capabilities by fundamentally improving and innovating them to better fit the needs of local Chinese firms. The leverage process shows that local Chinese firms not only learn from foreign affiliates, but also develop foreign resources and capabilities to upgrade their competences. Foreign multinationals contribute to the upgrading of local firms in the Chinese wine industry by introducing technology, techniques and experience in winegrowing and winemaking; expertise in corporate governance and vineyard management; and well-developed philosophies in the winery business. Further, the findings suggest that inward FDI (IFDI) has played a catalyst role in the development of the Chinese wine industry by a) expanding industrial scale, b) introducing winery business philosophies, c) closing the technology gap between the industry and its international counterparts, d) creating a climate for Sino-foreign communication regarding wine techniques, e) engaging in wine education, f) promoting local wine regions, and g) boosting industrial confidence. The theoretical contributions of this thesis include the exploration of how the LLL framework can be employed in a home-country context; a richer understanding of “Leverage” within the LLL framework; and the development of a process model which illustrates IFDI’s impact on the upgrading of emerging market firms and their industry within the home country. Although this research is limited contextually to the wine industry in China, it has implications for other emerging economies that have unique, competitive and irreplaceable Location-specific advantages attractive to IFDI. Public policies that seek to achieve industrial development in such economies can draw on the catalyst role of IFDI. Emerging market firms to gain greater access to foreign resources and capabilities by adopting the linkage-leverage-learning concept as a strategy in their home countries.