Internalization Theory Of Fdi In China

1044 Words5 Pages
On the other side of coin, firms that chose to make FDI in China have been facing either benefits or challenges or both. China has been considerably successful in attracting FDI since the implementation of economic reform in 1979. Coca-Cola is a good and remarkable example for firms that have FDI in China. Coca-Cola has a presence in over 200 countries worldwide and is acknowledged as the most recognized brand in the world. Coca-Cola had its first bottling manufacture factory established in Beijing in year 1981, it was an impressive FDI and until now, there are 35 bottling companies and 29 manufacture factories for Coca-Cola existing across China, while also having more than 30,000 people working in Coca-Cola, not to mention, 99% of the staffs…show more content…
Internalization theory is used as a conceptual framework to analyze Coca-Cola’s evolving modes of entry into the Chinese market. Internalization theory proposes that in the event of high transaction costs which are caused by market imperfections, it is normally less costly for an MNC to use its internal corporate structure to conduct business transactions rather than by relying on the market. Imperfections may be the result of uncertainty in the market, the small number of agents that are available, and opportunism or bounder rationality. Furthermore, the internalization approach suggests that a rational profit-maximizing MNC would usually establish a Wholly Owned Subsidiary (WOS), either in the form of greenfield investment of another firm in the host…show more content…
The degree of development of host countries is often weighed as one of the most important deteminants of FDI flows because it is undoubtedly linked to domestic entrepreneurship, education level and local infrastructure. Market-oriented FDI desires to set up enterprises to supply good and services in such active and developing market as a large size market in host country is positively related with profitable investments. With the world’s lergest population, Chinas has a vast potential for consumption. It has been treated as a the last prodigious market that is yet to be developed and established. Reconstruction of China’s economic has been expanding progessively for the past decades, while the purchasing power of people has strengthened annd reinforced significantly, it enegized the market througoutly. Eventhough China is still having a relatively low GDP per capita, its accelerated economic growth and steadily increasing purchasing power has risen attraction of market oriented FDI, for example fields of basic chemicals, drinks and household electrical

More about Internalization Theory Of Fdi In China

Open Document