Motives of foreign pharmaceutical firms' FDI in China: a comparison between eastern and western firms

Abstract

This study examined the determinants of foreign pharmaceutical firms' foreign direct investments (FDI) in China, and compared FDI determinants between eastern and western pharmaceutical firms. The analysis suggested that foreign pharmaceutical firms' FDI in China was determined by China's specific advantages, and China's market size played the most important role. China's incentive policy received moderate attention, and low labour cost was not a significant consideration. The results did not support the traditional FDI theories of market imperfection and firm specific advantages. The results also showed that eastern firms had a tendency to agree that the incentive policies was one of the China's specific attractions which attracted their FDI to China, whereas, western firms tended to disagree. Both eastern and western firms were unlikely to consider China's low labour cost as an important factor in their decision to invest in China, this being even more so for western firms.