Driving Forces of International Pharmaceutical Firms' FDI Into China

Abstract

This paper presents the results of an exploratory investigation into the factorsthat drove the international pharmaceutical firms to make foreign direct investment(FDI) into the Chinese pharmaceutical manufacturing industry during the periodfrom 1980 to 1998. Research results show that international pharmaceutical firms'FDI into China was predominantly motivated by China's specific location factors.China's market size, with its great potential, played the most important role. Thefactors of rapid economic development and growth, China's open-door policy,and relatively stable political conditions were also found to be important factors.The incentive policies provided by China had limited impact on pharmaceuticalfirms FDI decisions. The results suggest that FDI decisions of early entrantswho started FDI before 1992 were more likely to consider the open-door policyas the second most important factor, whereas late entrants whose FDI startedsince 1992 seemed more likely to consider the Chinese economic developmentand growth as the second most important factor. The results also suggest thatrelatively stable political conditions in China have had a stronger positiveinfluence on the FDI decisions of the late entrants. Low labor and establishmentcosts in China as well as cultural related factors were not found to be significantfactors/or international pharmaceutical investors.