SPREADING WINGS - SINGAPORE DIRECT INVESTMENTS IN CHINA

Abstract

At a time when the Singapore Government is giving top priority to developing the external economy and encouraging more businessmen to venture overseas, China beckons for more investments. Singapore firms have responded by investing about USSI.4 billion in every province in China except Xinjiang and Xizang (Tibet). The aim of this academic exercise is to provide an inventory and analysis of Singapore firms investing in China and thus to offer a starting point for examining the foreign direct investment (FDI) behaviour of Singapore firms in general. One hundred Singapore firms with investments in China have been identified. An ensuing analysis shows that while most investment projects have concentrated in the construction and manufacturing sectors, the scope of activity is now more diversified. Traditional theories are discussed for their validity in explaining the motivations and behaviour of Singapore firms in their investments in China. They include Dunning's eclectic paradigm, Vernon's theory of the product cycle, Coase's theory of the firm, location theory, and the economics of imperfect competition as propounded by Hymer & Kindleberger. In addition, the established results of previous works on Singapore multinationals are also adopted to complement the explanations. As evidenced in their investments in China, Singapore firms possess competitive advantages mainly in the areas of managerial and marketing expertise, access to capital, international connections and technology. Direct investment is the preferred investment mode for several reasons. One of which is the difficulty in determining the value of inputs such as know-how and technology. Location-specific advantages also encourage Singapore firms to undertake FDI. Because these advantages vary from country to country, the choice of investment location made by the Singapore firm is likely to depend on the association between its firm-specific factors and the location-specific characteristics of the country. The study reports on the size of Singapore investments in China, the industry concentration and geographical spread, and describes the incentives and problems faced by Singapore firms in their advance into China. It also offers explanations for Singapore firms to invest abroad and the implications for the Singapore economy. Recommendations for possible government actions to facilitate the investment drive are also proposed.