Gao: Chinese direct investment in Europe--- case in Francegdex.dk/ofdi14/Gao.docx · Web viewFrance has long been a world leader in certain science and technology. ... market penetration

Chinese direct investment in Europe--- case in France (Motivation and Human Resource Management)

GAO Ni

PhD student at University of Pau and Pays de l'Adour

Centre for Research and Studies in Management

Pau, FRANCE

Research Assistant at Kedge Business School

Management Department

Bordeaux, FRANCE

MAIL: [email protected]

TEL: +33(0)6 17 07 06 26Abstract

Over the last 30 years, China is the fastest-growing major economy in the world. In an Age of Globalization, Chinese corporation grow up in the environment of global competition and become much stronger before the time of Open Door Policy. With the large foreign exchange reserves and supply of Chinese government, Chinese outward foreign direct investment has increased substantially in the last few years even during the world financial crisis. Many Chinese multinational corporations choose Europe as their destination for investment, especially in France. This paper examines the major motivations for those companies who run their business in France and how they control their subsidiaries through International Human Resource Management.

The methodology in the study was through by empirical investigation of eighteen Chinese multinational corporations and their subsidiaries in France. Including eleven state-owned companies and seven privately held companies. The type industry of selected case companies represent in different areas of economics. Most of them are listed company in China or overseas.

This paper uses more recent data on actual China’s outward foreign direct investment flows. The research found that Chinese multinational corporations through acquisitions in France to increase their comparative advantage and further enhance their market positions in Europe. The management and operational of subsidiaries largely depends on local manager, there is a high level of trust between headquarter and subsidiaries.

Paper presented at The 4th Copenhagen Conference on ’Emerging Multinationals’: Outward Investment from Emerging Economies, Copenhagen, Denmark, 9-10 October 2014

mailto:[email protected]

The 4th Copenhagen Conference

Many subsidiaries have strategic decision-making autonomy and operational decision-making autonomy.

Keywords:

Chinese multinational; Motivation; International Human Resource Management; Local Manager.

1. Induction:

As the world’s largest saver, China’s foreign exchange reserves rose to US$3.99 trillion at the year of 2014 (PBoC, 2014), and their outward foreign direct investment become an important source of global capital. In 2013, China made direct investment overseas in 5,090 enterprises in 156 countries and regions, non-financial direct investment overseas amounted to US$ 90.17 billion, as the end of year 2013, the total non-financial direct investment overseas reached US$ 525.7 billion. (MOFCOM, 2014). The global market for direct investment overseas has significant changes in the last few years, with the increasingly player from emerging economies, the BRIC nations, in particular China. Among developing and transition economies, China has been one of the main drivers of outflows and become the world’s third largest investor, after the United States and Japan. (UNCTAD, 2013).

China’s outward foreign direct investment was driven by the development of China economy. In 1978, China government begun to economic reform, the first reforms consisted of opening trade with the outside world and welcoming of foreign investment in China. 23 years later, in 2001, after a long set of negotiations, China becomes a member of the World Trade Organization and that made China engaged into a deeper integration of global competition. The membership of World Trade Organization offers China a more stable international trading environment and make China become even more attractive to international investors as its investment barriers are removed (Agarwal & Wu, 2004). Since then, China has become the largest trading partner in the world. With gross domestic product annual growth rate averaged at 9.14 percent from 1989 until 2014, China is the fastest growing economy in the world. Today, China is the second largest industrial manufacturing country in the world after the United States, as the "world factory" on the international stage.

Despite impressive achievements at the global level, many Chinese people are still struggle against poverty. According to World Bank, ranked by total gross domestic product, China is the second largest economy in the world. However, by per capita gross domestic product ranking, China ranks eighty-fourth in 189 countries in 2013. By human development index ranking, China ranks one hundred first in 195 countries in 2012 (UNDP, 2013). These data show China is still a poor nation. How can sustain its development and maintain high growth rate are the important issue facing by today's China to solve the problem of poverty and enhance the competency of Chinese enterprises, to transform them from followers into leaders on the international stage.

By 1999, Chinese government encourages its enterprises to invest overseas to strengthened international competitiveness and integration. Increase their competitiveness by using globalization, to change China’s low value-added

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manufacturing and to improve industrial structure. Policies encourage have played an important role in the process of Chinese enterprises going to overseas (Huang & Wikes, 2011). China’s outward foreign direct investment was driven by government support (Deng, 2013). At the year of 2001, Chinese government began to improve the service system for outward investments, including simplified the approval procedure for investments abroad and improved fiscal and financial policy support. The “Going Out” investment strategy has been highly successful to achieve a tremendous acceleration in China’s outward foreign direct investment (Davies, 2013). In 2006, 82% of China’s non-financial outward foreign direct investment was conducted by state-owned enterprises (Yeung & Liu, 2008). With strong financial strength as a support, China state-owned enterprises are still absolutely dominant in the flow of Chinese foreign direct investment. The strategy “Going out” of Chinese government is second most important driving force behind Chinese outward foreign direct investment (WIR, 2006).

There are several political and regulatory institutions to guide China's overseas investment. The mains actors are China’s State Council, People’s Bank of China, State administration of foreign exchange, Ministry of Commerce, State Development and Reform Commission, State-Owned Assets Supervision and Administration Commission, and Ministry of Finance (Huo & Xue & Han, 2010; Van der Lugt, 2011). Government supports the internationalization of firms by providing quality information about investment opportunities, financial supply and so on, in the internationalization process of Chinese firms, institutions factors have played an important role (Rios-Morales & Brennan, 2010; Deng, 2004). All these organizations have a common purpose that is to supporting Chinese outward foreign direct investment. Chinese government especially encourages outward foreign direct investment that can contribute most to the country’s national development (Sauvant & Chen, 2014) and provide more resources and opportunities for economic growth (Chen 2009). The objectives of Chinese government are facilitating the structural adjustment of the economy and enhancing the international competitiveness of Chinese company (Sauvant & Chen, 2014).

According to The China Outbound Foreign Direct Investment Survey in 2013, current patterns in Chinese outward foreign direct investment are North America and European Union has become top destinations. In European Union, France as the 16th largest recipient of foreign direct investment in the world and relatively easy market access make it the preferred investment destination for Chinese investors. Even during post-crisis economy, France still plays an important role in the European and worldwide market. With its highly-skilled and productive workforce, transparent legal environment, high innovation culture, stable political environment, advanced technology, well developed transport and its geographic location in the center of Europe. France is an attractive destination for these Chinese investors who wanting to sell their products on the European and International market.

This paper examines the major motivations about Chinese enterprises invested in France and how to control their subsidiaries through international human resource management. The paper has three parts. It begins with a review of the academic literature relating to foreign direct investment theories and international human resource management, which suggests a set of hypotheses, following by description about research methodology, date collation. Finally analysis set of hypotheses empirically and their implications.

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2. Previous literature and hypotheses development

2.1 An overview of the main foreign direct investment theories

Monopolistic Advantage Theory

Most modern economist believes that foreign direct investment is an important element for global economic development. In the early 1960s, Hymer pointed that foreign direct investments are capital movements with international operations of firms. He proposed Monopolistic Advantage Theory to explain why multinational corporations are able to do foreign direct investment. Hymer argued that a direct foreign investor must possess certain monopolistic advantage that allows them to do overseas investment. His idea has strongly influenced on other economists. Few years later, based on monopolistic advantage theory, Kindleberger explanted why firms choose to internationalize their operations, he pointed that the market has to be imperfect (Kindleberger, 1969). According to Kindleberger (1969) in a world characterized by perfect competition, foreign direct investment would no longer exist.

Fusion the theory of Hymer and Kindleberger, we can see company must have monopolistic advantages for their internationalization route, for example, superior knowledge in finance, technology, or management and so on. Foreign direct investment took place because of the product and factor market imperfections. For host country, foreign direct investment can improves their productivity through transferring technology from foreign firms to local firms (Caves, 1974).

Internalization Advantage Theory

Based on the pioneering work of Coase about Theory of the Firm in 1937 and the concept of imperfection market, Buckley and Casson developed the Internalization Advantage Theory in 1976 which aims at explaining internationalization of the firm and activities of multinational corporations. It is an important turning point in foreign direct investment theory.

Internalization Advantage Theory demonstrate that multinational corporations are organizing their internal activities so as to develop specific advantages, which then to be exploited. These integrations are developing by two types: vertical and horizontal (Hennart, 1982). According to the theory if the transportation costs are high, if there are trade barriers and transaction cost-increasing conditions, if there are the problems of inadequate foreign market information, and information asymmetries between sellers and buyers, all resulting in firms chooses internalization and make foreign direct investment to maximize their profits in an imperfect market (Buckley & Casson, 1976). Firm chooses the least cost location for each activity they perform (Buckley, 1988).

Product life-cycle theory

There are three stages in a product's life cycle: the new product stage, the maturing product stage and the standardized product stage (Vernon, 1966). In the new product stage, the product is produced entirely in the home market (Unit states) and consumed in the home market (Unit states), no export trade occurs. In second stage which about

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the maturing product stage, because of foreign demand expands in other developed countries (European countries) and mass production techniques start to be adopted, that makes home country (Unit states) beginning to exports the product to other developed countries (European countries). They may also begin to assess the possibilities of producing abroad in addition to producing in home country. In the standardized product stage, production moves to developing countries for labor costs raison, and then exports the product to developed countries.

Product life-cycle theory demonstrates dynamic comparative advantage. Vernon (1966) pointed that comparative advantage may shift over time from one country to another, from the innovating country to the labor-abundant developing countries.

Eclectic paradigm

After different attempts to explain the motivation of foreign direct investment by many economists, John H. Dunning (1977) proposed the eclectic paradigm theory which also known as the OLI-Model, and presently considered as the most complete foreign direct investment theory.

OLI-Model based on three types de advantages: Ownership advantages, Location advantages and Internalization advantages (Dunning, 1977). Dunning’s OLI-Model explaining why multinational corporations might want to choose foreign direct investment instead of exporting its product, licensing or setting up joint venture corporation with local company.

The O Factor:

Ownership advantage concept comes from Hymer's work, also called Firm-specific advantage, it represent the first element of OLI-Model and argues that for a firm to become a multinational corporation requires a competitive advantage. As we know, due to a lack of knowledge about local market, language differences, culture differences, legal and institutional differences, a firm operating in a foreign country would definitely face with additional costs as compared to a local company. Therefore, if a firm wants to be successful in a foreign country, it must have some kind of ownership advantage or core competencies that overcomes the costs of operating in a foreign market, such as a high technology, a low-cost product or good top management skill and so on. The greater the competitive advantages of the investing firms, the more they are likely to engage in their foreign production (Dunning, 2004).

The L Factor:

Location advantage also called the country specific advantage. These advantages of a country may attract foreign direct investment, such as a workforce, raw materials, special taxes and tariffs. The country specific advantage can be divided into three categories: economic, social and political. Generally, the standard of location advantage include a large and growing market, financially stable, culturally and geographically close to the home country, low production costs, stable political institutions, welcomes foreign direct investment government policies and so on.

The I Factor:

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As mentioned above, Buckley and Casson (1976) developed the Internalization advantage Theory. Based on this, Dunning has developed the I factor in his Eclectic paradigm. Asset-based ownership advantage and transaction-based ownership advantages drive the birth of Internalization advantage. To protecting theirs ownership advantage and saving the transaction cost, company products their own production rather than producing through a partnership arrangement.

From all the above aspects, we can see Dunning merge several different theories of international economics in one approach to explain “why, where and how” for multinational corporation’s foreign direct investment. Based on multinational corporations’ activity, Dunning divides the foreign direct investment into four types: first, corporation wants to satisfy a particular foreign market which called market seeking; second, corporation wants to gain access to natural resources, which called resource seeking; third, corporation wants to promote a more efficient division of labor or specialization of an existing portfolio of foreign and domestic assets, which called efficiency seeking; fourth, corporation wants to protect or augment the existing specific advantages of the investing firms or to reduce those of their competitors, which called strategic asset seeking (Dunning, 2000).

These above theories have played an important role in promoting of Multinational Corporation’s foreign direct investment. Compare with Multinational Corporation in developed countries, Chinese multinationals are still young. According to BusinessWeek and Interbrand (2013), not a single Chinese firm made the 2013 “Top 100 Global Brands” list. Different from traditional multinational who exploit their ownership-specific competitive advantages in foreign countries, emerging market multinational seek sophisticated and advanced technology by acquiring foreign companies (Child & Rodrigues, 2005; Rui & Yip, 2008; Pananond & Zeithaml, 1998), just like the case of Chinese multinational. Mergers and acquisitions have become the preferred modality for Chinese firms to go global (Shambaugh, 2012). The intensification of cross-border merger and acquisition activities by Chinese firms is confirmation of the importance of the strategic asset seeking motivation (Pietrobelli & Rabellotti & Sanfilippo, 2010). According to Deng (2003), by acquiring an existing firm, they may access the entire package of advantages of the acquired firm. Besides, the global financial crisis reduced the price of asset purchase in some areas including Europe. Therefore it is more attractive for Chinese enterprises to invest in Europe. By investing in Europe, Chinese multinationals are indicating that they are willing to compete at the global level and obtaining up-to-date technology.

Rios-Morales and Brennan (2010) demonstrated that Chinese firms are also attracted to developed markets with a sizeable population. Market seeking strategies has characterized Chinese investment in Europe. Chinese firms need to find new markets overseas by establishing local sales and distribution centres to solve the problem of overcapacity in some mature industries, such as textiles and clothing (Chen & Lin, 2006). Europe will increasingly be a destination for foreign direct investment from China. Market seeking investment has a positive influence on Chinese foreign direct investment

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in Europe. Nicolas and Thomsen (2008) are also found that Chinese firms are investing abroad primarily to expand their market share in host economies.

According to the French Agency for International Investments, in 2013, there are nearly 200 companies from Chine operating in France, employing more than 13,000 people. At the heart of the European continent, strategically located between Northern Europe and the Mediterranean, France’s geographic advantages attracting many Chinese firms to invest in this country. Additionally, there is a very strong cultural tie between France and Africa, that is a very attractive point for these Chinese firms who want to do their

business on the African continent. From a certain perspective ， France is the idea platform for success in African markets. These research findings lead to the following hypotheses:

Hypothesis 1a: Chinese outward foreign direct investments in France are motivated to improve their competitive disadvantage in innovation and technology.

Hypothesis 1b: Chinese entreprises use the geographical advantage of France to strengthen its market share in France, Europe and Africa.

2.2 An overview of the main international human resource management literature

Strategic international human resource management is crucial for company to achieve the desired business plan. Until now, there are a lot of studies about this topic for these companies who come from developed countries, but few studies that explore the strategic international human resource management of Chinese multinational’s operating overseas (Shen, 2005; fan & Zhang & Zhu, 2013). The approach of Chinese multinationals to international human resource management has become an urgent area of management study (Shen & Edwards, 2004). With the pace of China's outward foreign direct investment to accelerate, Chinese multinationals realize the international human resource management is a major determinant of success in international business. The gap between the large multinational enterprises in the advanced economies and Chinese multinational enterprises is gradually closing. Today China’s human resource management is a hybrid of the traditional personnel management and modern human resource management (Shen & Edwards, 2006).

Cultural distance :

By using Hofstede’s framework of national culture, we can find there is a big difference culture between China and France. Hofstede (1980) findings that China is a highly collectivist culture where people act in the interests of the group, and France is an individualist society, this means that one is only supposed to take care of oneself and one’s family. The culture of the host country strongly impacts on the performance of a firm that engages in international business. Cultural distance in the multinational enterprise portfolio of operations an important predictor of performance (Luo & Peng, 1999). As a traditional country, Chinese culture is very different from western culture,

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especially France. For example, social structure, religion, language and education. Chinese corporations have very few managers who have experience working in cross-cultural environments, and a large number of them lack experience in managing global business (Wang & Wen & Han, 2012).

Expatriate staffing:

For the purpose of control a subsidiary abroad, expatriation has long been identified as a coordination and control mechanism used by multinational enterprise (Geringer & Herbert, 1989; Gupta & Govindarajan; 1991; Edstrom & Galbraith, 1977; Hocking & Brown & Harzing, 2004; Jaussaud & Schaaper, 2006; Yan & Child, 2004). The reasons for using expatriates are administration, financial control and some specific technical requirements (Shen & Edwards, 2004). However, expatriate failure is a significant and persistent problem for multinationals from both developed and developing countries (Buckley & Brooke, 1992). According to Lasserre (2008), the chief factors resulting in an unsuccessful expatriate assignment are: manager’s inability to adjust; manager’s personal or emotional immaturity; inability to cope with overseas responsibility; lack of management or technical competency and poor interpersonal relationships; inability of spouse to adjust and other family-related problem. Additionally, the cost of using expatriates is far greater than the cost of using local management talent.

The major roles played by expatriates in international business are charging the communication between headquarters and subsidiaries; implementing enterprise’s business strategy; controlling business operation and gaining international experience (Shen & Edwards, 2006). However, the expatriate may lack local knowledge and local business connections that could be crucial for the subsidiaries’ business operation in the foreign market. In contrast, local manager understand local culture and often have local knowledge and connections to allow the firm to adapt local environments (Tan & Mahoney, 2006).

Market orientation:

Market seeking foreign direct investment is by far the most common type of strategy for developing country multinationals in their process of internationalization (UNCTAD WIR, 2006). According to Deng (2003), the rise of market seeking motives driving Chinese multinationals particularly towards large markets. Several studies found that local market oriented subsidiaries enjoyed more autonomy (Garnier, 1982; Harzing, 1999). This was explained by the need of multinationals to adapt their marketing to local market needs, which requires flexibility and greater autonomy of the subsidiaries (Varblane & Mannik & Hannula, 2005). Simões, Biscaya and Nevado (2002) also confirmed that higher subsidiary marketing capabilities would lead to increased subsidiary autonomy.

Social problem:

According to France's National Institute of Statistics and Economic Studies, gross domestic product growth in France is 1.1% and unemployment rate is above 10% in 2014. The French government devotes significant resources to attracting foreign investment to create jobs and stimulate growth (DoS, 2014). They prefer the multinationals can hire local French staff.

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These above factors lead to the following hypotheses:

Hypothesis 2a: Chinese multinationals prefer local manager than expatriate to managing their subsidiaries in France.

Hypothesis2b: Many subsidiaries local manager have strategic decision-making autonomy and operational decision-making autonomy in France.

3. Methodology

The main evidence presented in this paper was derived from an empirical investigation of eighteen Chinese multinationals and their subsidiaries in France. Including eleven state-owned companies and seven privately held companies. The type industry of selected case companies represent in different areas of economics. Most of them are listed company in China or overseas. Further details of these Chinese multinationals are shown in Table 1. At the request of most of the interviewees, this study will not provide the names of the companies that helped the respondents are able to speak freely. The companies are denoted as companies A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q and R.

Interviews in this study were semi-structured. They were conducted in Chinese and French. In total, eighteen in-depth interviews were conducted with Directors, Executives, Senior Managers, and Managers in different companies. Each interview took between one and two hours, in some cases, included a visit of company. All of these interviews were digitally recorded. The contents of the interviews were fully transcribed. In addition, telephone, Skype and WeChat (App of mobile text and voice messaging communication service) interviews were also used to collect information from the interviewees. Company documents, business reports, Internet websites and other sources were also collected during the research. The transcripts have been entered into a thematic content analysis grid, with one column per company and one line per question (16 questions in totally); afterwards reduced the answers to keywords, short sentences and numbers, finally to look for repeating ideas.

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Company Ownership Foundation year

Location of the headquarters

Industry type Years of internatio-nalization experience

Location of the subsidiaries in France

Entry modes Years of internatio-nalization experience in France

Subsidiaries’ activities in France

A SOE／listed company

2006 Shanghai Food & Beverage industry

4 Bordeaux Acquisition 70%-30%*

2 Wine industry

B SOE／listed company

1903 Qingdao Beverage industry 37 Paris International joint venture 40%-60%*

19 Beverage industry

C Privately held company

1987 Shenzhen Telecommunications equipment & Networking equipment

15 Boulogne Billancourt

Greenfield investment WOS

11 Telecommunications equipment & Networking equipment

D SOE／listed company

1997 Shanghai Shipping & Logistics 16 Le Havre Greenfield investment WOS

15 Shipping & Logistics

E Privately held company／listed company

1996 Hongkong Broadcasting & Cable TV

13 Ivry sur Seine Greenfield investment WOS

5 Broadcasting & Cable TV

F SOE／listed company

1955 Luoyang Agricultural & Construction & Machinery manufacturer

7 Saint Dizier Acquisition 100%－0%*

3 Agricultural & Construction & Machinery manufacturer

G Privately held company／listed company

1991 Shenzhen Medical equipment manufacturer

6 Créteil Acquisition 100%－0%*

6 Medical equipment manufacturer

H SOE／listed company

1958 Guangzhou Manufactures steel & Steel products

26 Paris Greenfield investment WOS

19 Hotel

I SOE／listed 1946 Weifang Automotive 5 Cassis Acquisition 5 Marine diesel engines

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company 100%－0%* manufacturer

J Privately held company

2001 Xuchang Hair product manufacturer

6 Ivry sur Seine Greenfield investment WOS

2 Hair product manufacturer

K Privately held company

2008 Leshan Phosphate rock-trading business

1 Le Bourget du Lac

Acquisition 68%－32%*

1 Aircraft manufacturer

L SOE／listed company

1984 Beijing Chemical industry: Chemical materials & Animal nutrition

8 Lyon Acquisition 100%－0%*

7 Silicones supplier

M SOE／listed company

1984 Beijing Chemical industry: Chemical materials & Animal nutrition

8 Antony Acquisition 100%－0%*

8 Chemical industry: Animal feed

N SOE／listed company

1961 Beijing Shipping & Logistics 47 Clichy Greenfield investment WOS

23 Shipping & Logistics

O Privately held company／listed company

2004 Yinchuan Food & Beverage industry

2 Capian Acquisition 100%－0%*

2 Wine industry

P SOE／listed company

1980 Beijing Inspection & Certification service

30 Marseille Greenfield investment WOS

10 Inspection & Certification service

Q Privately held company／listed company

1996 Yantai Nuclear casting & Forging products

1 Paris Acquisition 100%－0%*

1 Petrochem & nuclear & Forging Solutions

R SOE／listed company

1995 Beijing Infrastructure & Real estate &

1 Châteauroux Greenfield investment

1 Real estate

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Financial services WOS

Table 1. Characteristics of the selected Chinese multinationals in France

*For the nature of the subsidiary, the first percentage corresponds to the share of capital held by the Chinese multinational, the second to that held by the French partner.

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4. Results

Important role of Chinese state-owned enterprises in France

According to European Chamber, In terms of ownership status of Chinese investors in the Europe for the period 2000-2011, it is estimated that state-owned enterprises accounted for 72% and privately held company 28% of investment amount. Chinese state-owned enterprises account for a larger amount of investment value in Europe. Table 1 gathers the information from each Chinese multinational. From our samples we can see Chinese state-owned enterprises have a very important position for overseas investment in France.

From the samples of this study, we can see companies A, B, D, F, H, I, L, M, N, P and R are all state-owned enterprise. After twenty years of reform, most of them have been corporatized and many become listed companies. They established earlier than most of privately held company in China. Over the past few years, Chinese state-owned enterprises rapidly expanded their overseas investment using various means including greenfield investment, acquisitions and international joint venture.

According to the list of Fortune Global 500 Companies in 2013, 89 Chinese companies made to the list, most of the them are state-owned enterprises. They are very powerful in Chinese market and have strong financial capability that allows them to go global. In order to enhance China’s competitiveness on the international stage and to share global market, Chinese government encourages state-owned enterprises to rapidly increase their overseas investment. During the interviews with the samples of Chinese state-owned enterprises, all of them confirmed this point.

Chinese government realized that China's current economic growth model is unsustainable. The feature of China's growth model is “high pollution, high resources use, high input and labor intensiveness”. China needs to achieve the transformation of its development mode. Companies I, L and M claimed that “The traditional comparative advantage is weakening, we need to build a new advantage through invested in France， China ‘s economic need an innovation-driven growth model”. According to Company H, “ Chinese corporation need technological knowledge to advance Chinese industry.” Through the interviews, we can see despite the challenges, Chinese state-owned enterprises continue to show a strong motivation for overseas investment, especially in France.

The motivations of Chinese outward foreign direct investment in France

Over the last 10 years, France has become one of the main European destinations for Chinese investors. According to the French Agency for International Investments, Chinese investment accounted for 60% of all projects confirmed by BRIC companies in France in 2013. At the end of 2013, France is the second largest recipient of Chinese investment in Europe, after the United Kingdom and ahead of Germany. From table 1, we can see Chinese multinationals are present in a wide variety of sectors in France, spanning chemicals, real estates, telecommunication equipment, medical equipment, food industry, Logistics, and so on. During the interviews,

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Chinese investors confirmed that they are indeed attracted by France’s skilled and productive labor force, very good infrastructure, high-quality expertise and technology in certain areas (luxury industry, aerospace, agri-food sectors) and central location in Europe. Furthermore, France’s memberships in the European Union facilitate the movement of people, services, capital, and goods inside of Eurozone. Table 2 summarizes the mains motivations for the samples enterprises to invest in France.

In survey sampling, Company C is a big telecoms equipment manufacturer privately held company in China, they offer all end-to-end telecom solutions to customers and serve more than 35 of the top 50 leading operators in the world. In Europe, They built research center in France to strengthen innovation ability. For them, France is the really top strategic country for all Western Europe to do both research and business. Company D is the second largest Chinese container liner company. The main service is transportation of containers, oils, bulk cargo, passengers, cars and special objects. They considered that invest in France is a better way to use local advanced technologies and management expertise to optimize assets configuration, create new advantages and to seek a new development. Company H is an iron and steel state-owned enterprise in Guangzhou, with almost sixty-years' development, China's iron and steel industry gradually stepping into a mature stage of development. In 1995, at the early stage of invested in France, the main motivation is to improve the technological skill and make efforts to enhance the industrial technology progress. France is the second largest producer of steel in Europe and possesses the best and innovative technologies in the steel industry. For Company H, it is a big opportunity to learn the technology and know-how to enhance their competitiveness. Company L, one of the largest chemical companies in China acquired a French global silicones business firm in 2007. This firm has strong positions on key technologies about silicones products in the sectors of release coatings, engineering elastomers, healthcare products, specialty fluids, emulsions and resins. Through this acquisition, company L gets ability to speedily acquire resources and competencies. Also allows them entry into new products and new markets. Company M used the same way as company L, through acquired a French firm to access local markets while improving both its branding and technology. Company Q is a privately held listed company in China for nuclear casting and forging components. As we know, France has been very active in developing nuclear technology. The French nuclear sector is the leader in the domain of the fuel cycle and in nuclear power plant construction and maintenance. Reactors and fuel products and services are a major export. However, after financial crisis, many European nuclear power enterprises have encountered management problems, which have brought opportunities for Chinese investors to purchase 100% shares with a low price. Through this acquisition, Company Q became the new shareholder of French firm. According to them, the main motivation of this acquisition operation is to obtain up-to-date technology.

As we know, Europe was home to the industrial revolution. France has long been a world leader in certain science and technology. Outward foreign direct investment allows China easier access to French technology. China needs their technology to achieve its grand aim to becoming an economic superpower. As a conclusion, empirical investigation of this study results confirm H1a that Chinese outward

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foreign direct investments in France are motivated to improve their competitive disadvantage in innovation and technology.

The interviewees of this study stated that market seeking investment is a major motivation for Chinese foreign direct investment in France. Company B, C, D, E, F, G, H, I, J, L, N, P and R confirmed this point. Theirs objectives are to increase sales in the French market and improve profitability for continuous growth. Furthermore, France’s geographic advantages attracting many Chinese firms to invest in this country. At the heart of the European continent, strategically located between Northern Europe and the Mediterranean. France is the idea platform for success in European market. Company B considered that France has a strong market potential, which is the main motivation for them to invest in France. Company J is a Hair product manufacturer, Africa market is very important for them, according to Company J, the strong cultural tie between France and Africa is very attractive for them, because they are not only seeking for French market but also for African market. That’s the reason for them to establish their subsidiary in France, not in other European countries. Another instance, through acquisition a French firm, Company G gains access to firm’s global sales network, which improve its market position in Europe.

Chinese multinationals have strong incentives to expand abroad. Entry new markets and achieve further growth is the main motive behind China’s outward foreign direct investment. Outward foreign direct investment is an effective way of gaining market, and surpassing trade barriers (Lu & Liu & Wang, 2010). Therefore, H1b, Chinese enterprises use the geographical advantage of France to strengthen its market share in France, Europe and Africa is absolutely validated.

Company The motivations of Chinese multinational in France

C, D, H, L, M, Q

To seek Asset (especially for technology)

B, C, D, E, F, G, H, I, J, L, N, P, R

To seek French and Europe market

C, D, E, J, L, Q To improve the level of industrial structure of ChinaF, L To product of high value-added productsH, I, N, O, P To achieve global development strategyC, D To avoid international trade barriersQ To ensure China's economic development needsA, O To acquire French brandsM To avoid market competition in domestic marketA, K, O To satisfy the needs of Chinese Market

Table 2 The motivations for the samples enterprises to invest in France

Localisation of management positions : Control by local manager

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According to the French Agency for International Investments, in 2013, France was among the three largest recipients of job-creating investment from China, attracting 14% of Chinese projects in Europe. Local managers filled most of managerial positions in their subsidiaries. Table 4 summarizes the arrangements of key management positions for these 18 companies interviewed. From the figures shown in this table, it is evident that, local managers occupy most of key positions in subsidiaries, especially for those companies who take France as target market.

Although Chinese multinationals use expatiates for administration, strategy and financial control are still take an important part of Chinese international human resource management. However, many Chinese multinationals are engaging in a process of staffing more key management positions with local French managers. The companies C, D, F, G, I, J, M, O and Q considered that is very important to hire local manager in their subsidiaries, because they know the local customer, local law, local culture and local tradition. Today, more and more Chinese multinationals began to hire experienced, English speaking, local human resource experts as subsidiaries’ managers.

From table 1, we can see Chinese multinationals does not have too much experience in French market, some of them entry in France through acquisition, therefore, it is difficult to these companies to operating in an international context and keep sustained to its development. Companies G, L and M think local manager can help them overcome difficulties and ensure their products into French market. As a conclusion, empirical investigation of this study results confirm H2a that Chinese multinationals prefer local manager than expatriate to managing their subsidiaries in France is validated.

During the investigation, the subsidiaries of companies A, G, I, K, L, M and Q pointed out they have one hundred percent operation autonomy. They can decide marketing strategy, project strategy and financial strategy by themselves without the permission of headquarter. From table 1 we can see, Companies A, G, I, K, L, M and Q have two points in common. Frist, they entry into the French market through acquisition; second, their target market is French market. In this case, Chinese multinationals need someone really understanding local business environment. The research found that the management and operational of subsidiaries largely depends on local manager, most of them have permanent contract. There is a high level of trust between headquarter and subsidiaries. Many subsidiaries have strategic decision-making autonomy and operational decision-making autonomy. Chinese multinationals need to adapt their marketing to local market needs, which requires flexibility and greater autonomy of the subsidiaries. As a conclusion, H2b is validated.

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Origin of Chinese Subsidiaries’ manager in France

Company Company position

General Manager

Marketing Manager

Chief Financial Officer

Production Manager

Human Resource Manager

Customer Service Manager

IT Manager

A LM LM LM LM LM LM LMB CE CE CE X CE CE XC LM LM LM LM LM LM LMD CE LM LM LM LM LM LME CE CE CE CE CE CE XF LM LM LM LM LM LM LMG LM LM LM LM LM LM LMH CE LM CE X CE CE XI LM LM LM LM LM LM LMJ CE LM CE X CE LM XK LM LM LM LM LM LM LML LM LM LM LM LM LM LMM LM LM LM LM LM LM LMN CE LM CE LM LM LM LMO LM LM LM LM LM LM LMP CE LM CE LM CE LM LMQ LM LM LM LM LM LM LMR CE LM CE X CE LM LM

LM/CE 10/8 16/2 11/7 13/1 12/6 15/3 14/0Table 3 Origin of Chinese Subsidiaries’ manager in France

LM: Local manager; CE: Chinese expatriate; X: Do not t have this position.

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Conclusion

France has become one of the main European destinations for Chinese investors since last few years. After the United Kingdom, France is the second largest recipient of Chinese investment in Europe. Chinese multinationals are present in a wide variety of sectors in France. In terms of motivations, Chinese multinationals are primarily seeking access to the French and European market, at the same time through acquisitions to increase their comparative advantage.

This study confirmed that the motivations for Chinese investment in France are multidimensional in nature. For example, to improve the level of industrial structure of China; to product of high value-added products; to achieve their global development strategy; to avoid international trade barriers; to ensure China's economic development needs; to avoid market competition in domestic market or to satisfy the needs of Chinese Market. However there are the two major motivations for Chinese investment in France: market penetration and the quest for strategic assets. Especially for high technology and brands.

The research found that Chinese multinational corporations through greenfield investment and acquisitions entry into France to increase their comparative advantage and further enhance their market positions in Europe. Many Chinese firms have global ambitions and would like to own their own advanced technologies and well-known brands, buying a foreign company is a logical way to reach those goals quickly. Several acquisitions have been win-win deals, with Chinese investors building up international competitiveness and the French firm can penetrate into Chinese market.

After the establishment of subsidiaries, Chinese multinationals prefer local manager than Chinese expatriate to managing their subsidiaries in France. Because of Chinese multinationals need someone really understanding local business environment to ensure the sustainable development of subsidiaries. Many subsidiaries have strategic decision-making autonomy and operational decision-making autonomy. Through the investigations, we can see there is a high level of trust between headquarter and subsidiaries.

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