CIMR PhD Research in Focus: China’s Outward Foreign Direct Investment

Recent PhD graduate Lida Metallinou discusses her dissertation in International Business and experience of doing a PhD in Birkbeck’s Department of Management.

  • Can you tell us a bit about yourself?

My name is Lida Metallinou and I have graduated from Birkbeck’s Department of Management’s PhD programme, with a dissertation in International Business (IB) titled “An Examination of the Role of Comparative Advantages on Chinese Outward Foreign Direct Investment: The Case of Cross-Border M&As and Greenfield Investments”. I successfully defended my dissertation and passed my viva with minor corrections in March 2021.

My background is mainly in Economics. I graduated with a bachelor degree in Economic Development from Panteion University of Social and Political Sciences, back in my home country Greece. Following my interest in development economics and in the economics of the Asia Pacific Region, in 2012 I graduated from the School of Oriental and African Studies (SOAS), University of London, with a Master’s in Political Economy of Development. The following year, I graduated from Université Lumière Lyon 2 with a Master’s in Applied Econometrics & Quantitative Economics. These two degrees provided me with knowledge and a strong background in quantitative microeconomics as well as an applied economic theory with a regional focus. Specifically, my master’s degree in applied econometrics enabled me to gain experience on relevant methodological tools and analytical techniques to conduct quantitative analysis in economics which has also proved extremely useful on the research methodology of my PhD project.

Currently, I am pursuing my career in the finance industry as a Risk Analyst at NatWest group.

  • What is your PhD project about?

My PhD topic lies within IB. Broadly speaking IB is a field that examines the activity and the strategies of multinational corporations (MNEs) through outward foreign direct investment (OFDI). Specifically, my research is focused on the emergence and the international expansion activity of Emerging countries MNEs (EM MNEs). The rise of EM MNEs has attracted singificant interest among IB scholars. I am focusing on one emerging country, China – one of the fastest-growing economies and the most heavily engaged in international production. Chinese MNEs are different from advanced countries MNEs. There is a lively debate in the literature that EM MNEs are a specific case of analysis and that their rapid internationalization is somewhat paradoxical: such rapid internationalization is surprising given the level of their economic development and the lack of sufficient institutional framework. Hence, the emergence of EM MNEs has challenged traditional theories within IB.

More specifically, the purpose of my thesis is to explore how comparative advantage explains the pattern of Chinese OFDI. Empirical studies in IB and international trade (IT) show the role of comparative advantage of home or host countries in determining the pattern of a country’s inward or OFDI. The limited literature has not adequately examined the relationship between OFDI and comparative advantage in the context of Chinese MNEs, let alone in the context of different modes of investment, such as cross-border M&As (CBMAs) or greenfield investment (GIs). The previous empirical studies that examined that relationship pertained to advanced countries’ MNEs and reported mixed and inconclusive results. Given that current research has treated Chinese MNEs as a special case of analysis, and given that IB provides no direct answer to the questions of which sector are more attractive for FDI, I have focused my research on addressing these questions. To put it simply, I have looked at whether Chinese MNEs internationalize on the basis of industrial-strength or weakness at home. Do Chinese MNEs invest in industries where China is comparatively advantageous or where the host nation has a comparative advantage?

  • How will your research advance knowledge?

My findings reveal the complex, dynamic relationship between Chinese OFDI and comparative advantages by decomposing aggregate FDI and accounting for varying modalities: acquisitions and greenfield investments, which previous literature has not addressed adequately. My study offers a parallel analysis of the role of comparative advantage in Chinese CBMAs and GIs and considers the One Belt One Road Initiative’s moderating effect. It associates the national specialisation of countries, as measured by the comparative advantage, with the international production of the MNES, as measured by OFDI.

The dissertation draws on theoretical links between country-specific factors, countries’ comparative advantages, and firms’ ownership advantages. In synthesising these links, I explain the role of comparative advantage in Chinese OFDI and integrate the Ricardian theory of comparative advantage with existing IB theoretical frameworks. The empirical findings demonstrate that Chinese firms engaged in CBMAs emerge mostly from comparatively disadvantaged industries in China, while those engaged in GIs mostly emanate from comparatively advantaged industries in China. According to my results, it is important to distinguish between different types of Chinese OFDI, i.e., CBMAs and GIs. Chinese MNEs also invest in countries and industries in which host nations have a strong comparative advantage, regardless of modality. My contribution lies in showing how the comparative advantage of the host nation is an important locational factor for Chinese MNEs. The comparative advantage of China and its host countries fulfil an influential role in developing and enhancing the ownership advantages of Chinese MNEs. Lastly, what is also novel about my thesis is the examination of the OBOR initiative in relation to different modes of Chinese OFDI. My findings reveal that OBOR policy is an important factor that affects the relationship between OFDI and comparative advantage.

  • What motivated your interest in this topic?

My MSc degree at SOAS, gave me the chance to focus on the Asia Pacific Region and that was when I started developing my interest in China and Chinese economic development. Following that, I developed a deep interest in the field of FDI literature and international trade and in general, I was very interested in the international aspect of economics, related to trade and investment. I vividly remember reading at that time,  one of the most highly cited and influential papers in my field by a very well known IB professor, Peter Buckley, on the determinants of Chinese OFDI which was the first empirical investigation of the internationalisation activity of Chinese MNEs. In 2013 I had the opportunity to do some original research as part of my Master dissertation. My dissertation focused on Chinese OFDI in Africa and investigated empirically the distinctive characteristics of Chinese investments in that region.

From a personal point of view what motivated me was the fact that there was a huge investment made by a Chinese state-owned company, COSCO in Pireaus port in Greece as part of the One Belt One Road initiative. COSCO was given full management of Piraeus in April 2016. It paid approximately  €368.5 million for a 67% stake of the harbour authority, which is increasingly becoming China’s maritime gateway to Europe. The aforementioned inspired me further to develop my curiosity to understand Chinese OFDI which was something new and fascinating to me at that time. Overall, I think curiosity and passion were the main motivations to pursue a PhD in that topic.

  • Who do you think will benefit from this research?

I think my research can provide useful insights to MNEs managers, policymakers and the academic community that studies IB phenomena. First, my research invites MNEs managers’ that design the international expansion activity of Chinese MNEs to recognize the importance of country and industry-level factors of home and host countries such as comparative advantage. I argue that comparative advantage brings together country and industry-level factors that can be used to explain Chinese OFDI. MNEs are known to focus on locational factors that are mostly related to the host country, such as natural resources, host country institutional environment or most importantly firm-specific factors such as transaction costs, ownership advantages embedded in size, experience and R&D intensity. My research confirms that for Chinese MNEs, which are at an early stage of development in comparison with advanced countries MNEs, the international competitiveness of industries can play an important locational factor for both CBMAs and GIs but with different motivation for each type of OFDI. Regarding policymakers, there is a great deal to understand this form of “reverse” investment from EM countries to advanced countries. EM firms are accessing technology and intellectual property through acquisitions in order to fulfil their domestic growth. My findings invite policymakers as well as host economics to view CBMAs and GIs from advanced vs EM MNEs from different angles and also understand the distinctive characteristics of different types of OFDI. Lastly, the academic community will understand the complexity of Chinese OFDI and how exactly is happening. My results show that in contrast with developed countries MNEs, Chinese MNEs acquire in comparatively disadvantaged sectors and target sectors that comparatively advantageous in the host country. Their main objective is to catch up through the acquisitions of strategic assets, such as technology, brands, management know-how etc and to restructure and upgrade domestic industries. Chinese MNEs focus their acquisitions in industries where China wishes to develop a comparative advantage in the future. In contrast, Chinese GIs mainly direct to industries where China is comparatively advantageous. My research confirms that Chinese OFDI is used as an instrument of industrial upgrading in order to move up the global value chain. China needs to strengthen its international competitiveness in high-end manufacturing industries. In order to achieve that it is important to accumulate evidence in the fields of technology, human resources and management know-how. This knowledge and experience will drive China’s industrial upgrade and then invigorate its manufacturing competitiveness.

  • How does your PhD fit with your career plans?

The PhD in International Business at Birkbeck is personally and academically important to me. I believe this program prepared me with the finest research training and nurtured my research skills to be able to apply them outside academia into the business world. I have acquired a number of transferable skills that have proven extremely useful to help me pursue my career in the finance sector. Attention to detail, problem-solving ability, critical and analytical thinking, using data, findings patterns and casual relationships, communicating complex ideas, are some of the skills that I have acquired during the PhD journey. By working as a researcher during my PhD degree not only prepared me to succeed in academia but also helped me to be able to learn independently and to master and apply new knowledge and skills quickly. By achieving depth of knowledge in a specific topic of my interest  I have developed all of these aforementioned skills which have proven vital to my current role and can be applied to other related topics within Economics and international business as well.