Academic journal article Journal of Business Strategies

Driving Forces of International Pharmaceutical Firms' FDI into China

Academic journal article Journal of Business Strategies

Driving Forces of International Pharmaceutical Firms' FDI into China

Article excerpt


This paper presents the results of an exploratory investigation into the factors that drove the international pharmaceutical firms to make foreign direct investment (FDI) into the Chinese pharmaceutical manufacturing industry during the period from 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. The factors 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 pharmaceutical firms FDI decisions. The results suggest that FDI decisions of early entrants who started FDI before 1992 were more likely to consider the open-door policy as the second most important factor, whereas late entrants whose FDI started since 1992 seemed more likely to consider the Chinese economic development and growth as the second most important factor. The results also suggest that relatively stable political conditions in China have had a stronger positive influence on the FDI decisions of the late entrants. Low labor and establishment costs in China as well as cultural related factors were not found to be significant factors for international pharmaceutical investors.


China has attracted substantial foreign direct investment (FDI) since the passage of the Chinese-Foreign equity joint venture law by the National People's Congress of China in 1979. As shown in Figure 1, the growth trends of FDI have undergone two major phases. During the period of 1979-1991, the FDI flow into China was slow and the actual investment showed no significant growth till 1991. Beginning with a 25 percent growth in 1991, China has since attracted a greatly increased amount of FDI. A sharp increase (approximately 152 percent over the previous year) occurred in 1992 and an FDI inflow in 1992 (USD 11.007 billion) was just slightly lower than the total FDI (USD 12.103 billion) in the entire first decade (1979-1989). By 1998, this 1992 level was surpassed four times over (SSBPRC, 1988-1999). The country had been second only to USA as the major recipient of FDI from 1993 to 1997 and ranked in the third position in 1998 in the world. During the period 1992 to 1998, China had hosted almost 10 percent of the total world FDI inflow in the world and absorbed over 28 percent of the total FDI inflow to developing countries and over 46 percent of total FDI inflow to Asian countries or regions. South East Asian countries or regions attracted about USD 480 billion FDI flows from 1992 to 1998. Approximately 50 percent of this went to China (UN, 1996-1999).


The popularity of foreign direct investment activities in China applies notably to the pharmaceutical industry. The Chinese pharmaceutical industry has become one of the first groups of industries that established enterprises using foreign investment. By the end of 1998, China had established over 1,500 pharmaceutical companies with foreign investment, including investment by the majority of large multinational pharmaceutical groups from North America, Western Europe and Asia. Foreign invested pharmaceutical companies were distributed across almost every part of China. They produced a wide range of products, including, for example, bulk pharmaceutical chemicals, preparations, diagnostic reagents, medical dressings, pharmaceutical machinery and health care products (CCPIE, 1995; NTDB, 1996; MIMS, 1998; SPGC, 1999). With foreign cooperation and the successful introduction of foreign investment, China's pharmaceutical industry has expanded at a very fast rate, with annual market growth posting an average double-digit growth for the past two decades. Analysts anticipate that China will be the world's largest pharmaceutical market by year 2020 and the world's leader of pharmaceutical manufacturing during the 2011 to 2050 period (Wang, 1999). …

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