Foreign Direct Investment and the Performance of MNCs : Taiwanese Firms'in People's Republic of China and Southeast Asia

Abstract

This study draws upon a firm level database from Taiwan to study the foreign direct investment (FDI) behavior of firms. An econometric model based on economic theories of the MNC behavior is used for carrying out the empirical analysis. The performance of Taiwanese firms with FDI in Mainland China(PRC) and South-East Asia can be explained by this model that focuses upon capital utilitization, management experience, industrial and macroeconomic environment. The results show that the higher the asset utilization efficiency, the better is the subsidiary performance. Furthermore, the more sound the fundamental macroeconomic and other conditions in countries invested and the lower the labor cost, the better is the operational performance of the subsidiary companies. Also the higher the industrial market value and the more abundant the capital of the parent company, the better is the subsidiary performance. However, the results do not settle definitively whether management capability increases the subsidiary performance. There is no statistically significant influence of the management capability of an MNC from Taiwan engaging in foreign direct investment on its subsidiaries'performance.