Localization, R&D Intensity, and Firm Performance of Taiwanese Enterprises in China

Abstract

This chapter intends to examine the recent trends and features of Taiwanese investment operating in China (from 2002 to 2005), in terms of localization, R&D intensity, and firm performance. In the contemporary economic age, research and development (R&D) investment isan important means of enhancing the value added to an industry’s business performance and establishing a key competitive advantage. The empirical findings show that from 2002-2005, the intensity of each local linkage (except local supplier linkage) manifest a very stable trend. We contend that between 2002 and 2005, Taiwanese investors had mastered the art of taking advantage of China's regional advantages, and as a result, the intensity of each local linkage (aside from that with local suppliers) is almost constant. Besides, it is noteworthy that strategic goals, firm’s size, and ownership type all make a difference to the extent of localization. The definition of local linkages, in this study, is a web of interconnected networks upon which business activities between actors are conducted. Some economists suggest that exchange connections in local networks may be examined on the basis either of activities or of actors. As regards R&D, Taiwanese MNEs seem to be indifferent to conducting R&D in China. The low degree of R&D intensity is applicable to all types of Taiwanese subsidiaries. This study statistically employs an indicator to classify Taiwanese MNE subsidiaries investing in China. It is reasonable to assume the local-market-seeking group mainly sell their products in the host country’s domestic market. Finally, according to Taiwanese top managers’ subjective self-evaluations, their subsidiary-level firm performance in China demonstrates a positive and stable trend. This finding suggests that Taiwanese MNEs may be able to boost their core competitiveness at home and improve their company's performance abroad by investing in China.