Chinese OFDI in German companies: an analysis of host country externalities and development of a success-predicting model based on host country company absorptive capacity

Abstract

After decades of corporations from developed countries investing in developing economies, the contemporary business environment sees more and more enterprises from emerging markets that use FDI in developed countries themselves. Chinese investors in particular acquire unprecedented numbers of companies in Europe and especially Germany. This thesis examines the motives of such acquisitions and finds that these emerging country investors are driven by different incentives than their developed country counterparts. The same is true for the companies which are at the receiving end of FDI transactions so that e.g. German companies seek foreign capital for very different reasons than Chinese ones. At the centre of the analysis lies a predictive model which has the purpose of forecasting the probable outcome of a new Sino-German FDI transaction based on the experiences made with past cases. The dataset collected for this purpose reveals that small German companies of the metals industry located in the East of Germany have the highest risk of performing poorly under a Chinese investor. Companies of the automotive industry located in the North on the other hand have positive prospects in case they come under Chinese ownership. For the success-predicting model itself the statistical tool of linear discriminant analysis is chosen and applied in such a way that it can measure the economic success of a transaction based on both the acquired company’s general features and ability to absorb externally provided assets. In order to make this statistical analysis an easily accessible tool for any user, a dashboard-style application is created. It has an interface that allows easy input of the data required for the analysis and presents its results in a fashion that makes it directly usable in a potential FDI decision.