Korean Textile Firms' FDI in China: An Empirical Analysis on the Management Practices

Abstract

China is top FDI destination for Korean Textile firms. This paper, using survey data for 41 Korean textile firms invested in China, measured their performance and analysed its determinants. Regression results show that localization of the business management, level of wages, the investment-to-employee ratio, ratio of raw materials sourced from Korea, and export ratio of the parent company have positive relations with the firm's performance. On the contrary, domestic sales (i.e. sales within China) ratio is not significantly related with the performance. This survey also reveals some difficulties which Korean-invested textile firms in China usually face in the operation stages of investment. The biggest trouble is the rapid rise of production cost, and many firms feel growing competition from local competitors and have difficulties with entering local market. They also suffer from lack of skilled workers and high ratio of labor turnover. Besides, they have trouble financing operation funds in China. Meanwhile, according to the survey result, the ratio of local procurement of raw materials continues to rise rapidly, being expected to amount 77 percent within the next few years. This indicates that the export induction effect of FDI would be in a sharp decline, possibly resulting in enlargement of Korean textile industry's trade deficit with China.

Keywords

• Textile
• FDI
• China
• Investment Performance
• Management Practices
• Trade