Chinese Affiliates Mature: International Expansion Strategies of German Manufacturers in the PRC

Abstract

This article explores what strategies foreign companies should use to enter the Chinese market or to leverage the full potential of existing affiliates in order to successfully play the specific “aces“ China has to offer while possibly avoiding trade and investment barriers. A novel research-based framework links these aces and barriers to strategic posture. While market size and growth are still the most relevant drivers of German activities in China today, local factor conditions such as lower labor costs are gaining in importance. As expert interviews with more than 50 chief executives of German affiliates in China have shown, already today those companies are more successful that exploit Chinese economies of location to provide products or services for third markets. These exports will increase substantially in the future, as the interviewees’ aggregated medium-term plan reveals. (Manuscript received 19.12.2005, accepted for publication 03.03.2006)