Chinese Foreign direct investment in Italy

The ‘Marco Polo’ Effect: Chinese FDI in Italy

• The study investigates the motivations driving Chinese outward direct investment in Italy. The analysis is based on secondary sources and in-depth interviews with key informants and senior managers of Chinese affiliates in Italy.
• The empirical analysis shows that the evolution of the Chinese pattern of entry to Italy is in line with the model followed by Chinese firms for direct investment in other European countries: starting with small-scale operations in trade-related activities, and evolving towards the acquisition of tangible and intangible resources deemed necessary to increase the Chinese presence in international markets and, more generally, to upgrade its technological and production capacities.
• Chinese investments in Italy are increasingly targeting the acquisition of design and brands in key Italian sectors of specialization, and technological capabilities in sectors such as metalworking.
• Chinese multinational enterprises also are investing in Italy to get access to local competitive advantages in sectors such as automotive and home appliances. This location choice is clearly linked to the intention to tap local competences available at the cluster level.

Introduction

China is clearly a latecomer as a global investor: the stock of its outward foreign direct investments (FDI) accounts for less than 1 per cent of world FDI stock, and lags behind the world average in terms of ratio to gross domestic product (GDP) (UNCTAD, 2009). Nevertheless, the very rapid increase in Chinese investments abroad, which rose from US$ 5.5 billion in 2004 to nearly US$ 42 billion in 20081 (MOFCOM, 2009), is attracting much interest from international business scholars and economists as well as the media.

Despite the presence of Chinese companies in the developed world being negligible in absolute quantitative terms, with Europe and North America receiving respectively 2.8 and 2 per cent of total Chinese FDI2, the focus on China’s overseas expansion in research conducted in these countries is strong. The reasons for this are several, and reflect the mix of fears and hopes from such expansion. Given that the Chinese state is often behind FDI, there are fears of unfair competition based on the political and financial support received by the Chinese companies involved, and possible takeovers, and there is uncertainty about the future survival of companies acquired by Chinese investors, the impact on employment, and the risk of loss of key technological capabilities. On the positive side, the input of fresh capital is very attractive and, in the case of acquisitions, often rescues enterprises facing financial difficulties.

The mixed expectations related to China’s overseas expansion calls for a better understanding and knowledge of the strategies of Chinese companies entering overseas markets to inform what is becoming an increasingly relevant debate. Although this topic is becoming fashionable in international business studies3, the empirical evidence on Chinese FDI in European countries is quite limited and relates mainly to the UK (Burghart and Rossi, 2009; Cross and Voss, 2008; Liu and Tian, 2008) and Germany (Schüller and Turner, 2005; Schüler-Zhou and Schüller, 2009). This paper contributes by analysing the case of Italy.

Based on new and original empirical evidence collected via in-depth interviews with key informants and senior managers of Chinese affiliates located in Italy, we present a picture of Chinese investment in Italy, exploring its characteristics in terms of size, choice of location, sector of specialization and activities undertaken. We address the following research questions: What motivates Chinese companies to invest in Italy? What are the chosen types of entry modes?

In our analysis, we discover that what is happening today mirrors what happened centuries ago, but in the opposite direction. Marco Polo, the famous Venetian traveller, visited China in the thirteenth century and lived there for over a decade. He was astonished by the level of civilization achieved and brought back important scientific and technological discoveries such as the use of the compass, money and coal. In recent years, Chinese enterprises appear to be interested in discovering and assimilating the original knowledge being developed in the Italian economy, frequently related to design-intensive, high-quality productions.

In terms of stock, Italy is ranked seventh among the countries of Europe (excluding Russia). It is an especially interesting case for analysis because of the peculiarity of its economic system, which shares some features of the Chinese economy: strong presence of small and medium-sized enterprises (SMEs) specialized in ‘traditional’ industries (Amighini and Chiarlone, 2005).

The paper is organized as follows. Section 2 provides a review of the literature on the motivations behind Chinese FDI, Section 3 gives some background information on Italy as a location for FDI, Section 4 focuses on Chinese FDI in Italy and explores motivations and entry strategies, and Section 5 concludes.

Motivations for Chinese FDI

Much of the work that investigates the motivations for FDI refer to the four categories identified out by Dunning (1993): natural resource-seeking; defensive (to secure a position into a market) and offensive (to invest into new markets) market-seeking; strategic asset-seeking (to acquire technologies, managerial capabilities, brands, distribution channels and other tacit assets); and efficiency-seeking (to exploit economies of scale and scope and/or to secure access to cheaper input factors, especially labour).

In the 2006 World Investment Report, UNCTAD identifies market-, efficiency- and natural resource-seeking as the most relevant motives for FDI from emerging countries to less developed destinations, and market- and strategic asset-seeking as the main attractors in developed countries (UNCTAD, 2006).

Source: http://www.chathamhouse.org.uk/files/16054_pp0210italy.pdf

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