Applications of Gompertz Model in Foreign Direct Investment of Taiwan\'s IC Design Industry into China

Abstract

Previous studies never uses Gompertz model integrated with genetic algorithms to express the evolutions of capital flows although Gompertz model is suitable in the field of statistics, management science, information technology, product innovation, technological forecasting and finance to express the growth diffusions. This work utilizes Gompertz diffusion model integrated with genetic algorithm to illustrate the extension of foreign direct investment (FDI) from Taiwan to various Chinese areas, including East China, South China, North China, Central China, Northwest China, Northeast China, Mid-west China and Southwest China. In this study, FDI from Taiwan to China is defined as the capital flows from Taiwan into China to buy lands, build factories and recruit employees in China minus the capital flows coming back to Taiwan from Chinese branches. This study aims to utilize Gompertz model to explain why the Taiwanese IC design companies choose different Chinese regions to engage in FDIs. Empirical results indicate that the potential FDI size is the greatest for Taiwan\'s IC design firm flowing into South China. This is possibly caused by that Taiwanese IC design firms invest into South China earlier than other Chinese areas. In addition, Taiwanese IC design firms tend to imitate other firms when purchasing lands, building factories, recruiting employees and implementing FDIs into China. Our results also demonstrate that the incentive of imitating other firms to choose FDI locations is the most pronounced for firms investing in North China. Because North China is the administration center in China and few factories set up over there, so the number of Taiwan IC design firms investing in North China is fairly small. To avoid risks, the successive IC design firms tend to implement FDIs in North China only when they observe the safety or the profitability of other firm\'s divisions in North China. Consequently, the imitation effect is the greatest for firms investing in North China.