Determinants of Manufacturing Location in China: An Examination of Taiwan-invested Electronics Assembly Plants

Abstract

An upswing in labour costs and currency appreciation during the 1980s caused companies from more advanced Asian economies, such as Hong Kong, Japan and Taiwan, to search for new manufacturing sites in order to obtain lower costs. China was one of the main options for these outward investments, with its huge and rapidly growing market, plentiful, low-cost labour and vast territory. The literature on foreign direct investment has analysed the location strategies of multinational enterprises across national borders, but there have been fewer studies of location decisions by foreign investors within the borders of a single country. We examine how companies determine which location offers the best opportunity to establish an assembly-type manufacturing site in China. We surveyed 17 Taiwanese enterprises that have established this kind of manufacturing base in China, and found that the major factors influencing location selection are economics, politics, the cluster effect and bureaucratic efficiency. It was found that the eastern region, which includes Jiangsu, Zhejiang and Shanghai, was considered better for establishing manufacturing bases than other regions.