Chinese FDI in Thailand: An Economic Analysis of Globalization

This case study examines the economics of globalization through the lens of Outward Chinese Foreign Direct Investment (FDI) by JD.com in Thailand, via a joint venture with Central Group. It explores the motivations behind JD.com's decision to invest in Thailand, including the desire to explore new markets, capitalize on affordable internet services, and improve online marketing efficiency. Thailand's strategic location, preference for high-quality products, rising middle-income consumers, and e-commerce growth potential are also key factors. The case study further highlights the favorable policies implemented by the Chinese government to encourage outward FDI, such as relaxed approval systems, bilateral investment treaties, and financial support from export-import banks. Desklib provides access to this and other solved assignments for students.

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Introduction
In economic globalization, foreign investment can be categorized in various forms
namely; Foreign Direct Investment (FDI), Foreign portfolio investment and foreign load.
However, in this case, study, we will discuss Outward Chinese FDI (JD.om) invested in
Thailand through Joint Venture with Central Group
FDI occurs when Multinational Corporations have facilities in some other countries
under their control. Moreover, FDI can be considered as outward or inward. An outward
foreign direct investment is a strategy in which domestic firms expand their operations to
foreign countries through either mergers or Greenfield investments (Das, 2017). Inward FDI,
on the other hand, entails foreign entities investing in local economy goods or services.
There are many reasons why MNE go abroad. Broadly it is because they expect to
earn a return on their investment. According to Internalization theory, the inevitability of
firms to establish local subsidiaries through FDI has been explained and advised that firms
can maximize their profits in the long run by internalizing the monopolistic advantage.
Additionally, this theory has illustrated the entry mode selection determinants by shedding
light on the role of minimized transaction costs when a firm integrates both economic
activities and aligns its internal resources efficiently. Further, this theory stipulated that
location-specific advantages favor entry of MNCs into new markets with an aim of
uncovering the optimal production location on the global scale that have abundant labor
force, high market potential and efficient raw material procurement. Without the
internalization advantage, the theory stated that firms would definitely prefer arm length
contracts to FDI. The level of technology in an industry has also been a key motivator in
entering into new markets especially for mergers and acquisitions. Firms merge or acquire
other firms in a different country in order to increase its productivity through the high
technology.

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Considering the case study of JD.com, there are various motives behind the
company’s FDI (Hoppe, Lamy & Cannarsi, 2016). The first reason behind JD.com FDI to in
Thailand was to explore new markets and secure a market share in this market. This is in
consideration of the fact that Thailand, which is also the second largest economy in Southeast
Asia is among the few countries in the region whose internet usage is very high. For that
matter, JD.com saw it as a golden opportunity to get a market share easily as an e-commerce
company whose main consumers are internet users.
Secondly, JD.com was attracted in Thailand because of the country’s affordable
internet services. As a country which has highly advanced in terms of technology, Thailand
internet is affordable and that would imply low operational cost for JD.com considering the
fact that all its operations are done online.
Thirdly, JD.com establishment in Thailand was in pursuit of online marketing
efficiency (Kang, Peng, Zhu & Pan, 2018). In its attempts, the company aimed at
rationalizing the structure of the country’s established internet services which could enable it
to sell its products to a large number of internet users within the country and hence
capitalizing on the readily available markets.
Thailand and central have some common features which attracted JD.com to be
established in the two countries. For instance, Thailand is considered as a strategic hub whose
geographical proximity to and easy access to countries like Vietnam, Cambodia, Malaysia,
Laos, and Myanmar would make it easier for this country to expand its markets. JD.com also
considered Thailand because of its attractive markets out of the preference for high-quality
products and its rising number of middle-income consumers (Kang et al, 2018). In addition to
the two factors, Thailand’s potential e-commerce growth played a major role in settling at the

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establishment of JD.com Company in the country. Just like Thailand, central was also
perceived to be geographically located and also with potential e-commerce growth.
In order to promote its firms in foreign investment venture, the Chinese government
has come up with favorable policies to encourage more and more firms towards outward FDI
(Park & Roh, 2018). For example, the government has come up with a relaxed approval
system for outward FDI. The Government has also entered into several bilateral investments
and double taxation treaties with different countries including Thailand with an aim of
facilitating Chinese firms’ foreign investment. In addition, China’s Export-import Banks
have been providing financial support as a motivation to the firms investing aboard.
References
Das, S. B. (2017). OBOR’s Digital Connectivity Offers Both Benefits and Risks.
International Journal of Emerging Markets.
Hoppe, F., Lamy, S., & Cannarsi, A. (2016). Can Southeast Asia live up to its e-commerce
potential. Bain & Company, 16.
Kang, L., Peng, F., Zhu, Y., & Pan, A. (2018). Harmony in Diversity: Can the One Belt One
Road Initiative Promote China’s Outward Foreign Direct
Investment?. Sustainability, 10(9), 3264.
Park, B. I., & Roh, T. (2018). Chinese multinationals’ FDI motivations: suggestion for a new
theory. International Journal of Emerging Markets.

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