Discussion

The coefficient of GOV is significantly positive. It implies that overseas subsidiaries have better performance when the local government of host has less intervention. It is also significantly positive in basic manufacturing industry and technology intensive industry.

Although it is insignificant in traditional industry, it still presents positive contribution. If the host wants to absorb more foreign capital to promote economic growth, the local government has to reduce the opaque and inefficient intervention system to maintain the investment intention of overseas subsidiaries.

The variable NON-STATE is significantly positive. In general, the vigorous non-state-owned economy development can enhance the performance of overseas subsidiaries. However, the coefficient of NON-STATE is inconsistent for three industries. It

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is insignificant in traditional industry and significantly positive in basic manufacturing industry and technology intensive industry. The possible explanation is that the non-state-owned enterprises of traditional industry develop from 1980-1990. The non-state-owned enterprises of basic manufacturing industry and technology intensive industry are from 1990s. The development of non-state-owned enterprises in traditional industry is more complete than it is in other two industries. Therefore, the marginal contribution is smaller for overseas subsidiaries of traditional industry.

The degree of goods market development is insignificant for all firms and three industries.

The possible explanation might be that Taiwan‟s companies regard China as the production site, US and Europe are regarded as the destination of sale. Therefore, the development of goods market in China has little impact on Taiwan‟s subsidiaries. Nevertheless, if Taiwan‟s companies regard China as the destination of sale, maybe the goods market development has significant influence on the performance of overseas subsidiaries.

The variable FACTOR is insignificant for all firms. It may imply that the degree of factor market development does not influence the performance of overseas subsidiaries.

However, the impacts are inconsistent for three industries. Basic manufacturing industries reveal significantly positive correlation, while the technology intensive industries display significantly negative correlation. The possible explanation might be that the numbers of labor used by the basic manufacturing industries surpass that in the technology intensive industries. When the local labor mobility is higher, the overseas subsidiaries are easier to acquire labor force. The basic manufacturing industries satisfy required elements faster than the technology intensive industries. Hence, the performance of basic manufacture industry is easily increased because of the high labor mobility. In addition, factor markets development also includes the extent of the provinces to attract FDI. When FDI flow into the market from other countries, the advantage of language and culture similarity between

Taiwan and China will be reduced. It affects the performance of Taiwan‟s overseas subsidiaries. The foreign capital in China is more inclined to technology intensive industries as our data from CCIS. When the amount of foreign capital in a province is higher, the impact on technology intensive industries is more obvious than that on other industries. Hence, the development of factor market does not always impact the performance of overseas subsidiaries positively.

The coefficient LEGAL is significantly positive for all firms. It implies that the province which has high legal protection can enhance the performance of overseas subsidiaries.

However, the legal protection is only positive significantly in traditional industry. Both basic manufacturing industry and technology intensive industry are insignificant. There are two possible explanations. First, the technology level in basic manufacturing industry and technology intensive industry is higher than it in traditional industry. If the technology level is high, the local firms are not easy to imitate. Second, the production line is divided into upstream and downstream in basic manufacturing industry and technology intensive industry.

The upstream, technical core, remains in Taiwan to be researched and developed. The downstream, labor intensive assignment, shifts to China to be completed. However, the technology gap between parent company and overseas subsidiaries in traditional industry is shorter. The core competence is easier to be learned for local firm. Thus, the overseas subsidiaries of traditional industries should learn how to protect the core technology and avoid being imitated by local firms.

The coefficient SIZE is significantly positive for all firms and three industries. However, the variable SIZESQ is significantly negative for all firms and three industries. The firm size is positively related to lnsale, but at a diminishing rate. Firm size is positively related to the growth rate of sales, which support our argument that the overseas subsidiaries have more total assets to achieve returns to scale. The negative coefficient of the quadratic term

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implies that the effect appear at a diminishing rate.

The coefficient RDI is significant negatively for all firms. The possible explanation is division between Taiwan and China. In general, the technical core remains in Taiwan to be researched and developed. The labor intensive assignment shifts China to be finished. If the overseas subsidiaries have higher degree on R&D, they do not regard sale as firms‟ goals.

The product is less in proportion. Hence, the RDI impact lnsale negatively. In addition, RDI is expected to effect lnsale variously. The traditional industry and basic manufacturing industry are insignificant because of the mixed results. In addition, the negative effect surpasses positive influence in technology intensive industry, so RDI is only negative significantly in the industry.

The coefficient TEL is significantly positive for all firms. It implies that the province which has more telephone users can enhance the performance of overseas subsidiaries.

However, the TEL is only positive significantly in traditional industry because the traditional industry is more labor intensive than other two industries, this may cause the coefficient TEL to be more important in traditional industry. Nevertheless, the coefficient TEL still has positive contribution in other two industries even they are insignificant. The local government should strengthen the development of telephone uses continuously.

The coefficient WASTE is significantly positive for all firms and technology intensive industry. In general, the consumption wastes treated ratio will have positive contribution on performance of overseas subsidiaries. However, because the consumption wastes produced by technology intensive industry are treated difficultly they spent more cost to treat the technical wastes due to the properties of the wastes. Thus, maybe the consumption wastes treated ratio is more important to technology intensive industry. If the local government can improve local consumption wastes treated ratio, it will enhance the investment intention of parent company especially the technology intensive industry.

The variable POWER is insignificantly for all firms and technology intensive industry.

Because technology intensive industries have to operate all day, they prepare electric generator to cope with electric problem. Thus, local supplied electricity has little impact on technology intensive subsidiaries. It is significant negatively in traditional industry and basic manufacturing industry. There are two possible explanations. First, the traditional industry does not operate all day, so they do not respect the electricity problem. They may take a short time to find a solution to the problem. Hence, the insufficient electricity has direct influence on traditional subsidiaries. Second, basic manufacturing industry includes steel industry, building materials industry, chemical industry which consumes high energy.

They do not have the solution to cope with electric problem, the electric problem is serious for basic manufacturing industry. Hence, overseas subsidiaries should be alert about investing in province which has high electricity consumption if they need massive amounts of electricity to operate factories or businesses.

This study aimed to discuss how market development influences the performance of the overseas subsidiaries of Taiwan in mainland China. In general, the market development on the performance of overseas subsidiaries is significantly positive. A high market development can raise profitability of overseas subsidiaries. The NERI INDEX of marketization for China and three economic regions is presented in Table 5. The results indicated that the degree of market development in Eastern area is higher than other areas obviously. In addition, the degree of market development in Western area is lowest in China.

The market development is concentrated in the Pearl River Delta, the Yangtze River Delta, and the BoHai Rim. Market development in the three economic regions is higher than the average of whole country. The degree of market development in the Pearl River Delta is higher than other two economic regions. However, the three economic regions have

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different advantage in each market development dimension. In the Pearl River Delta, the degree of factor market development is obviously lower than other dimensions. The role of local government, degree of non-state-owned economy, and degree of goods market development is the highest in three economic regions. In the Yangtze River Delta, the degree of factor market development and legal protection are the highest in three economic regions. In the BoHai Rim, the degree of factor market development and legal protection are lower than other dimensions.

The legal protection is most important for traditional industry. The MNEs considered the Yangtze River Delta and the Pearl River Delta because they have higher degree of legal protection. The degree of legal protection in the BoHai Rim is obviously low. The Yangtze River Delta is a good location for basic manufacturing industry. Because the degree of factor market development in the Pearl River Delta and the BoHai Rim is lower, it may reduce the performance of overseas subsidiaries for basic manufacturing industry. On the contrary, the Pearl River Delta and the BoHai Rim are good locations for technology intensive industry because the degree of factor market development has negative impact on the performance of overseas subsidiaries for technology intensive industry.

The government of China should enhance the market development in order to absorb more FDI, especially from reducing the government intervention, expanding the non-state-owned economy, and strengthening the legal protection. According to the NERI INDEX of marketization, the market development in western area is the lowest in China.

The China‟s government also can enhance the market development in western area in order to absorb more FDI in western provinces. It may be a method to reduce the disparity of economic development. In addition, China‟s government has to improve the infrastructure continuously, especially the electricity supplied.

Table 5 NERI INDEX of marketization for China and Three Economic Regions

Total GOV NON-

STATE GOODS FACTOR LEGAL

Overall 6.57 7.70 7.08 8.15 4.64 5.26

Eastern 8.49 9.05 9.72 8.93 6.94 7.76

Central 6.20 7.73 6.78 8.54 3.61 4.29

Western 4.97 6.36 4.84 7.00 3.31 3.55

NorthEast 6.38 7.56 6.48 8.95 3.66 5.22

Pearl River Delta 10.02 10.01 11.55 10.18 7.97 10.40

Guangdong 10.02 10.01 11.55 10.18 7.97 10.40

Yangtze River Delta

9.96 9.79 11.20 9.50 8.60 10.73

Shanghai 10.38 9.77 9.76 8.98 10.09 13.30

Jiangsu 9.25 10.02 11.61 9.21 7.13 8.30

Zhejiang 10.25 9.58 12.22 10.32 8.57 10.58

BoHai Rim 7.81 8.37 8.92 8.50 6.69 6.60

Beijing 8.53 8.90 9.52 7.24 9.04 7.95

Tianjin 8.44 8.21 8.25 8.65 8.73 8.37

Hebei 6.45 8.42 7.70 8.38 3.18 4.57

Liaoning 7.74 8.00 8.54 9.19 6.83 6.14

Shandong 7.92 8.31 10.58 9.06 5.69 6.00

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