Once China began significant reforms of its economic policy in 1979, its econ-omy showed remarkable achievements over the subsequent three decades. Through economic reforms, the Chinese economic system has been moving away from a planned to a free economy. China has a population of over 1.3 billion people and promises to, one day, be the largest market in the world. When economic reforms were announced in 1979, a growing flow of foreign capital entered this market. With plentiful, inexpensive land and a large pool of low-cost labor combined with foreign capital and able entrepreneurs, four major elements successfully integrated to enable China to achieve high economic growth rates for the last twenty years.
Since the 1980s, labor wages in Hong Kong have surged upwards. To search for lower labor costs, some Hong Kong enterprises were forced to move to Guangdong province, especially to the Shenzhen Special Economic Zone (SEZ). To welcome Hong Kong businesses moving to the Shenzhen SEZ, the local government provided tax incentives such as business income being exempt from income tax in the first and second years, and a 50% reduction in the third to fifth years. Followed by Hong Kong businesses, Japanese enterprises also suffered huge Japanese yen appreciation losses since the Plaza Agreement was entered into in 1985 by the G-5. As a result, Japanese companies also entered Guangdong province. Originally, Japanese enterprises were limited to the textile and grocery sectors. In the 1990s, however, their investment scope greatly changed to focus on the consumer and electronics component business.
In the following years, to reduce costs, Taiwanese enterprises also moved into Guangdong province, especially the Shenzhen SEZ, and then later migrated to the city of Dongguan (located northwest of Shenzhen). In fact, many view Guangdong as
Hong Kong’s hinterland.
To attract foreign investors, especially for Hong Kong enterprises, Guangdong’s local government provides very flexible business models for foreign investor selection, such as consignment contract manufacturing. In the past three decades, China’s eco-nomic structure has gradually shifted from labor-intensive to capital- and technolo-gy-intensive industries, the type of industry that first appeared in the special coastal districts. As a result of intra-district economic competition, many of the most suc-cessful economic players are now moving from the south (Pearl River delta) to the east (Yangtze River delta) of China. This is a fairly new trend as the southern region of China, especially Guangdong province, which is geographically right next to Hong Kong, had always enjoyed special favor.
In summary, there are two advantages to investigating in China: first, China has been going through major economic and political changes since 1979, and due to the huge size of the domestic market and the low wages of its workers, it has become one of the most important manufacturing sites in the world. Second, China has been suc-cessful in attracting foreign investment, so that by 1995 it had become the second largest recipient of foreign direct investment in the world (Tse, Pan & Au, 1997).
While China is an obvious choice as an offshore manufacturing site, there is still the decision of where within China to locate. Obviously, many complex criteria must be considered in order to make such a critical decision. The Analytic Hierarchy Process (AHP), developed by Thomas L. Saaty, is designed to solve just such com-plex multicriteria decision problems. The AHP can be used to rank alternatives, allo-cate resources, conduct cost and benefit comparisons, etc. To use AHP, experts who
score is computed from the questionnaire. Then, these AHP scores are added up and their sample mean, sample standard deviation, and sample coefficient of variation (CV) are computed. These three indicators are then used to make a decision. AHP is an effective way to rank all alternatives. However, it is not reliable when AHP scores are too close or even equivalent to each other. To improve AHP sensitivity, reliability, and accuracy, many modified versions of AHP have been proposed, such as revised AHP, fuzzy AHP, fuzzy revised AHP, linear programming joined AHP, goal program-ming with AHP, and so on (Mamat & Daniel, 2003). To enhance decision-making by AHP, we propose a “hybrid AHP” method. This method computes an error band (EB) of final AHP-scores using its 95% confidence interval to estimate AHP score error, and calculates EB combined with “Bootstrap” to mitigate expert pectoral bias. Based on our methods, our decision rule is to “maximize AHP score and minimize EB”. We wish to prove that hybrid AHP is more reliable/specific (choose one) for practical de-cision use.
Our research not only offers insights into how firms from different regions eva-luate the establishment of a new manufacturing site, but also casts new light on Chi-nese regional economies by focusing on the way in which Taiwan’s firms choose par-ticular regions when opening their plants in China. We use “hybrid AHP” to identify what factors foreign direct investors consider when selecting out-of-country locations, and what specific factors are making certain Chinese regions more attractive to com-panies seeking to establish assembly-type electronics manufacturing bases in China.