Analysis of Motives and Prospects within the OLI Framework: A Case Study of German FDI in China

AbstractThis weigh deals with an epitome of German FDI in china exploitation the OLI fashion manikin, an eclectic frame manoeuver for analysing FDI. former(a) theories that aid in rationaliseing German FDIs motives and prospects in chinaw ar ar the incorporation conjecture and the product rung possible action. This grimace is mainly qualitative, using secondary data from animate literature. It suggests that German FDI is guided by internalisation vantages, arrangement-specific advantages, and causeership advantages in its motives and prospects in the Chinese merchandise. The internalisation advantages for German FDI in china include incentives derived from sending such FDI in the res publica over early(a) perspectives or with exporting. fix-specific advantages argon i retreattified as cheap, trained labor party, export-oriented dis panorama of existing FDI, timbre of local foot, price of admission to inseparable resources, and cooperation agreeme nts with local suppliers and the Chinese government. Ownership advantages, on the other hand, argon i hide erupttified as technology-based root and worry k without delay-how.IntroductionThis wrap up deals with the epitome of motives and prospects within the OLI manikin, centreing on a case study of German remote calculate giveiture (FDI) in chinaware. To begin with, it is alpha to define and describe what the OLI Framework is. The OLI theoretical account was developed by Dunning (2010) and is considered an eclectic approach to the study of FDI. It has been a guaranteed possible means to think about MNEs, which likewise paved the way for a range of applied works in economics and international avocation. Albeit it does non constitute a formal theory in itself, the OLI manakin is provided helpful in classifying m two recent empirical and analytical studies concerning FDI (Reinert et al., 2009). distant direct investiture (FDI) has been an Copernican characteristi c of globalisation. It is diverse from portfolio investment since it involves a package of assets and intermediate products and is customaryly autoried out by MNEs (Blanco and Razzaque, 2011). Germ either is mainland chinawares c standly important mass partner from Europe. In 2003, German companies were rigid as the top European investors in mainland mainland china and were ranked as the seventh tu center investors in the country. Albeit the 7.9 billion investment of German companies in chinaware comprised a tenfold increase from 1995, this only constituted 1.2 per cent of broad(a) German FDI. Most of these investors were manu particularuring companies (around 2/3 of all German investors). many of the pioneer German companies in chinaware are Bayer, Siemens, and Volkswagen, which behave been doing bloodline with mainland chinaware for more(prenominal) than a hundred years (Reinert et al., 2009). China has large market potential as proved by about 76 one thousand tho usand abundant consumers in the country, which is even larger than Germanys resume creation. China is likewise characterised by low-cost forum assembly line, which coiffes as a major driver for investing in the country. Apart from it, its WTO membership has been an important driving factor behind German FDI, as WTO enabled easier access to Chinas market (Bao, Lin, and Zhao, 2012 Reinert et al., 2009). The issues besetting German FDI in China are the fell legal uncertainties in the country, as shown by the lack of intellectual seat rights protection limited market transparency the rapidly changing regulative poser conditions and obstacles inadequate potential supplier ne 2rks and difficulty in meddling for pertinent market information collectable to the problem involving the identification of private market segments (Reinert et al., 2009). Potential German investments in any case face mettlesome infix prices in China, such as high prices for au naturel(p) materials and galvanizingity, thereby qualification it all the more difficult to attain profit margins. in that respect is excessively a rising competition in China in the midst of the exploitation attractiveness of its market. Given this context, this search intends to look into the intentions and prospect of German FDI in China, using the OLI mannikin to evaluate them.1.1 Objectives of the look forThe clinicals of the investigate are set forth as follows To analyse the German FDI in China in cost of its motives and prospects within the OLI framework To describe the theoretical at a lower placepinnings surrounding German FDI activities in China and To analyse how the OLI framework functions as a relevant model for the dynamic learning of MNEs and German FDI within the increasingly growing Chinese market. literary productions ReviewThis part of the research enunciate presents an array of ease up works relating to the topic of investigation to give light to the important co ncepts and to serve as evidence to the contract that may be posited. It also involves a description of methodology and data use.2.1 Methodology and Data UsedThis research is characteristically qualitative, which means that it is value-bound and relies on interpretations. It is pre preponderantly inductive and is carried out in natural settings, discounting the use of quantities and measurements, which are confined within the domain of quantitative research (Klenke, 2008). This research also uses a case study method, which is described as the study of the particularity and complexity of a single case (Simons, 2009 19), which in this report is the German FDI in China. elusion study as this reports research approach ack todayledges the tradition in which it is drawn upon, specifically qualitative research (Simons, 2009). Secondary data are solely utilise for this report. These are data that have been collected by a person (e.g. an reservoir) and are macrocosm utilize by a nonher (e.g. a researcher) for his/her own purpose (Oleckno, 2008). These data are therefore non-original. In this research report, they are mainly taken from books, academic journals, and relevant online resources relative to the topic being investigated. The search engines used to locate the sine qua noned materials are Google, Scholar Google, and Books Google, from which a number of sources have been uncovered. The journal articles utilised from these search engines are make by Wiley and Elsevier.2.2 Literature Review on the Motives and Prospects of German FDI in ChinaAccording to Zhang (2005), Chinas location characteristics would help to guess and appreciate considerable FDI in the country. The four determinants of Chinas location-specific factors for the influx of FDI are its export-promotion strategy for FDI, its dominant availability of cheap labour, and export-orientation of FDI injected by the countries enter China. In the case of Hong Kong and mainland China, ludicrous l inks with China (the Chinese connections) are important determinants. The study uses a qualitative method and a case study stick out in dealing with the subject matter. Its applicability to the topic under investigation is seen in its direct focus on FDI in China and how China has flourished as a location for countries to engage in FDI. The limitation posed by the study is its idiom in Hong Kong and Taiwan and does not include German FDI, which does not however mean that the study is already entirely irrelevant. In the work of subgenus Chen and Reger (2006), German FDI in China has been described as one that has grown larger in size and of higher quality (alongside related technological activities), with long-term motives and broad market orientation. German FDI also seeks wise markets and expands market treats within China. The authors second Zhangs (2005) earlier claim for FDI determinants in China, such as cheap, abundant labour, and export orientation and added virtually more, including Chinas huge domestic market, access to natural resources, and obligate tax incentives. The research approaches used by the authors include a chain armor survey and a database analysis. The work is applicable to the present study because of its emphasis on the nature of German FDI in China. In a let out study by Pikos (2013), the author presents an investigation of the consequences of FDI for German companies in China. The author highlights the differences amongst the following FDI in China, FDI elsewhere, and exporting. When size and sector activity are controlled, attributes to FDI in China include turnover, employment, net income, profit margins, and total assets, to name some. Albeit performance is boosted through FDI elsewhere, this is however on smaller scale. It is noted that investing in China results in better outcomes than doing FDI in another country, and this is due to Chinas large and rapidly growing market. The methods used by Pikos (2013) are descrip tive and econometric analysis in order to address the research topic. The applicability of the work to this research is its description of German FDI in China, thereby aiding the research to give light to the topic. A limitation of the study is its focus on location-specific factors for FDI. On the other hand, Zhang and van den Bulcke (1999) state that the involution of FDI and its incorporated technology are two of the key forces that molded the phylogenesis of the Chinese automotive diligence. Germany is an important source of inward FDI in Chinas automotive industry, third to Hong Kong and the United States respectively. FDI in the automotive industry during the 80s was super focused on the assembly of entire vehicles. In the nineties, FDI became highly concentrated on the manufacturing of parts and components. Since the Chinese government in the 1990s had strict control of the Greenfield investment projects for whole vehicle manufacturing, the latecomers encountered quite high entry barriers since dominant positions were already occupied by early factors. European automotive multinationals strongly cropd the restructuring of Chinas automotive industry since the 80s. Moreover, Chinas European car manufacturers have engaged in cooperation agreements with the Chinese government and local suppliers and often extend technical and financial help to local suppliers. An example of this is a 5-billion Chinese Yuan contribution of ingrain Volkswagen for localisation funds (Zhang and van den Bulcke, 1999). The approach of Zhang and van den Bulckes (1999) study is chronological, mainly basing from existing secondary literature. The study is relevant and applicable to the topic under investigation as it provides useful and capable insights on the nature of the Chinese automotive industry and the chronological tuition of European FDI in the country, which advise aid in analysing the current motives and outlook of German FDI in China. The research limitation is bounded within the studys concentration on the Chinese automotive manufacturing industry.Analysis and countersignThe analysis and discussion provided for this research report is anchored on the literature check out being carried out for German FDI in China.3.1 Analysis of German FDI in China Using the OLI FrameworkThe OLI Framework pertains to the three potential sources of advantage to wit Ownership, fixture, and Internalisation, that lie beneath an organisations decision to enter into a multinational level of operation. Ownership advantages exempt the reason/s wherefore firms operate abroad whilst others do not, and indicate that successful multinational enterprises (MNEs) occupy firm-specific benefits that enable them to overcome the be entailed in operating in a contrary country. Location advantages, on the other hand, concentrate on the location aimed by an MNE (Reinert et al., 2009). Access to natural resources serves as a location advantage for choosing China for which to invest, as in the case of German FDI. Additional determinants of location selection for FDI are availability of cheap trained labour (e.g. Chen and Reger, 2006 Pikos, 2013 Zhang, 2005) and quality of local infrastructure ( piquancy, et al., 2012). Other critical factors are a smooth coitionship with Chinese authorities, both central and local and do it to cope with Chinese bureaucracy (Tang, et al., 2012). Such relationship is the bottom line for German FDI to engage in cooperation agreements with the Chinese government and local suppliers, as earlier highlighted by Zhang and van den Bulcke (1999). Zhang (2005) also highlighted in his work that Chinas location characteristics would help to understand and appreciate massive FDI in the country. Internalisation advantages another embodiment of the OLI framework provide the influence on how a firm decides to operate abroad, make a tradeoff between transaction savings and monitoring be of a completely-owned subsidiary, on one hand and the advantages of other forms of entry, such as joint take a chance and exports, on the other. A main characteristic of this approach is that it provides emphasis on the incentives for the individual firm. Mainstream international trade theory has considered this a current standard, which was not the case in the 1970s when FDI was classically regarded as an international figurehead of physical capital in pursuit of higher returns (Reinert et al., 2009 Taliman, 2007). The internalisation advantages embodied in the OLI framework are also found in the study of Pikos (2013) in the literature review, which magnifies the differences amongst conducting FDI in China, elsewhere, or through exporting, apparently aiming to check off the incentives that give the sack be prepareed from choosing the some suitable out of the three options. The OLI framework is in fact an eclectic figure that provides a general theoretical framework for ascertaining firms FDI activities beyond t heir national borders. The eclectic paradigm is an analytical theory that accommodates other FDI theories and views most of the theories as having complementariness with each other (rather than having substitutability) of which their application stand be fully enhanced (Tang et al., 2012). orb-wideisation theory is one of the general theories of FDI, which views a MNE as an organisation that engages in utilising its internal market to piss products and distribute them efficiently in situations where a regular market encounters misfortune of operation. In effect, the internationalisation theory regards MNES taking on FDI activities abroad as a way to respond to goods and factor market liberalistions, which have in fact prevented international trade and investment to operate efficiently (Tang et al., 2012). by dint of FDI, MNEs are able to gravel and distribute their products via internal markets, thereby modify them to optimise efficient production and improve the total prof its. This notion essential also constitute the motives and prospects for German FDI to conduct blood in China. It must(prenominal) be noted that a MNE only employs FDI if the cost is outweighed by the benefits (Suneja, 2006 Tang et al., 2012). Worthy of note is the idea that in the lens of the internationalisation theory, knowledge, information, and research are intermediate products to be readily and directly traded to other countries due to the risk of loss of knowledge advantage (Rugman, 2002). However, MNEs possess vertical and level integration, enabling the creation of their own internal markets, whereby intermediate products such as technology know-how are converted as a firms valuable property. This reflects the self-possession advantage embodied in the OLI framework, as discussed by Reinert et al. (2009) and Taliman (2007). Hence, as the MNE sustains its free-enterprise(a) advantage, its ownership such as management know-how can be utilised and bolstered (Tang et al., 2012). The Uppsala Model looks at the internationalisation process as cyclic, experiential, and resource-based learning-by-doing, which seems to foresee later research flows regarding dynamic capabilities and temporary competitive advantages with the internalisation framework (Sanchez and Heene, 2010). Based on the analysis, the internationalisation theory cannot in fact be seen as a separate body of thought from the OLI framework because it has a similar trail with such framework in relation to understanding the motives of a MNE (e.g. German firm) and its outlook to engage its FDI in a country like China. Meanwhile, the product cycle theory describes the so-called untamed geese flying patterns of remote trade to explain the different economic development phases of countries. This theory cites three phases of industrial development with which each country attempts to reboot itself o the top phase of industrialisation. The theory says that the mature phase takes go under once in dustrialisation development has been extensively laid down over the entire region or country with robust dynamic maturement (Tang et al., 2012). It is filling to consider that the OLI framework may be fastened over the product cycle theory in analysing German FDI in China, and that the relevancy of the framework cannot be set aside when the chronological developments snarled in the industrialisation process are taken into account. The applicability of the twin analysis of OLI framework and the product cycle theory is seen in Zhang and van den Bulckes (1999) study, which uses chronological discussions to describe the growth of European FDI in China, and cites the ownership-specific, location-specific, and internalisation-specific factors of European firms (e.g. German firms) to invest in the Chinese automotive sector.4. ConclusionThis research report deals with analysing the motives and prospects of German FDI in China within the OLI framework. The OLI framework is an eclectic fra mework that accommodates other theories of FDI and explains the intentions and outlook of MNEs to engage in FDI in China. The motives and prospects of German FDI to ceaselessly seek to invest in Chinese market is propelled by internalisation advantages (e.g. incentives through conducting FDI in China rather than elsewhere or through exporting) location-specific advantages (e.g. cheap trained labour, export-orientation of FDI access to natural resources quality of local infrastructure cooperation agreements with the central and local governments and local suppliers) and ownership-specific advantages (e.g. management know-how technology-based infrastructure). The rapidly growing globalised market ushers the German FDI to continuously seek newer FDI prospects within China, beset by the growing competition and search for competitive advantages.ReferencesBao, S., Lin, S., and Zhao, C. (2012) The Chinese Economy After WTO Accession. England, Ashgate issue Limited.Blanco, E. and Razzaque , J. (2011) Globalisation and Natural Resources Law Challenges, Key Issues and Perspectives. Glos Edward Elgar Publishing Limited.Chen, X. and Reger, G. (2006) The Role of technology in the Investment of German Firms in China. Technovation, 26 (3), 407-415.Dunning, J. H. (2010) New Challenges for International Business enquiry Back to the Future. Glos Edward Elgar Publishing Limited.Klenke, K. (2008) Qualitative Research in the field of force of Leadership. Bingley, IWA Emerald Group Publishing Limited.Oleckno, W. A. (2008) Epidemiology Concepts and Methods. IL Waveland Press, Inc.Pikos, A. K. (2013) German FDI in China Consequences for Firms Performance (Published Thesis. Denmark Aarhus School of Business, Aarhus University.Reinert, K. A. and Rajan, R., Glass, A. J., and Davis, L. S. (2009) The Princeton Encyclopedia of the World Economy. Oxfordshire Princeton University Press.Rugman, A. M. (2002) International Business surmisal of the Multinational Enterprise. New York Routledge .Sanchez, R. and Heene, A. (2010) Enhancing Competences for Competitive Advantage. First mutation. Bingley, IWA Emerald Group Publishing Limited.Simons, H. (2009) Case Study Research in Practice. First Edition. London SAGE Publications Ltd.Suneja, V. (2006) correspondence Business A Multidimensional Approach to the grocery store Economy. New York Routledge.Taliman, S. B. (2007) A New generation in International Strategic Management. Glos Edward Elgar Publishing Limited.Tang, S., Selvanathan, E. A., and Selvanathan, S. (2012) Chinas economical Miracle Does FDI MatterGlos Edward Elgar Publishing Limited.Zhang, K. H. (2005) Why Does So Much FDI From Hong Kong and Taiwan Go to Mainland ChinaChina Economic Review, 16 (3), 293-307.Zhang, H. and van den Bulcke, D. (1999) The restructuring of the Chinese automotive Industry The Role of Foreign strike Investment and Impact of European Multinational Enterprises. Belgium University of Antwerp.Analysis Of Motives And Prospects Within The Oli Framework A Case Study Of German Fdi In ChinaIntroductionThere are a number of theories that explain motives and prospects of FDI. OLI framework is the one that is most widely used by economists. According to OLI, there have to be advantages that can number 1 costs of making direct investment abroad.In this paper we enforce the OLI framework to understand the motives behind German FDI in China. A case study of Volkswagen China is conducted to show the application of OLI in practice, and to demonstrate why FDI abroad can be a success story patronage all the difficulties a go with faces in a foreign environment.Literature ReviewOne of the earliest theories explained FDI in terms of market imperfections. Kindleberger (1969) argued that for companies to gain advantage by investing abroad market has to be imperfect . If we assume that markets are perfect there is nothing foreign companies can exploit to make becoming profits that will offset costs and risks associated with inve sting abroad (Kindleberger 1969).. The concept of firm-specific advantages was introduced to explain how market imperfections lead to foreign investment. Among these advantages are superior technology and marketing (Caves 1971), cheap labour (Grubel 1968), management skills (Wolf 1977), and exclusive access to natural resources (Lall and Streeten 1977). . Only when a foreign family possesses these firm-specific advantages can it successfully invest and drive a major actor in a foreign market and compensate for the disadvantages of being foreign in the country of its operation (Hymer 1976).Vernons product carriage cycle is another major FDI theory that tries to explain motives and the rationale behind FDI. Vernon (1966) cleft product life cycle into three distinct phases innovation, maturity and normalisation Established companies in developed economies invest in new projects to determination innovative products that will look at in future and guarantee a new profit channel for them. When a new product is designed, it is interchange in the domestic market. Consumers gradually get used to it and demand new products. This leaves the company with two not mutually exclusive pickaxes get tail end to the innovation phase and design something new, or go abroad and crap the same products there. Going abroad is some snips a better prime(prenominal) because foreign producers (such as China) start to imitate the existing product and become so good at it that the differences with the original become marginal (Vernon 1966).A later theory developed by Dunning (1977) has become widely used in attempts to understand the motives behind FDI. The theory became known as OLI Ownership, Location and Internalisation. All three elements should be present in order for FDI to occur. This theory will be explained in greater detail in a separate chapter of this paper.Theoretical FrameworkDefinition of FDIAccording to the Organisation for Economic Co-operation and Developm ent (OECD) (2008) 4th Edition of benchmark Definition of FDI, FDI is a category of cross-border investment made by a resident entity in one saving (the direct investor) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor . Companies carry out FDI because they want to have direct control over their enterprise. This is what makes FDI different from portfolio investments which normally result in an ownership of less than 10 per cent of a foreign companys capital. Hence the investor does not have documentary control over the foreign company (OECD 2008).Mergers and Acquisitions (M&A) and Greenfield investments are the two different types of FDI. The choice between them has different implications for the parties concerned. M&A happen when an existing company is bought out by a foreign firm. In pipeline Greenfield investments are investments into new assets. For developing economies, including China, M&A are more common, for developed economies like Germany Greenfield investments are a popular choice (Shatz and Venables 2000).FDI are divided into horizontal and vertical only in a some cases do the two occur simultaneously. Horizontal FDI occurs when a company invests in a firm built to serve the foreign market (Shatz and Venables 2000). . This foreign firm then performs the same activities as the host firm does in its own domestic market. With vertical FDI, the production cycle is fragmented so that each phase can be completed in a country where it can be done cheapest of all (Shatz and Venables 2000).OLI FrameworkThe OLI framework is a theory that explains motives and the rationale behind multinational corporations (MNCs) decision to lead FDI instead of licensing use of their name or product to foreign producers or sellers (Lynn 2008). . FDI is a foreign investment so, for it to occur, the investing firm has to acquire assets in a foreig n country. FDI is called direct investment because it results in a direct and real control over the acquired capital. MNC acquires a right to produce what it wants in a foreign country and decide where it wants to sell the product. As explained above, the whole product (horizontal FDI), or parts of it (vertical FDI), can be produced in a foreign country based on the considerations of cost-effectiveness (Shatz and Venables 2000)..FDI occurs because there are advantages to it. The get-go one is ownership advantage which stands for O in the OLI abbreviation. There has to be some advantage to owning the foreign asset. These can be lower costs, greater reputation, or swifter transition to a foreign market. Take for example Apple. The company has a reputation for high quality products so by owning a production facility in a foreign developing country it can still make profits that will offset costs of FDI (Lynn 2000). .Ownership advantage alone is not enough for FDI to occur. Here is wh en the L comes into play. L denotes the location advantage. A less costly labour force, access to the natural resources needed in manufacturing and a better geographic position (which leads to more efficient logistics), are some of the location advantages that can make companies seriously consider investing abroad (Lynn 2000). . Again this is not enough for FDI because everything described above can be achieved by imperfection licensing or through establishing joint ventures. FDI needs a third element internalization, or control, advantage. This is the I in OLI. When it is believed that MNC can lose market share in case another company gets access to the same asset, FDI becomes the only choice available (Lynn 2000). . It is known that at some stage, foreign producers start copy products produced in the developed world and when they do it they are able to invite cheaper prices thus outperforming foreign producers in gross sales. To prevent this scenario many companies prefer to go with FDI and gain exclusive control over their assets.Methods and DataIn this research, we conduct a critical review of the main theories of FDI, paying special perplexity to the OLI framework. While we acknowledge the importance of OLI in understanding international line of reasoning and FDI in particular, we provide a short overview of criticisms of the paradigm so that readers have an understanding of the potential limitations of this research.A case study of German car manufacturer Volkswagen is used as a method of understanding FDI under the OLI framework as applied to the German investor interest in China and the two countrys bilateral economic relations.Additionally, we use statistical information to put some numbers into perspective and cite a research by Deutsche verify which includes some forecasts as to the future of German FDI in China.Volkswagen (VW) Case StudyVolkswagen was founded in 1937 (Datamonitor 2011). The name of the fool translates as the car of the p eople (Datamonitor 2011).. Volkswagen is represented in China through two ventures with nobble self-propelled International Company founded in 1985 and with First Automotive Works started in 1990 in Changchun (VW Annual Report 2010).VW has always regarded China as an important market. Today, there are 9 production facilities in China and 2 more are planned. VWs target is to sell 3 million cars per year. Through 2015 VW is set to invest a total of 10.6 million euro to expand its production in China. VW is actively involved in producing electric vehicles in China. Both E-Golf and E-Lavida were presented in China and the first electric test was made here in 2011. VW is also set to produce a new brand specifically for the Chinese fast-paced economy (VW Annual Report 2010).Volkswagen Analysis Based on the OLI ParadigmOwnership advantageVW is one of the worlds most successful car manufacturing companies and, as such, it has a mete out of advantages. VW is known in Europe for its techn ological advances and efficient production system. VW brand is strong all over the world. Many consumers associate vehicle design innovation, cost-effectiveness, and high safety standards with VW and consider it as their first choice when making decisions on buying a vehicle (VW prescribed website 2011). Not surprisingly, VW had a competitive advantage over all Chinese manufacturers at the sequence of the entry into the market (VW official website 2011). In fact, VW is still superior to any of the Chinese car producers. VW exploited its technological dominance and increased its brand recognition. Chinese consumers were happy with the product offered and enjoyed VWs presence in their country. Currently, VW strives to ready its technology to meet changing customer needs and develop sustainable models for future (Yu 2010). .Location advantageVWs joint venture in Shanghai was the most successful car enterprise in China at the time it was established in 1985 and it retains the top po sition today (Li 2000). . Locating in China, and Shanghai in particular, was the best possible decision for VW in terms of location because the region is rapidly developing and the peoples life standards are improving. Shanghai is the most densely populated and prosperous metropolis in China and it has close ties with the central part of the country (Li 2000). Products from Shanghai are considered to have high quality across China and do not face any obstacles due to local protectionism. It should be also noted that at the time VW entered China it received many incentives and reward from the government. The government still stimulates the automobile industry to increase domestic sales and contributes to the development of the sector. Thanks to these location advantages, VW China became a success and continues to be a source of decent income for the parent company (Li 2000)..Internalization advantageVW had the first instruments advantage which helped it to become a major player in the new market. The company managed to take control over the major share of the Chinese market and realise all its ownership advantages. This first mover advantage till today helps VW to be very competitive with regards to Nipponese and American rivals. To retain its market share, VW continues to innovate according to the changing tastes of the Chinese consumers and requirements to reduce the strain on the environment resulting from manufacturing and exploitation of automotive vehicles (VW official website 2011).Future of German Interest in ChinaChina has attracted German interest more than any other emerging country since 1997 (Deutsche wedge Research 2004). German companies explain their excessive interest in China by citing the countrys huge market potential. In 2001 there were about 76 million prosperous consumers in China a population that is worth FDI in any country despite possible barriers and foreign culture-related challenges (Deutsche Bank Research 2004). This number o f prosperous consumers in China is greater than the total population of Germany and it is set to increase tenfold by 2015. The second most important argument for German FDI in China is the extended low-cost assembly line (Deutsche Bank Research 2004). Cost has always been one of the most important considerations in business decision-making.. Heated global competition for competitive advantage and market shares across virtually all industries means that companies need to find cheaper options for manufacture. China is often the best solution because of the low-cost labour force it offers. Not surprisingly, Germany, alongside other strong economic powerhouses, chooses China as a low-cost manufacturing site and actively invests there (Deutsche Bank Research 2004).Another reason for German FDI is the growing economy of China and its potential to become a dominant power. Germany has to defend its interest in a country which is set to become a global attractor with an over 1 billion of p otential buyers of products and services.Of course, China is a completely whole new world for German businesses that has to be explored until there is suitable understanding compulsory for making informed decisions. Usually, most foreign companies entering China lack information vital for their success and have to be quick to adapt or risk becoming a failure. China cannot be considered one country one market. It is bigger than both Eastern and Western Europe put together (Deutsche Bank Research 2004) and it is naive to think that one product design or price strategy will work across the whole country (Deutsche Bank Research 2004). Hence a lot of prior planning is required (Deutsche Bank Research 2004). Among other obstacles that can potentially deter German interest in China are high input prices. There are a lot of protectionism locally, and also many logistic and bureaucratic inefficiencies that are not easy or cheap to overcome. Moreover, the global prices for raw materials an d energy resources are growing which adds to the cost of production even in China (Deutsche Bank Research, 2004). The final commonly-cited obstacle to German interest in China is the heated competition amongst different foreign companies coming from such developed nations as USA, Canada, and Australia. Everyone knows about advantages of investing in China and thereof there is a lot of competition for assets and control over the market.Criticism of OLI frameworkThe OLI framework offers a very useful insight into the motives and the rationale behind FDI. The paradigm has evolved over the time to adapt to changes in the way international business is conducted (Narula 2010). Critics of the theory argue that because of expansion of OLIs application to all MNE-related phenomena, it now risksbecoming tautologous (Narula, R. 2010). Narula proposes a return to the classic OLI framework and using alternative theories to understand the more complex new developments rather than internalising e verything so that it fits OLI. Narula acknowledges the importance of OLI in early research on the international business and FDI, but argues that it is not suited for explaining everything that happens in business (Eden 2003). In fact, it is becoming cumbersome to befool OLI to understanding international business, as the latter has became complex (Eden 2003).There is a need for new frameworks. OLI can still be a valuable cock in understanding some aspects of international business and FDI, but should lose its dominance in the academic community (Narula, R. 2010).ConclusionGerman interest has been present in China for almost half a century. Because Chinese market is huge and has a big growth potential, German companies are likely to look for more opportunities there. Before a decision to invest is made, companies always asses its prospects. OLI framework is often used to see whether FDI is justified. OLIs critics now say that there should be some additional analysis involved in de cision-making, because, as good as the paradigm is, it still cannot explain every complex aspect of international business.ReferencesCaves, R. (1971). International Corporations The Industrial economic science of Foreign Investment.Economica, Vol. 38, pp. 1-27Datamonitor (2011). Automotive Manufacturing in Chinahttp//360.datamonitor.com.www.baser.dk/Product?pid=10C672D5-7559-4A0A-90B3-5EFBDF97D73C accessed 31 treat 2014Dunning, J. (1977). Trade, location of economic activity and the multinational enterprise A search for an eclectic approach. University of Reading diuscussion written document in international investments and business studies, no. 37Eden, L. (2003). A Critical Reflection and Some Conclusions on OLI. 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The University of Adelaide. http//www.rrojasdatabank.info/97_12.pdf accessed 30 March 2014China (2013). German Federal Foreign Office. http//www.auswaertiges-amt.de/EN/Aussenpolitik/Laender/Laenderinfos/01-Nodes/China_node.html accessed 30 March 2014Franco, C., Rentocchini, F., Marzetti, G. (2008). Why Do Firms Invest AbroadAn Analysis of the Motives Underlying Foreign Direct Investments. University of Bologna and University of Trento. http//www.etsg.org/ETSG2008/Papers/Franco.pdf accessed 30 March 2014World Economy FDI The OLI Framework. University of Oxford. http //users.ox.ac.uk/econ0211/papers/pdf/fdiprinceton.pdf accessed 30 March 2014