The Order of Korean Firms’ Chinese Sequential Investments and the Production Effects

Abstract

The paper tackles three interesting issues concerning on Korean parents’ Chinese sequential investments. First, why they pursue a sequential investment strategy is scrutinized. Second, it is tackled if the sequential investment strategy can provide strategic advantages, in terms of production effect. Third, once sequential investments are necessary in Chinese competitive market, it is examined if earlier follow-up investments can contribute to Korean parents’ production effects. For examining the issues, a finitely repeated game model is constructed. The predictions of the model is that Korean parents are able to leapfrog competitors through the sequential investment strategy and the earlier the follow-up investments are done, the higher the production effect will be. Also, the scale of sequential investments have positive effects on Korean parents’ production effects. These predictions are empirically supported and thus one can conclude that Korean investors in Korea owe to their sequential investment strategy in China.