CHIN-SHAN LU CHING-CHIAO YANG

Comparison of Investment Preferences for International Logistics Zones in Kaohsiung, Hong Kong, and Shanghai Ports from a Taiwanese Manufacturer's Perspective
Abstract
This researcit empirically evaluates internationai logistics zones in Kaoshiung, Hong Kong, and Shanghai ports based on the importance of investment criteria from the perspective of investors in Taiwanese manufacturing firms. Results suggest respondents viewed political stability as the most important investment criterion, followed by corporate tax incentives, government administration efficiency, labor cost, and energy cost. Shanghai Port's industrial logistics zone lias a very strong competitive edge in cost, market, and industrial related criteria. The international logistics zones in Hong Kong and Kaohsiung ports have advantages in infrastructure, political, and financial related investment criteria. Respondents preferred to invest in the international logistics zone in Shanghai Port rather than that in Kaohsiung or Hong Kong Ports. Leasing factory buildings to operate their business in an international logistics zone was the preferred entry mode. Theoretical and practical implications of the research findings are discussed. With the development of intemational business, multinational firms have been pursuing greater efficiency in logistics and transportation systems. In particular, transport demand requires efficient integrated moves, premium package services, and making the best use of available modal transport operations and logistics zones (Coyle, Bardi, and Langley 1996). The role of intemational logistics zones as home bases for merchandise transportation and distribution has therefore become increasingly important (UNCTAD 1995). An intemational logistics zone in the logistics system provides a place for firms to store or hold their raw materials, semi-finished goods, or finished goods for varying periods of time. A number of countries' govemments have constructed or plan to establish logistics zones to expand the capacity of existing air and maritime transport infrastmcture. Thus, inMr. Lu is associate professor. Department of Transportation and Communication Management Science, National Cheng Rung University, Tainan, Taiwan, R.O.C.; e-mail lucs@mail.nctcu.edu.tw. Mr. Yang is a Ph.D. student. Department of Transportation and Communication Management Science, National Cheng Rung University, Tainan, Taiwan, R.O.C.; e-mail chiaon @mail.tcm. ncku. edu.tw.

temational logistics zones have been developed in several ports to provide several value-added activities, including manufacturing, warehousing, consolidation, packing, labeling, processing, and distribution. Several logistics zones have been established at major Asian airports and seaports; for example, Kepple Distripark (Singapore), Alexandra Distripark (Singapore), Pasir Panjan Distripark (Singapore), Hong Kong Intemational Distribution center (Hong Kong), a Foreign Access Zone (Yokohama), Maasvlakte Distripark (Rotterdam), Eemhaven Distripark (Rotterdam), Busan Logistics Park (Korea), and Kaohsiung Yes Logistics Zone (Taiwan). As well as providing a transportation function, the role of the current ports has extended to providing an integrated logistics service. As a result of many countries seeking to develop logistics zones in order to attract investment to stimulate their domestic economies, competition has intensified significantly between them. To develop a successful logistics zone, confront increasing competition, and gain competitive advantages, administrators or port authorities must understand important investment criteria from the perspective of investors.

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Previous studies have examined determinants affecting firms' foreign direct investment (FDI) in specific zones or countries (Rolfe et al. 1993; Sun et al. 2002; Bevan et al. 2004). FDI is defined as the cross-border control of facilities, necessarily involving the equity control of at least 10 percent of a facility's value, through new construction, acquisition, or lease (UNCTAD 2001). Such studies have concluded that investment attractiveness may be influenced by such factors as market orientation, labor force, tax incentive, and transport infrastructure. To our knowledge, however, there have been few empirical studies examining intemational logistics zones as an investment attraction. It seems reasonable to assume that many of the theories explaining the determinants of manufacturing FDI can be applied to investment decisions relating to logistics zones. Thus, this study aims to evaluate the importance of investment criteria to Taiwanese manufacturing firms when selecting intemational logistics zones, comparing the competitive advantages of the logistics zones in Kaohsiung, Shanghai, and Hong Kong ports in order to fill the gap in the literature and provide useful policy information for developing logistics zones. There are five sections in this study. The following section reviews previous studies that have investigated the criteria taken into account when considering foreign direct investment in intemational logistics zones. The next section describes the research methodology, including questionnaire design, sampling technique, and analysis methods. The following section presents the survey findings, and conclusions are drawn and implications are discussed in the final section.
LITERATURE REVIEW

Deflnition of an International Logistics Zone From an evaluation of the information on Web sites provided by major intemational logistics zones, an "intemational logistics zone" is defined as a zone that integrates the operations of manufacturing with land, sea, air transportation, and storage, port, and customs operations in order to achieve the efficient distribution of commodities. From a logistics

perspective, intemational logistics zones provide several value-added activities in an integrated logistics system, e.g., consolidation, packaging, labeling, assembly, economic processing, contingency protection, and smoothness of operation. An intemational logistics zone is an isolated, enclosed, and policed area, in or adjacent to a port of entry, without resident population, fumished with the necessary facilities for loading and unloading, for supplying fuel and ships' stores, for storing goods, and for reshipping them by land and water; an area within which goods may be landed, stored, mixed, blended, repacked, manufactured, and reshipped without payment of duties and without the intervention of customs officials. It is subject, equally with adjacent regions, to all laws relating to public health, vessel inspection, postal service, labor conditions, and immigrationindeed, everything except customs. An intemational logistics zone has the functions of a free trade zone and free port. It is a specified area where trade is based upon the unrestricted intemational exchange of goods, with customs tariffs used only as a source of revenue and not as an impediment to trade development. In addition, logistics zones can be viewed as customs-free zones, or technically as foreign territories for tax purposes. They are designed to attract overseas traders and manufacturers to set up businesses. Duty is payable only when goods move into the host country. Goods that are imported from abroad are not subject to any domestic tariffs, duties, or regulations until they actually leave the logistics zone. If their destination is another foreign country, they are permitted to leave the logistics zone without the burden of customs dues, which they would have incurred at any point. If the imported goods leave the logistics zone for a destination in the same country, they are taxed on leaving the logistics zone as if they had just arrived from abroad (Branch 1996). Criteria Considered Important for Investing in Internationai Logistics Zones Though the foreign direct investment concept used in this study has not previously been applied to intemational logistics zones from a manufacturer's perspective, investing in international logistics zones is a specific type of FDI. The selection of criteria for investing in

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intemational logistics zones is therefore developed based on previous studies of FDI determinants. Much of the existing literature on FDI determinants or location choice has been concemed with enterprises (Tong and Walter 1980; Terpstra and Yu 1988; Rolfe et al. 1993; Li and Guisinger 1992; Woodward 1992; Wheeler and Mody 1992; Head et al. 1995; Ulgado 1997; Wu and Strange 2000). Tong and Walter (1980) conducted a survey to examine the plant location decisions of foreign manufacturing investors in the United States. Several variables were identified in their study, including attitudes of people, labor conditions, and utilities, local capital, suitable land and transportation services, community environment, neamess to supply source and market, tax rates, and import-export considerations. The five most important factors were availability of transportation services, labor attitudes, ample space for future expansion, neamess to markets within the U.S., and availability of suitable plant sites. Terpstra and Yu (1988) investigated the impact of some locational factors and firm-specific advantages on the foreign investment of U.S. advertising agencies based on theories and previous findings relating to FDI criteria considered important by manufacturing firms. Five factors were identified as important in their study, namely, the market size ofthe host country, geographic proximity of the home country and the host country, firm size, a firm's intemational operations experience, and oligopolistic reaction. Allen (1991) examined the importance of logistics in the decision-making process. Critical determinants of overseas plant selection included the role of technology, labor, transportation/logistics, sourcing of raw materials, product quality, govemment regulations and incentives, communication systems, and information-gathering techniques. Li and Guisinger (1992) investigated critical factors influencing service multinationals' FDI decision in the "triad" regions of Japan, Westem Europe, and North America. They found market size, oligopolistic reaction, govemment regulations, and firm size significantly affected the foreign investment decisions of service multinationals. Rolfe et al. (1993) examined FDI incentive preferences of multinational enterprises. Results indicated that incentive preferences de-

pend on the type of investment, market orientation, size of investment, geographic location, year of investment, and type of product. Incentives preferred by export firms differ from those of local market-oriented firms, and incentive preferences sometimes differ by country of investment. They also depend upon the product produced, and large investors' incentive preferences differ from those of smaller firms. Mathur and Ajami (1995) and Brenes et al. (1997a) also indicated that firms seeking to locate their operations in free trade zones should take several factors into account, namely, the quality of available manufacturing and warehousing facilities, access to air and sea ports, transportation modes available, onsite customs offices to expedite and simplify imported raw material clearing, and infrastructure quality. Globerman and Shapiro (1999) identified the impact of govemment policies on FDI in Canada. They presented a set of criteria for FDI decisions, including gross domestic product (GDP), the rate of growth of GDP, cost factor, exchange rates, and trade variables. Gourevitch et al. (2000) investigated the geographic location ofthe hard disk drive industry. They found labor cost and skill, agglomeration effects (the concentration and co-location of economic activities that give rise to economies of scale and positive extemalities [Sun et al. 2003]), and govemment policy influenced location decision. Porter (1991) stressed the importance of relevant firms' support to create competitive advantage. Multinational firms can use relevant firms' support, such as downstream or upstream industries, to create advantage. For example, suppliers and end-users located near each other can take advantage of short lines of communication, quick and constant flow of information, and an ongoing exchange of ideas and innovations. Companies have the opportunity to influence their suppliers' technical efforts and can serve as test sites for R&D work, accelerating the pace of innovation (Porter 1991, 145). Relevant firms' support is also a critical determinant of foreign investment. Wu and Strange (2000) examined the location of foreign insurance companies in China based on the FDI literature. Five important criteria for FDI decisions were identified in their study, namely, (1) market size and the prospects for

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growth; (2) agglomeration effects produced by the concentration of producer services and other FDI; (3) govemment policy measures and restrictions; (4) infrastructure quality, ranging from the state of the transportation and telecommunications systems to the existence of a specialized labor force; and (5) cost considerations, both labor and land. Recently, Sheu (2003) proposed an integrated supply-chain-based model to formulate the overseas facility network design problem. Logistics factors such as material source accessibility, transportation and inventory costs, potential benefits, inter-province distribution restrictions, and long-term regional market condition were considered in his model. Bevan et al. (2004) analyzed the impact of different dimensions of the newly created institutional framework in East European transitional economies on FDI. Several specific dimensions were found to influence FDI: private ownership of business, banking sector reform, foreign exchange and trade liberalization, and legal development. Tansuhaj and Gentry (1987) investigated differences between users and non-users of foreign trade zones in terms of firm characteristics, the awareness of zone benefits, and the importance of benefits to surveyed firms. Fourteen variables for evaluating zone benefits were identified, namely, facilitation of transshipments, economies of bulk shipping, no inventory tax, facilitating intemational sourcing, ability to manipulate products, ability to manufacture and assemble, cash flow and interest savings on duty, lower insurance, simplified customs procedures, faster customer service to markets, inverted tariffs, quota avoidance, better discipline in inventory control, and better discipline in handling waste. Brenes (1997b) found key determinants considered important when making intemational location decisions for new manufacturing in free zones included labor cost, political stability, infrastructure, business climate, financial stability, social stability, the parent company's degree of investment diversification, and other relevant factors, such as public utility efficiency, on-site customs houses, and labor recruiting and training services. Oum and Park (2004) examined multinational firms' location preference for regional

distribution centers in the Northeast Asian region and identified the determinants used for evaluating location choice: geo-location; transport linkage and market accessibility; market size and growth potential of the region; port, airport, and intermodal transport facilities; labor and other input costs; skilled labor force; labor quality and labor peace; flexible immigration; land availability and price; corporate tax incentives; availability of free trade zones; info-com technology/e-business infrastructure; modem logistics service providers and costs; competitive fmancial service sector; personal income taxes for foreign employees; pro-business govemment officials; housing, schools, quality of life, and environment amenities; and political stability. Results showed that geo-location, transport linkage, and market accessibility and market size and growth potential of region were ranked as the two most important factors multinational companies took into account when deciding on the location of distribution centers. Based on the literature review of criteria considered important to manufacturers when making decisions on FDI in intemational logistics zones, twenty-nine items were selected for inclusion in the present study's questionnaire survey as below: Political stability Security Govemment administration efficiency Openness of foreign labor policy Local regulatory environment Guaranteed foreign investment policy Economic growth Per capita income Market size Relevant firms' support Agglomeration effect Cost of land acquired Labor cost Energy cost Port charge Corporate tax incentives Proximity to raw material source Availability of local capital Relaxation on foreign exchange Efficiency of port operations Simplified customs procedures Geographic location Transport linkage

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Intermodal service Frequency of sailings and flights Information system Reliability of energy supply Communication facility Labor quaUty and skilled labor force
METHODOLOGY

intemationai logistics zones. Thus, the following propositions are formulated: H2a: The relative importance of investment criteria will differ with the number of employees. H2b: The relative importance of investment criteria will differ with the amount of firm revenue. The type of product being manufactured may also affect the investment preferences of executives. Rolfe et al. (1993) posited that FDI incentive preferences may differ between heavy manufacturers and light manufacturers. They found major expenditures for light manufacturers, such as apparel manufacturers, were wages and the acquisition of equipment. Light manufacturers were more interested in incentives related to depreciable assets or wage subsidies than heavy manufacturers. Tatoglu and Glaister (1998) identified differences between manufacturing firms' and service firms' FDI motives in Turkey. Manufacturing firms generally make larger investments in fixed assets, such as land and production equipment, than service companies. Unsurprisingly, therefore, results indicated that transaction-specific costs and production efficiency factors appeared in principle to be more pertinent to the manufacturing sector than to the service sector. Type of product was found to be significantly associated with differences in investment criteria in Tong and Walter's research (1980). Accordingly, to more clearly perceive the impact of product type on the importance of investment criteria to manufacturing firms in the present study when considering international logistics zones, responding firms were divided into four groups: information and electronics (computer and information, electronic and electric, communication and network, photoelectric, and semiconductor industries); metal and mechanical (metal, auto and parts, and mechanical industries); chemical (plastic and rubber and chemical industries); and the textile industry (garments and textile and other related industries), according to product categories designed by the Ministry of Economic Affairs in Taiwan. Moreover, based on previous studies' findings, the following hypothesis is thus formulated:

Research Hypotheses This section describes the specific propositions examined in this study. It is suggested that the relative importance of investment criteria will differ according to the sample's underlying key characteristics. These characteristics have been identified as the age of the firm, the size of the firm in terms of number of employees and revenue, type of industry, and FDI experience. Rolfe et al. (1993) found the characteristics of new operations differed from those already operating. Firms entering a country for the first time will place more emphasis on incentives that reduce their initial expenses than firms already operating in the country. Mudambi and Mudambi (2002) also reported that the longer the parent firm has been in operation, the more likely it is to pursue acquisition entry. Based on the above findings, the following proposition is formulated: HI: The relative importance of investment criteria will differ with firm age. The size of firm in terms of revenue and employees can also have an impact on investment preferences. Large firms will probably prefer incentives whose attractiveness increases with investment size, such as cash grants or accelerated depreciation allowances, while small firms may not view these same incentives as quite so important. Firms with a large number of personnel may be more interested in wage-related incentives, such as wage or training subsidies (Rolfe et al. 1993). In this study, responding firms were divided into two groups: large firms (with more than 600 employees or revenue over 4 billion $NT) and small firms (fewer than 600 employees or revenue less than 4 billion $NT). The size of firms in terms of number of employees and revenues may be expected to influence the investment preferences of manufacturers that engage in

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H3: The relative importance of investment criteria will differ with type of product. A firm's experience of FDI may also affect investment preferences. Several studies have investigated the impact of a firm's FDI experience on incentive preferences and entry choice. Tansuhaj and Gentry (1987) evaluated differences in firms' awareness of foreign trade zones and benefits between users and non-users. Results indicated zone users were most aware of benefits related to cash flow and interest savings on duty, the facilitation of transshipment, simplified customs procedures, inventory control discipline, and customer services, whereas non-users were most aware of no inventory tax, easier intemationai sourcing, ability to manufacture and assemble, and cash flow and interest savings on duty. Rolfe et al. (1993) explored differences in incentive preferences between export firms and local market firms. Results indicated that exporters consider import duty concessions to be more desirable than investors oriented towards the local markets. These findings imply that investment preferences may also differ depending upon the FDI experience of firms. Responding firms were therefore divided into "FDI experience firms" and "non-HDI firms," according to their foreign investment experience, and the following proposition was formulated: H4: The relative importance of investment criteria of FDI experience firms will differ from those of non-FDI experience firms. Questionnaire Survey The data for this study were collected from a questionnaire survey. In the process of determining the questionnaire items, it is crucial to ensure the validity of their content, which is an important measure of a survey instrument's accuracy. Content validity refers to the extent to which a test measures what it is supposed to measure (Cooper and Emory 1995). Content validity assessment typically involves an organized review of the survey's content to ensure that it includes everything it should and does not include anything it should not. It provides a solid foundation on which to methodologically and rigorously assess a survey instrument's validity. The content validity of the questionnaire used in this study was tested through a literature

review and interviews with practitioners, i.e., questionnaire questions were based on previous studies and discussions with fifteen logistics executives from manufacturing firms located in Taiwan's Export Processing Zone. They came from three electronic and electric firms, three semiconductor firms, three auto and parts firms, three chemical firms, and three garments and textile firms. Discussions resulted in minor modifications to the wording and examples provided in some measurement items, which were finally accepted as relevant and possessing content validity. The refined measurement items were included in the final survey questionnaire. Sample Selection Because large manufacturing firms are major investors in intemationai logistics zones, the sample of manufacturers was selected from the List of Leading Firms in 2002 with Good Export & Import Performance, published by the Board of Foreign Trade of the Ministry of Economic Affairs in Taiwan. The survey questionnaire was sent to managers of the investment division of the top 500 Taiwanese manufacturing firms on February 17, 2003. Generally, managers are involved in and anchor investment decisions in their companies, thus are more knowledgeable and familiar with investment decisions and investment preferences. The initial mailing elicited fifty-one usable responses. A follow-up mailing was sent two weeks after the initial mailing. An additional forty-one usable responses were retumed. The total number of usable responses was ninety-two. The overall response rate for this study was therefore 18.4 percent. Non-Response Bias Test A comparison of early (those responding to the first mailing) and late (those responding to the second mailing) respondents was carried out to test for non-response bias (Armstrong and Overton 1977). The ninety-two survey respondents were divided into two groups based on their response wave (first and second). Ttests were performed on the two groups' responses. At the 5 percent significance level, tiiere were no significant differences between the two groups' perceptions of the importance of the various investment criteria. Although

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results did not rule out the possibility of nonresponse bias, they suggest that non-response bias was not a problem since late respondents' responses appeared to reflect those of first wave respondents.
RESULTS OF THE EMPIRICAL ANALYSIS

Characteristics of Respondents General information on responding firms is pi-esented in Table 1. Results show 55.4 percent of survey participants were managers/assistant managers, 15.2 percent were vice presidents or above, 10.9 percent were directors and supervisors, and 7.6 percent were in other positions. Table 1 shows the number of years respondents' firms had been operating. Fifty-one percent of firms had been in operation for more than twenty years, 29.3 percent between eleven and twenty years, nearly 9 percent fewer than five years, and 10.9 percent between six and ten years. Respondents were asked to indicate the nature of their firms' businesses. Responses revealed 15.2 percent, 12 percent, 12 percent, 10.9 percent, and 10.9 percent of respondents' firms were in the electronic and electric, chemical, semiconductor, computer and information, and auto and parts industries, respectively. Less than 10 percent of respondents' firms were in the garments and textile, metal, plastic and rubber, photoelectric, communication and network, mechanical, and other industries. Table 1 also shows the number of employees in respondents' firms. Over 33 percent had fewer than 300 employees, 34.8 percent had more than 1,000 employees, and almost 32 percent had between 300 and 1,000 employees. Respondents were asked to provide information conceming their firms' annual revenues. Nearly 61 percent of respondents reported their firms' annual revenue as under NT$4 billion, 20.6 percent as NT$ 10 billion or more, and 18.5 percent as between NT$4 billion and NT$10 billion. Results revealed 70.7 percent of respondents' firms had invested in foreign countries. Investment Criteria's Importance for Investing in International Logistics Zones An evaluation of respondents' aggregated perceptions of the importance of each investment criterion revealed all twenty-nine investment criteria were perceived as important (their

mean scores were over 3.0) (see Table 2). Notably, political stability was viewed as the most important investment criterion by respondents, followed by corporate tax incentives, govemment administration efficiency, labor cost, and energy cost (their mean scores were over 4.3, derived from a five-point interval scale where 1 represented very unimportant and 5 signified very important). These most important investment criteria are associated with cost and political factors and are perceived as critical when respondents are making investment decisions in intemationai logistics zones. In contrast, the investment criteria viewed as least important to respondents were per capita income, openness of foreign labor policy, economic growth, agglomeration effect, and labor quality and skilled labor force (their mean scores were all below 4). Relative Importance of Investment Criteria According to Respondent Firms' Characteristics One-way analysis of variance (ANOVA) was performed to examine the level of importance of investment criteria according to respondent firms' characteristics in this study. Respondents were divided into two groups based on their firms' age. As can be seen in Table 3, for firms that had been in operation fewer than twenty years, political stability stood out as the most important investment criterion, followed by energy cost, govemment administration efficiency, labor cost, and corporate tax incentives. In contrast, the least important investment criteria to these firms were openness of foreign labor policy, per capita income, economic growth, and the local regulatory environment (their mean scores were below 4). For firms that had been in operation more than twenty years, the most important investment criterion was labor cost, followed by proximity to raw material source, political stability, corporate tax incentives, relaxation on foreign exchange, and govemment administration efficiency. The least important investment criteria were openness of foreign labor policy, economic growth, per capita income, local regulatory environment, relevant firms' support, information system, and market size (their mean scores were below 4). With the exception of energy cost, labor

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Table 1. Profile of Respondents

Characteristics Job Title Vice-president or above Manager/Assistant manager Director Supervisor Other Age of Firm (years) Fewer than 5 years 6 - 1 0 years 1 1 - 1 5 years 1 6 - 2 0 years More than 20 years Number of Employees Fewer than 50 50-100 100-300 300-600 600-1000 1000-2000 More than 2000 Revenue (billion NT$) Less than $ 1.0 $ 1.0-2.5 $ 2.6 - 4.0 $4.1 - 10.0 More than $ 10.0 Type of Industry Electronic & electric industry Chemical industry Semiconductor industry Computer & information industry Auto and parts industry Garments & textile industry Metal industry Plastic & rubber industry Photoelectric industry Communication and network industry Mechanical industry Others FDI Experience Yes No Number of Respondents 14 51 10 10 7 Percentage of Respondents 15.2 55.4 10.9 10.9 7.6 8.7 10.9 14.1 15.2 51.1 2.2 7.6 23.9 20.6 10.9 17.4 17.4 13.0 20.7 27.2 18.5 20.6 15.2 12.0 12.0 10.9 10.9 8.7 7.6 5.4 3.2 3.2 1.1 9.8 70.7 29.3

10 13 14 47 2 7 22 19 10 16 16 12 19 25 17 19 14 11 11 10 10 8 7 5 3 3 1 9 65 27

cost, relevant firms' support, and relaxation on foreign exchange, ANOVA analysis results showed investment criteria's importance did not significantly differ between these two groups at the 5 percent significance level. Table 3 also shows the level of importance accorded by firms that had been in operation

fewer than twenty years to labor cost and relaxation on foreign exchange was significantly lower than that accorded by firms that had been in operation over twenty years. In contrast, the level of importance accorded by firms that had been in operation fewer than twenty years to energy cost and relevant

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Table 2. Importance of Investment Criteria in International Logistics Zones

Investment Criteria Political stability Corporate tax incentives Govemment administration efficiency Labor cost Energy cost Proximity to raw material source Security Guarantee of foreign investment policy Simplified customs procedures Land cost Efficiency of port operations Reliability of energy supply Relaxation on foreign exchange Relevant firms' support Communication facility Geographic location Intermodal service Availability of local capital Local regulatory environment Transport linkage Frequency of sailings and fiights Information system Market size Port charge Labor quality and skilled labor force Agglomeration effect Economic growth Openness of foreign labor policy Per capita income Mean 4.43 4.37 4.33 4.33 4.30 4.26 4.25 4.25 4.25 4.24 4.20 4.20 4.17 4.16 4.14 4.13 4.11 4.07 4.03 4.03 4.03 4.03 4.02 4.02 3.99 3.86 3.67 3.62 3.48 S.D. Rank 0.58 1 0.61 2 0.52 3 0.58 4 0.59 5 0.57 6 0.55 7 0.69 8 0.55 9 0.64 10 0.62 11 0.56 12 0.60 13 0.70 14 0.48 15 0.68 16 0.60 17 0.66 18 0.69 19 0.70 20 0.62 21 0.56 22 0.70 23 0.65 24 0.60 25 0.75 26 0.63 27 0.75 28 0.60 29 Note: The mean scores are based on a five-point scale (1 = very unimportant to 5 = very important); S.D. = standard deviation.

firms' support was significantly higher than that accorded by firms that had been in operation over twenty years. Thus, HI was partially supported. Differences in the level of importance assigned to investment criteria according to firm size were analyzed. For firms tbat had fewer than 600 employees, results indicated (see Table 4) that political stability was the most important criterion to small firms, followed by energy cost, govemment administration efficiency, labor cost, and corporate tax incentives. In contrast, the least import investment criteria to small firms were openness of foreign labor policy, per capita income, economic growth, local regulatory environment, agglomeration effect, frequency of sailings and flights, and labor quality and skilled labor force (their mean scores were below 4).

For large firms (with more than 600 employees), the most important investment criterion was political stability, followed by corporate tax incentives, simplified customs procedures, energy cost, and govemment administration efficiency. Conversely, the least important investment criteria were per capita income, economic growth, local regulatory environment, and openness of foreign labor policy (their mean scores were below 4). ANOVA analysis results indicated that the importance accorded to five investment criteria by large and small firms significantly differed at the 5 percent significance level, namely, corporate tax incentives, simplified customs procedures, geographical location, information system, and openness of foreign labor policy. Thus, results partially support H2a.

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Table 3. Importance of Investment Criteria in International Logistics Zones According to Age of Firms
Age

Investment Criteria
Political stability Energy cost Govemment administration efficiency Labor cost Corporate tax incentives Cost of land acquired Security Proximity to raw material source Simplified customs procedures Reliability of energy supply Guarantee of foreign investment policy Relevant firms' support Communication facility Efficiency of port operations Geographical location Relaxation on foreign exchange Intermodal service Transport linkage Market size Availability of local capital Information system Port charge Labor quality and skilled labor force Frequency of sailings and flights Agglomeration effect Local regulatory environment Economic growth Per capita income Openness of foreign labor policy Note: mean: 1 = very unimportant

Mean >20 years < 20 years Ranking Mean Ranking Mean Difference -0.02 4,38 3 1 4,36 2 4,31 15 4.09 0,22 6 4,32 -0,03 4,29 3 4,27 1 4,60 -0,33 4 -0,11 4 4,38 4,27 5 6 4,27 9 4,26 0,01 10 4,23 0,04 7 4,27 4,22 2 4,43 -0,21 8 4,22 8 4,28 -0,06 9 10 4,22 14 4,11 0,11 11 4,20 12 4,19 0,01 4,20 25 3,87 0,33 12 4,20 16 4.09 0,11 13 14 4,18 7 4,30 -0,12 15 4.13 17 4,09 0,04 4,11 5 4,38 -0,27 16 4,11 18 4,02 0,09 17 11 4,23 -0,12 4.11 18 3,96 0,15 4,11 23 19 4,17 -0,08 13 4,09 20 21 4,07 24 3,91 0,16 22 4,04 19 4,02 0,02 0,04 21 4,00 4,04 23 4,04 22 4,00 0,04 24 25 4,04 20 4,02 0,02 26 3,79 0,14 3,93 26 27 3,73 28 3,62 0,11 3,60 27 3,64 -0,04 28 3,51 29 3,45 0,06 29 * = p < 0,05,

F 0,05 3,87 0,06 7,97 0,94 0,01 0,08 3,68 0,14 0,63 0,04 8,40 1.31 0,82 0,15 5,99 0,42 0,95 1,42 0.32 1,47 0,03 0,09 0,11 0,03 0,87 0,78 0,06 0,26

Sig. of F 0,83 0,05* 0,81 0,01* 0,34 0,93 0,78 0,06 0,71 0,43 0,95 0,01* 0,26 0,37 0,70 0,02* 0,52 0,33 0,24 0,57 0,23 0,87 0,76 0,74 0,88 0,35 0,38 0,81 0,61

5 = very important;

For firms with a revenue of less than 4 billion $NT, results in Table 5 indicated that political stability was the most important criterion, followed by government administration efficiency, corporate tax incentives, energy cost, and security. In contrast, the least important investment criteria to these firms were openness of foreign labor policy, per capita income, economic growth, agglomeration effect, frequency of sailings and fiights, port charge, labor quality and skilled labor force, and local regulatory environment (their mean scores were all below 4). For firms with a revenue over 4 billion $NT, the most important investment criterion was political stability, followed by labor cost, corporate tax incentives, energy cost, and guarantee of foreign investment policy. Conversely, the least

important investment criteria were per capita income, economic growth, openness of foreign labor policy, agglomeration effect, and transport linkage (their mean scores were all below 4). With the exception of labor cost, frequency of sailings and fiights, and openness of foreign labor policy, ANOVA analysis results showed that investment criteria's importance did not significantly differ between the two groups at the 5 percent significance level. Thus, H2b is partially supported. Table 5 also indicates that the level of importance accorded by firms that had a revenue less than 4 billion $NT to five investment criteria, namely, govemment administration efficiency, security, geographical location, transport linkage, and per capita income, was higher than that accorded by firms that had a revenue over 4 billion $NT.

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Table 4. Importance of Investment Criteria in International Logistics Zones According to Number of Employees
Number of Employees Investment Criteria Political stability Energy cost Govemment administration efficiency Labor cost Corporate tax incentives Cost of land acquired Security Proximity to raw material source Simplified customs procedures Reliability of energy supply Guarantee of foreign investment policy Relevant firms' support Communication facility Efficiency of port operations Geographical location Relaxation on foreign exchange Intermodal service Transport linkage Market size Availability of local capital Information system Port charge Labor quality and skilled labor force Frequency of sailings and fiights Agglomeration effect Local regulatory environment Economic growth Per capita income Openness of foreign labor policy Note: mean: I = very unimportant < 600 employees > 600 employees Mean F Sig. of F Ranking; Mean Ranking; Mean Difference 1 4.36 1 4.52 -0.16 1.84 0.18 2 4.32 4 4.43 -0.11 0.73 0.40 3 4.28 5 4.38 -0.10 0.87 0.35 4 4.22 12 4.29 -0.07 0.33 0.57 5 4.20 2 4.48 -0.28 5.50 0.02* 6 4.20 10 4.31 -0.11 0.91 0.34 7 4.18 17 4.14 0.04 0.06 0.80 11 8 4.18 4.31 -0.13 0.95 0.33 9 4.18 3 4.45 -0.27 5.12 0.03* 10 4.18 8 4.36 -0.18 2.22 0.14 11 4.14 6 4.38 -0.24 2.85 0.10 12 4.12 18 4.14 -0.02 0.03 0.87 13 4.12 13 4.29 -0.17 2.03 0.16 14 4.12 14 4.17 -0.05 0.21 0.65 15 4.08 9 4.33 -0.25 4.00 0.05* 16 4.06 15 4.17 -0.11 0.72 0.40 17 4.04 25 4.00 0.04 0.08 0.79 18 4.02 19 4.12 -0.10 0.51 0.48 19 4.02 22 4.05 -0.03 0.04 0.85 20 4.00 23 4.05 -0.05 0.12 0.73 21 4.00 7 4.38 -0.38 9.97 0.00** 22 4.00 21 4.07 -0.07 0.36 0.55 23 3.98 20 4.10 -0.12 0.79 0.38 24 3.94 24 4.05 -0.11 0.73 0.40 25 3.92 16 4.17 -0.25 3.01 0.09 26 3.88 27 3.83 0.05 0.09 0.77 27 3.62 28 3.74 -0.12 0.80 0.37 28 3.50 29 3.45 0.05 0.14 0.71 29 3.40 26 3.88 -0.48 10.24 0.00** 5 = very important; * = p < 0.05; ** = p < 0.01.

ANOVA analysis was also conducted to test perceived differences in the importance of investment criteria according to industry category and foreign investment experience. As can be seen in Table 6, results show that with the exception of corporate tax incentives, government administration efficiency, port charge, and agglomeration effect, investment criteria's importance did not differ significantly between the four industry categories at the 5 percent significance level. Thus, results partially support H3. The results also indicate that the level of importance accorded by the chemical industry to these four investment criteria was higher than that accorded by the other three industry categories. Finally, results (as seen in Table 7) reveal that investment criteria's importance did not statistically significantly differ at the 5 per-

cent level between firms with and without foreign investment experience. Results, therefore, did not support H4. Factor Analysis of Determinants of Investment in International Logistics Zones Factor analysis was used to reduce the twenty-nine determinants of investment to a smaller, manageable set of underlying factors. This helped to detect the presence of meaningful pattems among the original variables and to extract main investment factors. Principal components analysis with VARIMAX rotation was employed to identify key determining factors, as shown in Table 8. Eigenvalues greater than one were used to determine the number of factors in each data set (Churchill 1991). Results indicated that eight factors accounted

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Table 5. Importance of Investment Criteria in International Logistics Zones According to Revenue of Firm
Investment Criteria Political stability Govemment administration efficiency Corporate tax incentives Energy cost Security Labor cost Simplified customs procedures Proximity to raw material source Guarantee of foreign investment policy Cost of land acquired Relevant firms' support Efficiency of port operations Geographical location Transport linkage Reliability of energy supply Communication facility Intermodal service Relaxation on foreign exchange Market size Availability of local capital Information system Local regulatory environment Labor quality and skilled labor force Port charge Frequency of sailings and flights Agglomeration effect Economic growth Per capita income Openness of foreign labor policy Note: mean: 1 = very unimportant Mean FTest Sig. of F > 4 billion < 4 billion Ranking Mean Ranking Mean Difference 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 4.39 4.34 4.32 4.25 4.23 4.23 4.23 4.21 4.16 4.16 4.14 4.14 4.14 4.11 4.11 4.11 4.09 4.07 4.00 4.00 4.00 3.96 3.96 3.95 3.93 3.82 3.66 3.50 3.46 1 10 3 4 11 2 12 7 5 6 14 13 21 25 8 15 18 9 23 17 22 19 24 20 16 26 28 29 27 4.50 4.31 4.44 4.39 4.28 4.47 4.28 4.33 4.39 4.36 4.19 4.28 4.11 3.92 4.33 4.19 4.14 4.33 4.06 4.17 4.08 4.14 4.03 4.14 4.19 3.92 3.69 3.44 3.86 -0.11 0.03 -0.12 -0.14 0.05 -0.24 -0.05 -0.12 -0.23 -0.20 -0.05 -0.14 0.03 0.19 -0.22 -0.08 -0.05 -0.26 -0.06 -0.17 -0.08 -0.18 -0.07 -0.19 -0.26 -0.10 -0.03 0.06 -0.40 0.75 0.09 0.90 1.23 0.15 3.93 0.15 0.95 2.44 2.21 0.12 1.05 0.05 1.62 3.69 0.72 0.15 4.27 0.14 1.41 0.48 1.42 0.24 2.00 4.18 0.35 0.06 0.19 6.44 0.39 0.76 0.35 0.27 0.70 0.05* 0.70 0.33 0.12 0.14 0.73 0.31 0.83 0.21 0.06 0.40 0.70 0.04* 0.71 0.24 0.49 0.24 0.62 0.16 0.04* 0.56 0.80 0.67 0.01*

5 = very important;

* = p < 0.05

for approximately 72.14 percent of the total variance and thus represented all the determinants of investment in logistics zones. To aid interpretation, only variables with a factor loading greater than 0.50 were extracted, a conservative criterion based on Hair et al. (1995). Eight factors were found to underlie the determinants of investment based on survey responses. They are labeled and described below: (1) Factor 1 comprised five items, namely, labor cost, land cost, energy cost, corporate tax incentives, and port charge, all of which are cost-related variables. The factor was therefore labeled a cost factor. Labor cost had the highest factor loading on this factor. Factor 1 accounted for 31.64 percent of the total variance.

(2) Factor 2 consisted of four items: agglomeration effect, relevant firms' support, proximity to raw material source, and the availability of local capital, all of which are agglomeration effect variables. This factor was therefore labeled an agglomeration effect factor. Agglomeration effect had the highest factor loading on this factor, followed by the availability of local capital, relevant firms' support, and proximity to raw material source. Factor 2 accounted for 8.39 percent of the total variance. (3) Factor 3 comprised five items, namely, labor quality and skilled labor force, reliability of energy supply, information system, market size, and communication facility. These items are resource re-

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Table 6. Importance of Investment Criteria in International Logistics Zones According to Industry Category
1 ]M C Investment Criteria Rank Mean Rank Mean Rank:Mean Corporate tax incentives 1 4,41 16 4,00 1 4,59 Political stability 2 4,37 1 4,56 3 4,53 Labor cost 3 4.37 6 4,17 4 4,41 Energy cost 4 4.37 10 4.11 5 4,41 Proxitnity to raw material source 5 4,32 13 4.06 10 4,35 Guarantee of foreign investment policy 6 4,29 11 4,11 6 4,41 Cost of land acquired 7 4,29 17 4,00 7 4.41 Reliability of energy supply 8 4,29 7 4,17 17 4,18 Relevant firms' support 4,24 9 8 4,17 16 4,24 Govemment administration efficiency 10 4,22 2 4.50 2 4,59 Communication facility 11 4.22 12 4.11 21 4,12 Simplified customs procedures 12 4,20 5 4,22 8 4.41 Security 13 4,17 3 4,39 12 4,29 Relaxation on foreign exchange 14 4,17 14 4,06 13 4,29 Intermodal service 15 4,15 18 4,00 18 4,18 Information system 16 4,15 21 3,94 25 3,88 Efficiency of port operations 17 4,12 4 4,33 11 4,35 Local regulatory environment 18 4.10 22 3.94 24 3,94 Port charge 19 4,10 26 3,67 14 4,29 Availability of local capital 20 4,10 15 4,06 19 4,18 Frequency of sailings and flights 21 4,07 23 3,89 22 4,12 Market size 22 4,05 19 4,00 23 4,12 Geographic location 23 4.05 9 4.17 4,41 9 Labor quality and skilled labor force 24 4,05 24 3,89 26 3.88 Agglomeration effect 25 3,95 27 3,67 20 4,18 Transport linkage 26 3,95 20 4,00 15 4,29 Openness of foreign labor policy 27 3,73 29 3,39 28 3,59 Economic growth 28 3,71 25 3.72 27 3,65 Per capita income 28 3,46 28 3,50 29 3,53 L Rank[Mean 1 4.44 2 4,38 3 4,31 4 4,25 5 4,25 10 4.13 8 4.19 16 4.00 23 3,88 11 4,13 17 4,00 6 4.25 7 4,25 9 4.19 12 4.06 18 4,00 13 4,06 14 4,06 22 3,94 24 3.88 19 4,00 25 3,88 20 4,00 15 4,06 28 3,50 21 4,00 26 3,63 27 3,56 29 3,44

FTest Sig. of F
3,35 0,65 0,64 1,03 1,06 0.78 1.42 1,09 1,15 3,87 0,85 0,64 0,70 0,45 0,35 1,13 1,12 0,32 3.34 0,63 0,50 0,36 1,39 0,55 3,03 0.99 0,87 0,24 0,08 0,02* 0,58 0,59 0,38 0,37 0.51 0.24 0,36 0,33 0,01* 0,47 0,59 0.55 0.72 0,79 0,34 0,35 0,81 0.02* 0,60 0,69 0,78 0,25 0,65 0,03* 0.40 0.46 0,87 0,97

Note: mean: 1 = very unimportant 5 = very important; * = p < 0,05 1= information & electronics industry; M= metal & mechanical industry; C=chemical industry; L=textile industry.

lated; therefore, the factor was identified as a resource factor. This factor accounted for 7.21 percent of the total variance. Labor technology and quality had the highest factor loadings on this factor. (4) Factor 4 comprised four items: simplified customs procedures, efficiency of port operations, frequency of sailings and fiights, and relaxation on foreign exchange. These four items are associated with port activities. Factor 4 was therefore labeled a port activities factor. Simplified customs procedure had the highest factor loading on this factor, followed by efficiency of port operations, frequency of sailings and flights, and relaxation on foreign exchange. Factor

4 accounted for 6.67 percent of the total variance. (5) Factor 5 consisted of three items, namely, openness of foreign labor policy, local regulatory environment, and guarantee of foreign investment policy. These are all policy-related variables; therefore, this factor is labeled a policy factor. Local regulatory environment had the highest factor loadings on this factor. This factor accounted for 5.75 percent of the total variance. (6) Factor 6, a political risk factor, consisted of three items, namely, political stability, security, and govemment administration efficiency. Political stability had the highest factor loading on this factor.

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Table 7. Importance of Investment Criteria in Internationai Logistics Zones According to FDI Experience
Investment Criteria FDI firms Non-FDI firms Mean F Test Sig. of F Ranking Mean Ranking Mean Difference

Political stability Labor cost Corporate tax incentives Energy cost Govemment administration efficiency Guarantee of foreign investment policy Cost of land acquired Proximity to raw material source Security Reliability of energy supply Relevant firms' support Simplified customs procedures Geographic location Communication facility Efficiency of port operations Relaxation on foreign exchange Local regulatory environment Market size Availability of local capital Intermodal service Information system Port charge Transport linkage Frequency of sailings and fiights Labor quality and skilled labor force Agglomeration effect Openness of foreign labor policy Economic growth Per capita income Note: mean: 1 = very unimportant 5 = very

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

4.46 4.38 4.38 4.37 4.35 4.31 4.29 4.29 4.25 4.25 4.23 4.23 4.20 4.17 4.15 4.11 4.09 4.05 4.05 4.05 4.05 4.03 4.03 3.97 3.97 3.94 3.71 3.71 3.51

1 9 2 12 6 13 14 10 7 16 20 4 23 17 5 3 25 24 15 8 21 22 18 1 1 19 26 28 27 29

4.37 4.19 4.33 4.15 4.26 4.11 4.11 4.19 4.26 4.07 4.00 4.30 3.96 4.07 4.30 4.33 3.89 3.96 4.11 4.26 4.00 4.00 4.04 4.19 4.04 3.67 3.41 3.59 3.41

0.09 0.19 0.05 0.22 0.09 0.20 0.18 0.10 -0.01 0.18 0.23 -0.07 0.24 0.10 -0.15 -0.22 0.20 0.09 -0.06 -0.21 0.05 0.03 -0.01 -0.22 -0.07 0.27 0.30 0.12 0.10

0.47 2.32 0.14 2.75 0.64 1.56 1.56 0.67 0.01 1.82 2.10 0.27 2.33 0.74 1.02 2.71 1.69 0.27 0.18 2.43 0.13 0.04 0.00 2.35 0.24 2.55 3.10 0.63 0.53

0.50 0.13 0.71 0.10 0.43 0.21 0.21 0.42 0.92 0.18 0.15 0.60 0.13 0.39 0.31 0.10 0.20 0.60 0.67 0.12 0.72 0.84 0.97 0.13 0.63 0.11 0.08 0.43 0.47

important; FDI = foreign direct investment experience

followed by security and efficiency of local govemment operations. This factor accounted for 5.12 percent of the total variance. (7) Factor 7, a location and transport factor, consisted of three items, namely, geographic location, transport linkage, and intermodal service. Geographic location had the highest factor loading on this factor. This factor accounted for 3.72 percent of the total variance. (8) Factor 8 consists of two items: economic growth and per capita income. These two items are associated with economic activities; therefore, this factor was labeled an economic factor. This factor accounted for 3.64 percent of the total variance.

The Cronbach Alpha statistic was used to determine whether these factors were consistent and reliable. Cronbach Alpha values for all factors are shown in Table 9. They are well above 0.70, considered to indicate a satisfactory level of reliability in basic research (Nunnally 1978; Carmines and Zeller 1979; Sekaran 1992; Churchill 1991; Litwin 1995). Table 9 also shows the level of importance respondents accorded these eight factors when deciding to invest in logistics zones. The most important factor for them is Factor 6 (political risk factor), followed by Factor 1 (cost factor). Factor 4 (port activities factor). Factor 7 (location and transport factor). Factor 2 (agglomeration effect factor). Factor 3 (resource factor). Factor 5 (policy factor), and Factor 8 (economic activities factor).

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Table 8. Factor Analysis of Investment Preference for International Logistics Zones

Determinant Factors Labor cost Land cost Energy cost Corporate tax incentives Port charge Agglomeration effect Availability of local capital Relevant firms' support Proximity to raw material source Labor quality and skilled labor force Reliability of energy supply Information system Market size Communication facility Simplified customs procedures Efficiency of port operations Frequency of sailings and flights Relaxation on foreign exchange Local regulatory environment Openness of foreign labor policy Guarantee of foreign investment policy Political stability Security Govemment administration efficiency Geographic location Transport linkage Intermodal service Economic growth Per capita income Eigenvalues Percentage variance Factor Factor Factor Factor Factor 1 2 3 4 5 0.816 0.131 0.116 0.167 0.816 0.813 0.257 0.016 -0.005 0.049 0.773 0.010 0.233 0.058 0.093 0.666 0.080 0.101 0.409 0.166 0.658 0.046 0.320 0.293 0.106 0.143 0.812 0.011 0.039 0.013 -0.004 0.795 0.066 0.194 0.050 0.150 0.788 0.254 0.082 0.009 0.146 0.598 0.309 0.372 0.168 0.039 0.025 0.716 0.391 0.118 0.373 0.087 0.704 0.192 0.012 0.108 0.184 0.695 0.184 0.109 0.127 0.253 0.644 -0.222 -0.038 0.295 0.288 0.598 0.173 -0.018 0.288 0.102 0.087 0.750 -0.033 0.142 0.164 0.303 0.722 0.051 0.219 0.276 0.163 0.630 0.092 0.164 0.444 0.127 0.580 0.238 -0.071 0.020 0.055 0.071 0.866 0.213 0.096 0.000 0.007 0.820 0.210 0.050 0.075 0.116 0.744 0.104 0.003 -0.073 0.073 0.076 0.310 0.028 0.140 -0.110 0.235 -0.171 0.046 0.049 0.293 0.060 0.183 0.112 0.150 0.205 0.140 0.212 0.049 0.098 0.306 0.078 0.138 0.366 0.326 0.259 0.151 0.082 0.099 0.039 -0.095 0.039 0.114 0.086 0.292 0.176 0.019 9.176 31.64 2.433 8.39 2.090 7.21 1.935 6.67 1.669 5.75 Factor Factor Factor 6 7 8 0.010 0.085 0.158 -0.108 0.193 0.010 0.029 -0.053 0.161 0.051 -0.020 -0.137 0.255 -0.051 0.065 0.204 -0.079 0.101 0.140 -0.044 0.231 0.855 0.744 0.638 0.089 0.089 0.183 0.205 0.157 1.486 5.12 0.080 0.211 0.136 -0.010 0.142 0.189 0.129 -0.066 0.040 0.037 0.193 0.062 0.191 0.106 0.277 0.247 0.330 0.054 0.072 0.140 0.032 0.017 0.065 0.196 0.834 0.702 0.561 0.190 -0.073 1.078 3.72 -0.006 0.089 0.131 0.088 0.018 0.025 0.170 0.010 0.128 -0.016 0.024 0.384 0.069 0.350 0.026 0.060 0.105 -0.067 0.159 -0.084 -0.001 0.136 0.050 0.183 0.001 0.205 -0.036 0.806 0.770 1.055 3.64

Competitive Advantages of International Logistics Zones in Kaohsiung, Shanghai, and Hong Kong Ports In this section, we evaluate the competitive advantages of intemational logistics zones in Kaohsiung, Shanghai, and Hong Kong ports by comparing respondents' satisfaction with their ability to meet each investment criteria. Respondents who had visited these three ports were asked to provide information in this part of the survey. Results previously presented showed 70.7 percent of respondents' firms had invested in foreign countries, thus respondents as managers or above would be knowledgeable about or familiar with the investment attractiveness of these three locations. Their relative investment attractiveness can be inferred from

Table 10. With the exception of geographical location, intermodal service, rehability of energy supply, and security, results indicated that twenty-five of the twenty-nine investment criteria differed significantly in terms of quality among the three intemational logistics zones at the 5 percent significance level. Respondents evaluated Hong Kong Port's intemational logistics zone good in fourteen of the twenty-nine investment criteria. These fourteen were related to resource, port activity, political risk, policy, and economic activity dimensions. The resource-related dimension consisted of three items: labor quality and skilled labor force, communication facility, and information system. The port activity-related dimension comprised three items, namely, sim-

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Table 9. Cronbach Alpha Values for Each Factor

Cronbach Alpha 0.8769 1. Cost factor 0.8323 4 2. Agglomeration effect factor 3. Resource factor 5 0,8241 0.8465 4 4. Port activities factor 0.7943 3 5. Policy factor 0.7247 3 6. Political risk factor 0.8021 3 7. Location and transport factor 0.6937 2 8. Economic activities factor Note: The mean scores are based on a five-point scale (1 = very unimportant to 5 = standard deviation. Factor Number of Mean 4.252 4.087 4.076 4.163 3.967 4.337 4.090 3.576 very important); S.D. 0.499 0.547 0.441 0.493 0.597 0.440 0.561 0.539 S.D. =

Items 5

plified customs procedures, efficiency of port operations, and frequency of sailings and flights. Guarantee of foreign investment policy, relaxation on foreign exchange, political stability, local regulatory environment, govemment administration efficiency, and openness of foreign labor policy were related to the political risk and policy-related dimensions, whereas per capita income was associated with the economic activity-related dimension. However, Hong Kong was far behind Kanhsuing and Shanghai in the agglomeration effect dimension in terms of relevant firms' support (mean = 2.889), proximity to raw material source (mean = 2.841), and agglomeration effect (mean = 2.841). Hong Kong was also perceived as worst with respect to the cost-related dimension in terms of labor cost (mean = 2.302), cost of land acquired (mean = 2.222), energy cost (mean = 2.651), corporate tax incentives (mean = 2.651), and port charge (mean = 2.651). Thus, results overall suggested respondents viewed the logistics zone in Hong Kong port as best in port activity, policy, and political risk dimensions. Slightly behind Hong Kong, Kaohsiung attained second position. It was perceived as good in twelve of the twenty-nine investment criteria. It was perceived as worst by respondents in terms of economic growth (mean = 2.889) and market size (mean = 2.952). Thus, ofthe three ports, as shown in Table 11, Kaohsiung was perceived as worst in the economic activity dimension. Like Hong Kong, Kaohsiung also had disadvantages in the cost-related dimension, specifically labor cost (mean = 2.524), cost of land acquired (mean = 2.651),

energy cost (mean = 2.841), corporate tax incentives (mean = 2.651), and port charge (mean = 2.651). In contrast, Kaohsiung's transport linkage (mean = 4.048) was rated as the best. Notably, Shanghai was viewed as having very strong competitive advantages in the costrelated dimension, namely, labor cost (mean 3.683), cost of land acquired (mean = 3.635), energy cost (mean = 3.603), corporate tax incentives (mean = 3.635), and port charge (mean = 3.254). Shanghai was also perceived as far ahead in the market-related dimension in terms of economic growth (mean = 3.968) and market size (mean = 4.016), and in the agglomeration effect dimension with respect to relevant firms' support (mean = 3.635), proximity to raw material source (mean = 3.619), and agglomeration effect (mean = 3.524). Table 11 indicates Shanghai was perceived as the best in agglomeration effect, economic activity, and cost dimensions. Conversely, Shanghai was perceived as possessing many weaknesses in port activity, policy, and political risk dimensions when compared with Hong Kong and Kaohsiung. Respondents were presented with three investment modes and asked to indicate which they would most likely use and where. Table 12 shows respondents were more likely to use all three investment modes in Shanghai than in Kaohsiung and Hong Kong. Statistically significant difference existed between respondents at the 5 percent significance level. Leasing factory buildings was the investment mode preferred in all three intemationai logistics zones, followed by joint venture mode in Kaoh-

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2006

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siung and private-owned mode in Shanghai and Hong Kong. Results thus suggested that when respondents considered investment risk they preferred to lease factory buildings in intemational logistics zones to operate their business over private-owned and joint venture modes. Specifically, results showed cost, industrial, and market-related dimensions were more critical investment considerations when choosing intemational logistics zones for business purposes than infrastmcture, political, and industrial dimensions. According to Porter's (1980) generic strategies, Shanghai has a low cost advantage, while Hong Kong has differentiation advantages in infrastmcture and financial support. Kaohsiung is in a "stuck-in-the middle" position between Shanghai and Hong Kong. Kaohsiung is behind Hong Kong in infrastmcture and political-related dimensions in terms of labor quality and skilled labor force, communication facility, information system, simplified customs procedures, efficiency of port operations, frequency of sailings and flights, guarantee of foreign investment policy, relaxation on foreign exchange, political stability, local regulatory environment, govemment administration efficiency, and openness of foreign labor policy. Kaohsiung is also behind Shanghai in cost, agglomeration effect, and market-related dimensions, particularly labor cost, cost of land acquired, energy cost, corporate tax incentives, port charge, economic growth, and market size. With the lack of core competitiveness, it is hard for Kaohsiung to develop successfully as an intemational logistics zone if current investment preferences continue.
CONCLUSIONS AND DISCUSSION

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With intemational logistics continuing to develop rapidly, intemational logistics zones have become increasingly important. While there have been several empirical research studies of foreign direct investment in a specific area or country, research on intemational logistics zones has been minimal. This study has therefore sought to examine investment criteria and compare Kaohsiung, Shanghai, and Hong Kong as intemational logistics zones for investment purposes from main investors', i.e., manufacturing firms', perspectives. Major emphasis has been placed on cmcial criteria for investing in

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Table 12. Respondents' Investment Preferences for International Logistics Zones

Investment Mode Our company would likely use a private-owned mode to invest and operate our business in intemational logistics zones. Our company would likely use a joint venture mode to invest and operate our business in intemational logistics zones. Kaoshiung Mean 2.556 Shanghai Mean 3.19J Hone Kong Hong Kone Mean 2.302 F ratio 10.212* P Value 0.000

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15.280*

0.000

international logistics zones and assessing differences in their level of importance according to respondent firms' characteristics, as well as comparing preferred investment modes in Kaohsiung, Shanghai, and Hong Kong. The main fmdings of this study based on a survey conducted in Taiwan are summarized below. The five criteria respondents considered most important when investing in intemational logistics zones were political stability, corporate tax incentives, govemment administration efficiency, labor cost, and energy cost. This study is consistent with previous FDI studies on investment determinants (Dunning 1973; Allen 1991; Li and Guisinger 1992; Wu and Strange 2000). The present research suggests that intemational logistics administrators need to be especially aware of the importance of these critical investment criteria to investors (manufacturing firms) when developing their intemational logistics zones' policies. Differences in the relative importance of investment criteria according to respondents' job title, company age, company size in terms of number of employees and revenue, type of industry, and foreign investment experience were also examined in this study. Results presented in Table 13 show that hypotheses HI, H2a, H2b, and H3 were partially supported, whereas H4 was not supported. The importance of investment criteria, such as per capita income, energy cost, and commu-

nication facility, differed significantly between senior and junior managers at the 5 percent significance level. Moreover, the level of importance of energy cost, labor cost, relevant firms' support, and relaxation on foreign exchange accorded by firms in operation fewer than twenty years differed significantly from that accorded by firms in operation over twenty years. Five investment criteria (corporate tax incentives, simplified customs procedures, geographical location, information system, and openness of foreign labor policy) and four investment criteria (labor cost, relaxation on foreign exchange, frequency of sailings and fiights, and openness of foreign labor policy) were found to statistically significantly differ at the 5 percent significance level by numbers of employees and firm revenue, respectively. Additionally, the importance accorded four investment criteria (corporate tax incentives, govemment administration efficiency, port charge, and agglomeration effect) statistically significantly differed among the four industry categories at the 5 percent significance level. However, there were no statistically significant differences between FDI experience and nonFDI experience firms' views on the importance of investment criteria. Factor analysis was conducted to reduce the identified determinants of investment into eight critical factors: cost, agglomeration effect, resource, port activity, policy, political risk, loca-

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Table 13. Summary of Results

Hypotheses HI: The relative importance of investment criteria will differ with firm age H2a: The relative importance of investment criteria will differ with the number of employees H2b: The relative importance of investment criteria will differ with the amount of firm revenue H3: The relative importance of investment criteria will differ with type of product H4: The relative importance of investment criteria of FDI experience firms will differ from that of non-FDI experience firms Supported/Nonsupport Partially supported Partially supported Partially supported Partially supported Not supported

tion and transport, and economic activity factors. With the exception of location and transport and resource factors, results indicated that the remaining six criteria factors differed significantly among the three intemationai logistics zones in Kaohsiung, Shanghai, and Hong Kong ports. Kaohsiung, Shanghai, and Hong Kong were subsequently compared as intemationai logistics zones based on respondents' perceptions of their ability to meet investment criteria. Shanghai appears to have a higher advantage to develop its logistics zone than Kaohsiung and Hong Kong, primarily due to cost and market-related reasons, rather than infrastmcture and financial-related reasons. Respondents rated Shanghai as having a very strong competitive edge in terms of economic growth, market size, labor cost, cost of land acquired, and energy cost. Hence, Shanghai was rated by respondents as the most preferred logistics zone in which to invest. Results also indicated that Shanghai and Hong Kong have low cost and differentiation advantages, respectively. Kaohsiung therefore needs to develop its own core competencies and competitiveness to differentiate itself from Shanghai and Hong Kong as an intemationai logistics zone. Finally, leasing factory buildings in intemationai logistics zones was respondents' preferred investment mode, followed by private-owned and joint venture modes. This study suggests that, to develop intemationai logistics zones successfully, a nation needs to not only build a low-cost labor, land, and corporate tax operational environment, but also to provide well developed transport and logistics infrastmcture and excellent services.

including an efficient govemment administration, skilled labor force, simplified customs procedure, logistics and financial services, and ongoing govemment support of investors so they will voluntarily expand their business and increase the intemationai logistics zone market. The study findings have implications for a number of parties. They offer a current profile of investors' investment preferences for international logistics zones. Administrators of such zones can use the study's results to modify their current policies to more accurately meet investors' requirements. More importantly, insights into investors' perceived differences as to the importance of investment criteria may also be of interest to logistics zones' administrators by providing a useful approach for more effectively evaluating their marketing strategies and target markets. The study results may also be of value to current and potential intemationai logistics zones investors. The list of twenty-nine criteria may help investors identify and assess what they are really seeking from an intemationai logistics zone. The research contributes to intemationai logistics zones studies by investigating investment criteria and preferences from investors' (manufacturers') perspectives. Although numerous studies have investigated determinants of foreign direct investment, few have specifically examined the level of importance of investment criteria in selecting intemationai logistics zones. Moreover, a comparison of the relative advantages and disadvantages of international logistics zones in Shanghai, Hong Kong, and Kaohsiung is useful for intemationai logistics zones' administrators to more readily identify competitive strengths and weaknesses.

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However, due to several limitations of this study, directions can be suggested for future research. First, the analysis conducted in this study was static, i,e., the evaluation of investment criteria and preferences was employed at one point in time. Longitudinal research is needed to examine how investment criteria/ preferences change over time. Second, this research was limited to examining investment criteria when selecting intemational logistics zones based on Taiwanese manufacturers' perspectives. Investors or respondents from other nations may perceive such criteria differently. Future research could undertake the same scope of investigation but include several nations in the study. Third, although the analysis of variance was adequate to identify significant relationships among the various variables, structural equation modeling could be used to determine the impact of a variety of variables on investment decision. Finally, this study examined the investor perspective only, whereas in most investment transactions, the host country not only offers various incentives, but also imposes various perfonnance requirements, such as regulations on local content or minimum local ownership. Future research is needed to determine how perfonnance requirements and investment incentives interact and also influence investors' preferences.
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