Competitive advantages and the proximity of investment: evidence from Hong Kong-listed real estate development firms in Mainland China

What is it about?

In collaboration with Shuping Wu from Beijing Jiaotong University and Zan Yang from the Royal Institute of Technology, Sweden, we investigated the investment behaviour of Hong Kong-based real estate developers in Mainland China. Our study uncovered a positive correlation between a firm's investment distance and its intangible assets, as perceived in the capital market. In essence, high-growth real estate firms with more intangible assets, including reputation, project design, management, finance, and information advantage, tended to invest further away from their Hong Kong headquarters into Mainland China. This investment behaviour persisted throughout the study period from 2005 to 2015, even as the investment scale of Hong Kong firms gradually reduced, moving from first-tier to third-tier cities. Our findings illuminate an intriguing narrative of initial success followed by subsequent decline, aligning with the Foreign Direct Investment (FDI) literature, which underscores the significant challenge posed by the "liability of foreignness" in real estate development. The lesson drawn from Hong Kong developers emphasises the critical need to balance strategic expansion with the inherent risks of operating in distant emerging markets. A more generalised takeaway for all foreign businesses is that intellectual property and unique assets/products have a finite lifespan. Eventually, local competitors acquire the 'know-how,' diminishing the advantage. Therefore, distant investments, such as those in Mainland China, are often opportunistic rather than strategic expansions, as evidenced in the realm of real estate. Full article was published in the Journal of Property Research. Shi, S., Wu, S.P., Yang, Z. (2023). Competitive advantages and the proximity of investment: Evidence from Hong Kong-listed real estate development firms in Mainland China. Journal of Property Research, https://doi.org/10.1080/09599916.2023.2279761

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Photo by Sean Pollock on Unsplash

Photo by Sean Pollock on Unsplash