Applying Analytic Hierarchy Process in Firm's Overall Performance Evaluation: A Case Study in China

ABSTRACT The Analytic Hierarchy Process (ABP) has been proposed in recent literature as an emerging solution approach to large, dynamic, and complex real world multi-criteria decision making problems, such as the strategic planning of organizational resources and the justification of new manufacturing technology. This paper presents an application of the AHP in firms' long-term overall performance evaluation through a case study in China. An effective evaluation of firm's overall performance is a key step for firm's long-term strategic planning process. As such, the methodological approach of evaluating firm's overall performance has attracted recent research interests, especially for firms under its unique economic, financial, and marketing conditions in China. The result of this study shows that such an ABP application can assist managers to effectively evaluate firm's overall performance in their long-term strategic planning process even under complex economic and marketing conditions. JEL: C44, C81, F23, 053 Keywords: Multiple-Criteria Decision Problems; Analytic Hierarchy Process (AHP); International Business in China; Performance Measurement I. INTRODUCTION With the fastest growth rate in the last two decades, China has become one of the largest markets for international business. As a result, China has become one of the top three nations for attracting foreign investment in the international market since 1993 (see Ma [16]). Hundreds of international companies, large and small, have been competing for business opportunities in China, in the form of joint venture or direct investment, since the Chinese government opened its market in 1980s. As its economic reform continues, China's perennial economy expansion scale, huge market potential, and valuable resources have been continuously attracting the attention of international business giants (see Ma [15]). It has been reported that by the end of June 1997, over 230,000 business joint ventures had been registered in China, and 145,000 of them were already in operations. Total foreign direct investment had reached $204 billions--among them, $15.7 billions were from U.S. companies, involving 23,200 business investment projects (see CNSB [4]). IMF (International Monetary Foundation) 1997 "Global Economic Prospects and Policies" Report predicts that if China can sustain its current growth rate, its GDP will reach the total GDP of European Union and the U.S.A. in 10 years. The 1997 Annual Report of World Bank indicates that among world's five largest developing countries--China, Russia, India, Brazil, and Indonesia, all of which will become important parts of world economy in next 20 years, China has the most potential for growth and become one of the largest markets for international business. As evidence, more than 200 international business giants have started to increase their direct investment in China recently (see Ma [16]). Hundreds of international corporations have explored their business opportunities in China in the last two decades. Both successful joint ventures and failed investments have been reported (see Miller, et al. [18]). Research addressing the issues about the conflicts between different cultures (e.g., Western vs. Oriental), traditions, value systems, and the comparison study about different political and economic systems has been emerged in recent literature, but few have been focused on the issues and challenges in evaluating firm's long-term overall performances--for companies under China's current complex social, political, economic, financial, and market conditions. Because such a problem is evidently a typical multi-criteria decision making problem--as there are many factors involved (quantitative vs. qualitative), many attributes interactive (economic, political, cultural, traditional, etc.), and complex relationships among the factors. For such multi-criteria decision making problems, appropriately assessing the managerial priority preferences among performance criteria will play a key role in the solution process. …