The impact of domestic diversification and top management teams on the international diversification of Chinese firms

Despite increasing research on outward foreign direct investment (OFDI) by firms from emerging economies, our understanding of the relationship between domestic operations and international diversification of these firms is still limited. Using a unique dataset of Chinese listed firms, we examine the impact of domestic diversification on their international diversification. We find that international diversification is positively affected by firms’ domestic industrial and domestic regional diversification. We also find that top management team (TMT)’s previous international experience strengthens the impact of domestic diversification on firms’ international diversification, whereas TMT's prior political connections weakens the impact of domestic diversification on international diversification.     

Extending Dunning's Investment Development Path: The role of home country institutional determinants in explaining outward foreign direct investment

Recent years have seen an increase in outward foreign direct investment (OFDI) from emerging markets and post-communist economies alike. Given the specific institutional fabric of these countries, the question is whether mainstream theory can explain the drivers of foreign direct investment outflows or whether new theories are needed to explain this phenomenon. This paper aims to investigate the home country determinants of OFDI from post-communist economies. We augment the Investment Development Path (IDP) with explanations derived from institutional theory and explain the effects of home country institutional factors on the level of OFDI. We test our hypotheses using random effects estimations on a comprehensive panel dataset comprising of OFDI from 20 Central- and Eastern European countries. Our results support the IDP's main propositions but also highlight the importance of accounting for home country institutional factors when investigating the determinants of OFDI. In particular, we find that the inclusion of institutional variables increases the explanatory power of our models and that competition policy and overall institutional reforms play a crucial role in explaining OFDI from CEE countries with important implications for FDI theory.     

Performance feedback on sales growth goal and OFDI location choices for firms in emerging economies

This study explores the influence of performance feedback relative to sales growth on emerging economy firms’ (EEFs) outward foreign direct investment (OFDI) in developed and developing economies. It takes a global value chain perspective to examine whether performance feedback motivates EEFs’ location choice for OFDI. Using listed Chinese firms’ data, we find negative performance feedback relative to sales growth motivates EEFs to increase OFDI in developing economies but reduce it in developed economies. However, positive feedback relative to sales growth reduces it in both developed and developing economies. We contribute to OFDI location choice literature by including a behavioral perspective.     

Exploratory and exploitative OFDI from emerging markets: Impacts on firm performance

This study identifies exploratory and exploitative OFDI as two distinct approaches for emerging market (EM) firms to overcome their liability of foreignness in overseas markets. It assesses the performance impacts of both types of OFDI through investigating three sets of questions. (1) What are the differential impacts of exploratory and exploitative OFDI, and how long do they persist? (2) How do industry factors in the home country, including technological turbulence and competitive intensity, moderate these effects? And (3) how can firms balance these two types of OFDI across time? Based on multi-sourced data of 766 Chinese firms during 2008–2015, the results show that both types of OFDI promote performance, yet the positive effect of exploratory OFDI lasts longer than that of exploitative OFDI. Moreover, technological turbulence strengthens the effect of exploratory OFDI and weakens that of exploitative OFDI, but competitive intensity strengthens the effect of exploitative OFDI only. Finally, sequential ambidexterity improves firm performance through exploratory‒exploitative OFDI process.     

Expanding to outward foreign direct investment or not? A multi-dimensional analysis of entry mode transformation of Chinese private exporting firms

This research examines the factors determining whether or not exporting firms expand to outward foreign direct investment (OFDI) as part of their internationalisation strategy, using a recent survey of Chinese private-owned enterprises. We carry out a multi-dimensional analysis to investigate the impact of firm productivity, internal resources and the external environment on OFDI decisions, including both the decision to undertake OFDI and the volume of OFDI flows. It is found that productivity, technology-based capability, export experience, industry entry barriers, subnational institutions and intermediary institutional support affect firms’ OFDI decisions. The findings have important policy and managerial implications.     

Outward foreign direct investment and domestic innovation performance: Evidence from China

Recent years have witnessed substantial outward foreign direct investment (OFDI) from many emerging economies. Should the governments of these economies encourage OFDI in order to promote domestic innovation? Much OFDI by emerging economy multinational enterprises (EMNEs) has been undertaken to acquire strategic assets overseas, but do these acquisitions bring innovation benefits at home? The empirical analysis presented in this paper considers the effects of OFDI on regional innovation performance, using a panel of Chinese provinces, and finds that OFDI has a very significant impact on domestic innovation. Furthermore, we also identify three contingent factors – absorptive capacity, foreign presence, and the competition intensity of the local market – that moderate the impact of OFDI on innovation performance.     

Corporate governance and MNE strategies in emerging economies

We explore factors of convergence and divergence in corporate governance of emerging and developed market economies, focussing on the role of firm internationalisation. In particular, foreign investments by emerging economy firms led to upgrade of their governance capabilities. These firms also became advocates for home-country policy reforms that mandated the development of similar capabilities for local firms. We present a broad overview of the literature and propose an approach that considers the evolution of corporate governance, both at the national level and the firm level, with MNEs from both emerging market economies and developed economies as active actors in this process.     

Geographic clustering and outward foreign direct investment

This study addresses an important neglected question: To what extent do geographic clusters promote outward foreign direct investment (ODI)? We find evidence that clusters do promote ODI and so support Porter's argument that advantages gained in clusters can be the foundations of successful internationalisation. Digging deeper, we find that certain cluster incumbents promote more ODI than others, with more experienced firms and firms with stronger resource bases accounting for more ODI. We also find that firms located in clusters within major global nodes/cities engage in more ODI. Finally, we find that both localisation and urbanisation economies promote ODI. However, the former, within-industry effects, are more important. Overall, this study echoes Dunning's call for more focus on the ‘L’ component of the ownership, location, internalisation (OLI) paradigm and particularly on the advantages that reside in clusters that make them not only attractive destinations for foreign direct investment (FDI) but also fertile environments from which FDI can spring.     

Performance shortfalls and outward foreign direct investment by MNE subsidiaries: Evidence from China

Foreign subsidiaries of multinational enterprises (MNEs) have been conducting outward foreign direct investment (OFDI) into new overseas destinations. Drawing upon the behavioural theory of the firm, we explain that such OFDI can occur in response to performance shortfalls relative to aspirations. When performance shortfalls in subsidiaries are attributed to the institutional distance between them and the home country of the parent firm, these subsidiaries select institutionally closer destinations for their own OFDI. Our study goes beyond the direct investment of MNE headquarters and advances the internationalisation process model by investigating the underexplored, secondary and springboard-based internationalisation, and by underscoring the value of a subsidiary’s OFDI behaviour.     

Institutions,resources, and internationalization of emerging economy firms

An important step in the internationalization process of emerging economy firms is the shift from exports to foreign direct investment (FDI). We integrate the resource- and institution-based views to suggest that firms that can use unique institutional advantages are more likely to make this shift. We test these arguments with a longitudinal sample of 28,563 firm-year observations (1989–2005). We found that firms that are affiliated with a business group, have more firm- and group-level international experience, have more technological and marketing resources, and operate in service industries are more likely to shift from exports to FDI.     

Heterogeneity in OFDI by EMNEs: Drivers and trends of Chinese and Indian firms

Previous research has identified a distinction between the internationalization of emerging market multinational enterprises (EMNEs) and their advanced-economy counterparts. However, the question as to whether EMNEs conduct outward foreign direct investment (OFDI) in a uniform manner remains under-studied. Prior studies have grouped together all emerging markets but have ignored the essential heterogeneity of EMNEs that leads to their diverse OFDI patterns and behaviours. In this study, we illustrate the drivers and related phenomena of heterogeneity by exploring differences and similarities between Chinese and Indian MNEs’ OFDI activities, namely, investment destinations (i.e., advanced vs. emerging economies), the level of political relationships with host countries, industry sectors supported by institutional patronage, and the primary motivations of investment projects. We suggest that the heterogeneity in OFDI is the result of the institutional environment and the strategic priorities of the industry sector.     

Neither developed nor emerging: Dual paths for outward FDI and home country innovation in emerged market MNCs

Emerged market multinational corporations (EDMNCs) ? those based in emerged markets that have transitioned out of emerging economic status ? have received little research interest from the international business scholarship, despite their growing presence in the global market. EDMNCs face significant competitive pressure to leverage cross-border knowledge to innovate and leapfrog their middle-zone status between emerging and developed market multinational corporations. Analyzing 174 publicly listed South Korean MNCs and their outward foreign direct investment (OFDI), we find that an EDMNC’s OFDI into developed and emerging markets contributes unequally to its home-country innovation. We also elaborate on the moderating effect of industry peers’ OFDI into developed countries through crowding out and spillover effects. These findings have implications for the OFDI and innovation literature in general, and particularly for international business scholarship focusing on an under-investigated category of MNCs that are increasingly becoming successful in international competition.     

What drives firms’ intent to seek strategic assets by foreign direct investment? A study of emerging economy firms

What drives firms, particularly those from emerging economies, to engage in competitive catch-up with world leaders? We study the first step leading to catch-up, namely the managerial intent to acquire strategic assets that help closing the gap. Theoretically grounded in the awareness–motivation–capability (AMC) framework of competitive dynamics, we identify key factors contributing to firms’ strategic intent to catch-up by acquiring strategic assets abroad. Using a sample of 154 Chinese firms, we find that firms’ strategic assets seeking intent of foreign direct investment is influenced by their exposure to foreign competition, their governance structure, and relevant financial and managerial capabilities.     

Benefitting from Chinese FDI? An assessment of vertical linkages with Vietnamese manufacturing firms

Previous studies have suggested that foreign direct investment between emerging economies can benefit domestic firms more than investments from industrialised countries because of a lower technology gap and more appropriate technology being transferred. Empirical evidence for this is scarce. Addressing this gap, we investigate the impact of Chinese direct investment on local firms through vertical linkages in manufacturing industries of Vietnam. We find that the share of local sourcing of Chinese firms is similar to other foreign investors while their forward linkages are more extensive. Although this supports assertions about the benefits of investment by emerging market firms, the overall potential gains seem limited. This is due to little value-adding interaction with local firms, the local sourcing of low-technology goods, and the sparse provision of training and financial support.     

Portfolio characteristics of outward foreign direct investment and dynamic performance of emerging economy firms: An option portfolio perspective

In recent decades, emerging economy (EE) firms have taken an aggressive approach to international expansion. Drawing upon option portfolio theory, this study develops the characteristics of the OFDI portfolio based on two attributes of a portfolio and two dimensions of host environments. We examine how the characteristics of the OFDI portfolio dynamically influence the OFDI?performance linkage. Using a sample of 545 Chinese listed multinational firms during the period 2009–2018, we find EE firms’ OFDI contributes more to short-term performance when the OFDI portfolio features a higher overall quality of host institutions or a higher diversity of strategic factor market developments in the host countries. However, over a relatively long period, EE firms’ OFDI contributes more to long-term performance when the portfolio features a higher overall diversity of strategic factor markets and institutional environments. These findings offer further knowledge on the OFDI?performance link in emerging economies.     

Does state ownership facilitate outward FDI of Chinese SOEs? Institutional development,market competition,and the logic of interdependence between governments and SOEs

Outward foreign direct investment (OFDI) of manufacturing state-owned enterprises (SOEs) from emerging economies (EE) has emerged as a significant phenomenon in global markets. Although previous research has emphasized the bright-side of state ownership in facilitating SOEs’ OFDI, the stream of research largely overlooks its dark-side effects. Drawing on resource dependence theory (RDT), we argue that state ownership creates dependence of SOEs on their home governments, which may undermine manufacturing SOEs’ willingness to conduct OFDI, autonomy and market orientation, and legitimacy in overseas markets. Thus, substantial state ownership may counteract with manufacturing SOEs’ OFDI from EE. Our empirical results, based on a sample of 507 Chinese publicly-listed manufacturing SOEs during 2007–2013, show that a high percentage of state-owned shares exerts negative effects on SOEs’ OFDI. Relative to local SOEs, central SOEs are less likely to engage in OFDI. Further, the negative effect of the percentage of state-owned shares on SOEs’ OFDI will be alleviated by institutional development and competition intensity. The study contributes to literature by making a real theoretical case for the dark-side effects of state ownership on manufacturing SOEs’ OFDI from EE.     

Outward FDI and Innovation Performance of Chinese Firms: Why Can Home-Grown Political Ties Be A Liability?

We explain how home-grown political ties of Chinese firms negatively influence the effect of outward foreign direct investment (OFDI) on the innovation performance of their parent firms. Our results show that these ties can turn into a liability in the host countries (particularly developed ones) due to their misfit with the local institutional environment, hampering the parent firms’ innovation performance from OFDI. We also clarify how absorptive capacity of the parent firm mediates the relationship between OFDI and innovation performance. Our study furthers understanding of the link between internationalization and innovation performance and the ‘dark side’ of political ties.     

Resource curse impacts on the co-evolution of emerging economy institutions and firm internationalization

We investigate natural resource “curse” impacts on co-evolutionary relationships between emerging economy institutions and firm internationalization. We discuss how these relationships challenge and extend IB institutional research using three predominant resource curse characteristics (boom and bust cycles with related public discourse and “Dutch Disease” with associated manufacturing sector investment crowd-out). These characteristics alter regulative, normative and cognitive institutional impacts on state- and privately-owned firm internationalization during an emerging economy’s resource curse. We develop propositions describing these processes using oil and gas, manufacturing and service sector examples in several emerging economies. We discuss our theoretical contributions to the resource curse and international business literatures and outline future research directions.     

Outward foreign direct investment of publicly listed firms from China: A corporate governance perspective

This study examines the influence of key corporate governance factors on the internationalization decisions of emerging economy (EE) firms. By integrating the resource-based view and agency theory, it investigates the effects of controlling owner identity, non-controlling shareholder ownership, and the interactions of these with CEO power, in order to reveal their individual and joint effects on the outward foreign direct investment (OFDI) propensity of EE firms. This empirical study of 224 Chinese publicly listed firms found positive effects of ownership of domestic institutional investors and foreign corporations on the OFDI propensity of the firms, which were moderated by the power of the CEOs in these firms.     

How valuable is information and communication technology? A study of emerging economy enterprises

Anchored at the knowledge management perspective, we address how information and communication technology (ICT) improves the productivity of emerging economy enterprises. We present the logic that ICT enhances firm performance because it is an important channel or facilitator of effective knowledge sharing and knowledge integration. We further argue that the conditions characterizing an emerging economy (i.e., a country’s economic development) and emerging economy businesses (i.e., internationalization and quality assurance) would affect the extent to which ICT contributes to knowledge management, and thus to firm performance. Our hierarchical linear modeling analysis of 6236 firms from 27 emerging economies lends support to our arguments and predictions, suggesting that ICT is a critical investment that generates satisfactory returns for emerging economy enterprises, yet this investment–return relationship is further contingent upon the macro- and micro-level conditions facing these enterprises. ICT actually adds more value to productivity when a focal emerging economy is less economically developed, and when a focal firm reaches foreign markets or its quality control and assurance is superior.