Public funding for product,process and organisational innovation in service industries

Innovation is important for the competitive advantage of firms, especially for service firms. We argue that public funding, such as that from national and international agencies, is likely to have a positive influence on firms' innovations by complementing private funding, such as that from foreign and/or domestic firms and organisations. Unlike manufacturing firms, service firms tend to lack complementary resources for innovation; therefore, the additional funding from public sources enables them to acquire the necessary resources for innovation. Empirical results support our arguments.     

How does ownership influence business growth? A competitive dynamics perspective

Firms engage in competitive actions to gain market share and hence to grow their revenues. However, not all firms are equally able to use competitive actions to drive growth. We argue that the ability to translate competitive actions to revenue growth depends on the ownership of the firm. Drawing on principal-agent and principal-principal perspectives, we argue that: (1) private owners (both foreign and local) are better able to employ aggressive actions to grow their business than state owners; (2) firms with multiple owners (especially international joint ventures) are less able to implement actions that drive business growth than full ownership. We find support for these arguments in empirical tests on survey-based data of 106 firms in China. Results show that in an emerging market the principal-principal perspective can better explain governance and competition than the principal-agent perspective.     

Competing with multinational enterprises’ entry: Search strategy,environmental complexity,and survival of local firms

This study examines the competitive dynamics between foreign and local firms. We posit that multinational enterprises (MNEs)’s entry in foreign markets significantly reduces the survival rate of local firms in the short term, but that this effect gradually diminishes over time. The proposed conceptual framework is operationalized through the combination of the widely used agent-based model and the economic model of competition. The agent-based model allows us to study the behavior of firms under the context of different markets and the environmental complexity while the competition model determines the competition between firms as well as the entry and exit of firms. Our results obtained from the simulation study reveal that the negative effect of foreign entry is heightened as environmental complexity increases. However, local firms with a broader knowledge search are better able to confront the negative impact of foreign entry over time. We also find that the negative effect of foreign entry on the survival of local firms is weaker for local firms with a strong retrieval capacity.     

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.     

Corporate fraud as a negative signal: Implications for firms’ innovation performance

Based on signaling theory, we explore the impact of corporate fraud on firms’ innovation performance. First, we propose that corporate fraud harms firms’ innovation performance. This is because, as a negative signal, fraud makes it difficult for firms to obtain the policy, funding, and human resources needed for outstanding innovation performance. We further argue that the institutional aspects of the signaling environment (e.g., industrial competition, regional institutional development, and social trust) will influence core stakeholders’ reception and interpretation of fraud signals. These factors, in turn, moderate the signaling effect of corporate fraud on firms’ innovation performance. Our views are supported by empirical and robustness tests using Chinese A-share listed firms from 2010 to 2019.     

Outward foreign direct investment from emerging economies: escaping home country regulative voids

The internationalisation of multinationals from emerging economies raises the question of whether mainstream theory can explain this phenomenon. We combine the explanations of outward foreign direct investment (OFDI) provided by the institution-based view and the investment development path (IDP) and suggest that the combined use of these explanations contributes to the reconciliation of the mainstream and emerging views of internationalisation. We argue that although OFDI is undertaken by firms to overcome the competitive disadvantages resulting from home country regulative voids, escapist investment is facilitated if these firms possess certain competitive advantages that help them overcome the liability of foreignness when expanding abroad. We thus expect the impact of regulative voids on OFDI to vary with the level of local firms’ ownership advantages. Our analysis of OFDI flows from 29 emerging economies over 17 years (1995–2011) provides support for the direct effects of two types of regulative voids and for the three suggested moderating effects of firms’ competitive advantages.     

DIY: How internationalization shifts the locus of indigenous innovation for Chinese firms

We elaborate theories of indigenous innovation by explaining how internationalization choices help emerging market firms transition from dependence on external knowledge to self-reliance on internal knowledge. Using a 1998–2007 census dataset of Chinese manufacturing firms, we theorize and test the moderation effect of foreign equity and export orientation on the relationship between knowledge and indigenous innovation. We show that foreign equity dis-incentivizes, while export orientation incentivizes, investments in internal knowledge. We contribute by showing that internationalization choices may radically change indigenous innovation outcomes by shifting the locus of problem solving outside or inside the firm. Our study corroborates the negative direct and indirect effects of external knowledge on indigenous innovation at the firm level previously suggested by China-centric scholars but also shows how two types of internationalization choices may gradually relieve firm-level dependence on imported technology. We bridge the gap between Western research and Chinese thought and practice by introducing a do-it-yourself (DIY) explanation of how firms may implement China’s indigenous innovation (zizhu chuangxin) policy.     

How do local and foreign firms compete? Competitive actions in an emerging economy

When foreign and local firms compete, they face competitors acting quite differently from themselves. Specifically, their ability to engage in timely and frequent actions is influenced by, respectively, the Liability of Foreignness (LoF) and the Liability of Localness (LoL). We explore how the trade-off between LoF and LoL influences the aggressiveness of competitive actions firms take in emerging markets. Specifically, we argue that LoF results in weaker government ties that inhibit the aggressiveness of competitive actions of multinational subsidiaries, while LoL results in weaker technological capabilities that inhibit competitive aggressiveness of domestic firms. We apply structural equation modelling on Chinese survey data to test hypotheses derived from these arguments and find empirical support. Our results shed new light on competitive dynamics in an emerging economy.     

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.     

Sources of knowledge and process innovation: The moderating role of perceived competitive intensity

Global competition means that firms are under pressure to systematically develop the efficiency of their manufacturing processes. However, little has been said in the international business literature about how firms, especially those subject to severe barriers, can search for knowledge within and across national boundaries to help in the development of process innovation. We build on key aspects of the innovation and search strategy literature to develop our conceptual model and hypotheses, which we test in the context of a less-developed, isolated, and closed economy, using data from 171 automotive component suppliers in Iran. We find that foreign knowledge search is positively related to process innovation, even in an economy that operates under severe economic sanctions. This contributes to the international business field by providing evidence that, while economic sanctions are increasingly used in modern geopolitics by the world’s most powerful countries, these actions may fail to achieve their goals with respect to individual businesses.     

From local to global innovation: The role of subsidiaries’ external relational embeddedness in an emerging market

This study examines factors that influence the development and transformation of local innovations into global innovations from an emerging market subsidiary. We argue that subsidiaries’ relational embeddedness with the external local network is essential for the development of local innovations. Turning local innovations into global ones is the result of the level of innovativeness evoked by the subsidiary located in an emerging market. However, the transformation of local into global innovations is more likely to happen in the case of subsidiaries having previous reverse knowledge transfers in functional areas. Reverse knowledge transfers indicate internal embeddedness, which is essential for local innovation to be transformed into global innovation. We draw on survey evidence from 131 foreign subsidiaries operating in Brazil. Using a Structural Equation Modeling technique, our results support our hypotheses and show that subsidiaries’ relational embeddedness with the external local network is positively associated with local innovation, which is transformed into global innovation, especially when innovation is developed in the subsidiary´s functional areas with previous reverse knowledge transfers. We draw implications for the field of subsidiary management research, specifically to understand the role of local innovation from foreign subsidiaries in emerging markets.     

Home country uncertainty and the internationalization-performance relationship: Building an uncertainty management capability

We analyze the impact of home country uncertainty on the internationalization-performance relationship of emerging market firms. Building on organizational learning theory and the institutional approach, we argue that internationalization has a positive impact on the performance of emerging market firms, and that this relationship is strengthened for firms based in emerging countries with higher corruption and political risk. The reason is that by being exposed to high levels of home country uncertainty in the form of political risk and corruption, firms develop an uncertainty management capability at home that helps them face the challenges of internationalization better. We also propose that this uncertainty management capability helps emerging market firms perform better outside of their home region. We test our arguments on a sample of 536 firms from Argentina, Brazil, Chile, and Peru.     

Home country institutional environments and foreign expansion of emerging market firms

We propose that home country institutional environment shapes emerging market firms’ foreign expansion. We argue that better-developed home country institutional environment promotes emerging market firms’ expansion to foreign markets more advanced than the home country, while institutional instability in the home country reduces this propensity. We further hypothesize that the effects of home country institutional environment are contingent on firm-specific government ownership. Data on the foreign expansion of 921 Chinese firms in the period of 1996–2000 provide strong support for the effects of home country's institutional development and institutional instability. We also find that a high degree of government ownership weakens the positive effect of home country's institutional development on emerging market firms’ propensity to expansion to more advanced markets.     

Cross-border venture capital investments in Asia: Selection and exit performance

We investigate the investment behavior and exit performance of VCs that have pursued expansion outside their home locations, specifically, in Asia. Our findings indicate that, in the Asian VC markets, foreign VCs have relative advantages over local VCs in terms of size and experience while they are at a disadvantage in information collection and monitoring due to both geographic and cultural distances. When investing alone, foreign VCs are more likely to invest in more information-transparent ventures. Partnership with local VCs helps alleviate information asymmetry and monitoring problem and has positive implication for the exit performance of local entrepreneurial firms. Specifically, we find that after controlling for the endogeneity of selection, firms with both foreign and local VC partnership are about 5% more likely to successfully exit.     

Environmental Pressure and the Performance of Foreign Firms in an Emerging Economy

Does environmental management help foreign firms outperform local firms in emerging economies? While existing research suggests that environmental management may or may not benefit firm performance, the question is particularly under-investigated in the emerging economy context. Using the data on foreign investment into China, this study explores whether foreign firms that are under greater environmental pressure, at home or at the host, outperform comparable local firms in an emerging host country. In making this comparison, we use propensity-score matching and a difference-in-differences approach to handle the problem of endogeneity inherent in comparing the performances of foreign versus local firms. We find empirical support that foreign firms perform better than local firms when they are under high environmental pressure in the emerging host country, and this result is driven by the foreign firms originating from countries with high environmental pressure.     

Strategic entry or strategic exit? International presence by emerging economy enterprises

By proposing an integrated strategic choice framework, we theorize the distinctive dynamics of international expansion by emerging economy enterprises. Specifically, we explicate how these firms build international presence based on combined strategic entry (i.e., prompted by internal capabilities such as innovation and diversification) and strategic exit (i.e., pushed out by external handicaps at home such as institutional obstacles and market competition). Further, a firm’s cooperative ties with foreign multinationals in the former’s home country fortify the strategic entry intent, while ties with home government institutions weaken the strategic exit intent. We also demonstrate that building international presence helps bolster firm performance, highlighting the economic catch-up consequence of international expansion. Analyses of a two-year imbalanced panel data of 2136 firms statistically support our hypotheses.     

Innovation responses of Japanese firms to Chinese import competition

This paper examines innovation responses of a panel of Japanese firms to the intensified import competition from China in the period 1995–2005. We build a comprehensive firm-level dataset linking patents and R&D merged to cross-industry measures of Chinese import competition. Accounting for a simultaneity bias between innovation and importing and the possible heterogeneous effects across firms, we found that patenting has increased in response to an influx of Chinese imports, but it has adversely affected the quality of innovation, measured by forward citations received. These effects are only observed for globally engaged firms, not for firms focusing on the domestic market.     

Gaijin invasion? A resource dependence perspective on foreign ownership and foreign directors

While boards around the globe are becoming more international, the reasons behind this internationalization are not fully understood. In this study, we suggest that foreign ownership increases the presence of foreign directors on boards. Based on resource dependence theory, we argue that the dependence on foreign owners makes foreign nationals an important resource for firms. Using data from large Japanese stock market firms and employing logistic regression analysis, we find empirical evidence that greater dependence on foreign, i.e. gaijin, owners is associated with a higher probability to have foreign directors on the board. We also demonstrate that the link between foreign ownership and foreign directors is positively moderated by a firm’s foreign market exposure. We conclude that firms consider foreign directors a viable response to the deviant expectations of foreign owners.     

The impact of home business network attributes on Chinese outward foreign direct investment

Researchers who take a network perspective argue that insidership in foreign market networks is a necessary condition for internationalization. In this study, we argue that insidership in home market networks also matters. The effect of home network insidership on outward foreign direct investment (OFDI) depends on both individual and joint effects of structural and relational network attributes. Our study based on a survey of 194 Chinese firms shows that firms in a central network position are more likely to engage in OFDI than those in a brokerage position. Furthermore, we find the interaction between firms’ centrality and their connections to foreign-invested enterprises to be significantly and positively associated with OFDI, whereas a significantly negative effect is evidenced when a firm is connected more to domestic firms.     

How Environmental Management Competitive Pressure Affects a Focal Firm's Environmental Innovation Activities: A Green Supply Chain Perspective

Recently, environmental management offers firms a source of competitive advantage in the marketplace. The development of environmental innovations is critical to the success of today's firms. Drawing on the Schumpeterian perspective of competition, this research examines how the perception of rival firms' green success influences a firm to pursue and produce environmental innovation through its green supply chain integration activities. Using survey data from 230 firms, a conceptual model is developed and tested using structural equation modeling. We find that the firms in our sample do perceive pressure from their competitors' success in environmental management activities, and thus take supply chain action to pursue integration activities. By differentiating incremental and radical environmental innovation, this study also reveals the role of three dimensions of green supply chain integration (internal, supplier, and customer integration of green product development) on incremental and radical environmental innovation separately. Specifically, findings suggest that green supply chain integration has a positive impact on developing incremental environmental innovation, while only customer integration has a significant positive impact on developing radical environmental innovation.