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.     

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.     

Performance feedback and outward foreign direct investment by emerging economy firms

Integrating the behavioral theory of the firm (the BTF) and the self-enhancement motive of managers, this paper examines how performance feedback—the discrepancy between actual performance and aspiration levels—affects the international expansion of emerging economy firms (EEFs). Empirical results using panel data on 876 publicly-listed Chinese manufacturing companies over a 7-year period indicate that performance relative to social aspiration (i.e., peer performance) and relative to historical aspiration (i.e., firms’ own past performance) affects EEFs’ levels of subsequent outward foreign direct investment (OFDI). Specifically, performance below social or historical aspiration enhances levels of OFDI, while the effect of performance below social aspiration is stronger than that of underperforming historical results. The results also show that performance above social aspiration enhances levels of OFDI, while performance above historical aspiration decreases levels of OFDI. Moreover, we uncover the importance of considering the joint effect of historical and social performance feedback, as receiving consistent or mixed signals about firm performance may result in risk-taking behaviors that differ from those triggered by just one performance signal on its own. These findings underscore the impact of performance feedback relative to social and historical aspirations on EEFs’ OFDI activities.     

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.     

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.     

Do Chinese firms benefit from government ownership following cross-border acquisitions?

Chinese firms’ increasing cross-border acquisitions (CBAs) in recent years seem to challenge the explanatory power of received theories of multinational enterprise (MNE) due to their relatively unique characteristics and the active role of the Chinese government. In this study, we seek to revisit and contextualize the OLI paradigm in conjunction with the institution-based view and examine how Chinese firms’ post-CBA long term performance is associated with government ownership. Our study shows that Chinese firms with more government ownership demonstrate better post-CBA long term performance. However, the above relationship is differentially moderated by such firm-level boundary conditions as political connections and financial slack, and the country-level institutional boundary conditions (i.e., the host country formal institutions and the home-host country cultural distance). We discuss our findings in detail and explore theoretical and practical implications for both Chinese firms and other emerging economy (EE) firms.     

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.     

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.     

The OFDI patterns and firm performance of Chinese firms: The moderating effects of multinationality strategy and external factors

The purpose of this paper is to examine how multinationality strategy, home political influence, and host-country risk explain the performance consequences of OFDI patterns of firms in the most important emerging economy, China. Two main patterns of OFDI (‘born global’ natured multiple simultaneous and IP-natured gradually growing) have been dominant in China during its first OFDI as a latecomer. In contrast to the conventional IP argument, we hypothesize that the multiple simultaneous pattern of a born-global nature leads to better performance. We also hypothesize that firm multinationality strategy and home political influence play greater roles in enhancing the performance effect of the multiple simultaneous pattern than another pattern, i.e., IP-natured gradually growing pattern. Using panel data of 4619 observations from 261Chinese publicly listed firms from 1991 to 2011, we find a superior performance effect for the multiple simultaneous pattern. Further, we find a greater moderating effect of firm multinationality strategy and home political influence affecting the OFDI and performance relationship undertaken by the multiple simultaneous pattern than by the gradually growing pattern. Our study extends understanding of OFDI patterns in emerging economies and suggests that the analysis of performance consequences should focus on external and firm factors that may facilitate the performance effect.     

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.     

Effects of extent and diversity of alliancing on innovation: the moderating role of firm newness

The purpose of this paper is to show the varying effects of alliance portfolio size and heterogeneity on innovation in biotechnology firms. Previous literature has indicated that the number and heterogeneity of partners in an alliance portfolio might have positive effects on innovativeness. Yet, engaging in multiple and heterogeneous collaborations also raises managerial costs and complexity levels disproportionally, potentially causing detrimental performance effects. Analysis of a unique panel dataset suggests that engaging in many alliances generally has a positive influence on a firm’s innovation output. Furthermore, maintaining diverse alliance portfolios and a high extent of alliancing jointly affects a firm’s innovation output ?negatively. By additionally showing that younger firms benefit disproportionally from both alliance portfolio diversity and size, this study provides a more nuanced view of alliancing effects.     

Performance feedback and location choice of foreign direct investment

Integrating the behavioral theory of the firm and the OLI paradigm, this paper studies how performance feedback affects the location choice of emerging market firms between developed countries (DCs) and less developed countries (LDCs) during the process of internationalization. Using the sample of 1,306 Chinese public listed firms which established new foreign subsidiaries between 2008 and 2019, we find that the further a firm’s performance is below aspiration, the more likely it will invest in LDCs than DCs, whereas the further a firm’s performance is above aspiration, the more likely it will invest in DCs than LDCs. In addition, technology-based capability and labor intensive production capability have moderating effects on the relationship between performance feedback and location choice between DCs and LDCs. This paper complements and extends the OLI paradigm by injecting dynamic and non-economic factors to explain OFDI location choice.     

Where the eyes go,the body follows?: Understanding the impact of strategic orientation on corporate social performance

This research seeks to address two questions with respect to firm corporate social performance (CSP): (1) “do different strategic orientations have differential impacts on a firm's overall CSP?”; and, if so, (2) “is there an effect of a firm's strategic orientation on the types of CSP that a firm implements?” Using a unique dataset that combines survey data on firms' strategic orientations for 115 US-based firms with CSP data from MSCI-ESG, we empirically examine the impacts on CSP levels of four different firm strategic orientations: customer, competitor, interfunctional coordination, and shareholder. Our empirical analysis demonstrates that (1) firms with a stronger orientation toward customers have higher levels of CSP overall, and (2) when firms have a stronger customer orientation, we find that the firm has higher CSP levels in domains dedicated toward secondary stakeholders, while firms with a stronger shareholder orientation exhibit higher levels of CSP dedicated toward primary stakeholders.     

Developing the selection and valuation capabilities through learning: The case of corporate venture capital

The objective of this paper is to examine the impacts of experience intensity, experience diversity and acquisitive experience on the development of selection and valuation capabilities that help the parent (investor) company generate higher short-term financial returns and improve long-term strategic performance. Based on our analysis of 2110 cases of CVC investments in the VenureXpert data base, we find that industry diversity of a CVC program's experience is positively related to its selection of portfolio companies with relatively high financial potential. The CVC program's experience intensity, stage diversity of its experience, and syndication improve its selection of portfolio companies with greater strategic potential. In addition, stage diversity may enhance valuation capability. We also find that experience accumulation is more effective when a CVC program invests in a portfolio company in the later stage rather than in the early stage.     

Transfer of corporate governance practices into weak emerging market environments by foreign institutional investors

We advance the practice transfer theorising of corporate governance (CG) by developing a framework that uncovers how foreign institutional investors (FIIs) improve on CG practices of firms in weak institutional environments. Using hand-collected data for 85 listed Nigerian firms covering the 2011–2016 period, we show that FIIs bypass the weak regulatory environment in emerging markets by transferring good CG standards to host countries. Furthermore, FIIs’ ability to enhance the CG quality of firms in such environments is moderated by their home country’s legal system, with FIIs from countries with strong legal enforcement having an enhanced ability to improve CG practices of firms in weak institutional environments. However, cultural differences between the FIIs’ home and host countries negatively moderate this relationship. Our results are robust to the choice of estimation technique and various sources of endogeneity.     

Innovating across boundaries: A portfolio perspective on innovation partnerships of multinational corporations

This paper examines how and under what conditions alliance portfolio diversity influences a firm's innovative performance, with special attention being given to potential performance differences between multinational corporations (MNCs) and domestic firms. Analyses of data from 1045 German firms, among which 598 MNCs, revealed an inverted U-shaped relationship between alliance portfolio diversity and MNCs’ innovative performance. Findings also indicate MNCs to be better positioned than their domestic counterparts with regards to translating alliance portfolio diversity into superior innovative performance. Importantly though, this only holds for MNCs equipped with strong internal R&D capabilities and, to some extent, high human capital.     

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.     

How strategic orientations influence the building of dynamic capability in emerging economies

Under the fierce pressures of the fast changing environments that characterize emerging economies, firms must develop dynamic capabilities to survive the competition. This study examines how strategic orientation helps build dynamic capability and its contingencies in China's emerging economy. A survey of 380 firms indicates strategic orientations are important drivers of adaptive capability, a key element of dynamic capabilities. The effectiveness of strategic orientations is contingent on market dynamics. In particular, when market demand becomes increasingly uncertain, customer orientation has a weaker impact, whereas technology orientation has a stronger effect on adaptive capability. As competition intensifies, both competitor and technology orientations build adaptive capability more effectively.     

Managing the foreign investment portfolio: How industry and governance diversity influence firm performance

Foreign investment has been seen as an important strategy for learning about new technologies and markets. However, the link between the characteristic of a foreign investment portfolio and firm performance has not been examined in detail. Using panel data from 199 Taiwanese firms, this study examines how the foreign investment portfolio in terms of industry and governance diversity influences firm performance. This study finds that governance diversity has an inverse U-shaped relationship to firm performance, whereas industry diversity does not. In addition, this study also finds that their relationships are affected by R&D capability and industry profitability. The empirical findings of our study are useful for firms that invest in emerging economies.