Chinese MNEs' Outward FDI and Home Country Productivity: The Moderating Effect of Technology Gap

Abstract

Plain language summary Today, more than ever, Chinese multinational enterprises (MNEs) are investing abroad in search of advanced technology and managerial knowledge. Our study aims to understand whether Chinese MNEs' overseas investments benefit their home productivity. Focusing on provinces as the unit of analysis, we capture both direct and indirect effects of overseas investment on the parent company and other related actors. We find that such benefits occur only when local firms have the capability to learn from their MNE neighbors. When the technology gap between a home province and MNEs' host countries is too large, local firms and the economy cannot capture the benefits of reverse knowledge spillover. The identification of many Chinese provinces still not capturing the benefits offers broad implications for both local managers and policy makers. Technical summary This article adds to the literature investigating how emerging economy MNEs' outward foreign direct investment (OFDI) affects domestic productivity and the moderating role of technology gap on reverse spillovers. Considering provinces as the unit of analysis, our research captures both direct and indirect effects of Chinese MNEs' OFDI on the parent company and other related actors and finds that the effects of Chinese MNEs' OFDI on a province's productivity are contingent upon the level of technology gap between that location and host countries. Our estimation reveals a double‐threshold model that groups Chinese provinces into three categories based on their technology gap relative to the host countries. Most provinces are within the middle‐level and low‐level categories, indicating the potential for significant effects of Chinese MNEs' OFDI on domestic productivities. Copyright © 2016 Strategic Management Society.

Firm-specific advantages: a comprehensive review with a focus on emerging markets

“…This is contrary to previous research claiming that EM MNEs lack "real" FSAs due to challenges in their home country (Madhok & Keyhani, 2012). In fact, our review reveals that EM MNEs internationalize to exploit the comparative advantages of their home country-, such as natural resources, access to cheap labor, and capital (Li, Li, Lyles, & Liu, 2016b). In China, for instance, where most of the MNEs are partly or wholly state-owned, such firms may have access to low-cost capital and labor, and thus Chinese firms may internationalize to exploit such cost-based advantages (Wang, Hong, Kafouros, & Boateng, 2012a).…”

Impacts of Voice and Accountability upon Innovation in Pakistan: Evidence from ARDL and Maki Cointegration Approaches

“…Such projects and investments may include operations related to technology firms and businesses, which can influence the overall innovation rate in the country. Likewise, abundant savings allow China to make outward FDI and enhance its innovation capability [92].…”

The Effects of Reverse Knowledge Spillover on China’s Sustainable Development: Sustainable Development Indicators Based on Institutional Quality

“…Potterie and Lichtenberg [14] proposed that OFDI serves as a channel for international KS. This phenomenon is often referred to as RKS by scholars, indicating knowledge flow from the investment host country back to the investment home country [19,[48][49][50]. Generally, emerging economies as the home country invest in developed economies, and the advanced knowledge of developed economies then spill back into emerging economies.…”

“…In this regard, the heterogeneity of the host country is also considered a reason for the different effects of OFDI-induced RKS [13,15,48,50,67]. That is mainly because the first phase of RKS-acquiring and absorbing unique knowledge assets-occurs in the host country, and the knowledge and technology that can be learned from the host country are more or less influenced by the local R&D situation [68].…”