Domestic Firm Innovation and Networking with Foreign Firms in China's ICT Industry

Abstract

This study systematically analyzes the impacts of supplier-client and technological linkages with foreign firms on domestic firm technological innovation, based on a unique dataset that was collected through a survey of over 600 firms in China's information and communication technology industry. The results revealed that Chinese firms were engaged in extensive supplier-client relationships with foreign firms, although their technological collaborations with foreign firms were very limited. It was found that firm innovation benefited significantly from technological relationships with foreign firms. However, the results also suggest that, although export/import did contribute to domestic firm innovation, supplier-client relationships with foreign-invested enterprises in China did not show positive effects on domestic firm innovation. The analyses further suggest that such market transactions between domestic and foreign firms helped building technological linkages between domestic firms and foreign firms. These results clearly demonstrate the value of networking in enhancing firm innovation in developing countries.

The embeddedness of transnational corporations in Chinese cities: Strategic coupling in global production networks?

“…First, firm size was captured by the number of employees (EMP). Large firms tend to have more flexibility in handling the Chinese and international markets and, therefore, their local embeddedness changes and varies greatly from firm to firm (Sun & Du, 2011;Teresa & Young, 2006). Second, the duration from establishment to 2006 was used to measure the age of firm (AGE).…”

“…In general, there is a trend of increasing local embeddedness over time, including increasingly using local personnel for top management positions (Iguchi, 2008;Williams, 2005;Williams et al, 2008). Third, firms with more R&D capacities in China tend to have more resources and incentives to develop local technological linkages (Sun & Du, 2011). The technology capacity of TNCs was measured by the share of R&D expenditure in total budget (RDExp_P).…”

“…We focus on TNCs' backward and technological linkages with local firms, which are central issues in the literature on embeddedness and are key components in the process of coupling with TNCs in the GPN (Dunning, 1993;Sun & Du, 2011;Williams et al, 2008). We hypothesize that the backward and technological linkages between TNCs and local firms are not automatic.…”

“…Reduction of cost is important due to the profit maximization of TNCs (Perkmann, 2006). TNCs will also localize and deepen embeddedness when they penetrate domestic markets and develop client linkages with domestic firms (Sun & Du, 2011). TNCs' local embeddedness is also conditioned by their comparative advantages and R&D strategies.…”

Globalization, Innovation, and Regional Development in China

“…The paper by Sun and Du (2011) analyzes the survey data on information and communication technology (ICT) companies in China's leading high-tech clusters, and investigates the relationships between foreign investment and technological changes. This set of survey data had been used in analyzing regional differentiation of the ICT industrial complex among Beijing, Shanghai^Suzhou, and ShenzhenDongguan , and in Wei et al's (2011) study on regional embeddedness of foreign firms in these three large city-regions.…”