Foreign direct investment and the SME sector

Abstract

Structured Abstract: PurposeAlthough foreign direct investment (FDI) and entrepreneurship are potential routes to recovery (Girma and Wakelin, 2001; Lyon et al., 2002), existing literature is divided on the relationship between the two. This study examines the influence of foreign investment on the local SME sector after the 2008 financial crisis. Design/methodology/approachLocal authority district data from Great Britain is used to examine the influence of foreign firm employment on the size of the local SME sector as a proportion of all firms, and foreign firm influence on firm births in the locality. In order to control for local geographical, infrastructural, and economic conditions regression analysis is used to examine the relationship between foreign business employment and indigenous business activities. FindingsThe potential for technological spillovers and spinout activities appears to dominate with firm birth rates higher where there is greater foreign firm employment. However, there is also evidence of crowding out in relation to the existing SME sector, which is found to be reduced in size where foreign influence through employment is greater. Research ImplicationsThe results here indicating a complementarity relationship between foreign influence on employment and firm births is important for policy makers looking to revive struggling local economies. However, the relevant support needs to be in place to maximise the benefit from the supply of new entrepreneurs generated. Originality/valueUnlike many other studies the relationship between the SME sector, firm births and foreign influence is considered at a local level and where economic conditions are more uncertain and economic recovery is less taken for granted. A better understanding of the relationship allows more appropriate policy to be developed in order to aid local economies to recover.

The impact of foreign influence on exporting through open innovation

“…Instead, a wide range of different measures have been used including, the number of projects (Dimitropoulou, McCann, & Burke, ), and the proportion of employment in foreign firms (Thompson & Zang, , , ). Here the focus is on the opportunity to cooperate with foreign firms in order to innovate.…”

“…Although there are potential benefits from greater foreign influence in the local economy through technology and management spillovers (Fu, ) and increased demand for domestic production (Markusen & Venables, ), there are also potential negatives through competition in either the output or input markets (Girma, Greenaway, & Wakelin, ; Martins, ) and by attracting the most entrepreneurial individuals away from business ownership into corporate employment (Grossman, ). It is therefore understandable that empirical studies examining the relationship between foreign influence and entrepreneurship find a range of results (Ke, ; Liu, ; Thompson & Zang, , ).…”

Cognitive financial constraints and firm growth

“…We also control for cumulative state-owned enterprises (SOE) and foreign direct investment (FDI) capital, which represent the level of competitiveness of the local market. The literature has shown that the presence of foreign or state-owned enterprises could pose a severe threat to the performance of private small businesses (Thompson & Wenyu, 2015).…”

How Different Ownership Structures Perform in Industry 4.0: A Case of Malaysian Manufacturing SMEs

“…Firm performance has been defined as; how a firm uses its resources to sustain in the marketplace (Thompson & Zang, 2015), achievement of growth and strategic goals (Hult, Hurley, & Knight, 2004). Firm performance can be further defined as the relationship between the actions taken together with competitive forces, which allow the firm to use the internal resources to adjust to the external environment, incorporating the ideas of effectiveness and efficiency.…”