Unpacking the Relationship between Outward Direct Investment and Innovation Performance: Evidence from Chinese firms

Abstract

This study investigates the impact of outward direct investment (ODI) by Chinese MNEs on innovation performance and the conditions under which such an impact is moderated, based on a sample of Chinese firms. The empirical evidence suggests that undertaking ODI leads to an increase in the innovation performance of these Chinese firms.The impact of ODI on innovation is contingent on firm characteristics such as in-house R&D, strategic orientation and international experiences as well as contextual factors associated with investment destinations and industry contexts. We also find that learning through ODI is a complex process. There is a substitution between ODI and in-house R&D in Chinese MNEs.Our findings suggest that conducting ODI in developed countries serves as an effective channel for latecomer firms to overcome internal resource constraints and leapfrog towards the technology frontier.

A comparative analysis of location and non-location-bounded strategic asset seeking in emerging and developed market MNEs: An application of new internalization theory

“…Anderson et al (2015), for example, consider the impact of foreign acquisitions on patenting activity in Chinese MNE parent firms, finding positive outcomes for them (Anderson et al, 2015). Similarly Fu et al (2018), find positive impacts of Chinese FDI in developed countries on domestic innovation outputs (using survey data from MNEs in Guangdong province in 2010). They conclude that FDI 'serves as an effective channel for latecomer firms to overcome internal resource constraints and leapfrog toward the technology frontier' (Fu, Hou, & Liu, 2018, p. 111).…”

Forty Years Development of China's Outward Foreign Direct Investment: Retrospect and the Challenges Ahead

“…There are pre-conditions for positive reverse knowledge spillovers. OFDI in developed countries helps Chinese firms leapfrog to the technology frontier, but this effect is contingent on host country features and firm characteristics, such as in-house R&D, strategic orientation and international experience (Fu et al, 2018). Parent firms' absorptive capacity, a firm's ability to recognize and acquire global assets and make further innovations, is essential for positive reverse knowledge spillovers (Cohen and Levinthal, 1990;Huang and Zhang, 2017).…”

A global perspective of entrepreneurship and innovation in China

“…A Chinese immigration system similar to that of the US may be established in the coming years. Third, as latecomers to many markets, the newly minted Chinese MNEs aggressively seek to leapfrog the technology innovation frontier by spending heavily in R&D and by actively investing in advanced economies to acquire key strategic assets, resources and leading-edge technologies (Clegg et al, 2016;Fu et al, 2018;Li et al, 2016;Li et al, 2017;Peng et al, 2016). Guided by the "Go Out Policy" (走出去), China's outbound foreign direct investment exceeded inbound foreign direct investment for the first time in 2014.…”