Do MNEs Benefit More from Foreign or Local Competition for their Emerging Market Innovation?

Abstract

How do the innovation-related benefits of competition vary across foreign and local competition? Inspired by a blend of perspectives and arguments from the competition, innovation and strategic change literature, we explore which type of competition benefits advanced economy MNEs (AEMNEs) emerging market (EM) innovation performance most, when and in what pace and rhythm. We predict that local competition contributes more to AEMNEs EM innovation performance and this positive effect is strengthened by increased competition from foreign peers and at a faster pace. We also expect that competition irregularity reinforces the innovation performance-enhancing effect of local competition but diminishes that of foreign competition. We test these predictions using a sample of AEMNEs operating in the Chinese high-tech industries. Results from our multi-level analysis provide strong support for our arguments. Our findings have important implications for research on AEMNE EM innovation performance variations resulting from the heterogeneity in the sources of competitive forces and their temporal structure.