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.