Abstract
Recent studies highlighted the need for multi-perspective research on the internationalization and performance of emerging market multinational enterprises (EM-MNEs) and revealed why many EM-MNEs perform negatively when they respond to the host-country environment. Using a sample of listed Chinese manufacturing firms from 2003 to 2014, this study examines the relationship between entry mode choice, which is driven by different environmental response patterns, and firms’ innovation performance. We further analyze the moderating role of market selection on the relationship between host-country institutional factors and firms’ innovation performance. The results show that the international breadth of firms and the economic stability and investment protection of the host country significantly promote firms’ innovation performance. While the entry mode is unilaterally driven by the host-country response, early international experience and the international depth of firms have significant negative effects on firms’ innovation performance. The level of economic development in the invested area plays a moderating role in the relationship between the host-country institutional factors and firms’ innovation performance. Our findings enrich the literature on the relationship between internationalization and EM-MNE performance, and provide inspiring and straightforward empirical evidence.
Highlights
With the rapid development of emerging market multinational enterprises (EM-MNEs) outward foreign direct investment (OFDI), the Chinese manufacturing industry shifted from the internal internationalization stage, which features the introduction of technology, to the external internationalization stage driven by OFDI
Previous research on the transaction cost (TC) entry mode provides some support for this situation; for example, Brouthers et al [4] found that firms using entry modes predicted by TC theory performed statistically significantly better than firms using other “misaligned” modes
We found that research and development (R&D) input is positively related (p < 0.01) to innovation performance in all four models, meaning that the R&D input of firms that Chinese manufacturers invest in has positive effects on technological innovation and intellectual property
Summary
With the rapid development of emerging market multinational enterprises (EM-MNEs) outward foreign direct investment (OFDI), the Chinese manufacturing industry shifted from the internal internationalization stage, which features the introduction of technology, to the external internationalization stage driven by OFDI. This is a critical stage of “external” transformation and involves an upgrading strategy. In the first year of the 13th five-year plan, OFDI exceeded $170 billion, which is an increase of 44.1% from the year before, and the OFDI of the manufacturing industry is up to 18.3% This change shows that, in the absence of a gradual accumulation of internationalization through “commodity exportation, sales subsidiary, investment and setting up factory”, many manufacturing firms carry out a large amount of OFDI due to the urgent need for internationalization and the encouragement of local governments. The average transnational index of 14.85% is far lower than the average transnational index of 64.55% for the world’s top 100 MNEs, and far lower than the average transnational index of 54.22% for the top 100 MNEs of developing countries
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