Home Competition Escapism View of Emerging Market Multinationals

Abstract

Literature on emerging market firms’ strategic asset seeking FDI emphasizes on home country government support. In this research, we argue that emerging market firm strategic asset seeking outward FDI could be an escapism response to the foreign competition at home. By integrating both the spillover and competition mechanisms of foreign entrants, we develop an inward FDI – performance – outward FDI framework to test the effect of inward FDI from different industries and entry modes. Employing data on 1423 Chinese outward FDI projects and inward FDI statistics from 29 Chinese provinces between 2000 and 2010, we find that inward FDI in the same industry of the emerging market firm is more likely to have a negative competition effect on the emerging market firm’s financial performance, pushing the emerging market firm to seek knowledge abroad; nevertheless, inward FDI in knowledge-intensive industry and using international joint venture entry mode tends to introduce a positive spillover effect on the local firms’ financial performance but demotivates subsequent strategic asset seeking outward FDI.