International Expansion and Firm Innovation: Evidence from Emerging- Market Firms

Abstract

As latecomers, firms in emerging markets are lack of strategic asset and home country advantage to gain global competitiveness. In this paper, we argue that outward foreign direct investment (OFDI) is an effective way to acquire strategic asset. Specifically, we focus on the impact of strategic-asset-seeking (SAS) OFDI on firm innovation performance. Moreover, we explore the boundary conditions under which home country institutional factor (home-country intellectual property rights (IPR) protection) and host country institutional factor (host- country IPR protection) moderate this relation. Using a sample of Chinese listed firms’ SAS OFDIs between 2013 and 2017, we find that SAS OFDI indeed enhances firm innovation performance. We further show that the moderating effects of IPR protection at different level can vary greatly. Home provincial IPR protection enhances the positive relationship between OFDI and innovation performance, whereas host- country IPR alleviates the relationship. This paper has important implications for emerging markets firms on how to use OFDI to catch up with global competitiors.