Partnering with Leviathan: The politics of innovation in foreign-host-state joint ventures

Abstract

Forming international joint ventures (IJVs) with political institutions in emerging economies involves both benefits and risks for multinational enterprises (MNEs). While political partners can provide IJVs with various resources, their political status equips them with a strong position to appropriate rents in IJVs. We address this tension by examining how host state ownership affects both innovation inputs and outputs in China-based IJVs over 2008–2013. Despite the potential government opportunism, we find more R&D investment (innovation inputs) made in IJVs with state partners than in those with private ones. Thus, R&D investment can be politically motivated and symbolically managed to ensure continued resource exchanges with the host state. This political pressure is mitigated when foreign parents directly transfer home-country-based technology to IJVs, when the host-market dependence of IJV is weak, and when IJVs are located in a deregulated region. Moreover, we find foreign-host-state JVs deliver fewer innovation outputs (measured by patent data) than foreign-private JVs, which implies the failure of state partners to adequately absorb foreign technologies. These findings highlight both the state partners’ powerfulness to boost IJV innovation investment and their limits in shaping IJV innovation outcomes, and bear rich implications for the management of MNE–host government relationships.