R&D Intensity, Domestic Institutional Environment, and SMEs’ OFDI in Emerging Markets

Abstract

Outward foreign direct investment (OFDI) of small and medium-sized enterprises (SMEs) from emerging economies has emerged as a significant phenomenon in global markets. However, extant research has not paid sufficient attention to this trend. Particularly, there is a lack of understanding of how SMEs’ internal resources may interact with their domestic institutional environment in driving OFDI. Drawing on the resource-based view and the institutional theory, this study fills this gap and examines how research and development (R&D) intensity influences OFDI frequency of SMEs from China, one of the largest emerging economies, and the moderating effects of coercive pressure, normative support, and mimetic force from SMEs’ domestic, regional institutional environment. Using a sample of 2620 Chinese SMEs publicly-listed on the Chinese Growth Enterprise Market during 2010–2017, we find that R&D intensity can be viewed as a key strategic resource that drives Chinese SMEs’ OFDI frequency and that three factors in their regional institutional environment (regional marketization, ties to industry associations, and peer OFDI frequency in the region) strengthen the relationship between R&D intensity and SMEs’ OFDI. This study contributes to the literature on SMEs’ OFDI by demonstrating the importance of combining the resource-based view and institutional theory to examine the roles played by both SMEs’ internal resources and their domestic institutional environment in driving their OFDI activities in emerging economies.