Rapid FDI of Emerging Market Firms The Role of Foreign Participation

Abstract

Most literature on rapid internationalization focuses on exporting firms and leaves other parts of internationalization process such as foreign direct investment (FDI) unexplained. In this paper, we explore the determinants of rapid FDI, namely why certain firms are able to have high degree of market penetration and large market commitment even in the early stage of FDI. Based on the relational perspective, relationships with foreign multinational corporations (MNCs) in particular, we argue that interactions with foreign MNCs at home helps a local firm to leapfrog certain stages in the establishment chain. Our hypotheses are tested using 1612 first-time outward FDI projects from China between the years 2000 and 2014. The largely supported results suggest that foreign participation in an emerging market context accelerates the internationalization process of local firms. Our findings should offer alternative explanations for the puzzle of emerging market firms’ rapid internationalization and the possible sources of emerging market multinational corporations’ firm-specific advantages.