Relational Embeddedness in Home Country Networks and Multinational Dynamic Capabilities: Evidence from Chinese Firms

Abstract

Multinational dynamic capabilities（MDC）have been proved to be rather important in the process of internationalization for multinational corporates（MNCs）, reflecting the capability to effectively acquire, deploy and upgrade existing resources when faced with turbulent global market environment, which are often characterized by fierce competition. Multinational dynamic capabilities are influenced by embedded social networks to a large extent. Prior literature on this field has mainly focused on the impact of host country networks on firms’ multinational dynamic capabilities, while the role of home country networks has been largely neglected. Operating in a country characterized as an important inward investing country as well as an outward investing country, Chinese firms have been embedded in two significantly different networks, comprised of foreign firms investing in China and domestic firms growing locally. Through embedding themselves in the foreign-firm network, firms can obtain advanced multinational management expertise and technology, so as to conduct their internationalization more effectively; furthermore, through embedding themselves in domestic-firm network, firms can often exert an effect on the extent of foreign-firm embeddedness. This paper introduces the dual-network effect of foreign and domestic firms, trying to explore how the relational embeddedness in two home country networks（domestic and foreign firms）affect MNCs’ multinational dynamic capabilities. Based on the data collected from questionnaires distributed to 204 Chinese MNCs, this paper empirically indicates that embeddedness in foreign firms exerts positive effects on the three dimensions of MNCs’ multinational dynamic capabilities. Additionally, the effect of foreign firms’ relational embeddedness exerting on multinational dynamic capabilities is positively moderated by domestic firms’ embeddedness. Theoretically, it introduces the concept of multinational dynamic capabilities, reveals the functioning mechanism of home country networks on multinational dynamic capabilities, and sheds light on the research concerning dynamic capability by exploring its antecedents from a perspective of home country networks. Practically, it provides theoretical implications and solutions to international operation in terms of social networks for the management of MNCs originated from emerging economies, implying the importance of building favorable relationships with both foreign and domestic firms in home country market.