Strategic-Asset-Seeking Foreign Direct Investment by Chinese Firms

Abstract

We examine the relationship between business group affiliation of Chinese firms and their foreign acquisitive behaviour in terms of technology and brand-oriented strategic assets. Drawing on new internalization theory and the business group literature, we assert that Chinese business group affiliated firms will more likely pursue foreign acquisitions to seek patents but less likely to pursue foreign acquisitions to seek trademarks. Patents have non-location-bounded (NLB) properties which mean they can be exploited by the business group – not just the firm - back in the domestic market, while trademarks have location bounded (LB) properties which mean they are less easy to exploit by a business group domestically. Using a sample of 779 Chinese cross-border acquisitions between 2006 and 2015, we find support for our hypothesis relating to patents but not for trademarks. Additional tests identify the importance of private-ownership and the presence of an R&D centre within the business group as determinants of member firms’ patent- and trademark seeking through foreign acquisition. The findings reveal the importance of a key home country effect – business group affiliation – on how firms in emerging economies seek strategic assets abroad as part of their drive to overcome latecomer disadvantages and technological backwardness.