Local Firms Research Articles

Horizontal FDI and Internal R&D of Local Firms in Emerging Economies: A Coopetition Perspective

Abstract This study advances a coopetition perspective to argue that an intangibility gap, defined as the difference in intangible asset intensity between industry-frontier foreign firms and local firms, generates both competitive threats and cooperative opportunities for local firms. Thus, an intangibility gap may affect local firms’ internal research and development (R&D) efforts beyond a linear, catching-up way of thinking. Using a sample of manufacturing firms in China, we find that intangibility gap has an inverted U-shaped relationship with the internal R&D intensity of local firms such that a moderate intangibility gap is more likely to stimulate local firms’ R&D than a small or large intangibility gap. Moreover, the results show that export intensity and state ownership of local firms serve as two boundary conditions under which the inverted U-shaped relationship becomes less and more pronounced, respectively.

Towards the co-evolution of multinationals' and local firms' global strategies in an uncertain environment: Insights from International Joint Ventures

Multinational firms invest in countries characterized by heterogeneous markets and develop different activities to face uncertainty in those markets. This uncertainty can be caused by economic, political, or institutional conditions. Research in international business analyzed multinationals' (MNCs) global strategies and local firms' behaviors in isolation. This study fills a gap in the literature by addressing the co-evolution between MNCs' and local firms' global strategies through the creation of International Joint Ventures (IJVs). This study investigates how, in an uncertain context, strategic orientation and flexibility contribute to the co-evolution of global strategies between multinational and local firms. Based on a qualitative approach, five IJVs between MNCs and Tunisian small and medium-sized enterprises operating in the agri-food sector are studied. Based on 46 semi-structured interviews with the main actors of the IJVs, the results revealed that the strategic co-evolution between MNCs and local firms leads to superior adaptation to an uncertain environment combining proactive flexibility and a dual strategic market-entrepreneurial orientation. Our research provides new insights about the various drivers of co-evolution between MNCs and local firms and their abilities to address the uncertainty of the environment.

Location of Firms and Outsourcing

We analyze the location of final goods producers under spatial competition with strategic input price determination by firm-specific input suppliers when the final goods producers undertake complete outsourcing or bi-sourcing. Under complete outsourcing, the final goods producers locate closer as the distance between the input suppliers decreases, but the distance between the final goods producers may increase or decrease with the transportation costs of the consumers and the transportation costs between the input suppliers and the final goods producers depending on the distance between the input suppliers. The possibility of bi-sourcing reduces the benefit from saving the transportation costs between the input suppliers and the final goods producers, and creates effects which are opposite to those under complete outsourcing. Thus, our results differ significantly from the extant literature considering either no strategic input price determination or strategic input price determination under competition in the input market. We also discuss the implications on the profits, consumer surplus and welfare, and the implications of endogenous location choice of the input suppliers.

Predictive maintenance of industrial equipment using machine learning in industrial environment of Awka Metropolis, Nigeria

Failures of industrial equipment may lead to substantial operational interruptions and financial losses for enterprises. A viable solution to reduce such issues includes the deployment of machine learning-driven predictive maintenance. This study dives into the implementation of predictive maintenance in the particular industrial environment of Awka Metropolis, Nigeria. This research involves the design of a comprehensive approach, involving the collecting and preparation of data, along with the application of machine learning models. The core of our predictive maintenance approach resides in past equipment performance data, combined with sensor-generated data. Various machine learning methods, including decision trees, random forests, and recurrent neural networks, are used to anticipate future equipment faults. The study findings illustrate the usefulness of the predictive maintenance model in properly identifying approaching equipment problems, even under the specific circumstances of Awka Metropolis. Evaluation criteria such as precision, recall, and accuracy support the robustness of the model, underlining its trustworthiness. The paper also tackles the practical obstacles found during implementation, giving insights into their resolution, especially within parallel industrial situations. The findings underline the potential for cost reductions and heightened operational efficiency within regional industries by implementing proactive maintenance practices. Furthermore, the report suggests avenues for future inquiry and underlines the applicability of the model to varied businesses and geographical areas. The successful implementation of predictive maintenance in Awka Metropolis provides local firms a chance to boost equipment reliability while lowering downtime, so making major contributions to economic development and sustainability. As companies progressively embrace digital transformation, this study serves as a significant resource for practitioners and scholars alike, seeking to improve equipment maintenance in rising markets.

Multinational enterprises and local firms’ export market entry: A panel data analysis of Vietnam's food processing industry

AbstractThis study develops new insights into the spillover effects of foreign multinational enterprises (MNEs) on local firms’ export market entry, using the case of Vietnam—a notable global manufacturing hub located in Southeast Asia. The empirical analysis is based on a disaggregated firm‐level panel dataset of 25,032 observations of Vietnamese food processing firms during the period 2011–2016. The food processing industry is an essential part of the country's thriving manufacturing sector, with enormous potential for exports. The random‐effects Probit estimation results suggest that the presence of foreign MNEs significantly raises the likelihood that private local firms become exporters and thereby start integrating into global value chains. Further regressions reveal that foreign presence is also linked to higher export intensity among domestic firms, and that the magnitude of the estimated spillover effects is conditional on the specific measures of foreign MNE presence, the ownership structure in local industry, and the size of local firms. The findings highlight the considerable potential for foreign MNEs to influence local firms’ export prospects and validate the policy efforts to attract foreign direct investment inflows to the examined industry.

Effect of Changes in Economic Variables on the Performance of Manufacturing Firms in Nigeria

The study examines the effect of changes in economic variables on the performance of manufacturing firms in Nigeria with two research objectives that were used to formulate the two hypotheses used. The study used data gathered from selected manufacturing firms and from the Central Bank of Nigeria statistical bulletins from 2004 to 2022. The variables used as proxy variables to measure changes in the economy are the average consumer price index and average exchange rate and the proxy variable for performance was earnings per share (EPS). Based on the results obtained, it was discovered that a significant relationship exists between the average consumer price index and earnings per share, but the average exchange rate showed no significant relationship between the independent variable and dependent variable. Based on the findings, it was concluded that the relationship between the average consumer price index and EPS occurs as a result of price adjustment by manufacturers to cushion the effect of price increases in the cost of production, thereby increasing their profit margins. The insignificant effect of the average exchange rate on EPS is in line with the economic reality of Nigeria, but manufacturers shift the burden of the exchange rate to the end users in the form of price adjustment. It was recommended that for Nigeria's economy to experience the desired level of prosperity, the government must be deliberate in its decision by ensuring that local firms are encouraged by patronizing their products to reduce the level of import-dependent on foreign products.

Does local government debt affect corporate social responsibility? Evidence from China

We examine the influence of local government debt on local firms' corporate social responsibility (CSR). Using a sample of Chinese public companies, we find that local government debt is negatively associated with local firms' CSR performance, indicating that government debt financing behaviour dampens firms' CSR engagement. Furthermore, the adverse influence of local government debt on CSR is particularly evident for non-state-owned enterprises and low-leverage firms. This article makes a contribution to CSR research by furnishing empirical evidence about the nexus between government debt and firms' CSR performance. Our study indicates that a company conditions social responsibility decisions on the availability of external financing resources, and local governments should be aware that excessive government debt generates an adverse impact on firms’ CSR fulfillment. This study is the first to explore the link between government debt and CSR, and the results help enrich our understanding of the determinants of CSR and the consequences of local government debt.

Interorganizational triads for foreign-market entry: Partnerships among Western, bridge-economy, and local VCs in Mainland China

This study introduces the novel construct of bridge-economy partners, which can assist Western firms in learning how to collaborate with local partners when entering unfamiliar foreign countries that have substantially different socioeconomic characteristics. We offer initial empirical evidence regarding the relevance of establishing such interorganizational partnership triads among Western, bridge-economy, and local firms for the entries of Western venture capital firms (VCs) into Mainland China between 1997 and 2008. Venture age, regional legal maturity, and the Western VCs' accumulated local experience are identified as relevant contingency factors for the likelihood of adopting this type of collaboration, which involves partners from three different types of economies. We supplement our quantitative analyses with anecdotal qualitative evidence from interviews with VC executives and fund managers. Executive summaryThis study introduces the novel construct of bridge-economy partners and outlines their potentially beneficial roles in the context of foreign-market entry undertaken by Western firms. The established literature suggests that Western firms consider collaboration with a local firm as an accelerator for learning about and adapting to local conditions. However, the substantial socioeconomic differences that may exist between home and host country can create paramount challenges for collaborations between Western firms and their local partners. Adding a third type of partner from a country with substantial socioeconomic overlap to both firms' home countries can help “bridge the socioeconomic gap” between Western and local firms. The bridge-economy partners can assist Western firms in learning how to collaborate with their new local partners.This study offers initial empirical evidence for the relevance of such interorganizational partnership triads between Western, bridge-economy, and local firms by using the data of Western VC firms and their entries into Mainland China between 1997 and 2008. Venture age, regional legal maturity, and accumulated local experience of Western VCs are identified as relevant contingency factors for the likelihood of adopting this type of triadic interorganizational partnership. Quantitative hypothesis tests are supplemented with anecdotal qualitative evidence.Reported findings extend the emerging entrepreneurship literature that focuses on foreign-market entry and globalization. Our focus on triadic partnerships and the role of bridge-economy firms extends the previous research that has instead nearly exclusively focused on dyadic collaborations between Western firms and local partners. A triadic Western, bride-economy, and local firms (WBL) partnership offers an alternative strategy to use when entering foreign markets that have substantially different cultural, economic, and institutional characteristics. Our findings further highlight that even though such triadic WBL partnerships make intuitive sense, successfully implementing such complex collaborations requires minimum levels of accumulated host-country experiences and can benefit from mature legal environments. For policymakers in emerging economies that are interested in supporting foreign investment, the creation of legal environments conducive to forming such triadic WBL collaborations introduces a promising policy option. Beyond these initial key insights, this study also provides guidance for systematic future research into this promising type of collaboration for foreign market entry.

Social capital and dividend policies in US corporations

We find that social capital, as captured by associational networks and social norms in US counties where corporate headquarters are located, is positively associated with cash dividend payouts in local firms. The positive effect is incremental to other known local factors affecting dividends, is robust to a range of sensitivity analyses, and extends to corporate decisions about whether to pay dividends or not. Social capital mitigates managerial private financial incentives to limit dividends and encourages higher dividends among firms facing greater free cash flow problems. Social capital also attenuates over-investment of free cash flow.

State ownership and financial statement comparability

AbstractThis paper investigates how state ownership affects financial reporting practices in China. Using several measures of state (government) ownership, we show that a one‐standard‐deviation increase in state ownership decreases financial statement comparability by 36.61%, and the impact is more pronounced when the central authority has majority control of the company. Moreover, lower earnings quality and lower levels of accounting conservatism among state‐owned enterprises (SOEs) may explain the lower accounting comparability between SOEs and non‐SOEs (NSOEs). Additionally, similar (different) managerial objectives converge (diverge) financial statement comparability between SOEs and NSOEs. Last, the geographical locations of firms also contribute to financial statement comparability. We employ a difference‐in‐differences design, changes regression and entropy balancing to mitigate potential endogeneity bias.

Land consolidation as one of the innovation policy instrument for small LGs: The case of Estonian agricultural farms

Local governments (LGs) that are small and located in peripheral locations have several challenges to introduce policies for increasing local firms’ innovation activity compared to LGs located near agglomerations. This article reveals that one of the comparative advantages of small LGs is agricultural land. System failures are hindering the necessary innovativeness of farms and interventions at the local level. This article focuses on land consolidation as one possible intervention. Panel data consisting of 392 Estonian farms covering the years 2014 to 2019 were used to study the relationship between the farm structure measured by the area-weighted mean size of the parcels and the probability of implementing innovation activity. The result of the logit model with fixed effects shows that the structure of the farm and the probability to invest in buildings, machinery, equipment, and inventory are positively related. Small LGs can use this intervention for various aims and must consider environmental goals, country-specific planning systems, legislation, and farm owners’ willingness to participate in land consolidation.

Skills Analysis of Employes by Using LinkedIn Profiles of Global and Türkiye Audit Firms

Purpose –The study aims to reveal the current status of the skills of those working in audit firms in today's changing business world. In addition, the aim of the study is to reveal the differences between Global audit firms and local audit firms in Türkiye.Design/methodology/approach –In this study, descriptive analysis method were used to reveal the existing situation. It is aimed to reach the top 20 audit firms with the highest turnover in the world and 364 audit firms registered with the Public Oversight Agency in Türkiye as of January 2022. LinkedIn corporate pages of 19 of the top 20 audit firms with the highest turnover in the world and 58 of 364 audit firms in Turkey have been reached.Findings –It has been revealed that the soft skills of employees in Big4 firms are an important complement to their technical skills. This situation is more limited in local audit firms. While Data Analytics (DA) skills are also observed in employees of Big4 firms,no one stated skills with the word “data analytics” in local audit firms. It has been determined that Python, R, SQL, Power BI and Tableau tools are used as DA skills. Engineering education stands out for those who indicate Python, R, and SQLskills.Discussion –The study's empirical evidence shows that Big4 firms need DA skills more and more as they move from the accounting and auditing fields to consulting, technology, and digital services. It shows the lack of both soft and DA skills in local audit firms. This study develops empirical knowledge of what employee skills are and should be for global and local audit firms

Gender, firm performance, and FDI supply–purchase spillovers in emerging markets

The paper measures the gender premium (or penalty) in productivity and innovation of firms in 32 emerging economies. We estimate whether the gender status of firms’ ownership in FDI recipient countries matters for the size of knowledge spillovers from linkages between local firms and Multinational Enterprises (MNEs). Furthermore, we explore whether the gender ownership structure of Multinational Enterprises (MNEs) is also vital for spillovers between MNEs and local firms. Our results show that female-owned firms (both local and MNEs) are on average less productive and innovative. Although domestic firms benefit from supplying inputs to MNEs in terms of Total Factor Productivity (TFP) and innovation, a gender handicap cancels out these gains potentially. Female gendered MNEs also impose a similar penalty on knowledge spillovers. As a policy implication, the paper highlights the importance of mitigating gender discrimination for improving productivity and absorptive capacity of local firms in the emerging world.

The effect of banking deregulation on R&D investment: Evidence from the cross-regional operation of city banks

Improving firms’ innovation capability is crucial for promoting growth. In 2006 and 2009, China deregulated the banking industry and allowed city banks to set up branches across regions, which changed the banking structure and competition. Using data from financial licence information and 1,012,321 manufacturing firms in China during the 2004–2010 period, this study investigates the effects of banking deregulation on research and development (R&D) investment and provides a reference for firm innovation. The results show that city bank entry increases R&D investment by 0.084% and R&D investment increases by 0.037 percentage points with a 1% increase in cross-regional branches of city banks. The robustness and endogeneity tests confirm these findings. Mechanism tests reveal that city banks’ deregulation encourages firms to participate in R&D activities and improve R&D investment by reducing financing constraints. The impacts of city banks’ cross-regional operations on R&D investment are heterogeneous due to the variety in the geographical location, ownership, size, industry and age of firms. The promotion of banking deregulation on R&D investment comes from firms in the eastern region. The positive effect of banking deregulation is stronger for state-owned enterprises than private and foreign enterprises, stronger for large firms than small and medium firms, stronger for high-tech firms than ordinary firms and stronger for old firms than new firms. These findings provide evidence and implications for optimising financial structure to promote firm innovation and economic growth.

Protectionism and Cross-Border Mergers and Acquisitions Undertaken by US Multinational Enterprises: The Moderating Role of Intellectual Property Rights Protection

AbstractThis paper examines the impact of protectionism and intellectual property right (IPR) protection in host markets on cross-border mergers and acquisitions (CB M&As). CB M&As have become important vehicles for firms to expand into foreign markets and acquire strategic assets. In recent years, the topic has attracted significant scholarly interest. Recently, many countries have enacted protectionist measures to protect local firms and jobs. Consequently, the impact such measures have on economic activities is under debate in the literature. This study leverages the vital context of CB M&As undertaken by US multinational enterprises (MNEs) between 2011 and 2017 in 49 host countries. The findings indicate that host country IPR protection has a much more substantial and positive impact on CB M&A activities undertaken by USA MNEs than the protectionist policies of the host country by itself. The findings further suggest that, although local protectionism, by itself, does not play a significant role in CB M&As, its presence strengthens the positive effect of IPR protection on CB M&A activities in the host country, thereby supporting the contingent role of such protection. These findings have important implications for research, practice, and policy.

Thailand and the Middle-Income Trap: An Analysis from the Global Value Chain Perspective

The study provides a critical analysis through the lens of the global value chain (GVC) framework with empirical data on value-added trade to explain Thailand's middle-income trap (MIT) by matching GVC data at the firm, industry, and country levels with the economic development trajectory. The results show that participation in GVCs contributes to initial industrialisation and economic development. However, it does not guarantee subsequent technological upgrading, as there is a risk of falling into the middle-income technology trap (MITT). Thailand is highly dependent on passive technology and specialisation imposed by headquartered countries, trapping the country in the middle of value chains with limited knowledge and technology transfer. As a result, Thailand has fallen into the MITT, where it cannot sustain growth and catch up with the more innovative advanced economies, leading to it falling into the MIT. To escape both traps, the government can consider policies that address inadequate knowledge and technology transfer and the lack of capacity of local firms.

Innovation and competitiveness in the copper-mining GVC: developing local suppliers in Peru

Abstract Although Peru is one of the main producers of copper worldwide, the domestic industry has not yet fully taken advantage of the potential that the exploitation of this commodity offers. This paper explores the opportunities and challenges that Peruvian suppliers face in their insertion into the mining global value chain. Our analysis is based on a mixed-methods approach, combining both quantitative and qualitative primary and secondary sources, including semi-structured interviews with key actors in the Peruvian mining sector. Our findings suggest that the weak presence of Peruvian suppliers in a sector dominated by few foreign firms is due to global industry dynamics as well as the underdeveloped capabilities of local firms operating in a fragile local institutional setting. However, their opportunities for their insertion are primarily in areas where new solutions are required, which places a demand on the supplier’s innovative capacity.

Local stock liquidity and local factors: Fresh evidence from US firms across states

Our study explicitly considers the role of a new local factor, i.e., the effect of the fraction of seniors in each US state, of local stock liquidity for a large number of US firms. The analysis provides two potential channels through which this (local) factor can affect local stock liquidity. The results report that this new factor exerts a significant impact on local firm liquidity, with the sign depending on the definition of liquidity being used. In terms of the two channels explored, the findings document the impact of the fraction of seniors on local bank deposits, while young and small firms exert a negative effect on local stock liquidity versus the remaining firms. The findings carry key implications for market practitioners, such as investors, market operators, regulators and academics and other researchers.

Socially responsible local firms and stock market participation: Evidence from the U.S. household survey

In this study, we examine the relation between local firms’ corporate social responsibility (CSR) engagement and households’ stock market participation. Using data from U.S. household surveys, we find that households are more likely to participate in the stock market and hold a larger proportion of their portfolios in stocks when the average level of CSR performance of local firms is high. Results from further analyses show that the positive relation between local firms’ average CSR engagement and households’ stock market participation is stronger for households (1) in states in which firms’ CSR engagement tend to receive greater media and more positive exposure; and (2) with a more educated, younger and wealthier head. Overall, our findings suggest that local firms’ CSR performance plays an important role in enhancing investors’ confidence in firms’ ethical practices and financial return from their equity investment, thereby influencing their willingness to participate in the stock market.

Resource Mobilization and Successful Implementation of Virtual Weighing Station Project by Local Firms in Kenya

Resource Mobilization and Successful Implementation of Virtual Weighing Station Project by Local Firms in Kenya