Outward Foreign Direct Investment Activities Research Articles

EXPRESS: Untangling the Duality of Emerging Market Firms’ Response to OFDI Policies on Their Innovation Performance: A Resource Dependence Perspective

Firms’ international expansion, affected by outward foreign direct investment (OFDI) policies of home countries, can greatly shape their innovation performance. Yet, existing literature lacks sufficient investigation toward the nexus between corporate response to policies in OFDI activities and subsequent innovation performance. Thus, the authors designed this study to examine how a firm’s response to OFDI policies affects its innovation performance. Drawing upon the resource dependence theory, the authors theorize corporate response to OFDI policies as firm dependence on home government. By arguing that such dependence differentially affects firm innovation through support and control mechanisms, they elucidate the inverted U-shaped relationship between corporate response to OFDI policies (measured by the percentage of a firm’s OFDI projects in policy-favored markets) and innovation performance (measured as patent counts). Furthermore, this curvilinear relationship, they posit, is moderated and strengthened by home-government subsidies the firm receives (calculated as the ratio of annual subsidies received to yearly sales). With archival data of 2,050 Chinese listed manufacturing firms responding to specific OFDI policies during 2013–2021, their predictions are corroborated. Overall, by illuminating the innovation implications of OFDI as corporate response to policies, this study contributes to the international marketing literature in the context of emerging markets.

The determinants of Vietnam’s outward foreign direct investment: the push factors approach

In the context of integration, in addition to increasing foreign capital inflows, Vietnamese enterprises are becoming more and more interested in outward foreign direct investment activities. This research expands the Investment Development Path model to assess the influence of some macroeconomic factors (GNI per capita, the proportion of expenditure on science and technology, FDI flows, USD to VND exchange rate, total import-export turnover) on Vietnam's outward foreign direct investment (OFDI) flows. Using the 32-year dataset (1989-2020), the regression results depict that the proportion of expenditure on science and technology, the amount of FDI, GNI per capita had a positive impact on the capital OFDI of Vietnam. However, the growth rate of total import-export turnover harmed OFDI flows in the same period. Meanwhile, the difference variable of exchange rate USD to VND in the multiple regression model was not statistically significant. Based on regression model results combined with qualitative studies, the authors propose some policy implications to promote OFDI flows of Vietnam in the near future.

Overseas background of executive and enterprises’ outward foreign direct investment: multi-level moderating model and heterogeneity research

ABSTRACT With the increasing uncertainty in trade, investment, and geopolitical aspects, considerable attention is paid to whether and how executives’ overseas backgrounds affect enterprises’ outward foreign direct investment (OFDI). This article is based on the data of Chinese listed companies from 2000 to 2020, and empirical analysis reveals that executive overseas background positively impacts enterprises’ OFDI. Analysis of the moderating effect shows that the executive pay gap and corporate cultural diversity play an inverted U-shape moderating role in the influence of executive overseas background on OFDI. The industrial agglomeration level positively moderates the influence of executive overseas background on OFDI. Mechanism analysis shows that the overseas background of executives can play a role through innovation-driven, digital transformation and utilizing the location advantage of the host country. The results also show that the effect of executives’ overseas backgrounds is significantly affected by the heterogeneity of OFDI and the heterogeneity of executives’ overseas backgrounds. The conclusion of this study substantiates the pivotal role of executives’ overseas backgrounds in propelling the OFDI activities of Chinese enterprises. It also provides empirical support for the policy of talent introduction and opening-up.

Innovation and OFDI along the Belt and Road

Outward foreign direct investment (OFDI) has become an important strategy for enhancing firms' innovation capabilities through the reverse technology spillover effects from overseas innovation experience. The extant research on the effect of OFDI on innovation has focused primarily on developed economies, while the influence of OFDI in developing countries has remained relatively unexplored. The major Belt and Road Initiative (BRI) encourages Chinese firms to invest in Belt and Road (BR) countries—mainly developing nations. We investigate the impact of BR OFDI on Chinese firms' innovations and its influencing mechanisms. The main findings are as follows. First, BR OFDI has a positive effect on innovation by increasing R&D spending and returns on investments in overseas subsidiaries. Second, the number of research-driven subsidiaries has a positive moderating effect on innovation. Finally, the BR ODFI innovative effect is stronger after the launch of the BR initiative in 2013 and more significant for nonstate-owned enterprises. Our research has theoretical significance by uncovering the overseas return mechanism and the moderating effects of investment depth and motivation on the impact of BR OFDI on innovation—topics rarely explored in the OFDI literature. These research findings have practical implications for governments designing effective policies to promote BR OFDI activities and for firms developing robust OFDI investment strategies along the Belt and Road to improve their innovation performance.

Charity can still begin at home: Examining the drivers and boundary conditions of Africa-to-Africa outward foreign direct investment (OFDI)

Recent studies on ‘Africa Rising’ and ‘Africa-to-Africa Internationalization’ have propelled conversations on how African Small and Medium-Sized Enterprises (SMEs) can continue to internationalize within African countries. From the tenets of the institutional theory and the dynamic capabilities perspectives, this study proposes and tests a framework of how and when dysfunctional competition drives SMEs' outward foreign direct investments within African countries. Analysis of a survey data from 196 Ghanaian SMEs operating across the African continent indicates that cross-border open innovation mediates the relationship between dysfunctional competition and SMEs' intra- Africa OFDI activities. Further analysis revealed that SMEs' strategic agility plays a double-edged sword moderating role in enhancing the effects of dysfunctional competitions and cross-border open innovation on intra-Africa OFDI. These findings have significant implications for the international business and finance literature as well as the management and growth of African SMEs.

Domestic environmental impacts of OFDI: City-level evidence from China

With the increasingly severe ecological environment, seeking sustainable development between the economy and the environment has become the main social consensus. Under this background, this study explores the domestic environmental impacts of outward foreign direct investment (OFDI) activities, using the panel data of 222 Chinese cities from 2007 to 2019. The following results are obtained: (1) With every 1% increase in OFDI flows, the overall domestic environmental quality can get improved by 1.55%. (2) The home-country environmental effect differs among cities due to the economic-regional factors, being more evident in the eastern region cities, highly industrialized cities, and cities with better business facilitation. (3) Although a spatial relationship exists between cities, no obvious evidence supports the spatial spillover phenomenon. Domestic environmental quality is mainly improved by its own OFDI activities. This study has important practical significance for international investment activities and home-country environment protection with several related policy implications.

Outward foreign direct investment and urban green productivity: Promote or inhibit?

This paper constructs an empirical model that fits the Chinese context by incorporating human capital, foreign direct investment (FDI), and economic development level into an absorptive capacity category. Concurrently, the model incorporates absorptive capacity into the threshold model. The empirical analysis, using Chinese provincial-level data from 2004 to 2020, shows that outward foreign direct investment (OFDI) activities can promote green total factor productivity (GTFP) and that the green growth effect is more substantial for the stock size of OFDI. Further study finds that OFDI in both regions with lower levels of green growth and lower marketization enhances GTFP; the level of regional marketization also affects the green growth effect of OFDI, with the difference that OFDI negatively affects GTFP when the regional marketization level is higher. The three absorptive capacities of the central variables also affect the green growth effect of OFDI and have a threshold effect on GTFP. OFDI activities thus remain a vital strategy for China's high-quality economic development, and the supportive policies related to OFDI warrant urgent attention. This paper provides empirical evidence and policy implications for fully acknowledging the contribution of OFDI activities in optimizing the absorption capacity channel and improving regional GTFP.

State Ownership and Chinese POEs’ OFDI to Developed Economies: Institutional Driven or (In)compatible

International business research has developed multiple theoretical lenses on how state ownership influences a firm’s outward foreign direct investment (OFDI). Institutional driven view suggests state ownership provides both motivation and capability for firms to take OFDI activity, while institutional (in)compatible view suggests the OFDI is discouraged by privileged compatibility at home or lack of legitimacy abroad. This study specifies a context on the OFDI to developed economies made by Chinese privately-owned enterprises (POEs) in which the mechanism of each view is likely to prevail. Using a sample of 1,416 publicly-listed POEs in China, we find state ownership reduces POEs’ engagement in OFDI to developed economies, aligning with the prediction of institutional (in)compatibility. Furthermore, the subsidy a firm receives from the government weakens this negative effect, whereas negative media coverage of a firm strengthens it. These findings finally identify lack of legitimacy (institutional incompatibility) as the dominant mechanism through which state ownership of POEs hinders their OFDI to developed economies.

The determinants of China’s outward foreign direct investment: a vector error correction model analysis of coastal and landlocked countries

An essential objective of China’s outward foreign direct investment (OFDI) is to expand international trade and access to overseas markets to garner resources and improve transportation routes. This study identifies the determinants of China’s OFDI activities in the short and long term, focusing on 138 countries that are part of China’s Belt and Road Initiative (BRI). It is the first study to evaluate the system’s contribution of location determinants, including the four factors of economy, logistics, energy, and politics, to China’s OFDI by employing a vector error correction model with panel data from 2007 to 2019. In addition, we compare the influence of the variables in coastal and landlocked countries. Panel Granger causality and impulse response tests, variance decomposition, and forecast analysis were conducted to analyze and forecast China’ OFDI. The results show that China’s OFDI in both coastal and landlocked countries is statistically sensitive to the variables of economy, energy, logistics, and politics in host countries engaged in the BRI. It also shows that improving logistics infrastructure and the political investment environment in landlocked countries, this can positively attract China’s OFDI.Supplementary InformationThe online version contains supplementary material available at 10.1007/s10644-022-09407-2.

Heterogeneity in OFDI by EMNEs: Drivers and trends of Chinese and Indian firms

Previous research has identified a distinction between the internationalization of emerging market multinational enterprises (EMNEs) and their advanced-economy counterparts. However, the question as to whether EMNEs conduct outward foreign direct investment (OFDI) in a uniform manner remains under-studied. Prior studies have grouped together all emerging markets but have ignored the essential heterogeneity of EMNEs that leads to their diverse OFDI patterns and behaviours. In this study, we illustrate the drivers and related phenomena of heterogeneity by exploring differences and similarities between Chinese and Indian MNEs’ OFDI activities, namely, investment destinations (i.e., advanced vs. emerging economies), the level of political relationships with host countries, industry sectors supported by institutional patronage, and the primary motivations of investment projects. We suggest that the heterogeneity in OFDI is the result of the institutional environment and the strategic priorities of the industry sector.

Between the Eurozone crisis and the Brexit: the decade of British outward FDI into Europe

This paper investigates the determinants of outward foreign direct investment (OFDI) of British multinational firms in the European Union (EU) and the European Free Trade Association members across 2009–2019 using Bayesian model averaging. We find evidence that supports the existence and dynamic behavior of the East–West structure of FDI between three groups of countries: core-EU, Central and Eastern European economies (CEE), and the Nordics. Further, we document the importance of relative market size, urbanization, the rule of law in attaining horizontal FDI in the core-EU economies. In turn, infrastructure spending and enhanced political stability are the most important drivers for FDI in CEE (post-2000 accession). Finally, our results highlight the negative effects of the Eurozone crisis and Brexit anticipation on British OFDI activity in the region. The findings remain robust when accounting for potential MNE profit shifting to partners such as Ireland, Luxembourg, and alike.

The Influence of Outward Foreign Direct Investment on Enterprise Technological Innovation

As the scale of China’s outward foreign direct investment (OFDI) continues to expand, more and more scholars have begun to discuss the influence of OFDI on enterprise technological innovation. In order to be able to deeply explore the impact of enterprises’ OFDI activities on enterprise technological innovation, this paper combines relevant enterprise data from 2015 to 2017 and uses the new method to test the “technological innovation effect” produced by the OFDI of Chinese enterprises. Finally, this paper concluded that the development of OFDI activities of enterprises can promote the improvement of the level of technological innovation of enterprises, and this promotion has a lag effect. R&D-type OFDI activities play a vital role in promoting the ability of technological innovation of enterprises. Compared with low-income host countries, investment in high-income host countries has a greater effect on promoting the ability of technological innovation of enterprises.

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

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.

To Escape or Not: How Does Institutional Constraints and Support Affect Chinese Firms’ OFDI?

This study explores how China’s regulative, normative, and cognitive institutional constraints and support affect its firms’ outward foreign direct investment (OFDI) strategies at the subnational level. Our model assumes that the main motivation for firms’ OFDI is to escape the home country’s institutional constraints. Moreover, the institutional support of the home country’s government works as a moderator that accelerates the speed at which firms escape. We collected 26,411 firm-year observations, including 7,098 FDIs conducted by 2,401 firms between 2007 and 2017. The logit and panel regression analysis methods measure the effect of institutional constraints and support on Chinese firms’ OFDI. The results show that institutional constraints positively affect Chinese OFDI, confirming that the higher the institutional constraints in China are, the more likely it is that the firm will escape, and as the constraints increase, the faster they will do so. The institutional support for domestic development has positive effects on Chinese OFDI, which is contrary to expectation, while institutional support for internationalization has a positive effect on Chinese OFDI. Additionally, institutional support for domestic development and internationalization positively moderate the relationship between institutional constraints and the speed and number of OFDIs. This study analyzes the concept of “escape OFDI” empirically by examining the effects of subnational institutional constraints on OFDI activities at the firm level. This study advances the understanding of the motivations for OFDI activities by recognizing the existence of both institutional constraints and support in shaping the internationalization strategies of firms from developing countries, thus addressing an important gap in this field. Furthermore, it is a novel attempt to examine the impact of these two kinds of support on firms’ OFDI, which provides a new lens for understanding the internationalization of firms from developing countries.

Belt and road initiative and Chinese firms' outward foreign direct investment

This paper studies the impact of China's “Belt and Road Initiative” (BRI) on Chinese firms' outward foreign direct investment (OFDI). Overall, the BRI positively impacts on Chinese OFDI activities. However, both the direction and the magnitude of this impact depend on the host countries' willingness to participate in the BRI. The BRI promotes more OFDI to developing countries that welcome China's economic engagement and alters the effect of Chinese domestic push factors on its OFDI patterns. In addition, Chinese firms in construction and infrastructure, manufacturing, and trade-related sectors are more responsive to the BRI than firms in other sectors.

Performance feedback and outward foreign direct investment by emerging economy firms

Integrating the behavioral theory of the firm (the BTF) and the self-enhancement motive of managers, this paper examines how performance feedback—the discrepancy between actual performance and aspiration levels—affects the international expansion of emerging economy firms (EEFs). Empirical results using panel data on 876 publicly-listed Chinese manufacturing companies over a 7-year period indicate that performance relative to social aspiration (i.e., peer performance) and relative to historical aspiration (i.e., firms’ own past performance) affects EEFs’ levels of subsequent outward foreign direct investment (OFDI). Specifically, performance below social or historical aspiration enhances levels of OFDI, while the effect of performance below social aspiration is stronger than that of underperforming historical results. The results also show that performance above social aspiration enhances levels of OFDI, while performance above historical aspiration decreases levels of OFDI. Moreover, we uncover the importance of considering the joint effect of historical and social performance feedback, as receiving consistent or mixed signals about firm performance may result in risk-taking behaviors that differ from those triggered by just one performance signal on its own. These findings underscore the impact of performance feedback relative to social and historical aspirations on EEFs’ OFDI activities.

Institutional compatibility and the internationalization of Chinese SOEs: The moderating role of home subnational institutions

This study investigates the outward foreign direct investment (OFDI) of state-owned enterprises (SOEs) through the lens of the mechanism of institutional compatibility. Drawing on institutional theory, we argue that institutional compatibility (thus legitimacy) at home and institutional incompatibility (thus lack of legitimacy) abroad reduce SOEs’ OFDI activities. However, we also argue that home-country subnational factors (coercive, normative, and mimetic forces) provide a potentially offsetting effect. Using a sample of publicly listed Chinese firms, we find that coercive and mimetic forces generated from home subnational institutions reduce the negative effect of state ownership on OFDI activity.

Host countries’ growth opportunities and China's outward FDI

In 2014, China proposed the Belt and Road policy, which has pushed China's outward foreign direct investment (OFDI) to over tens of billions of US dollars. However, existing studies have not reached a consensus about the decisive factors in China's OFDI. To verify whether China's OFDI activities are motivated by profits, this paper applies a measure of country‐specific growth opportunities adopted by Bekaert et al. (2007) to measure the growth opportunities of the target countries for China's OFDI. A multinational panel data model, based on data from 51 countries from 2003 to 2012, is used to explore the relationship between host countries’ growth opportunities and China's OFDI. Overall, the analysis finds that China's OFDI does not follow the host countries’ growth opportunities but exhibits different features toward developed countries and developing countries. For developed countries, China's OFDI follows host countries’ growth opportunities to some extent. In the case of developing countries, China's OFDI does not follow host countries’ growth opportunities. When we consider factors such as a host country's financial development and political stability, improvement in these factors improves the attractiveness of the host country to China's OFDI. It is also found that the 2008 global financial crisis did not have a very significant impact on China's OFDI activities.

The exceptional performance of Chinese outward direct investment firms

ABSTRACTThis paper finds that Chinese manufacturing firms that engage in outward foreign direct investment (ODI) have better economic performance than non-ODI manufacturing firms. Overall, ODI firms are more productive and have higher profitability than non-ODI firms. The sector analysis shows that the exceptional performance is significant for labor-intensive industries. Finally, the ODI activity can raise the productivity of other firms in an industry. The larger the ODI within an industry, the higher the productivity of all firms in that industry. The paper suggests that domestic firms set up their firm’s global strategy and reallocate the firm’s resources according to the changing investment environment, taking advantages of profit opportunities outside of domestic markets and invest abroad to get new markets and new technology.

State-owned enterprises and outward foreign direct investment activities

Despite considerable theoretical and empirical evidence suggesting that state- owned enterprises (SOEs) underperform relative to private firms, they not only persist, but have also invested abroad....