Two essays on the influence of domestic firms on foreign subsidiary suvival and innoation in a transition economy

Abstract

The two essays in this thesis examine how state-owned and privately-owned domestic Chinese firms influenced foreign subsidiary performance in a transition economy. Earlier research into spillovers from foreign direct investment (FDI) examines how FDI influences the performance and strategy of domestic firms in emerging markets. Less attention has been paid to how domestic firms influence performance and strategy of foreign firms. During an economic transition, especially, different types of domestic firms and firms with divergent institutional logics coexist. Thus, different types of domestic firms bring disparate opportunities and threats that influence the performance of foreign subsidiaries. This thesis examines “survival” and “product innovation” as aspects of performance of foreign subsidiaries, separately.

The first essay draws upon literature on inter-organizational dynamics and the liability of foreignness to investigate how state-owned enterprises (SOEs) and domestic privately-owned enterprises (POEs) affect the survival of foreign-owned enterprises (FOEs) in a transition economy. Analysis of panel data for Chinese manufacturing firms spanning 1998–2006 shows that the local density of SOEs has a positive relationship with the risk of failure of FOEs, whereas the local density of POEs has a U-shaped relationship with FOE exit risk. An FOE’s strategic choices on resource allocation, ownership, and location affect those relationships.

The second essay draws upon literature on institutional logics and the resource dependence theory to examine how SOEs and POEs affect the innovation of FOEs in a transition economy. Analyzing panel data for a technology park in China spanning 2008–2015 reveals that the intensity of industry-level research and development (R&D) among SOEs has a positive relationship with innovation by foreign subsidiaries, whereas the intensity of industry-level R&D among POEs has a negative relationship with innovation by foreign subsidiaries. The above relationships are contingent on time period, industry characteristics and FOEs’ strategic choices.

Date of Award	2020
Original language	English
Awarding Institution	The Hong Kong University of Science and Technology