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Two Essays on the Influence of Domestic Firms on Foreign Subsidiary Suvival and Innoation in a Transition Economy

PhD Thesis Defense

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 literatures 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 risk is greater for entrants with ample intangible assets and those entering joint ventures, and it is lesser for firms in regions with developed institutions.

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 positive relationship between the R&D intensity of SOEs and innovation by foreign subsidiaries was strengthened after China established its National Innovation Demonstration Zone (NIDZ) and when the number of domestic firms receiving Innofunds was high, and it was weakened for foreign firms with more intense internal R&D and joint ventures. The negative relationship between the R&D intensity of POEs and innovation by foreign subsidiaries was weakened after the establishment of the NIDZ and when the number of domestic firms receiving Innofunds was high, and it was strengthened for foreign firms with more intense internal R&D and joint ventures.

 

Speaker :
Mr Chenguang (Chris) Hu, HKUST
Venue :
via Zoom
Date :
08.06.2020
Time :
2:30pm-5:30pm