The influence of inward FDI on outward FDI through knowledge diffusion

Foreign Direct Investment (FDI) is a form of cross-border investment in which the investment firm can affect control over the daily operation of subsidiary activities. Therefore, FDI involves not only capital movement across borders but also, and more importantly, transfer of knowledge and capabilities. In this dissertation, I study how FDI inflow into a country affects the country’s subsequent outward FDI activities. I address this topic by using empirical evidence from China employing data at the firm-level and outward FDI project-level throughout the period 2000-2014. The Chinese context is particularly appropriate for the purpose of this research issue not only because of the pro-learning social and business environment in China but also because of the rapid increases in both inward and outward FDI over the study period, starting from extremely low levels initially. Grounded on the knowledge-based view of the firm, this dissertation studies the influence of inward FDI, as an underexplored source of knowledge, on local firms’ internationalization capabilities. The effects of inward FDI are examined in two settings, first minority foreign participation in Chinese enterprises, and second industry linkages between local and foreign firms. Minority foreign equity ownership participation (less than 50%) can produce direct knowledge transfer from foreign multinational firms to local firms, while industry linkages provide the potential for foreign knowledge spillovers. Furthermore, the International Business and Global Strategy literature has focused less on outward FDI motives owing to the difficulty of measuring them, and instead has inferred FDI motives from location choices. Overcoming this limitation, this dissertation makes use of manager’s self-reported business intentions in a host country to study separately market-seeking outward FDI, strategic asset-seeking (also known as technological knowledge-seeking) outward FDI, and outward FDI motive complexity and ambidexterity. I also explore how inward FDI affects the foreign location choices of local firms, by comparing different scenarios related to FDI motives. The general findings can be concluded as knowledge diffusion through IFDI facilitates local firms’ international market learning and OFDI motive complexity. Although IFDI does not determine the technological knowledge learning of the local firms, foreign entrants located in the same city of the local firms affect the location choice of the local firms, especially if the local firms are seeking technological knowledge in the host country.Ph.D.Includes bibliographical reference