Foreign Direct Investment (FDI) and Indigenous Firms’ Innovation: The Moderating Effect of Environmental Dynamism

  • Yoo Jung Ha
Part of the The Academy of International Business book series


Strategy, international business and economics literatures have explored whether foreign presence has an impact on innovation and productivity in a host country. A commonly shared argument is that when MNEs conduct FDI, host country firms are exposed to greater technological opportunities, with positive impact (Zhang et al., 2010). These positive externalities are known as FDI spillovers. Recent empirical work has advanced knowledge about FDI spillovers by suggesting various antecedents and moderators, such as strategies of senders (foreign MNE subsidiaries), absorptive capacity of recipients (host country firms), and modes of interaction between MNEs and local industry stakeholders through formal or informal collaborative linkages (Crespo and Fontura, 2007; Smeets, 2008). Despite sophistication of conceptual modelling and fineness of methodology, empirical evidence has delivered mixed results about the impact of foreign presence on a host country (Havranek and Irsova, 2011; Irsova and Havranek, 2013). The lack of consensus in the empirical literature intimates that the impact of foreign presence is subject to a number of unobserved contingency factors (Eapen, 2012).


Foreign Direct Investment Host Country Innovation Performance Domestic Firm Local Firm 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aitken, B.J. and Harrison, A.E. (1999). ‘Do domestic firms benefit from direct foreign investment? Evidence from Venezuela’, American Economic Review, 89(3), 605–618.CrossRefGoogle Scholar
  2. Alcácer, J. and Chung, W. (2007). ‘Location strategies and knowledge spillovers’, Management Science, 53(5), 760–776.CrossRefGoogle Scholar
  3. Argote, L., McEvily, B. and Reagans, R. (2003). ‘Managing knowledge in organisations: An integrative framework and review of emerging themes’, Management Science, 49(4), 571–582.CrossRefGoogle Scholar
  4. Baum, J.R. and Wally, S. (2003). ‘Strategic decision speed and firm performance’, Strategic Management Journal, 24(11), 1108–1129.Google Scholar
  5. Blalock, G. and Gertler, P.J. (2008). ‘Welfare gains from Foreign Direct Investment through technology transfer to local suppliers’, Journal of International Economics, 74(2), 402–421.CrossRefGoogle Scholar
  6. Buckley, P.J., Clegg, J. and Wang, C. (2007). ‘Is the relationship between inward FDI and spillover effects linear? An empirical examination of the case of China’, Journal of International Business Studies, 38(3), 447–459.CrossRefGoogle Scholar
  7. Carillo, J.E. (2005). ‘Industry clockspeed and the pace of new product development’, Production and Operations Management, 14(2), 125–141.CrossRefGoogle Scholar
  8. Chen, M.-J., Lin, H.-C. and Michel, J.G. (2010). ‘Navigating in a hypercompetitive environment: The roles of action aggressiveness and TMT integration’, Strategic Management Journal, 31(13), 1410–1430.CrossRefGoogle Scholar
  9. Cohen, W.M. and Levinthal, D.A. (1989). ‘Innovation and learning: The two faces of R&D’, Economic Journal, 99(397), 569–596.CrossRefGoogle Scholar
  10. Crescenzi, R., Gagliardi, L. and Iammarino, S. (2015). ‘Foreign multinationals and domestic innovation: Intra-industry effects and firm heterogeneity’, Research Policy, 44(3), 596–609.CrossRefGoogle Scholar
  11. Crespo, M. and Fontura, M.P. (2007). ‘Determinant factors of FDI spillovers: What do we really know?’, World Development, 35(3), 410–425.CrossRefGoogle Scholar
  12. D’Aveni, R.A., Dagnino, G.B. and Smith, K.G. (2010). ‘The age of temporary advantage’, Strategic Management Journal, 31(13), 1371–1385.CrossRefGoogle Scholar
  13. De Faria, P. and Sofka, W. (2010). ‘Knowledge protection strategies of multinational firms: A cross-country comparison’, Research Policy, 39(7), 956–968.CrossRefGoogle Scholar
  14. Dodgson, M. (2009). ‘Asia’s national innovation systems: Institutional adaptability and rigidity in the face of global innovation challenges’, Asia Pacific Journal of Management, 26(3), 589–609.CrossRefGoogle Scholar
  15. Dries, L. and Swinnen, J.F.M. (2004). ‘Foreign direct investment, vertical integration, and local suppliers: Evidence from the Polish dairy sector’, World Development, 32(9), 1525–1544.CrossRefGoogle Scholar
  16. Driffield, N., Munday, M. and Roberts, A. (2002). ‘Foreign direct investment, transactions linkages, and the performance of the domestic sector’, International Journal of the Economics of Business, 9(3), 335–351.CrossRefGoogle Scholar
  17. Duncan, R.B. (1972). ‘Characteristics of organisational environments and perceived environmental uncertainty’, Administrative Science Quarterly, 17(3), 313–327.CrossRefGoogle Scholar
  18. Eapen, A. (2012). ‘Social structure and technology spillovers from foreign to domestic firms’, Journal of International Business Studies, 43(3), 244–263.CrossRefGoogle Scholar
  19. Eisenhardt, K. (1989). ‘Making fast strategic decisions in high-velocity environments’, Academy of Management Journal, 32(3), 543–576.CrossRefGoogle Scholar
  20. Findlay, R. (1978). ‘Relative backwardness, direct foreign investment, and the transfer of technology: A simple dynamic model’, Quarterly Journal of Economics, 92(1), 1–16.CrossRefGoogle Scholar
  21. Fine, C.H. (2000). ‘Clockspeed-based strategies for supply chain design’, Production and Operations Management, 9(3), 213–221.CrossRefGoogle Scholar
  22. Furman, J.L., Porter, M.E. and Stern, S. (2002). ‘The determinants of national innovative capacity’, Research Policy, 31(6), 899–933.CrossRefGoogle Scholar
  23. García, F., Jin, B. and Salomon, R. (2013). ‘Does inward foreign direct investment improve the innovative performance of local firms?’, Research Policy, 42(1), 231–244.CrossRefGoogle Scholar
  24. Gupta, A.K. and Govindarajan, V. (2000). ‘Knowledge flows within multinational corporations’, Strategic Management Journal, 21(4), 473–496.CrossRefGoogle Scholar
  25. Ha, Y.J. and Giroud, A. (2015). ‘Competence-creating subsidiaries and FDI technology spillovers’, International Business Review, 24(4), 605–614.CrossRefGoogle Scholar
  26. Hagedoorn, J. and Wang, N. (2012). ‘Is there complementarity or substitutability between internal and external R&D strategies?’, Research Policy, 41(6), 1072–1083.CrossRefGoogle Scholar
  27. Hallin, C. and Holmström-Lind, C. (2012). ‘Revisiting the external impact of MNCs: An empirical study of the mechanisms behind knowledge spillovers from MNC subsidiaries’, International Business Review, 21(2), 167–179.CrossRefGoogle Scholar
  28. Haskel, J.E., Pereira, S.C. and Slaughter, M.J. (2007). ‘Does inward Foreign Direct Investment boost the productivity of domestic firms?’, The Review of Economics and Statistics, 89(3), 482–496.CrossRefGoogle Scholar
  29. Haunschild, P.R. and Miner, A.S. (1997). ‘Modes of interorganisational imitation: The effects of outcome salience and uncertainty’, Administrative Science Quarterly, 42(3), 472–500.CrossRefGoogle Scholar
  30. Havranek, T. and Irsova, Z. (2011). ‘Estimating vertical spillovers from FDI: Why results vary and what the true effect is’, Journal of International Economics, 85(2), 234–244.CrossRefGoogle Scholar
  31. Irsova, Z. and Havranek, T. (2013). ‘Determinants of horizontal spillovers from FDI: Evidence from a large meta-analysis’, World Development, 42(0), 1–15.CrossRefGoogle Scholar
  32. Javorcik, B.S. (2004). ‘Does foreign direct investment increase the production of domestic firms? In search of spillovers through backward linkages’, American Economic Review, 94(3), 605–627.CrossRefGoogle Scholar
  33. Jones, N. (2003). ‘Competing after radical technological change: The significance of product line management strategy’, Strategic Management Journal, 24(13), 1265–1287.CrossRefGoogle Scholar
  34. Judge, W.Q. and Miller, A. (1991). ‘Antecedents and outcomes of decision speed in different environmental contexts’, Academy of Management Journal, 34(2), 449–463.CrossRefGoogle Scholar
  35. Keller, W. and Yeaple, S. (2009). ‘Multinational enterprises, international trade, and productivity growth: Firm-level evidence from the United States’, Review of Economics and Statistics, 91(4), 821–831.CrossRefGoogle Scholar
  36. Kokko, A. (1994). ‘Technology, market characteristics, and spillovers’, Journal of Development Economics, 43(2), 279–293.CrossRefGoogle Scholar
  37. Levitt, B. and March, J.G. (1988). ‘Organisational learning’, Annual Review of Sociology, 14, 319–340.CrossRefGoogle Scholar
  38. Lieberman, M.B. and Asaba, S. (2006). ‘Why do firms imitate each other?’, Academy of Management Review, 31(2), 366–385.CrossRefGoogle Scholar
  39. Lipsey, R.E. and Sjöholm, F. (2005). ‘Host country impacts of inward FDI: Why such different answers?’, in The Impact of Foreign Direct Investment on Development: New Measurements, New Outcomes, New Policy Approaches, eds Blomström, M., Graham, E., and Moran, T., Institute for International Economics, Washington DC, 23–43.Google Scholar
  40. Liu, X. and Buck, T. (2007). ‘Innovation performance and channels for international technology spillovers: Evidence from Chinese high-tech industries’, Research Policy, 36(3), 355–366.CrossRefGoogle Scholar
  41. Liu, X., Wang, C. and Wei, Y. (2009). ‘Do local manufacturing firms benefit from transactional linkages with multinational enterprises in China?’, Journal of International Business Studies, 40(7), 1113–1130.CrossRefGoogle Scholar
  42. McCarthy, I.P., Lawrence, T.B., Wixted, B. and Gordon, B.R. (2010). ‘A multidimensional conceptualisation of environmental velocity’, Academy of Management Review, 35(4), 604–626.CrossRefGoogle Scholar
  43. McKinsey & Company (2010). ‘South Korea: Finding its place on the world stage’, McKinsey Quarterly, April.Google Scholar
  44. Mahmood, I.P., Zhu, H. and Zajac, E.J. (2011). ‘Where can capabilities come from? Network ties and capability acquisition in business groups’, Strategic Management Journal, 32(8), 820–848.CrossRefGoogle Scholar
  45. Markusen, J., Thomas F. Rutherford and David Tarr (2005). ‘Trade and direct investment in producer services and the domestic market for expertise’, Canadian Journal of Economics, 38(3), 758–777.CrossRefGoogle Scholar
  46. Moran, T.H., Graham, E.M. and Blomström, M. (eds) (2005) Does Foreign Direct Investment Promote Development? Washington, DC: Institute for International Economics.Google Scholar
  47. Motohashi, K. and Yuan, Y. (2010). ‘Productivity impact of technology spillover from multinationals to local firms: Comparing China’s automobile and electronics industries’, Research Policy, 39(6), 790–798.CrossRefGoogle Scholar
  48. Nadkarni, S. and Narayanan, V.K. (2007). ‘Strategic schemas, strategic flexibility, and firm performance: The moderating role of industry clockspeed’, Strategic Management Journal, 28(3), 243–270.CrossRefGoogle Scholar
  49. Perri, A., Andersson, U., Nell, P.C. and Santangelo, G.D. (2013). ‘Balancing the trade-off between learning prospects and spillover risks: MNC subsidiaries’ vertical linkage patterns in developed countries’, Journal of World Business, 48(4), 503–514.CrossRefGoogle Scholar
  50. Rumelt, R.P. (1991). ‘How much does industry matter?’, Strategic Management Journal, 12(4), 167–185.CrossRefGoogle Scholar
  51. Salomon, R.M. and Shaver, J.M. (2005). ‘Learning by exporting: New insights from examining firm innovation’, Journal of Economics & Management Strategy, 14(2), 431–460.CrossRefGoogle Scholar
  52. Sembenelli, A. and Siotis, G. (2008). ‘Foreign Direct Investment and mark-up dynamics: Evidence from Spanish firms’, Journal of International Economics, 76(1), 107–115.CrossRefGoogle Scholar
  53. Sidhu, J.S., Commandeur, H.R. and Volberda, H.W. (2007). ‘The multifaceted nature of exploration and exploitation: Value of supply, demand, and spatial search for innovation’, Organization Science, 18(1), 20–38.CrossRefGoogle Scholar
  54. Smeets, R. (2008). ‘Collecting the pieces of the FDI knowledge spillovers puzzle’, World Bank Research Observer, 23(2), 107–138.CrossRefGoogle Scholar
  55. Sofka, W., Shehu, E. and de Faria, P. (2014). ‘Multinational subsidiary knowledge protection: Do mandates and clusters matter?’, Research Policy, 43(8), 1320–1333.CrossRefGoogle Scholar
  56. Spencer, W.J. (2008). ‘The impact of multinational enterprise strategy on indigenous enterprises: Horizontal spillovers and crowding output in developing countries’, Academy of Management Review, 33(2), 341–361.CrossRefGoogle Scholar
  57. Tan, J. and Litschert, R.J. (1994). ‘Environment-strategy relationship and its performance implications: An empirical study of the Chinese electronics industry’, Strategic Management Journal, 15(1), 1–20.CrossRefGoogle Scholar
  58. Veugelers, R. and Cassiman, B. (2004). ‘Foreign subsidiaries as a channel of international technology diffusion: Some direct firm level evidence from Belgium’, European Economic Review, 48, 455–476.CrossRefGoogle Scholar
  59. Vilkamo, T. and Keil, T. (2003). ‘Strategic technology partnering in high-velocity environments: Lessons from a case study’, Technovation, 23(3), 193–204.CrossRefGoogle Scholar
  60. Wang, C. and Yu, L. (2007). ‘Do spillover benefits grow with rising foreign direct investment? An empirical examination of the case of China’, Applied Economics, 39(3), 397–405.CrossRefGoogle Scholar
  61. Zhang, Y., Li, H., Li, Y. and Zhou, L.A. (2010). ‘FDI spillovers in an emerging market: The role of foreign firms’ country origin diversity and domestic firms’ absorptive capacity’, Strategic Management Journal, 31(9), 969–989.Google Scholar
  62. Zhao, Y. and Cavusgil, S.T. (2006). ‘The effect of supplier’s market orientation on manufacturer’s trust’, Industrial Marketing Management 35(4), 405–414.CrossRefGoogle Scholar

Copyright information

© Yoo Jung Ha 2016

Authors and Affiliations

  • Yoo Jung Ha

There are no affiliations available

Personalised recommendations