Institution, internationalization and innovation: three papers on penetration of emerging-market multinational enterprises into developed markets

Three papers are presented on the emerging phenomenon of penetration by emerging-market multinational enterprises (EMNEs) into developed markets (DMs) through outward foreign direct investment (OFDI). Paper 1 examines the roles played by home market-supporting institutional development, at sub-national levels, in OFDI decisions from emerging markets (EMs) into DMs. Paper 2 focuses on the next stage of EMNEs’ investment in DMs – going in, or choosing a mode of entry. It extends the first paper by investigating the effects of home market-supporting institutional development, at the sub-national level, on a local EM firm’s choice of ownership (partial vs. full) when entering into a DM. In Papers 1 and 2, I argue that the home institutional effect, measured at the sub-national level, is twofold. First, there is a positive direct effect on both the propensity to enter DMs and the propensity to choose full-ownership entry. Second, there is a positive indirect effect on both factors through the mediation of market-related firm capabilities such as technological capability. Papers 1 and 2 are among the first attempts to investigate the roles of home institutions, particularly at sub-national levels, in global strategy and to explore the mediation roles of firm capabilities. Paper 3 focuses on a later stage for those EMNEs that are sourcing knowledge in DMs – going back. It examines whether and to what extent EMNEs use OFDI in a DM to capture knowledge spillovers so as to improve their technological capabilities at home, an effect termed “reverse spillover.” This is one of the first studies to examine spillover effects in this direction (from foreign subsidiaries to home parent firms), and among the first EMNE studies to examine after-entry issues. In all three papers, I find supportive empirical evidence using regression methods. Overall, my thesis provides new insights: EMNEs are home-related, and this relationship is bidirectional, in that their international activities are shaped by their home institutional environment while their overseas activities can affect their technological capabilities at home.