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Simultaneous Impact of the Presence of Foreign MNEs on Indigenous Firms’ Exports and Domestic Sales

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Abstract

Incorporating the global production network approach and competitor analysis, this paper establishes an analytical framework with two hypotheses for the role of foreign multinational enterprises (FMNEs) in indigenous firms’ exports and domestic sales. First, the presence of FMNEs as a whole is likely to have a negative impact on indigenous firms’ domestic sales but a simultaneous positive impact on their exports in an emerging economy like China. Second, the presence of MNEs from Hong Kong, Macau and Taiwan (HMT MNEs) is more likely to generate this pattern of impact than MNEs from other countries (Other FMNEs). The foreign direct investment-led export strategy contributed to the dominance of the scenario described by the first hypothesis in China, while a higher degree of market commonality and resource similarity of HMT MNEs with that of indigenous Chinese firms than Other FMNEs leads to the second hypothesis. These novel hypotheses are tested and supported by a very large and recent firm-level panel dataset from Chinese manufacturing.

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Notes

  1. Please bear in mind the so-called ‘round-tripping’ investment from HMT, i.e., Chinese investors move money from China to Hong Kong, Macau and Taiwan and then bring it back to China disguised as foreign investment so as to take advantage of preferential treatments granted exclusively to MNEs. This type of investment was estimated to be around 25–40 % of China’s total FDI inflows (Dollar and Kraay 2005; Prasad and Wei 2005; World Bank 2002; Xiao 2004). However, since 2001 when China joined the WTO, China has gradually removed this super-national treatment to MNEs. As a result, the round-tripping FDI is believed to have declined.

  2. Indirect knowledge transfer is often termed knowledge spillovers.

  3. We also tried different threshold levels such as 25 and 100 %, and the qualitative findings are broadly similar. The results are available upon request.

  4. Not all robustness test results are presented here due to space constraints but are available upon request.

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Acknowledgments

We thank anonymous referees for their constructive comments on and Lena Barrett for careful reading of earlier versions of this paper. We also gratefully acknowledge financial supports from the National Natural Science Foundation of China (NSFC 71302179); the Project of Humanities and Social Sciences, Ministry of Education, China (Project No. 11YJC630207) and the “211 project” of the Southwestern University of Finance and Economics.

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Authors and Affiliations

  1. School of International Business, Southwestern University of Finance and Economics, Chengdu, China

    Jue Wang & Hua Lin

  2. Leeds University Business School, University of Leeds, Leeds, UK

    Yingqi Wei

  3. School of Management, Birkbeck College, University of London, London, UK

    Xiaming Liu

  4. School of Management, Bradford University, Bradford, UK

    Chengang Wang

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  1. Jue Wang
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Correspondence to Yingqi Wei.

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Wang, J., Wei, Y., Liu, X. et al. Simultaneous Impact of the Presence of Foreign MNEs on Indigenous Firms’ Exports and Domestic Sales. Manag Int Rev 54, 195–223 (2014). https://doi.org/10.1007/s11575-013-0195-y

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