Untangling the Duality of Emerging Market Firms’ Response to Outward Foreign Direct Investment Policies on Their Innovation Performance: A Resource Dependence Perspective

Firms’ international expansion, affected by outward foreign direct investment (OFDI) policies of home countries, can greatly shape their innovation performance. Yet, existing literature lacks sufficient investigation toward the nexus between corporate response to policies in OFDI activities and subsequent innovation performance. Thus, this article examines how a firm's response to OFDI policies affects its innovation performance. Drawing on the resource dependence theory, the authors theorize corporate response to OFDI policies as firm dependence on home governments. They argue that such dependence differentially affects firm innovation through support and control mechanisms, and elucidate an inverted U-shaped relationship between corporate response to OFDI policies (measured by the percentage of a firm's OFDI projects in policy-favored markets) and innovation performance (measured as patent counts). Furthermore, this curvilinear relationship, they posit, is moderated and strengthened by home-government subsidies the firm receives (calculated as the ratio of annual subsidies received to yearly sales). The authors use archival data of 2,050 Chinese listed manufacturing firms responding to specific OFDI policies from 2013 to 2021 to corroborate their predictions. Overall, by illuminating the innovation implications of OFDI as a corporate response to policies, this study contributes to the international marketing literature in the context of emerging markets.