Internationalization of Developing Country Firms into Developed Countries: The Role of Host Country Knowledge-Based Assets and IPR Protection in FDI Location Choice |
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| Institution: | 1. Korea University Business School, 145 Anam-ro, Seongbuk-gu, Seoul 02841, Republic of Korea;2. WHU – Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany;1. Dalhousie University, Rowe School of Business, 6100 University Avenue, Halifax, Nova Scotia B3H 4R2, Canada;2. Western University, Ivey Business School, 1255 Western Road, London, Ontario N6G 0N1, Canada;1. University of Groningen, Faculty of Economics and Business, Nettelbosje 2, 9747 AE Groningen, The Netherlands;2. WU Vienna (Vienna University of Economics and Business), Institute for International Business, Welthandelsplatz 1, 1020 Vienna, Austria;3. Copenhagen Business School, Department of Strategic Management and Globalization, Kilevej 14, 2000 Frederiksberg, Denmark;4. University of St. Gallen, Institute of Management (IFB), Dufourstr. 40a, 9000 St. Gallen, Switzerland;1. Dpto. Dirección y Organización de Empresas, Facultad de Economía y Empresa, Universidad de Zaragoza, Gran Vía, 2, Zaragoza, Spain;2. Área de Economía y Dirección de Empresas, Centro Universitario de la Defensa, Academia General Militar, Carretera de Huesca, s/n, Zaragoza, Spain |
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| Abstract: | Foreign direct investment (FDI) from developing to developed countries is a widespread phenomenon in the global economy. The literature suggests that such investments frequently follow a motive to seek knowledge-based assets, with the goal of augmenting the firm's resource base through internationalization. We argue that the prevalence of this motive may direct developing country firms' FDI toward developed countries with relatively stronger knowledge-based assets and weaker intellectual property rights (IPR) protection and that this effect is amplified when both conditions coincide. Furthermore, we suggest that the respective importance of knowledge-based assets and IPR protection diminishes as developing countries augment their own knowledge-based assets and that the importance of asset seeking as an internationalization motive for the country's firms declines compared with other motives such as institutional escapism. We investigate our model with FDI data including investment flows from 85 developing countries to 35 developed countries during 2009–2014. We find that developing country firms prefer investing in developed countries with stronger knowledge-based assets and weaker IPR protection. These criteria attract even more FDI when both co-occur. Furthermore, the influence of weaker host country IPR protection on the location decision diminishes for firms originating from home countries with higher stocks of knowledge-based assets. |
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