Foreign direct investment, intra-organizational proximity, and technological capability : the case of China's automobile industry

Abstract

This dissertation consists of three self-contained essays, each of which examines part of the causal link among inward/outward foreign direct investment (FDI), intra-organizational proximity, and in-house technology development performances. The first essay explores why international joint ventures (IJVs)-an FDI-hosting arrangement often employed by the global South to strengthen foreign investors' commitment to local economic development-may lead to only partial success in nurturing local technological capability. The experience of China's passenger vehicle sector demonstrates that, in the existence of a substantial technological-capability gap between alliance partners, the IJV arrangement is likely to create a "passive" learning mode where foreign firms determine what, when, and how their local IJV partner firms should learn. Accordingly, learners using this IJV arrangement may be able to strengthen their production capability, where interests of both IJV partner firms often converge, but it leaves their project-execution and innovation capabilities largely undeveloped. The second essay discusses how outward FDI can complement the IJV-based technological capability-building process, through an analysis of the Shanghai Automotive Industry Corporation (SAIC) case. When a firm is upgrading its technological capability, outward FDI can allow learners to have access to human-embedded skills and knowledge and other intellectual assets that are hardly accessible through the inward globalization strategy. Access to a wide range of external resources is a critical ingredient for improving technological capability, and it can also promote self-learning capability by encouraging subsequent learning-by-doing practices. Accordingly, outward FDI can augment "active" nature in the "passive" learning mode created by the inward globalization strategy. The last essay examines why intra-organizational proximity matters for the technological catchup process, through a comparison of the Chinese Big Three automotive groups. As a firm's asset-seeking inward/outward globalization strategy and domestic mergers are accompanied by substantial growth in their organizations and assets, intra-firm governance affects the internalization outcome of the acquired assets. The comparative analysis demonstrates that SAIC surpasses the First Automotive Works and the Dongfeng Motor Group in terms of in-house technology development partly because the former has managed its corporate growth within a tight geographical and relational space, compared to the latter. Intra-organizational proximity contributed to SAIC's technological capability-building process by encouraging the sharing and integration of acquired resources across sub-operational units, thus creating group-wide synergy for the effective internalization of the resources.