Rapid FDI of Emerging-market Firms: Foreign Participation and Leapfrogging in the Establishment Chain

Abstract

This research explores the enablers of emerging-market firms (EMFs) leapfrogging in the internationalization process. Although many studies on rapid internationalization focus on exporting activities, we expand the concept to a higher-commitment entry mode: foreign direct investment (FDI). In addition, we investigate the role of an understudied force, foreign multinational enterprises (MNEs) in emerging markets, in enabling rapid internationalization of EMFs. Our hypotheses are tested using 1,612 first-time outward FDI projects from China between 2000 and 2014. The largely supported results suggest that minority foreign ownership and co-location with foreign MNEs allow EMFs to leapfrog certain stages in the establishment chain. Our findings offer alternative explanations, besides the government steward logic, to EMFs’ international expansion and contribute to the understanding, from a policy standpoint, that encouraging foreign-local partnerships is conducive to host-country industrial upgrading.