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Foreign Direct Investment and Capability Development

A Dynamic Capabilities Perspective

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Abstract

  • This study uses a dynamic capabilities perspective to illustrate how global configurations of value chain activities are able to contribute to a firm’s capability development through foreign direct investment.

  • Using Taiwanese firms as an empirical sample, we develop testable hypotheses regarding the impact of global configuration in terms of entry timing, entry location, and completeness of value chain activities.

  • Results indicate that foreign investment made by a multinational corporation (MNC) at an earlier time will enable a higher level of technological and manufacturing capability development than that made at a later time. We also find that MNCs are likely to make foreign investment in developed countries for the development of technological and marketing capabilities, and in less developed countries for the development of manufacturing capabilities. In addition, we discover that the more complete an MNC’s value chain configuration is, the higher the level of capability development the MNC is likely to achieve.

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Acknowledgements

The authors are indebted to Professor Michael-Jörg Oesterle and two anonymous reviewers for very thoughtful and constructive comments. This research was supported by grants from the National Science Council in Taiwan (NSC-96-2416-H-004-MY3).

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  1. Department of Business Administration, College of Management, National Chung Cheng University, Chia-Yi, Taiwan

    Chia-Wen Hsu

  2. Department of International Business, College of Management, National Taiwan University, Taipei, Taiwan

    Homin Chen

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  1. Chia-Wen Hsu
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Correspondence to Chia-Wen Hsu.

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Hsu, CW., Chen, H. Foreign Direct Investment and Capability Development. Manag Int Rev 49, 585–605 (2009). https://doi.org/10.1007/s11575-009-0012-9

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