Domestic Firm Innovation and Networking with Foreign Firms in China’s ICT Industry

Abstract

This study systematically analyzes the impacts of supplier-client as well as technological linkages with foreign firms on domestic firm technological innovation based on a unique dataset that was collected through a survey with 600 plus firms in China’s information communication technology industry. The results revealed that Chinese firms were engaged in extensive supplier-client relationships with foreign firms, although their technological collaborations with foreign firms were very limited. It was found that firm innovation benefited significantly from their technological relationships with foreign firms. However, the results also found that export/import did contribute to domestic firm innovation, although supplier-client relationships with foreign invested enterprises (FIEs) in China did not show positive effects on domestic firm innovation. The analyses further showed that such market transactions between domestic and foreign firms helped building technological linkages between domestic firms and foreign firms. Such results clearly demonstrated the value of networking in enhancing firm innovation in developing countries.

Keywords: Innovation, capability building, supplier-client networking, technological networking, China

JEL Classification: R30, O10, O30