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Foreign Direct Investment and Capability Development

Author

Listed:
  • Chia-Wen Hsu

    (National Chung Cheng University)

  • Homin Chen

    (National Taiwan University)

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.

Suggested Citation

  • Chia-Wen Hsu & Homin Chen, 2009. "Foreign Direct Investment and Capability Development," Management International Review, Springer, vol. 49(5), pages 585-605, October.
    • Handle: RePEc:spr:manint:v:49:y:2009:i:5:d:10.1007_s11575-009-0012-9
    DOI: 10.1007/s11575-009-0012-9
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