The Influence of Foreign Ownership on Firm’s Digital Orientation: Evidence from China

This study explores the impact of foreign ownership on a firm’s digital orientation. Combining the liability of foreignness (LOF) literature, which highlights foreign firms’ disadvantages in host markets, with signaling theory, we argue that digital orientation can mitigate LOF by serving as an effective signal to stakeholders. By developing a digital orientation, firms can signal both technological competence and alignment with host market priorities to overcome the LOF associated with foreign ownership. We then investigate how subnational factors influence such an impact. We argue that political turnover shifts signal reception, reducing firms’ likelihood to develop a digital orientation to address LOF from foreign ownership in their local context. Conversely, regional digitalization shapes signal transmission and firms with a higher proportion of foreign ownership are more likely to develop a digital orientation. Our analysis, based on data from Chinese manufacturing firms between 2012 and 2020, generally supports our hypotheses. This study contributes to international business and digital strategy research by identifying digital orientation as an effective signal to overcome LOF with emphasizing subnational level environmental influences.