Technological Innovation as a Source of Chinese Multinationals’ Firm-Specific Advantages and Internationalization

This paper examines how innovation-related firm-specific ownership advantage (FSA) plays

a role in developing the competitive advantage of Chinese multinationals when they

internationalize. Based on a review of the existing literature concerning foreign direct

investment by emerging economy multinational enterprises (EMNEs), we identify that

numerous studies explain this phenomenon on the basis of their location-bound country

specific advantages. However, such views do not fully explain the key underlying factors

behind the rapid rise and success of many EMNEs as these firms rapidly internationalize and

develop global competitiveness in developed markets. The current research explores three

leading innovative Chinese EMNEs from the engineering sector: BYD, Sany Heavy Industry

and CSR China. We find that their knowledge, and particularly their innovation-creating

technological knowledge has contributed greatly to their successful internationalization. The

illustrative cases show that the three firms have now moved beyond the infant to the mature

stage of EMNE development through developing their technological knowledge in order to

realize firm-specific advantage (FSA) through internationalization. This study helps in

contributing fresh reflections to the continuing debate concerning the causes of

internationalization and global competitive development by EMNEs and the role of their

FSAs in these processes.