Who can cultivate university ties more in China A local firm or a foreign firm

Abstract

University ties are an important innovation resource for both foreign direct investment (FDI) firms and local firms. Since these university connections involve local personal ties, which are established through long-term efforts that require social and cultural embeddedness, it is probably more difficult for FDI firms to establish such ties than it is for local firms. However, FDI firms, which have two advantages, size and R&D capacity, can possibly compensate for that disadvantage. This paper contributes to the current innovation and international business literature by comparing the effect of university ties on innovation between local firms and FDI firms due to their heterogeneous resources and capabilities. Specifically, this paper examines the joint influence of university ties, R&D capacity, and firm size in both FDI firms and local firms in China. The results show that R&D capacity and firm size have different moderating effects on FDI firms and local firms, suggesting that internal capability and external personal relationship with universities are substitutes in local firms but complementary in FDI firms. Our results are relevant for practicing managers because they show that acquiring the knowledge in universities is contingent on firm characteristics as well as ownership types. © 2006 IEEE.