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An Outcome of Decoupling and De-globalization?
The Weakened Impact of Internationalization on
Innovation of Chinese Firms Since 2016

    Very recently, Williamson (2021) posited that innovation suffers from de-globaliza-
    tion, i.e., ‘the process of weakening interdependence among nations’ (Witt, 2019a),

    as the increasing nationalistic and protectionist policies such as America First
    (Evenett, 2019) stifle firms’ capability to identify, access, and integrate specialist
    knowledge scattered across the globe (Doz, Santos, & Williamson, 2001). This is
    a challenge for emerging market multinational enterprises (EMNEs), as they
    utilize internationalization as a springboard to accelerate their acquisition of

    resources, integration of knowledge, and advancement of ‘compositional innov-
    ation’ (Li, Prashantham, Zhou, & Zhou, 2021; Xie & Li, 2018). Chinese enter-
    prises, in particular, are most likely to suffer (Witt, 2019b), as they are also the

    target victims of decoupling, i.e., ‘the deliberate dismantling – and eventual re-cre-
    ation elsewhere – of some of the sprawling cross-border supply chains that have

    defined globalization and especially the US-China relationship in recent
    decades’ (Johnson & Gramer, 2020).
    It has been posited that de-globalization has been in progress for several years,
    starting around 2008 after the financial crisis in the United States (James,
    2018; Kobrin, 2017; Witt, 2019a). Accordingly, global outward foreign direct
    investment (OFDI) as a percentage of GDP declined steadily since 2007 (see
    Figure 1). In contrast, Chinese OFDI has actually accelerated in the same
    period, indicating the continuous global expansion of Chinese enterprises
    against de-globalization, at least in its early years. The inauguration of the
    Trump administration in 2017, however, symbolized the start of an era when

    the notion of decoupling between the US and China was written into actual pol-
    icies in the US (Hu, Tian, Wu, & Yang, 2021), followed by other countries such as

    India (Li, Lewin, Witt, & Välikangas, 2021) and possibly Western-style democra-
    cies more broadly (Witt, Li, Välikangas, & Lewin, 2021). Coincidently, Chinese

    OFDI dropped sharply after 2016.
    Our analysis of publicly listed firms in China (2010–2019) reveals that the
    degree of a Chinese enterprise’s internationalization was positively related to its
    innovation performance before 2016. After 2016, this impact weakened and
    ceased to exist in conjunction with the Trump presidency in the US. While
    more research is needed to determine the causal relationship, these results seem
    to suggest that there might have been a tipping point between 2016 and 2017
    when internationalization ceased to be an effective strategy for Chinese enterprises
    to boost innovation amidst decoupling and attendant de-globalization.

    Liang Wang and Zaiyang Xie