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.
By
Liang Wang and Zaiyang Xie