Asset recombination in international partnerships as a source of improved innovation capabilities in China

This paper examines how multinational enterprises (MNEs) and local
partners, including suppliers, customers and competitors in China,
improve their innovation capabilities through collaboration. We analyse
this collaboration as a three-way interaction between the
ownership-specific (O) advantages or firm-specific assets (FSAs) of the
MNE subsidiary, the FSAs of the local partner, and the location-specific
assets of the host location. Our propositions are examined through a
survey of 320 firms, supplemented with 30 in-depth case studies. We find
that the recombination of asset-type (Oa) FSAs and transaction-type (Ot)
FSAs from both partners leads to new innovation-related ownership
advantages, or 'recombinant advantages'. The study reveals important
patterns of reciprocal transfer, sharing and integration for different
asset categories (tacit, codified) and different forms of FSA and
explicitly links these to different innovation performance outcomes. Ot
FSAs, in the form of access to local suppliers, customers or government
networks are particularly important for reducing the liability of
foreignness for MNEs.