Explorative or exploitative? How local firms respond to fdi presence by innovation adaptation

Abstract

It is well recognized that inbound foreign direct investment (FDI) can influence local firms through both positive externalities (i.e., the spill-over effect) and negative crowding-out (i.e., the competition effect). However, the strategic responses of local firms to foreign entries are far less explored. In this study, we investigate how local firms adapt their explorative and exploitative innovation strategies in response to the environmental changes led by FDI presence, drawing on the attention-based perspective. In particular, through the spill- over effect, local firms increase exploitative innovation as a response to FDI presence, while decreasing their explorative innovation. This is ..