Do network connections with foreign investment enterprises help host country firm innovations

With its fast growing pace, foreign direct investment is having tremendous impact on host country economies. Knowledge spillover from inward foreign direct investment (FDI) is one of the important ways that host country firms are likely to benefit from the presence of foreign direct investment. Knowledge spillover here refers to the knowledge that is not fully internalized by the subsidiaries of multinational enterprises while they conduct business in the host country.;This study aims to explore how knowledge spillover from inflow foreign direct investment affects host country firms, and more specifically, how network ties with foreign firms affect host country firms' exploratory innovation activities. I particularly focus on firms' exploratory innovations since they have important implications for their long term performance and growth. Exploratory innovations are also more difficult to achieve. Hypotheses are developed by bringing different theoretical perspectives together, including FDI theory, innovation management, and network theory. Using survey data from China I investigate whether domestic Chinese private enterprises' exploratory innovations are affected by their network ties with foreign investment enterprises. Empirical findings suggest that the number of foreign firm ties help host country firms engage in exploratory innovations. Other findings show that the strength and nature of ties are relevant for knowledge spillover. They indicate that strong ties and technology cooperation ties have a stronger positive effect on host country firms' exploratory innovation in contrast to weak ties and non-technology related ties. It is also found that government related ties have a positive moderating effect on foreign firm ties' effect on domestic firms' exploratory innovation.