Foreign vs. domestic: What determines the origin of Chinese firms’ inward technology licensing?

The increasing prominence of cross-border technology sourcing urges us to ask a question: what factors and conditions may influence firms' decisions of sourcing technology domestically or internationally? Research on this topic is scattered in the literature but a comprehensive understanding of these factors and conditions on this issue is still lacking.

The aim of this paper thus is to establish a comprehensive framework that integrates factors affecting a firm’s propensity to make technology sourcing decisions regarding foreign or domestic origins of technologies. We identify four distinct categories of factors that are relevant in this respect: (1) technology supplier’s characteristics; (2) technology seeker’s characteristics; (3) features of technology itself; and (4) external contextual factors.

We test our hypotheses based on Chinese firms’ inward technology licensing. We found well-established incumbent firms that are export-, and high-tech-oriented with strong absorptive capacity are more likely to in-license foreign technology rather than domestic ones if the in-sourced technology is mature, the technology suppliers have strong desorptive capacity, and the external knowledge environment is innovative.