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| Technology Exploration of Cross-border CVC: Dual Disadvantages and Investment Strategy |
| Zha Jun1,2,Xu Wanyu2 |
| (1.School of Business, Shanghai University of Finance and Economics, Shanghai 200433，China; 2.Faculty of Engineering, National University of Singapore, Singapore 117576，Singapore) |
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Abstract In recent years, developed countries have imposed a series of restrictions on Chinese enterprises in the cutting-edge technology field, setting new challenges to national technological security and social-economic stability. As a result, the Chinese government emphasizes independent research and development in significant technical areas and attaches importance to global cooperation and overseas technology exploration.#br#Cross-border corporate venture capital (hereafter Cross-border CVC) refers to venture capital activities initiated by an incumbent enterprise to overseas entrepreneurial enterprises. It is of great value to incumbent companies' innovation vitality, organizational resilience, and international competitiveness. Compared with traditional cross-border investment activities that target resource competition, scale expansion, and financial returns, cross-border CVCs face the “dual liability of foreignness”, which are "institutional liability of foreignness" due to the externality of foreign local network and unfamiliarity of foreign institutional environment and "technical liability of foreignness" caused by technologies gaps between investors and investees. This dramatically increases the difficulty and risk of cross-border CVC activities in selecting investment targets, project coordination, and pro-investment management. But little attention has been paid to the difficulties and challenges of CVC, especially cross-border CVC activities; the "black box" of cross-border CVC activities has not been opened.#br#This paper takes the cross-border CVC activities of four technology-based enterprises-Intel, Alphabet, Lenovo, and Baidu-as analysis examples and see their investing pattern covering CVC unit set-up, joint investment partners, technology fields selection, investment stage, and information disclosure. Based on real options (RO) theory, this study deconstructs the decision-making process of cross-border CVC activities into three phases: the design of RO executor, the layout of RO, and the holding of RO. #br#In designing the RO executor-CVC unit, the cross-border CVC usually faces significant information asymmetry in knowing institutional and technological environments. To reduce the disadvantage of low identity legitimacy and high technological gap, it is more suitable to have strong control upon the CVC unit at the early period and then promote the flexibility and autonomy of the CVC unit with the development of cross-border CVC. Besides, the joint investment strategy could also contribute to eliminating information asymmetry. More specifically, in the fields with technological advantages, cross-border CVC should avoid co-investments with domestic CVC, and collaborate with independent VC and GVC; whereas in the areas with technological unfamiliarity, cross-border CVC should collaborate with leading domestic CVC to improve the investing success chances. #br#In the second phase, to reduce the information and knowledge search cost and difficulties, firms could make complementary strategies in the selection of technology, region, and stages. First, cross-border CVC should focus more on familiar technological areas or organization urgent needs. With CVC experience accumulated, the investing technological portfolio could become more diversified. Second, cross-border CVC should concentrate more upon countries with outstanding innovation accumulation and environments and pay attention to the unique technologies of other countries. Third, as for the investment stages, firms need to consider both the A-and B-investment rounds to balance the exclusive ownership benefit and risk of new technology. #br#In the last phase, as for the problem of discrimination of home country and knowledge power gap, it is better to disclose information of cross-border CVC during the early stage but blur the detailed investment information like amount and equities. However, publicizing more investment detail in later stage of cross-border CVC contributes to the increase of market valuation of entrepreneurship firms and novel technology.#br#The paper makes several theoretical contributions. First, the “liability of technology” is introduced into the concept of “liability of foreignness”, enriching the former institutional dimension of “liability of foreignness”. In cross-border CVC activities, firms not only need to face the “liability of institutional foreignness”, but also the “liability of technological foreignness”. Second, based on the perspective of real options, this study analyzes how cross-border CVCs deal with " liability of foreignness". It focuses on how companies use and achieve the real option value of cross-border CVC and resolve the institutional and technical disadvantages they face, explores and expands the application scenarios of real options theory in the context of cross-border CVC. What’s more, this study expands the application scenarios of real options theory, opens the "black box" of the investment process of cross-border CVC for technology-based companies, and provides Chinese companies with a theoretical basis and practical guidance for the planning and implementation of cross-border CVC strategies .#br#
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Received: 06 April 2021
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