Institutional and relational underpinnings of vertical FDI spillovers in international buyer-supplier relationships: Insights from automotive suppliers

Abstract

This study takes a fresh approach to explore the mechanisms of foreign direct investment (FDI) spillovers in the context of emerging economy firms, specifically focusing on the Turkish automotive industry. Given emerging economy firms' inherent constraints in R&D and resources, FDI serves as a critical avenue for them to acquire technological and managerial knowledge. While previous literature has extensively analyzed spillovers from an economic perspective, our research introduces a neoinstitutional perspective in organizational sociology to understand how these spillovers manifest and influence productivity and innovation. Importantly, we examine the role of international buyer-supplier relationships, a key aspect in shaping spillover outcomes. In so doing, we draw on rich qualitative data from 7 Turkish direct and sub-suppliers of large automotive multinational enterprises (MNEs). Our findings underscore the significant influence of the institutional context and relational mechanisms on the effectiveness of FDI spillovers, revealing why anticipated positive effects may not always materialize. This study contributes to the existing literature by addressing the limitations of prior research and provides practical insights for policymakers in emerging economies, empowering them to leverage FDI for economic growth and organizational success.