Local Embeddedness and Growth of Non-local Firms

This paper examines the role of local embeddedness in shaping the growth performance of non-local enterprises. We conceptualize local embeddedness along two dimensions: relational closeness and relational trust. Using firm-level survey data on Hong Kong and Macao enterprises investing in mainland China, our analysis reveals that a one standard deviation increase in local embeddedness corresponds to a 3.4% rise in enterprise growth. Differentiating between various types of embeddedness, we demonstrate that both market connections and institutional ties contribute comparably to the success of non-local enterprises. Furthermore, the impact of local embeddedness is particularly pronounced in service-oriented sectors that require frequent interactions with peers and customers. We also provide evidence that local embeddedness affects the growth of non-local firms mainly through channels of information resources, reputation signals and crisis alleviation. Our work is a useful complement to the extant literature on non-local firms' development and has relevant implications for both managers and policymakers.