The two faces of foreign management capabilities: FDI and productive efficiency in the UK retail sector

We investigate the impact of management capabilities of foreign firms on the management capabilities and performance of domestic firms using survey data on the UK retail sector. On average, foreign-owned retail firms achieve higher management capability scores and are more productive than domestic firms. Our results suggest two faces of foreign management capabilities. On the one hand, capabilities that can be codified, for example human resource management capabilities, generate some positive spillovers on the relevant management capabilities of local firms. On the other hand, dimensions of capabilities that are more tacit and highly competitive exert a negative competitive effect on domestic firms’ own management capabilities. While the overall management capabilities of domestic firms are found to have a significantly positive effect on their own productive efficiency, we find no evidence of a direct efficiency effect of foreign management capabilities on local firms.

Research highlights▶ Two faces of foreign management capabilities. ▶ Capabilities that can be codified generate some positive spillovers on the relevant management capabilities of local firms. ▶ Dimensions of capabilities that are more tacit and highly competitive exert a negative competitive effect on domestic firms’ own management capabilities. ▶ Management capabilities of domestic firms are found to have a significantly positive effect on their own productive efficiency. ▶ But no evidence of a direct efficiency effect of foreign management capabilities on local firms.