The impact of technology-sourcing outward FDI in the upgrading of global value chain

The developing countries who are embedded in the low end of global value chain can realize industrial upgrading through outward FDI, which helps them to be geographically adjacent to companies with high technology and take the advantage of technological diffusion. The precondition for outward FDI is that the net present value of the marginal cost reduction brought by Outward FDI is larger than its average fixed cost. The conceptual framework of Outward FDI of two companies is constructed. It is found that sales turnover and industrial wage are two key factors impacting on outward FDI despite that it is process upgrading or product upgrading that contributes to its moving forward in value chain. Large global sales turnover helps realizing economy of scale and splitting investment cost. The high wage rate improves the importance of technology in the competition with companies in developed countries.