Local Embeddedness and Growth of Non‐local Firms

ABSTRACT 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.