Asset seeking foreign direct investment : the role of lead users.

Summary The literature on asset-seeking FDI ignores the role of lead users. The thesis, through two game theory models, shows the impact of lead users on the trade-off between FDI and exports. All else being equal, according to the first model, FDI is more profitable in a supply-driven innovation, to learn about the advanced needs of lead users, but the higher the risk of product misspecification with respect to local needs. The probability of misspecification increases with the radicalness of the technology and the difference between the usage environment of the two countries. According to the second model, the "lead user" revealing his innovation attracts FDI by increasing the tacit knowledge embedded in the innovation. To push the investor to develop the innovation, the lead user maximizes the generality of the innovation and its tacit component. If the multinational has a high level of specific assets, an arrangement will give it an advantage over its potential competitors. For a Pareto equilibrium, the investor maximizes the improvement he brings to the innovation and favors the "lead user" over other users. In Egypt, there are barriers between the willingness to adopt information and communication technology (ICT) and its actual adoption. Subsidiaries integrated into local innovation networks are helping to bridge the digital divide in terms of usage. Interviews with e-government leaders show that the government willing to disseminate ICTs can become an innovative "lead user.