How does the domestic firm utilize spillovers from foreign suppliers in its post-absorption strategic development? A qualitative study in China based on the behavioral theory of the firm

Expanding upon the literature on foreign supplier’s spillovers, which predominantly adopts an economic lens and focuses on short-term effects on the domestic firm’s performance increases, our study employs the behavioral theory of the firm to investigate the long-term effects of these spillovers on the strategic development of domestic firms in the post-absorption stage. We conducted a case study of a Chinese distributor that grew into a diversified conglomerate over twenty years after absorbing spillovers from its dominant foreign supplier. Based on richly grounded data collected from this particular distributor firm, our findings reveal that these spillovers enhanced short-term performance and played a crucial role in guiding the firm’s search behaviors for recruiting new suppliers and entering new businesses over the long term. Moreover, we have identified search barriers imposed by the foreign supplier and local government that hindered the domestic firm’s search behaviors until economic reform policies were implemented.