The Impact of Digital Transformation on the Breadth of Outward Foreign Direct Investment in Manufacturing Enterprises: A Dual Perspective of Functional and Spatial Dimensions

Abstract

Aims: Previous research predominantly measures OFDI breadth by host-country coverage and lacks a firm-level measure of the functional dimension. This study investigates the impact of digital transformation on the breadth of outward foreign direct investment (OFDI) in manufacturing enterprises, specifically examining the functional and spatial (geographical) dimensions. Study Design: An empirical quantitative study using firm-level panel data was conducted. Place and Duration of Study: The study covers Chinese A-share-listed manufacturing companies on the Shanghai and Shenzhen stock exchanges from 2014 to 2024. Methodology: The degree of corporate digital transformation was measured based on word frequencies in annual report texts. A dual-dimensional index comprising spatial breadth and functional breadth was constructed, and a comprehensive breadth index was subsequently synthesised using the coupling coordination method. A two-way fixed effects model was employed to estimate the baseline relationship. Results: First, digital transformation is positively and significantly associated with the expansion of OFDI breadth in manufacturing firms, manifested in increased overseas country coverage and the diversification of value chain activities. Second, an examination of specific functional entries reveals that this impact is unevenly distributed; it is primarily concentrated on functional segments such as overseas R&D and marketing, with no significant effect on overseas production. Third, at the firm-year-country level, enterprises with higher degrees of digitalisation exhibit a stronger inclination to enter host countries characterised by high income levels and well-developed digital environments. Fourth, the underlying mechanisms are improvements in total factor productivity (TFP) and enhancements in digital technological innovation capabilities associated with digital transformation. Conclusion: By integrating functional breadth into the measurement of OFDI breadth and documenting digitalisation's selective promotion of overseas R&D and marketing functions, this study shows that digital transformation is associated not only with a wider spatial scope of manufacturing enterprises "going global," but also with changes in the functional composition and location orientation of their overseas layout. These findings provide empirical evidence for understanding the morphological evolution of Chinese manufacturing firms' internationalisation in the digital era.