Innovation in emerging markets often depends on more than just local talent or government policy. External networks matter too. This paper on foreign ownership and open-source software adoption in Thailand makes that point very clearly.
Using data from more than 34,000 registered companies, the authors examine whether international investment encourages firms to engage in open innovation. The short answer is yes — but mainly for larger firms.
What the study found
The main finding is that foreign ownership increases the probability of using open-source software by around 3.4% to 3.9%. That is a meaningful result. It suggests that international investors may bring not only capital, but also openness to external knowledge, better digital practices, and stronger innovation norms.
But the effect is not universal.
The positive relationship is found only in firms with more than 100 employees. Smaller firms do not show the same benefit, which suggests that innovation spillovers are not automatically absorbed by every business.
Smaller firms often lack the absorptive capacity needed to make use of foreign technology spillovers. They may not have enough internal systems, staff, or technical capability to turn outside knowledge into practical innovation. Open innovation is not just about access to information — it is also about whether a firm has the structure to use it.
ICT infrastructure and human capital
The study highlights two key enablers: ICT infrastructure and human capital. These are not surprising, but they are important. Firms that already have stronger internal systems are better able to integrate open-source tools, experiment with new technologies, and adopt external ideas effectively.
In other words, foreign ownership is more likely to matter when the firm already has a base of digital readiness. That is a useful reminder for both business owners and policymakers. You cannot assume that foreign investment will create innovation on its own. The receiving firm also needs capability.
Why this matters for emerging markets
The broader lesson is that innovation in emerging markets is shaped by the interaction between external capital and internal capacity. Foreign ownership can introduce new technology networks and new expectations. But those spillovers only translate into real innovation when the firm can absorb them.
That means policy support should not focus only on attracting foreign investment. It should also strengthen digital infrastructure, worker skills, internal management systems, and the conditions that allow smaller firms to scale. That is where the real long-term impact comes from.
Who should pay attention
| Audience | What this means for you |
|---|---|
| Policymakers | Foreign investment policy should pair capital attraction with capability building — digital infrastructure, workforce skills, and support for smaller firms to scale |
| International investors | Your investment is more likely to generate innovation in firms that already have ICT infrastructure and skilled staff — capacity matters as much as capital |
| SME owners | Foreign partnerships can accelerate digital innovation, but you need internal systems and technical capability first — build the foundation before seeking external capital |
| Innovation researchers | The 100-employee threshold is a useful empirical marker — absorptive capacity is not just a theoretical concept but a measurable constraint on technology spillovers |
The bigger picture
Open innovation is not just a technology issue. It is a capacity issue. Foreign ownership can help firms move toward open-source adoption and broader digital innovation. But the benefits depend on size, internal systems, and the ability to absorb external knowledge.
This paper is useful beyond Thailand. It speaks to a much bigger question in emerging markets: how do you turn global connection into local innovation? The answer is that you need both the external network and the internal foundation.
Innovation is rarely produced by one factor alone. Foreign ownership matters. But so do firm size, ICT infrastructure, and human capital. If you want digital innovation to spread in emerging markets, you need to build both sides of the equation.
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Sherry Xu's research covers PropTech, AI, sustainability, and investment strategy across global markets.