How does policy create an opportunity window for China’s digital economy?

From the initial stage of “bringing in” foreign firms to the stage of “going out” (going global), the four-decade development process of China is not just about its participation in globalization, but also about Chinese firms’ innovation based on global knowledge sourcing. This study provides a new interpretation of the technology catching-up of Chinese firms, incorporating the theory of windows of opportunity, considering policies as windows for international knowledge sourcing and technology catch-up. It assesses the impact on innovation performance of inward and outward foreign direct investment policies as institutional windows for knowledge sourcing, aims to identify the effective width of windows of opportunity and establishes how these policies lead to outstanding innovation performance by latecomers over time by leveraging external knowledge. Threshold models were adopted using data from multiple sources on 187 Chinese listed firms in the digital industry, including 2,807 firm-year observations. The results show that nonlinear relationships exist between institutional windows and innovation performance. The roles and mechanisms of institutional windows of opportunities in Chinese firms’ knowledge-sourcing process demonstrate the decisive effects of the Government’s internationalization policies and their role in promoting the development of Chinese digital technologies. Implications are elaborated for both policymakers and Chinese multinational firms in the digital industry.