Leveraging Digital Business Competencies to Achieve Dual Circulation Ambidexterity for Chinese Companies

Against the backdrop of changing global economic environments such as deglobalization, decoupling, the COVID-19 pandemic, and supply chain disruptions, China has formulated an economic policy of "domestic and international dual circulation." Its central tenet is to prioritize domestic consumption (internal circulation) while maintaining openness to international trade and investment (external circulation). At the company level, the policy opened the door for Chinese companies to develop their own "dual circulation ambidexterity", which occurs when they simultaneously exploit the domestic market potential while exploring opportunities in the global market. However, how can companies break
through the boundaries of domestic and global markets to develop this ambidexterity?

Building upon the insights from the resource-based view and organizational ambidexterity and integrating them with international business literature, we develop a conceptual framework that depicts the antecedent, consequences, and boundary conditions of dual circulation ambidexterity. First, companies must stay relevant to their current and future customers. Market exploitation requires a company to leverage existing knowledge, resources, and competencies to exploit the domestic market, while market exploration enables the company to search for new knowledge, resources, and competencies in foreign markets. Although these two activities require different strategies and practices, the synergy
of simultaneously engaging both enables a company to achieve superior performance.

Second, prior ambidexterity literature suggests that firms can achieve a balance between two seemingly contradictory activities if they have the right set of competencies in place. Therefore, we further propose that in the international business context, firms must learn and acquire digital business competence (DBC), which is a critical set of capabilities, including digital technologies, digital analytics, digital connectivity, digital integration, and digital control and security, that facilitate companies to develop their ambidexterity.

Furthermore, because global markets exhibit diverse institutional backgrounds, institutional distances can alter companies' ambidextrous pursuits and their performance impact. We consider two types of institutional distances: (1) home-host institutional distance, which is the average score of institutional distances between a company's home and all host countries, and (2) host-host institutional diversity, which measures the diversity of institutional environments of the company's host countries. We propose that while both institutional distances weaken the effect of DBC on ambidexterity, they strengthen the impact of ambidexterity on performance.

This research will contribute to multiple literature streams, including digitalization, ambidexterity, and international business. It will also offer a set of practical guidelines for companies undergoing digital transformation.