Determinants of Foreign Subsidiary Exploring Location-Specific Advantages: Capability Transfer and Experience Accumulation

Abstract

Concerning the increase of foreign investment activities and changes of global environment, performance of foreign subsidiaries has been a crucial issue. According to the classification of FDI motivation, we identify four types of location-specific advantages such as market advantage, resource advantage, efficiency advantage, and strategic asset advantage. Each advantage is complement with different ownership advantage of MNEs. For example, for those MNEs with R&D capabilities as core competence, FDI locations with resource, efficiency, and strategic asset advantages are preferred choices. On the other hand, MNEs with better marketing capabilities prefer FDI locations with market advantage. Therefore, the degree to which the foreign subsidiaries explore location-specific advantages depends on how well the parent firms transfer their core competence to them. For building the enduring enterprise, MNEs also try to use diversification strategies to enter new foreign markets. With accumulation of international and localized experience, foreign subsidiaries have more decision-making autonomy and higher operational efficiency. In this study, we think determinants of foreign subsidiaries exploring location-specific advantages includes the core competence of parent firms. It depends on whether related or unrelated diversification is executed and how much MNEs accumulate experience. To examine our hypotheses, we use Taiwan Economic Journal and China Statistical Yearbook as database source, tracking operating performance of Taiwanese subsidiaries in China from 2000 to 2013. Affirmative conclusion of interaction effects between foreign subsidiaries’ locational advantages and MNEs’ ownership advantages on the performance of foreign subsidiaries is made by empirical tests.



Author Information
Ching-I Chen, National Chi Nan University, Taiwan

Paper Information
Conference: ACPEL2016
Stream: Economics Business Administration and Business Economics; Marketing; Accounting

This paper is part of the ACPEL2016 Conference Proceedings (View)
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