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How much does subnational region matter to foreign subsidiary performance? Evidence from Fortune Global 500 Corporations’ investment in China

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Abstract

What explains the heterogeneity of foreign subsidiary performance? Previous studies have emphasized the importance of industry, corporate parent, and home-country effects on the variation of foreign subsidiary performance. Building on recent international business and economic geography research, this study examines the extent to which subnational region effects can also explain such performance variation. We empirically decompose the variance of the performance of Fortune Global 500 Corporations’ subsidiaries in China during 1998–2006. Results show that not only are subnational region effects statistically significant in explaining the variation of subsidiary performance, but their interactions with industry, corporate parent, and home-country effects are also significant and economically important. We further show that subnational region effects tend to be stronger in the period prior to China's WTO accession, and in the country's less-developed subnational regions. Our findings highlight the importance of considering both the direct and indirect roles of subnational region in shaping firms’ strategy and performance in international business research.

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Notes

  1. In the interest of consistency, we followed prior research to use the term “home country” throughout the paper to refer to these countries and political administrative regions.

  2. If covariance exists, the size of the measured effects will depend on the order in which the effects are introduced.

  3. We thank the anonymous reviewers for these ideas.

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Acknowledgements

We would like to thank Editor Paul Almeida and three anonymous reviewers for their valuable comments. This study was supported by two grants from the Research Grants Council of the Hong Kong Special Administrative Region (Projects No. CUHK451311 and CUHK4012-PPR-10) and two grants from the National Natural Science Foundation of China (Approval Nos.: 71002058, 71202090).

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Authors and Affiliations

  1. Department of Management, Chinese University of Hong Kong, Shatin, Hong Kong

    Xufei Ma

  2. Leeds School of Business, University of Colorado, Boulder, USA

    Tony W Tong

  3. Mays Business School, Texas A&M University, College Station, USA

    Markus Fitza

  4. The University of Newcastle, New South Wales, Australia

    Markus Fitza

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  1. Xufei Ma
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Correspondence to Tony W Tong.

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Accepted by Paul Almeida, Area Editor, 24 September 2012. This paper has been with the authors for three revisions.

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Ma, X., Tong, T. & Fitza, M. How much does subnational region matter to foreign subsidiary performance? Evidence from Fortune Global 500 Corporations’ investment in China. J Int Bus Stud 44, 66–87 (2013). https://doi.org/10.1057/jibs.2012.32

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