Foreign Subsidiary Location Strategy and Financial Performance: A Global Value Chain Perspective

Abstract

In this paper, we examine the role of value chain positioning on the financial performance of foreign subsidiaries. There has been a growing trend of value chain disintegration in multinational corporations (MNCs). Based on the ownership-location- internalization (OLI) framework, we argue that such disintegration has a differential impact on performance of different subsidiaries. Foreign subsidiaries that are lower in the value chain of a MNC parent perform better than those that are higher in the value chain. Further, we argue that parent intangibles and parent's ownership strategy for a given subsidiary moderates the relationship between value chain positioning and subsidiary performance. We test and find support for our arguments on a panel data covering 8,736 manufacturing multinational parents and 22,412 of their foreign subsidiaries in 105 countries during the period from 2004 to 2013.