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

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. Journal of International Business Studies (2013) 44, 66-87. doi:10.1057/jibs.2012.32