Can’t take the heat? Climate and foreign subsidiary locations

Abstract

PurposeThis paper aims to build upon climato-economic theory to investigate the issue of climate’s effect on foreign expansion and location choice.Design/methodology/approachThis empirical paper looks at foreign subsidiary location through the lens of the climato-economic theory. To do this, the study uses a balanced data set, looking at foreign expansion before, during and after the global financial crisis of US multinational firms. A multilevel step-wise regression is used to look at climate, culture and economic effects on foreign location choice.FindingsThe findings suggest that US multinational enterprises tend to have fewer foreign subsidiaries in countries with extreme climates, and they prefer locations with warmer climates, avoiding locations with colder climates, although they gravitate toward locations with less sunshine. Climate emerges as an important factor in location choice, with greater weighting than other factors, including economic and cultural factors in times of economic calm, but the weightings of the factors change during times of economic crisis.Originality/valueThis paper contributes to the global business literature by extending the climate-economic theory to macro levels affecting the firm. The paper is the first to look specifically at how climate affects foreign subsidiary location.