Local conditions, entry timing, and foreign subsidiary performance

Abstract

This study examines whether local conditions (i.e., location-bound advantages and local density) are significantly related to foreign subsidiary performance in an emerging market. We also explore the moderating effect of entry timing on the relationship between local conditions and foreign subsidiary performance. Analysis of a longitudinal dataset of 357 foreign subsidiaries in an emerging market (the People’s Republic of China) from 2006 to 2012 provides evidence that location-bound advantage is positively related to foreign subsidiary performance and local density is negatively related to foreign subsidiary performance. Furthermore, these relationships are significantly contingent on timing of entry. Our findings highlight the importance of local conditions and entry timing mitigating liability of foreignness and enhancing foreign subsidiary performance.