Foreign value-adding of industrial firms : Associations with international strategy and market experience

Purpose – There is a lack of research on how the industrial firm's international strategy is associated with basic and advanced value-adding modes of the wholly owned foreign subsidiary. The purpose of this paper is to fill the gap by answering two questions: how are relatedness between the firm and the foreign subsidiary, and the firm's international scope associated with foreign subsidiary's value-adding mode? How does the subsidiary's market experience moderate the relationships? Design/methodology/approach – The study develops a conceptual model that integrates strategy theory and internationalization theory in order to explain basic value-adding modes (promotion, sales, and after-sales services), and advanced modes that also include product development and/or production. Also, the study tests the model using statistical data from subsidiaries of Swedish firms operating in Germany, the USA, and the UK. Findings – It was found that greater relatedness between the core business unit of the parent firm and the foreign subsidiary favors a basic mode. However, the foreign subsidiary's market experience weakens the relationship, and the interaction triggers an advanced mode. Also, greater international scope of the firm favors an advanced mode. Research limitations/implications – The model test shows that research needs to consider both international strategy and market experience in explaining value-adding modes of an industrial firm's wholly owned subsidiary. Practical implications – By using the study contributions the industrial firm's efforts to efficiently implement international strategy would become more efficient as strategy coherence will increase. Originality/value – This paper contributes to literature on international strategy and internationalization by showing that international strategy and market experience of foreign markets mutually impact value-adding modes of wholly owned foreign subsidiaries.