Global Value Chain Activities in Host Country and Foreign Subsidiary Performance: The Role of Local Knowledge, Entry Model Strategies

Zhaohui Zhang; Zhicheng Peng

doi:10.6981/FEM.202511_6(11).0023

Authors

Zhaohui Zhang
Zhicheng Peng

DOI:

https://doi.org/10.6981/FEM.202511_6(11).0023

Keywords:

Host Country Global Value Chain; Foreign Subsidiary Performance; Local Knowledge; Entry Mode.

Abstract

This paper explores the extent to which the performance of foreign subsidiaries is affected by country, sector and company factors, using the company level panel of more than 61,000 foreign subsidiaries in 103 economies. We found evidence that the increase of GVC participation and GVC position of host countries improved the financial performance of foreign subsidiaries. This shows that the more active the host country is in the global value chain activities, the greater the market potential, so that foreign companies can obtain higher returns. The study also found that this positive return was also affected by the differences in local knowledge and entry mode strategies of foreign subsidiaries. In addition, this paper also conducted a variety of robustness tests and discussed the endogenous problem. Our findings support the basic principles of international production and division of labor and advocate that a country should participate more in global production in order to attract foreign investment.

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