Leveraging the benefits of location decisions into performance: A global view from matched MNEs

We examine how firms leverage their resources, through FDI decisions into profits growth. Drawing on over 19,000 multinational firms, we employ a matching process and find that while investment in developed countries leads to productivity improvement, profits growth is not automatic, but requires continued productivity growth. Contrasting the emphasis placed on different firm-level resources by the resource-based view and the knowledge based view, we show that a firm's capability to invest in firm-specific assets accelerates the speed of reaping the rents from knowledge seeking FDI in developed countries. In addition, profits growth as a result from investing in developing countries is greater for firms who appoint foreign directors from the same global or regional cluster as their foreign subsidiaries. Moreover, developing country MNEs, if properly deploying their firm resources, can leverage the benefits of FDI location into performance better than developed country MNEs.

Automated summary

The research shows that investment in developed countries can improve productivity, but sustained productivity growth is needed to achieve profits growth. Furthermore, a firm's capability to invest in firm-specific assets can accelerate the speed of reaping the rents from knowledge seeking FDI in developed countries.