Research Article
A Study on Factors Affecting the Performance of Overseas Production Subsidiaries
Published: January 2000 · Vol. 29, No. 2 · pp. 37-64
Full Text
Abstract
Korean firms' foreign direct investment has increased dramatically since the late 1980s, and in extreme cases, some firms no longer engage in domestic production at all. This study examined, from the perspectives of global deployment and technological learning, what quantitative share a firm's domestic production base should maintain and what qualitative role it should play. In quantitative terms, the degree of globalization of the production system was found to have a U-shaped nonlinear relationship with subsidiary productivity and innovativeness. This result implies that there is no optimal point for the degree of globalization—that is, the ratio of overseas production capacity to domestic production capacity is not an important issue in itself. In qualitative terms, the role of the domestic production base was found to become more important as the degree of globalization increased. As the degree of globalization rises, coordination for technology transfer from the domestic production base becomes more critical. Analysis of interaction terms revealed that when the degree of globalization is high, subsidiary performance can be enhanced through further globalization regardless of the level of coordination with the domestic production base. When the degree of globalization is low, further globalization can enhance performance only when the level of coordination is high; when the level of coordination is low, further globalization actually undermines subsidiary performance.
