Does location choice affect foreign subsidiary success in India? An empirical study based on Porter's diamond model

Dirk Holtbrügge and Carina B. Friedmann

International Journal of Business and Emerging Markets, 2016, vol. 8, issue 1, 3-29

Abstract: Since India began to liberalise its economy in 1991, the country has become increasingly attractive as a location for foreign direct investment (FDI). However, FDI is distributed very unevenly across the country. While, for example, the state of Maharashtra accounts for 34% of all FDI inflows into India, other states like Assam with 0.1% hardly attract any FDI. The differences are even larger when considering FDI disparities on a district level. Despite this imbalance, academic studies on location factors driving FDI success are lacking. In this study we investigate the factors that determine the degree of subsidiary success in India. Based on Porter's diamond model we develop five hypotheses and test them against a sample of 113 foreign firms. Our data show that subsidiary success is predominantly determined by the availability of human capital. A significant influence is also revealed for the level of governmental regulations and the availability of suppliers. Conclusions are drawn for management and policy makers as well as for theory building.

Keywords: FDI; foreign direct investment; location choice; subsidiary success; India; Porter's diamond; foreign subsidiaries; human capital; government regulations; supplier availability. (search for similar items in EconPapers)
Date: 2016
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