Subnational FDI Legitimacy and MNC Subsidiary Location Strategy : Organizational Ecology and Identity Perspectives

Adopting an organizational identity-enhanced cross-level organizational ecology theory (OET) approach, we investigate how multinational corporations (MNCs) make subsidiary location decisions in response to increasing subnational FDI legitimacy in China. We suggest that the three constituent identities of organizational identity (i.e. social, relational and individuating identities) correspond respectively to the community, population and organizational levels of analysis in OET. Thus, organizational identity enables the use of OET to integrate hitherto fragmented literature into a holistic framework which considers not only organizational similarity but also strategic adaptation. We conceptualize subnational FDI legitimacy, country-of-origin (COO) agglomeration, and subsidiary ownership level and expatriate ratio as respectively reflecting the three constituent identities. We hypothesize an inverse-U relationship between FDI legitimacy and the likelihood of a province being chosen as a subsidiary location, and that this relationship will flip to a U-curve with increasing COO agglomeration levels. Additionally, we hypothesize that with increasing FDI legitimacy, the likelihood of a province being chosen as a subsidiary location will decrease with increasing subsidiary size and ownership level / expatriate ratio. We found supportive evidence of these hypotheses. We discuss how organizational identity can enhance OET into a ‘general theory of location choice’ and inform MNC location choice research