Clustering strategy and development of subsidiaries in China

Location is a critical decision for multinational enterprises as it affects the growth of their foreign direct investment (FDI) in the host country. Although clustering provides information- and knowledge-based advantages, it also entails costs and risks associated with the hazards of competition, congestion and imitation. Consequently, heterogeneous influences may arise from the clustering, producing unexpected results. This paper aims to analyse the association between the portfolio of decisions relative to internationalization, (e.g. the decision to choose a clustered location, and their relationship to the subsidiary’s future investment. Our qualitative empirical study is based on a sample of 31 Spanish firms investing in China. The findings suggest that manufacturing firms—efficiency seekers—associate more with clustered locations than trading-service firms—market seekers. The connection between clustering and Spanish subsidiaries’ outlook is heterogeneous across the different types of investment, namely, market versus efficiency seekers, since there is a certain level of association between the decision of future reinvestment and the original strategic motivation to enter. Thus, the findings have several implications for both practitioners and policy-makers wanting to attract increased levels of FDI.