Location still matters! How does geographic configuration influence the performance-enhancing advantages of FDI spillovers?

Abstract Although many studies on FDI spillovers either implicitly or explicitly consider the firm as a single-location entity, most countries are dominated by multi-location business groups that consist of several affiliates. Business groups and their affiliates operate in different subnational regions and vary in their responsibilities (i.e., research and development, manufacturing, and marketing & sales) as well as in their ability to coordinate internally and minimize spatial transaction costs. We argue that such variations in turn affect the ability of business groups to benefit from intra- and inter-regional FDI spillovers. We advance prior research by examining how the effects of FDI spillovers on the performance of indigenous business groups in China are influenced by 1) the location and the geographic dispersion of their portfolios of affiliates and 2) the responsibility of each affiliate. Our analysis shows that the geographic dispersion of business groups has a profound effect on how much they benefit from FDI spillovers. It also shows that business groups are particularly effective in exploiting FDI spillovers through affiliates with marketing & sales responsibilities, while affiliates with other responsibilities are not effective in doing so.