Environmental risks, localization and the overseas subsidiary performance of MNEs from an emerging economy

Despite the fact that multinational enterprises (MNEs) from emerging economies invest actively in host countries with substantial risks, we have limited understanding of how they manage environmental risks to achieve desirable performance in their overseas subsidiaries. Drawing on resource dependence theory, we argue that different localization strategies serve as a mediating mechanism linking environmental risks and overseas subsidiary performance. Our findings based on a sample of Chinese MNEs show that industry risks significantly reduce the levels of input localization and marketing localization of Chinese MNEs’ subsidiaries, and thus negatively affect subsidiary performance. Political risks have an insignificant impact on input localization and marketing localization, but a positive direct impact on Chinese MNEs’ overseas subsidiary performance. We also find that state-owned MNEs’ localization strategies are more sensitive to industry risks compared with privately owned MNEs.