Performance below Aspirations and FDI Location Decisions of MNEs: The Moderating Role of Strategic Orientations

Recent studies have suggested that performance shortfall relative to aspirations influences MNEs’ FDI location decisions, while not examining boundary conditions of this relationship. The current research addresses this gap by exploring how firms’ R&D intensity and gross margins moderate the relationship between performance shortfalls and FDI location decisions. While underperforming firms are generally inclined to invest in developing rather than developed countries for short-term performance recovery, firms focusing on long-term initiatives—which are proxied by their R&D intensity and gross margins—are less likely to pursue investing in developing countries instead of developed ones in response to underperformance. This is because developing markets often lack the stability and high-value opportunities needed for performance recovery of firms with high R&D intensity and gross margins. Analyzing data on U.S. MNEs' FDI activities from 2017 to 2022, I found support for these hypotheses. This study contributes to performance feedback and international business literatures by demonstrating that performance shortfalls do not uniformly lead to a specific corporate strategy; instead, strategic orientations of a firm influences how it responds to performance below aspirations, especially in the context of FDI location decisions.