– There is a lack of research on how the industrial firm's international strategy is associated with basic and advanced value-adding modes of the wholly owned foreign subsidiary. The purpose of this paper is to fill the gap by answering two questions: how are relatedness between the firm and the foreign subsidiary, and the firm's international scope associated with foreign subsidiary's value-adding mode? How does the subsidiary's market experience moderate the relationships?
– The study develops a conceptual model that integrates strategy theory and internationalization theory in order to explain basic value-adding modes (promotion, sales, and after-sales services), and advanced modes that also include product development and/or production. Also, the study tests the model using statistical data from subsidiaries of Swedish firms operating in Germany, the USA, and the UK.
– It was found that greater relatedness between the core business unit of the parent firm and the foreign subsidiary favors a basic mode. However, the foreign subsidiary's market experience weakens the relationship, and the interaction triggers an advanced mode. Also, greater international scope of the firm favors an advanced mode.
– The model test shows that research needs to consider both international strategy and market experience in explaining value-adding modes of an industrial firm's wholly owned subsidiary.
– By using the study contributions the industrial firm's efforts to efficiently implement international strategy would become more efficient as strategy coherence will increase.
– This paper contributes to literature on international strategy and internationalization by showing that international strategy and market experience of foreign markets mutually impact value-adding modes of wholly owned foreign subsidiaries.
