Performance feedback and location choice: a study on Chinese Firms’ OFDI to developed and developing economies

Abstract

While performance feedback is widely recognized as a trigger for search, there is limited understanding of how firms evaluate and prioritize specific strategic alternatives in response to performance deviations. To address this, we extend performance feedback theory by integrating the resource-based view (RBV) and attention-based view (ABV). We use RBV to categorize the strategic options into resource-seeking and market-seeking, and ABV to explicate the behavioral mechanism—specifically, shifts in temporal attention—that directs firms’ choices. We argue that performance feedback shifts managerial attention across time horizons: negative feedback triggers a focus on short-term recovery, driving firms toward developed economies for immediate resource upgrading; conversely, positive feedback shifts attention to long-term capability building, leading firms to avoid the imitation risks inherent in developing economies. Using data on Chinese firms’ OFDI, we find that deviation from profitability goals (both negative and positive) prompts firms to prioritize developed economies over developing ones, albeit through distinct attentional mechanisms. These effects are amplified in high-growth industries, where performance gaps are more likely to be attributed to internal resource deficits. Our study contributes to performance feedback theory by elucidating how attentional shifts shape the specific direction of firm strategic responses, and to international business literature by clarifying the behavioral mechanisms behind emerging market firms’ investment directions.