The purpose of this paper is to improve the existing knowledge of international strategy antecedents of foreign subsidiary performance. Hypotheses are developed regarding the impact of perceived relatedness between the foreign subsidiary and the parent firm’s core business unit, and the moderating effect of the subsidiary’s business strategy. In order to test the hypotheses, the study uses survey data from Europe (Germany and the UK), and the USA, and the subsidiaries belong to Swedishmanufacturing firms. Perceived relatedness regarding intangible resources affects foreign subsidiary performance positively. Competitive differentiation and market knowledge of a foreign subsidiary reinforce the performance impact of the perceived relatedness. A foreign subsidiary’s relatedness to the core business unit of its parent firm determines the subsidiary’s ability to assimilate the parent firm’s core competencies. The relatedness represents a synergy potential that is realized by the subsidiary’s core competence exploitation and economies of learning.

The paper extends current knowledge of international strategy antecedents of foreign subsidiary performance as it applies the perceptual approach to relatedness and acknowledges the impact of foreign subsidiary strategy.