Purpose – The study draws on the resource-based view and the contingency view of strategy. The purposeof this paper is to contribute to international strategy literature by extending the current understanding offoreign subsidiary’s competitive strategy in terms of cost leadership and product differentiation.

Design/methodology/approach – Hypotheses concern associations between corporate supportbuilding on product and skills relatedness and subsidiary strategies. Also, it is hypothesized that strategiesare due to the type of local competitive intensity. The hypotheses were tested on wholly owned subsidiaries ofSwedish industrial firms in Germany, the UK and the USA.

Findings – Product and skills relatedness between the subsidiary and the corporate core unit are positivelyassociated with the subsidiary’s emphasis on cost leadership. Also, a positive association was found betweenskills relatedness and product differentiation, and extensive competitive intensity strengthens therelationship.

Research limitations/implications – The study specifies what business relatedness is needed for asubsidiary’s competitive strategy; skills relatedness is more important than product relatedness; thetype of local competitive intensity is important; corporate support and local strategy operatesimultaneously.

Practical implications – Management is advised to implement a foreign subsidiary’s competitivestrategy by recognizing the mechanisms identified in this study.

Originality/value – In a unique way, the study captures the role of corporate support of a foreignsubsidiary’s competitive strategy relying on business relatedness and the importance of aligning the strategywith competitive intensity.