Foreign Direct Investments and Strategic Alliances in Industrial Restructuring of Telecommunication Manufacturing in Central Europe

Abstract

Since beginning of economic transformation in the early 1990s, the most important international strategic alliances in telecommunication manufacturing in central European countries (CEC) have gradually been transformed into fully- or majorityowned subsidiaries of multinational enterprises (MNE). Therefore it could be concluded that these alliances have intrinsically been unstable and that MNEs implemented an encroachment strategy i.e. engaging at the outset in the alliance with the intention to take it over at a later stage. Furthermore, it could be proposed that domestic companies, initially involved as partnering firms in international strategic alliances did not benefit much from it, but with the shift in the balance of power in the alliance became, as a subsidiary, reliant on the headquarters of the MNE. As it will be demonstrated below, however, this perspective does not take into account, firstly, that domestic companies very much benefited from the transfer of knowledge, assets and resources from their Western counterparts in core areas and secondly, that they were able to assume central network positions in the international innovation and production networks of MNE which allowed them to catch up with industry leaders in telecommunication manufacturing in core areas such as research and development (R&D). Based on these transfer processes, Western manufacturers were able to take the role as a (foreign) network organizer and their subsidiaries could act as a driving force behind industrial restructuring in telecommunication manufacturing in CEC. As it will be shown in the following, the way in which domestic companies in CEC accumulated knowledge, resources and assets has strongly been depending on the sector specifics of telecommunication manufacturing. In order to gain access to the innovation potential in the industry, international strategic alliances initiated by domestic companies have mostly been horizontally by nature and oriented at the R&D stages of the industry's value added chain. We actually found that an integration of local subsidiaries amongst each other within the international innovation networks has been important in the development in telecommunication manufacturing.