Implications of Environmental Differences on Strategies of Multinationals' Manufacturing Subsidiaries*

Abstract

In this article, Sushil Vachani develops four propositions about how multinationals' operations are affected by differences in the environments of lessdeveloped countries(LDCs), middle-income countries(MICs), and developed countries(DCs). First, LDCs will be less inclined to host multinationals that have advertisingbased assets than those which have R & D based assets. Second, the proportion of multinationals' subsidiaries formed through acquisition will be smaller in LDCs than in DCs and MICs. Third, within LDCs (and MICs and DCs), the size of the country's industrial base is a contributing factor in the formation of multinational subsidiaries by acquisition. Fourth, the size of the local market has an important bearing on the proportion of export-oriented subsidiaries in a country. Vachani examines each of these propositions using a database of overseas subsidiaries of Fortune 500 multinationals. Drawing implications for managers of multinationals, the author emphasizes the importance of taking into account the differences in the political and econpmic environment of LDCs, MICs, and DCs when formulating business strategy.