MNEs’ strategies in Central and Eastern Europe: key elements of subsidiary behaviour

Abstract

Abstract * At the centre of the interface between the developmental needs of national industry and evolutionary processes in the MNEs' subsidiaries are knowledge-seeking and knowledge-generation processes. * Based on new survey evidence, we examine the strategies of MNE in Central and Eastern Europe (CEE). In particular, we investigate the knowledge characteristics of MNE subsidiaries in CEE by analysing the roles of subsidiaries, market orientation and sources of technology over time. Key Results * Initially market-seeking operations dominated in CEE, with little integration of CEE subsidiaries into global MNE networks. The relative scarcity of export-oriented efficiency-seeking operations in CEE can be explained by persistent high-levels of uncertainty in CEECs and resistance from MNEs' longer-established Western European manufacturing subsidiaries. * European MNEs pursue the most country-centred strategies while the Asian MNEs have the highest export-orientation. Also it is found that CEE subsidiaries in motor vehicle and mechanical engineering have the highest export-orientation to European Union markets. However we suggest that product differentiation using CEE creative capabilities (i.e. technology and engineering expertise) rather than cost-competitiveness, may ultimately secure a more sustainable and embedded entry into MNEs' wider European (or global) networks. * Host governments may consider targeted and coherent policies that reduce business uncertainties and, thus, may sway MNEs to locate higher value-added activities in their country. Introduction MNEs pursue a variety of strategic objectives when investing in Central and Eastern Europe (CEE), thus establishing different types of operations (Estrin/Hughes/Todd 1997, Mutinelli/Piscitello 1997), and interacting in different ways with the host economy. This paper examines which alternative strategies are being pursued by multinational enterprises (MNEs) in CEE and their implications for the processes of industrial transformation and economic development in CEE. The contributions to the host economy would greatly vary with the heterogeneity of MNEs' operations and evolutionary processes that emerge at subsidiary level. Our analysis thus aims to provide a fuller understanding of how MNEs contribute to sustainable economic development. At the centre of the interface between the developmental needs of the host-country economy and evolutionary processes in the MNEs' subsidiaries are knowledge-seeking and knowledge-generation processes. A major research concern is thus how MNEs contribute to knowledge accumulation by providing a creative component in the transformation of transition economies (Dunning 1994, Manea 2002, Meyer 2004). This study addresses these issues by analysing the characteristics of subsidiaries that may influence the nature and value of MNEs' contribution to economic development. Recent research has analysed MNE operations in CEE economies in terms of motivations for foreign investment and types of subsidiaries (Lankes/Venables 1996, Mutinelli/Piscitello 1997, Meyer 1998, Rojec 1994, Rojec/Svetlicic 1993, Estrin et al. 1997, Donges/Wieners 1994). We go beyond this literature by considering the contribution of foreign enterprises to transition economies as being caseor role-specific. Subsidiaries have different strategic roles in their MNE group and vary in many attributes and their business activities. In consequence, they differ in their interactions with the local environment and their contribution to economic development (Meyer 2004). The needs of transition economies have evolved in two distinct phases: 1) the fundamental restructuring of the industrial sector and 2) the post-transition phase with more steady changes. The second phase involves different challenges as firms and countries have to sustain international competitiveness by developing and exploiting dynamic sources of comparative advantage. …