Roles of foreign‐owned subsidiaries in a European peripheral economy

Abstract

PurposeThe purpose of this paper is to advance understanding of the context and essence of foreign investments in an intermediate‐level economy and to revitalize the discussion on the differentiated strategic roles of subsidiaries within the multinational enterprise (MNE) network.Design/methodology/approachA unique questionnaire‐based survey – including 112 usable responses – was carried out. The role of subsidiaries is categorized according to their market and value‐added scope. Pair‐wise analysis has identified six roles for foreign operations (local servers, advanced replicas, regional operators, regional hubs, global specialists, and world product mandates). Average responses, frequency distribution and statistical analysis have been used in order to identify the prevalence of each subsidiary type in Greece.FindingsFindings indicate that foreign operations in the focal country have a rather market‐seeking rationale. However, a considerable percentage of MNEs aims at widening the functional scope of their subsidiaries through knowledge‐seeking investments. Subsidiaries in Greece seem to escape from an introverted focus on the local market through an intense export orientation towards EU countries and the Balkan region.Research limitations/implicationsThe core of the paper is to identify subsidiary roles in a country of EU “periphery.” One should be very cautious in generalizing the results for more advanced economies. Moreover, limited attention is ascribed to firm‐specific determinants (e.g. size, years of operation, country of headquarters (HQs) origin) of subsidiary roles, and other environmental (e.g. situational constraints) characteristics.Practical implicationsGovernments in small countries should provide the incentives for creating an attractive environment for more qualitative investments. International managers should not ignore the potentials for advanced knowledge‐related competitiveness of small countries. Foreign operations should reorient their investment interests in countries within regional blocs, since they can benefit from agglomeration economies.Originality/valueA new classification for subsidiary roles is proposed. There is currently limited evidence on the differentiated subsidiary roles in a small economy. The paper is believed to be the first to present a detailed analysis, for Greece, of the strategic bases for MNEs' expansion.