Grading Up or Fading Out?

Foreign subsidiaries play an important role in the restructuring and transformation of former centrally planned economies. As these foreign entities are embedded in international networks, their existence may lead to cross-border transfer of knowledge, managerial and marketing skills (Manea and Pearce, 2001b) that “promote the diffusion of new technologies through direct linkages or spillovers to domestic firms” (Altomonte and Guagliano, 2001: 4). Such effects should be appreciated as they tend to strengthen the international competitiveness of transition economies. However, the beneficial effects that foreign subsidiaries exert on the competitiveness of the host country depend, among other things, on the role that these subsidiaries have been assigned to perform in the international and sometimes global corporate network.