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Environmental influences on MNE subsidiary roles: economic integration and the Nordic countries

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Abstract

We seek to examine the importance of environmental factors in determining MNE subsidiary roles. In particular, we examine the environmental factors associated with ‘deep’ integration schemes such as the EU. Such schemes require a convergence of economic structure, due to the establishment of common regional institutions, regulations and policies. Specifically, we distinguish between the scope of activities performed by subsidiaries, and the level of competence of those subsidiaries. The empirical analysis is based on a large-scale survey of foreign-owned units in Denmark, Finland and Norway. These Nordic countries differ with regard to their EU-membership status – Norway being the ‘outsider’, while the others are members – but are very similar to each other in most other respects. Our data show that subsidiaries in Norway report significantly lower scores for both scope of activities and levels of competence. The effects remain strong even when we are controlling for other potentially influential factors. The findings indicate that being on the ‘outside’ of the EU may indeed carry the price of becoming less attractive to MNE activity.

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Notes

  1. Research on firm-level issues has concentrated primarily within two streams, focusing on particular locations or kinds of activities. The first body of literature is associated with the effects of integration on the location of R&D activities (e.g., Mariani, 1999; Pearce, 1999; Gerybadze and Reger, 1999). The second is associated with economic geography, focusing on the interaction between MNEs and location but with an emphasis on macro-organizational and policy issues. See Dicken (1998) for an overview.

  2. Including another small and peripheral ‘EU outsider’ country alongside Norway would have provided an even stronger research design; Switzerland is an obvious, albeit not ideal, case. Unfortunately, we do not have comparable data on foreign subsidiaries in Switzerland or in other small European states that remain outside the EU.

  3. The cut-off criteria used in the various countries were very similar. In Denmark, only companies with at least 20 employees were chosen. In Norway, only companies with sales of 10 million NOK or more were selected. In Finland, the cut-off points were either a yearly turnover of 5 million FIM or at least 20 employees.

  4. In order to check the robustness of results, an ordinal regression was also conducted with SCOPE as dependent variable (SCOPE has a range of 1–7, and can be considered as a polytomous ordinal response variable). The results for both the reduced and the full models are very similar to those obtained for the OLS regressions. The reduced model attained a pseudo-R2 (Nagelkerke) of 0.02 with the coefficient of EU-MEMBER significant at P⩽0.01. The full model produced a pseudo-R2 (Nagelkerke) of 0.25 with the same set of coefficients being significant as those for the OLS regression in model 2 (i.e., EU-MEMBER, NORDIC-PARENT, ACQUISITION, YEARS, SIZE, and EXPORT). We thank an anonymous reviewer for suggesting this robustness check.

  5. The only noteworthy exception is the SCOPE-regression for the sub-sample consisting of MNEs from outside the EU (model 6), where the coefficient for EU-MEMBER is not significant. Hence, in contrast to EU-based MNEs (whose subsidiaries in Norway are likely to conduct fewer activities than their counterparts in Denmark and Finland), for subsidiaries of non-EU-based MNEs, it does not matter for the scope of their activities whether they are located in Denmark, Finland or Norway. The indifference of non-EU-based MNEs in their choice of location may be due to the fact that they have fewer units elsewhere in Europe on which individual subsidiaries can rely for assistance and supplies. Any given subsidiary hence has to operate relatively autonomously.

  6. In particular, subsidiary-level spending on training and education, which can be expected to explain much of the variance in competence levels, has not been included in our specification. It should be emphasized that the main objective of this article has not been to develop a comprehensive model to explain subsidiary scope and competence levels, but to explain differences in subsidiary roles as a result of regional integration.

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Acknowledgements

Previous versions were presented at the Nordic Workshop in International Business, Idöborg, Sweden, May 2001; the Academy of International Business Annual Conference, Sydney, Australia, November 2001; and the European International Business Academy Annual Conference, Paris, France, December 2001. We thank participants at these meetings, Tore Abrahamsen, Trond Vahl, and the three anonymous reviewers for their comments. Research funding was provided by the Research Council of Norway (project 139982/510 ‘Globalization and Internationalization of the Norwegian Economy’).

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Authors and Affiliations

  1. Norwegian School of Management BI, Elias Smiths vei 15, Sandvika, N-1302, Norway

    G R G Benito & B Grøgaard

  2. Copenhagen Business School, Howitzvej 60, Frederiksberg, DK-2000, Denmark

    G R G Benito & R Narula

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  1. G R G Benito
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  2. B Grøgaard
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  3. R Narula
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Correspondence to G R G Benito.

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Accepted by Tom Brewer, Outgoing Editor, 14 January 2003.

Appendix

Appendix

Classification of cluster industries in the Nordic countries, see Table A1.

Table 8 Table a1
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Benito, G., Grøgaard, B. & Narula, R. Environmental influences on MNE subsidiary roles: economic integration and the Nordic countries. J Int Bus Stud 34, 443–456 (2003). https://doi.org/10.1057/palgrave.jibs.8400047

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