Supplier linkages of foreign-owned manufacturing firms in the UK: the influence of entry mode, subsidiary autonomy and nationality

Abstract

This article tests the hypothesis that the supplier linkages which subsidiaries of foreign-owned companies make with indigenous firms in the UK are influenced by entry mode, the amount of autonomy which is granted to the subsidiary which is established and the nationality of the parent company. Data were collected from foreign-owned firms in the UK and an ordered probit model with the change in supplier linkages as the dependent variable was devised and tested. The results provide support for the hypothesis in terms of entry mode and subsidiary autonomy, but not in terms of parent nationality. This study represents a new approach to the study of supplier linkages and integrates concepts and studies from both regional science and international business. Foreign-owned firms which entered the UK by means of a greenfield entry tend to have a relatively positive effect on the creation and growth of supplier linkages, whereas those which entered by way of a merger or acquisition tended to have a relatively negative effect on the growth of such linkages. This finding has important implications for academics and policy-makers alike. Although the potential impact which the creation of supplier linkages can make upon the host country's economy has long been recognised, little research has been undertaken to identify the key factors which affect such growth. With increased levels of globalisation it is important that governments are able to maximise the impact which foreign direct investment makes upon the economy of their countries.

Acknowledgements

I am very grateful to Professor Frank McDonald of Hull University Business School for commenting on an earlier draft of the paper and to two anonymous referees for some very constructive comments.