The multinational enterprise and subsidiary evolution: Scotland since 1945

Abstract

This paper explores the major developments in the multinational enterprise (MNE) literature; along with the research conducted on Scottish-based MNE subsidiaries and the policy changes that have taken place in Scotland aimed at promoting foreign direct investment (FDI). It is suggested that subsidiaries may evolve from the branch plant to the developmental and the entrepreneurial subsidiary type; with each of these three subsidiary types contributing differently to the economic development of the host country. The empirical evidence from an in-depth analysis of IBM, Greenock, Scotland attests to the importance of the entrepreneurial subsidiary activities for the host economy. Implications for research and public policy are discussed.

Keywords:

• multinational enterprise subsidiary
• foreign direct investment
• subsidiary evolution
• branch plant
• developmental subsidiary
• entrepreneurial subsidiary
• economic development
• Scotland

Acknowledgements

The authors gratefully acknowledge that part of the research discussed in this paper has benefited from an Economic and Social Research Council Grant (RES-000-22-0621).

Notes

1. The Scottish Development Agency was replaced by Scottish Enterprise in 1991; while LiS was subsumed within Scottish Development International in 2001.

2. The direct contributions of FDI refer to effects on capital formation, trade and the balance of payments; employment and human resource development; technology and innovation; and, market structure, performance and business practices. Dynamic contributions concern the long-run effects on dynamic comparative advantage associated with linkages and spillovers; and, enterprise development in both multinational subsidiaries and indigenous firms. Subsidiary embeddedness and upgrading is essential for sustaining the competitiveness of the subsidiary within the multinational group; and, for value-added, productivity growth and innovation in the host country.

3. In the international business field, research to integrate subsidiary roles and economic development in the UK and other European countries was further developed by a number of scholars associated with the University of Reading (for example, Pearce, 1999; Pearce & Papanastassiou, 1997; Tavares, 2001). In the economic geography field, significant contributions were made by Amin, Bradley, Howells, Tomaney, & Gentle (1994), Morgan and Sayer (1988) and Phelps (1993).

4. The theoretical roots of this stream of work are presented in Birkinshaw and Hood (1998). These comprise the product life cycle, internationalisation process, network perspective, decision process and regional development perspectives. These authors integrate these perspectives by taking a dynamic capabilities approach to subsidiary evolution.