Foreign subsidiaries in Brazil: location determinants for high value-added activities

Kramer, Christoper (2015) Foreign subsidiaries in Brazil: location determinants for high value-added activities. Doctoral thesis (PhD), Manchester Metropolitan University.

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Abstract

This thesis explores the location determinants for high value-added activities (HVAAs) carried out by foreign-owned subsidiaries in Brazil. It adopts an extended version of Dunning's (2000) envelope paradigm to integrate different location factors, extracted from a wide range of location theories and frameworks that have been identified in the field of international business. The thesis is original in its conceptualisation of the degree of value added in separate activity sets in terms of complexity, which is widely recognised as a barrier to imitation of unique and valuable activities in strategic management literature. This thesis studies four activity sets (R&D, manufacturing, supply, and marketing) and analyses different facets of the host-country environment. By adopting such a disaggregate stance it accounts for the fact that different activity sets are attracted to different location factors. Based on a large-scale telephone survey, a bespoke database of foreign-owned subsidiaries in Brazil was created. This unique database holds the most complete and up-to-date data of foreign subsidiaries in this emerging market. Such an approach minimises some limitations of prior research, such as home country bias. Likewise, in using Brazil as analytical setting, this study also extends the geographical reach of the subsidiary roles research to an emerging economy context. The results indicate that the local environment of the foreign subsidiary has a rather limited effect on the degree of value added within its activity sets, pointing towards less advanced location advantages in emerging markets for HVAAs of foreign subsidiaries if compared to developed countries. Yet, location factors seem to be relevant for the extent of activity sets. In general, this thesis confirms the view that different activities are drawn towards different aspects of the host environment. As regards policy implications, only very limited means are available to a host location to influence the likelihood of HVAAs at foreign subsidiaries through adjusting the profile of the local environment. Overall, policy makers need to be clear on which activity sets they intend to target, as the impact of location factors varies by activity set. Headquarters managers may be well advised to locate HVAAs in developed countries, which are more likely to offer those location factors that matter the most. Subsidiary managers may want to focus on internal sources of knowledge to unfold the potential of their unit.