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The development of foreign-owned subsidiaries and the supply of European markets

McDonald, Frank and Tüselmann, Heinz and Voronkova, Svitlana and Allen, Matthew (2006) The development of foreign-owned subsidiaries and the supply of European markets. Working Paper. Manchester Metropolitan University.

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Abstract

The major relationships between regional economic integration and foreign direct investment (FDI) are well established, and have been extensively explored in the context of economic integration in the European Union (EU). Several studies have been conducted on the impact of FDI of intra-EU trade liberalisation and single market policies, and agglomerations and industrial clusters. However, with the exception of a few studies such as that by Pearce and Papanastassiou (1997) very little research has been done that is focused on the links between the strategic development of foreign-owned subsidiaries in Europe and their supply of European markets. This paper summarizes the literature on the implications of European economic integration for FDI; it highlights that there have been few studies that are centred on the strategic responses of MNCs to integration. The paper, then, assesses the impact of the strategic development of subsidiaries on the likelihood of them supplying Europe as the main or as a secondary market. This paper’s finding support the view that strategic and operational decision-making autonomy is important for those subsidiaries that export to Europe. In the case of Europe as a secondary market it seems that only strategic decision-making autonomy is important. The evidence for embeddedness factors reveals that they are less important than autonomy factors.

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