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Developing acquired foreign subsidiaries: the experience of MNES in transition economies

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An Erratum to this article was published on 16 July 2004

Abstract

Drawing on subsidiary evolution and dynamic capabilities research, I test how development and growth of subsidiaries recently acquired in transition economies are affected by multinational enterprise (MNE) and target capabilities. These subsidiaries often lack important resources; their cross-border transfer, enhancement, and exploitation are problematic, however. Data on 170 acquisitions in Central and Eastern Europe confirmed the importance of the pre-acquisition experiences of both target and MNE for subsidiary growth, although cultural differences moderated the predicted effects notably.

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Notes

  1. For this study it is sufficient to use the terms resources and capabilities synonymously. Consistent with the resource-based view, I define resources as ‘stocks of knowledge, skills, financial assets, physical assets, human capital, and other tangible and intangible factors’ (Karim and Mitchell, 2000, 162).

  2. Experience may also capture other capabilities rather than those discussed here to derive Hypothesis 1.

  3. This trend shifted later during the 1990s as Western firms realized the low short-term market potential of CEE, particularly Russia, and investment strategies were focused on factor cost savings instead (Lankes and Venebles, 1996). Consideration of this variable as a capability of the target may thus be time-dependent.

  4. Building on his own and others' research, Hofstede recently proposed culture values for several countries in CEE.

  5. Following this approach, I find that the overall mean for the cultural distance between Western home and CEE host countries was 2.66. The mean within the Western home countries was 0.54 and within CEE host countries was 0.97. Statistically, all the means are significantly different from each other. However the fairly low cultural distances within the home and host countries show cultural similarity within these two groups. Notably, the fairly large distance overall between home and host countries indicates distinct cultural differences between Western investing countries and CEE countries.

  6. However, cultural and physical distance are only partially correlated. For instance, the cultural distance between Hungary and Belgium (0.60) is much lower than that between Hungary and Austria (2.10), although the latter two countries share a border.

  7. Nevertheless, as one anonymous reviewer pointed out, this research could be extended by breaking down the acquisition experience by location of these previous acquisitions. A preliminary analysis, within the limits of the present survey and available from the author, found no advantages coming from previous acquisitions made in CEE as compared to those in other countries, but is limited by the small number of cases. Future research might study this question with a more targeted research design.

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Acknowledgements

The author gratefully acknowledges many helpful comments on this research from Bert Cannella, Julio De Castro, Javier Gimeno, Mike Hitt, Dale Meyer, Peter Rodriguez, Steve Tallman, and Michael Wesson as well as the JIBS Departmental Editor, Myles Shaver, and the anonymous reviewers. Financial support came from the Center for Entrepreneurship, University of Colorado at Boulder.

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  1. Department of Management, Mays Business School, Texas A&M University, College Station, TX, USA

    Klaus Uhlenbruck

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Correspondence to Klaus Uhlenbruck.

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Accepted by Arie Lewin, Editor in Chief, 7 November 2003. This paper has been with the author for two revisions.

An erratum to this article is available at http://dx.doi.org/10.1057/palgrave.jibs.8400101.

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Uhlenbruck, K. Developing acquired foreign subsidiaries: the experience of MNES in transition economies. J Int Bus Stud 35, 109–123 (2004). https://doi.org/10.1057/palgrave.jibs.8400070

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