SMEs and subsidiary roles in emerging economies – Empirical evidence fromGerman subsidiaries in CEE countries

1. Markus Kittler

In this paper we focus on the development of the role of foreignsubsidiaries of Small and Medium-sized Enterprises (SMEs) in Central andEastern European (CEE) countries. We define a subsidiary’s role as athree-dimensional construct, consisting of a subsidiary’s tasks, its valuechain activities and their respective geographical scope. In detail, weanalyze how subsidiary’s host country, subsidiary’s task, subsidiary’s modeof ownership and subsidiary’s mode of foreign market entry influence thedevelopment of a subsidiary’s role. Based on standardized questionnairesfrom 248 subsidiaries from the Czech Republic, Hungary, Poland, the SlovakRepublic, Bulgaria and Romania we find evidence for the influence ofsubsidiary’s host country, subsidiary’s task, and subsidiary’s mode ofmarket entry on the development of its role.When considering subsidiaries in CEE-countries, it seems particularlyimportant to differentiate between “market proximity seeking-subsidiaries”and subsidiaries where this task is deemed to be less relevant by theheadquarters. Greenfield subsidiaries tend to be market proximity seekers.Moreover, those market proximity seekers tend to operate a smaller number ofvalue chain activities. Corresponding to the strategic relevance of themarket proximity seeking-task these activities focus on the downstream endof the value chain. Furthermore, the geographical scope of market proximityseekers’ value chain activities is often restrained to the national level,but tends to be incrementally enlarged over time comprising other countriesfrom the same region.The number of value chain activities that acquired subsidiaries perform isfound to be higher as compared to Greenfield scenarios. Other tasks such asefficiency seeking and strategic asset seeking seem to be more importantregarding this mode of market entry. And, for a considerable portion ofefficiency seekers as well as for strategic asset seekers activities fromthe upstream end of the value chain are upgraded to global scale over thecourse of time. The research approach will be quantified in the full paperand detailed results will be presented and discussed. The discussion willalso show major implications for business practitioners.A major implication for potential investors in the CEE region as well as themanagement of SMEs is that there still seems to be potential for expansionor restructuring concerning SME’s activities in these emerging economies. Asour analysis will show, CEE based subsidiaries often are constrained to thenational market of the host country regarding their value chain activities.This means that SMEs either should consider entering other CEE markets or -if they are already present in other CEE countries - it may be reasonable toconsider a restructuring of activities in these countries: Value chainactivities which have been tailored to the local markets may be redesignedto serve a larger region. Reallocation and concentration of resources couldbe a consequence for existing CEE based subsidiaries.

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Уводни рад: Да

Датум: 17.06.2011.

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