Scandinavian Working Papers in Economics

EIJS Working Paper Series,
Stockholm School of Economics, The European Institute of Japanese Studies

No 224: INNOVATIVE CAPABILITY IN MNC SUBSIDIARIES: EVIDENCE FROM FOUR EUROPEAN TRANSITION ECONOMIES

Ari Kokko () and Victoria Kravtsova
Additional contact information
Ari Kokko: European Institute of Japanese Studies, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden
Victoria Kravtsova: MERIT, Maastricht, Netherlands

Abstract: This paper explores the determinants of innovative capability in a sample of multinational company (MNC) subsidiaries in four transition economies: Estonia, Hungary, Poland, and Slovenia. It finds that capability in product and process technology appears to be determined by a different set of variables than capability related to marketing and management knowledge. The most independent affiliates – those that are diversified, oriented towards the local market, established through acquisitions rather than greenfield investments, and where the foreign MNCs’ only hold minority ownership – are also those that acquire the strongest innovative capability in product and process technology. For marketing and management capability, the pattern is nearly the opposite. The highest levels of capability are recorded in subsidiaries that are closely tied to the parent company, with high foreign ownership shares and substantial exports back to the parent company. These differences can be expected to have some impact on the kinds of spillovers different kinds of foreign direct investment (FDI) projects may generate.

Keywords: FDI; MNC subsidiaries; innovative capability; spillovers

JEL-codes: F23; O32; O33

28 pages, April 11, 2006

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