Exploring the drivers and elements of subsidiary evolution in several new EU member states

Purpose – Management of subsidiaries of multinational companies and subsidiary evolution have emerged as important topics in the international business literature. This strand of literature on multinational subsidiaries has provided the necessary analytical models and research tools to study the phenomenon. Nonetheless, while many studies exist on the roles, strategies and evolutions of subsidiaries, and despite its high importance, this area of academic research is still lacking critical mass. Moreover, the extant studies have been conducted in the context of advanced economies, and yet it has been under-researched in the context of emerging economies, and particularly the economies of Eastern Europe, the so-called new EU member states. The study of the phenomenon of subsidiary evolution is the main aim of this paper. Design/methodology/approach – The paper makes use of a proprietary dataset, collected in a self-administered web-based survey conducted among foreign-owned companies in Czech Republic, Hungary and Poland. To test the interrelations between different variables, the paper uses the structural equitation modelling, an advanced technique that allows to account for multiple interdependencies in a model. This approach enables the authors to escape the rigid division between dependent and independent variables, inherent to most conventional econometric models. In the paper, three analytical structural equation modelling (SEM) models were developed, tested and compared. Findings – The empirical analyses show a strong positive relation between the main drivers of subsidiary evolution and the key outcomes of this process. It shows that the tenets of the theory originally developed to describe strategic behaviour of subsidiaries in advanced Western countries, broadly holds for emerging economies too. Moreover, the paper shows that subsidiaries operating in dynamic environments and led by pro-active subsidiary management achieve better results. Research limitations/implications – The study has its limitations. It is of quantitative nature, whereby the most common feature and characteristics of the research object are studied. Despite the convincing results, the phenomenon of subsidiary evolution can be further investigated in a number of case studies in a dynamic perspective, where specific details may come under the spotlight. On the other hand, such results cannot be easily generalised. Originality/value – This study contributes to the extant body of academic literature on subsidiary evolution. The main contribution comes from investigation of this complex phenomenon in the context of emerging economies of new EU member states. Their transitionary dynamics and transformative change have had a profound impact on the functioning of economic agents and foreign subsidiaries in particular. The paper finds important particularities of this context.