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Journal of Economic Geography 3 (2003) pp. 389-408
Copyright © 2003 Oxford University Press

Subsidiary impact on host-country economies—the case of foreign-owned subsidiaries attracting investment into sweden

Ulf Holm*, Anders Malmberg** and Örjan Sölvell***

Abstract

This paper examines the impact of foreign-owned subsidiaries on their surrounding host-country economies, focusing particularly on investment attraction. To explain such subsidiary impact, we develop a LISREL-model including four interlinked constructs: (a) the dynamism of the host-country business environment within which the subsidiary unit is active; (b) the control strategies of corporate headquarters; (c) quality of subsidiary competencies; and (d) the formalized mandate provided by headquarters for certain subsidiaries to become centers. Based on the model, six hypotheses are formulated, and tested in a LISREL-analysis on a set of data containing information on foreign-owned subsidiaries in Sweden. The results show that the dynamics of the host-country business environment positively impact on the foreign-owned subsidiary competence development and play a fundamental role in deciding whether such units will impact on the investment attraction in the host economy.

Keywords: MNC, headquarters control, host-country economy, subsidiary competence

JEL classification: L1, L2, M0, O0

* Corresponding author at: Department of Business Studies, Uppsala University, Box 513, S-751 20 Uppsala, Sweden. email <ulf.holm{at}fck.uu.se>

** Department of Social and Economic Geography, Uppsala University. email <anders.malmberg{at}kultgeog.uu.se>

*** Institute of International Business, Stockholm School of Economics and Institute for Strategy and Competitiveness, Harvard Business School. email <iibos{at}hhs.se>


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