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Subsidiary role and skilled labour effects in small developed countries.

Abstract and Key Results:

* This paper considers the proportion of skilled labour employed by subsidiaries in small countries in the context of the strategic role of subsidiaries. Strategic role is connected to autonomy and intra-organisational relationships and the mandates given to the subsidiary. In the paper, we draw on the literature on the strategic development of multinational corporations, and insights from inward foreign direct investments in small developed countries. This is presented in a unifying framework in order to predict diverse categorizations of the impact of subsidiary role on the proportion of their employment of skilled labour.

* The paper derives two propositions that postulate interactions between three roles containing different levels of autonomy and intra-organisational relationships in small developed countries that lead to different proportions of skilled labour in subsidiaries.

* We predict the highest proportion of skilled labour by subsidiaries located in small developed countries in the case of world mandates when autonomous-based operations are emphasized. When there is an emphasis on intra-organizational relationships, measured by product flows and integrated international value-chain configurations, we predict the proportion of skilled labour to be highest in the cases of specialized contributors. We propose the proportion of skilled labour to be lowest in the case of local implementers.

Keywords: Subsidiary Roles * Small Developed Countries * Employment * Skilled Labour * Autonomy * Intra-Organisational Relationships

Introduction

Studies of the strategic objectives of the multinational corporation (MNC) have been associated to themes such as role categorizations (White/Poynter 1984, Birkinshaw/Morrison 1995) autonomy (Luo 2006) organizational relationships (Holm/Holmstrom/Sharma 2005, Mu/Gnyawali/Hatfield 2007) and competence (Moore 2001, Cantwell/Mudambi 2005). These studies offer important insights into the configurations of MNC and role of subsidiaries, but do not directly investigate the composition of skilled labour employed in subsidiaries. Furthermore, subsidiary role has not been extensively examined in the context of small countries. This paper conceptualizes the effects of inward foreign direct investments (FDI) into small developed countries in relation to subsidiary role and the consequent impact on their demand for skilled labour.

The growth of international trade and investment flows and the subsequent changes in the employment of labour has called into question whether the globalisation process leads to beneficial outcomes for labour (Gray 1998, Bakan 2004, Stiglitz 2006). In developed countries there is a fear of a loss of jobs as MNCs engage in FDI that is thought to lead to a transfer of employment from developed to developing countries (Giddens 2004, Dobbs 2004). There has arisen a popular opinion that MNCs are creating major problems for employment in developed economies. Managers of parent companies and also in the subsidiaries of MNCs face considerable pressures to justify and defend their trade and investment policies in the face of the criticism that they are exporting jobs to developing countries. Government and regional development policy makers are also caught up in the controversy that surrounds the globalisation debate as they seek to defend employment levels in their regions in the face of the challenges arising from globalisation. Small developed countries may be considered to be especially vulnerable to the employment effects that arise from the present globalisation process because they lack the political power to limit the ability of MNCs to relocate to lower cost locations. Small countries also lack large market size. There is likely to be a size advantage that induces MNCs, located in large countries, to retain these locations in order to benefit from the supply channels to significant markets.

There is however a debate on whether the globalisation process is stimulating an increase in the demand for skilled workers in developed countries as lower value-added work is transferred to developing countries thereby creating incentives for subsidiaries in developed countries to move up the value chain (Wolf 2005). In this scenario the globalisation process is stimulating a new international division of labour, which is inducing developed countries to specialise in higher valued added activities that normally require highly skilled labour. This outcome is crucially dependent on the strategic development of subsidiaries in ways that permit them to move up the value chain and thereby to demand a higher proportion of skilled labour.

There is an extensive literature on the employment effects of FDI (Barrell/Pain 1997, Driffield 2006), but most of the studies focus on the spillover employment effects of investments rather than the direct employment effects of the strategic development of MNCs and their subsidiaries. The strategic development of MNCs should lead to the creation of skilled jobs in areas that are connected to the competitive advantages that exist and are being developed in the various host locations of MNCs. In developed countries, given the relatively high cost of labour, this will tend to increase the demand for skilled labour in order to obtain high productivity to compensate for high wage and non-wage costs. The ability of subsidiaries to increase employment of skilled labour is likely to be associated with the level of autonomy and intra-organisational relationships because subsidiaries need to be able to develop competencies that permit them to increase their use of skilled labour. Therefore, the globalisation process should stimulate demand for the employment of a higher proportion of skilled labour by subsidiaries. There are only few studies on the links between the strategy of subsidiaries and their employment of skilled labour (e.g., McDonald et al. 2005). Further, there is also a lack of developed conceptual models that link the role of subsidiaries to their direct employment of skilled labour. Using a framework proposed by Birkinshaw and Morrison (1995) this paper develops a conceptual model that considers the links between the demand for skilled labour by subsidiaries in small developed countries, and the strategic role of such entities.

The paper is structured in the following way. First, the debate on inward FDI in small developed countries is outlined. This is followed by a section outlining the major existing literature on the role of subsidiaries, with a focus on small developed countries. The next sections develop a conceptual model and derive propositions on the relationships between the proportion of skilled labour employed by subsidiaries in small developed countries and the 'local implementer', 'specialized contributor' and 'world mandate' types of subsidiaries. The paper concludes with consideration of some of the implications of the model for the managers of parent companies, subsidiary managers and regional development policy makers.

Definitions of Small Countries and Skills

This paper investigates FDI and subsidiary developments in small developed countries, such as, Belgium, Denmark, Finland, Ireland, and New Zealand. A small country is defined by the size of gross domestic product (GDP), which is a proxy for the quantity of labour, capital assets, and natural resources bases, whereas the level of development is estimated by GDP per capita which is a estimate of social infrastructures such as life expectancy, percentage of urban population, and education levels (Allred/Steensma 2005). Thus small developed countries have relatively small GDP but high GDP per capita. In defining skilled labour we follow the logic of Nelson and Winter (1982) in regarding skills as a "capability" and exemplify this as "the ability to serve a tennis ball well" (Nelson/Winter 1982, p. 73). Skills would, using this line of argumentation, relate to the ability or cleverness of an employee executing a specific task, or at an aggregated level the skills of the organization, often represented by best practices or routines.

FDI Inflows into Small Developed Countries

Most theories of FDI suggest that the size of countries is an important determinant of FDI inflows because of host location advantages and from the large size of domestic markets that are available in large countries. These benefits lead to abilities to generate economies of size and scope in production, and sales and distribution activities (Buckley/Casson 1976). However, FDI can also be driven by resource seeking motives to gain access to pools of assets that can help promote innovation and learning. In this context, a study of Nordic manufacturing companies found that there was a significant transfer of knowledge intensive operations to EU countries from those Nordic countries that were not members of the EU (Oxelheim/Gartner 1994). Denmark, the only EU member at that time, did not experience an increase in FDI of this type from the other Nordic countries. This was taken to indicate that the benefits of the size of some EU countries had enabled them to attract this FDI, rather than Denmark, because they had more desirable resources in terms of both the width and depth of their resource base.

The development of regional blocs such as NAFTA and the EU should expand both market and resource seeking motives for FDI, because it provides, for those firms inside the bloc, a larger market and access to a larger pool of resources. However, evidence is mixed on whether FDI inflows can be enhanced by increasing the economic size of countries by developing regional economic integration policies in blocs such as the EU and NAFTA (Buckley et al. 2001). This study found that the creation and development of NAFTA had a positive, but small, effect, and no clear evidence of this effect was found for the EU. Market size has also been found to be an important driver of research and development (R&D) focused FDI inflows, but the presence of desirable resources was also found to have an important positive effect on such flows (Kuemmerle 1999). The evidence suggests that large countries are likely to have host location advantages that induce FDI flows, but the presence of desirable resources in host locations can also provide cost and quality advantages that are attractive for FDI. This evidence implies that although small countries will often lack strong incentives to attract market seeking FDI, they could be powerful magnets for resource seeking FDI if they have pools of desirable resources or good potential to develop existing, or to create new, reservoirs of attractive assets.

There is evidence that the presence of desirable resources in small developed countries can be very attractive for FDI that is resource seeking. The case of Ireland demonstrates how a small country can attract FDI because of its stock of desirable resources and its ability to develop this stock (Barry/Kearney 2006). This study found that FDI had also contributed to diversifying the industrial structure of Ireland, especially in high technology sectors, and had help to make industry growth paths more stable. Thus, in Ireland FDI has helped to create a virtuous cycle of further improving the pool of desirable resources, thereby attracting more FDI. A resource enhancing aspect of FDI into small countries was also found in a study of FDI in Hungary. The study found that the marketing competencies of domestic firms were significantly enhanced by the FDI in their firms (Hooley et al. 1996). The creation and effective evolution of government policies to develop skilled labour and to enhance the quantity and quality of physical and social infrastructures, together with the ability of subsidiary managers to effectively access these resources has also been found to be important for developing FDI in small countries (Barclay/Gray 2001, Hood/Taggart 1997).

Market seeking FDI can also be attracted to small countries if they are members of effective regional economic integration blocs. A study of Irish subsidiaries by Egelhoff, Gorman, and McCormick (2000) found that FDI had considerably boosted Irish exports to EU countries. This implication was reinforced by the significant number of Irish subsidiaries that appeared to operate under regional rather than multi-domestic strategies. This study also found that large subsidiaries were more likely to export widely, as where the subsidiaries with UK, Dutch, and US parent companies and that the ability of foreign owned subsidiaries to exploit desirable resources in their home base was linked to their export performance. Thus small countries that are members of regional economic integration blocs and that have attractive location characteristics may attract FDI that requires large markets.

The literature on FDI into small developed countries indicates that the attractiveness of small countries is connected to the ability of foreign owned subsidiaries to be able to find and develop pools of desirable resources in host locations and to compensate for small size by developing strong export markets for goods and services. Clearly, the drivers of the strategic development of foreign owned subsidiaries to enable them to deliver these benefits to their parent companies is an important factor for the ability of small developed countries to attract, retain and develop their FDI inflows. Although there is limited evidence on some of the characteristics of subsidiaries in small developed countries that seem to be conducive to such developments, there is no clear conceptual framework of the drivers of the type of strategic roles of subsidiaries that is conducive to enhancing the attractiveness and effectiveness of FDI into small countries. This paper provides such a conceptual framework by investigating subsidiary role in small developed countries.

Subsidiary Roles in Small Developed Countries

Subsidiary roles have been heavily researched and surveyed since White and Poynters (1984) investigation into subsidiaries located in Canada. However, there are only a few studies on this area from small developed countries. Scotland has been the point of departure for some of these surveys. Birkinshaw, Hood, and Young (2005) surveyed 24 manufacturing subsidiaries in relation to internal (within MNC) and external (host country) competitive pressures. Half of the sample experienced only internal competition, and such subsidiaries were typically given low autonomy, and faced restrictions in value-chain operation. Further, these subsidiaries were subject to challenges on labour costs from those subsidiaries located in low-wage host locations. Subsidiaries facing either external and internal, or only external, competition were in contrast given high autonomy, and operated within a broad range of the value-chain. Earlier, Young, Hood, and Dunlop (1988) sampled 129 Scottish subsidiaries and found that the largest group of those were rationalized manufacturers, possessing very low autonomy, employing fewer, than 200 people and typically controlled by an American MNC. In addition, Siler, Wang, and Liu (2003) also surveyed Scottish subsidiaries, though not looking at role, but on labour productivity, which was impacted by the R&D activity of their US parent company, and subsidiary development of human capital.

Ireland has also been surveyed; among others by Egelhoff, Gorman, and McCormick (1998) who investigated subsidiary development of technology-based advantages and found it typically was an outcome of backward-integrating the subsidiary into process technology developments. Delany (1998) investigated subsidiary development but departed from the White and Poynter (1984) typology and found most cases were 'rationalized operators' (i.e., rationalized manufacturers with addition of activities such as software- and product developments). Furthermore, Coughlan and Brady (1996) investigated a broadened mandate of four subsidiaries as a result of developments in product skills, and the establishments of linkages to parent company' managers. Comparing Portuguese and Irish subsidiaries, Tavares (2002) discovered the rationalized manufacturer to be the most common type. In the Irish case she, further, discovered an increase towards more autonomous based subsidiaries, especially in relation to decisions concerning technology.

Surveys focused on the Scandinavian context by Forsgren and Pedersen (1998) investigated characteristics of Danish located product mandate subsidiaries but found mixed results in the ratio of internal and external embeddedness--though 17 percent were able to establish intensive and dual relationships. Swedish located subsidiaries were investigated by Birkinshaw (1998) who revealed that the level of communication with parent company was highest in the case of acquired sales subsidiaries, whereas the level of subsidiary autonomy was highest in the case of acquired manufacturing and R&D units. Finally, building on a Danish/Finnish/Swedish sample, Holm, Holmstrom, and Sharma (2005) concluded that the competitive environment of host country impacts subsidiary competence development in business relationships that again makes the subsidiary influential in the MNC in regard to its competence development, and performance.

Studies on small countries in continental Europe, for example, Hogenbirk and Kranenburg (2006) concluded that half of foreign owned subsidiaries in the Dutch electronics and electrical application industry used the Netherlands as an export base. Soenen and Van Den Bulcke (1988) compared performance between Belgian firms and foreign owned subsidiaries in Belgium, and found the performance of American subsidiaries to be higher, due to their higher degree of multinationality and, their focus on EC-markets. Greece has been investigated by Manolopoulos, Papanastassiou, and Pearce (2007), who find a high proportion of truncated miniature replica that produce products, for the Greek market, that are already established in the MNC group's product range, and, therefore, typically orientated R&D toward local adaptations. Outside Europe, Scott-Kennel (2007) analyzed New Zealand located subsidiaries and found a balanced representation of manufacturing, service-, and sales oriented affiliates--all of them having limited interorganizational relationships.

It is difficult to draw firm conclusions on the small country effect on subsidiary role because of the mixed results that is evident in the literature. Many surveys were based on a high proportion of manufacturing or product oriented companies, though sales outlets are represented as well. Moreover, several studies report a high degree of relationships to the parent company. The consequences of these facts, though, has not been discussed and surveyed in relation to subsidiary employment, therefore, we see the need for developing propositions for subsequent research.

Conceptual Model

The two key factors that characterizes subsidiary role as suggested by Birkinshaw and Morrison (1995) are autonomy, and intra-organisational networks. The relationships between each of these factors and the employment of skilled labour by subsidiaries are investigated in the context of a small developed country.

Subsidiary Role

The international business literature suggests that the strategic objectives of MNCs are likely to have significant implications for subsidiary role and by extension to employment and other economic factors of host locations (Young/Hood/Dunlop 1988, Birkinshaw/ Hood 1998a, Young/Tavares 2004). This paper focuses on the framework that is suggested by Birkinshaw and Morrison (1995), which identifies three types of subsidiary roles. Local Implementers are subsidiaries with limited geographic scope, typically a single country, and these subsidiaries are strongly constrained in terms of product development and/or expanding the scope of value-added activities. Specialized Contributors are subsidiaries with considerable expertise in certain specific functions or activities, but where their activities are tightly coordinated with the activities of other subsidiaries within the MNC. This type of subsidiary is characterized by a narrow set of value-added activities and high levels of interdependencies with affiliated subsidiaries. Finally, World Mandate subsidiaries have worldwide or regional responsibility for a product line or entire business, and they typically have unconstrained product development scope and broad value-added scope (cited from Birkinshaw/Morrison 1995, pp. 733 et seq.). Autonomy is predicted to be low in cases of local implementers, medium in case of specialized contributors and high in case of world mandates. Strong intra-organizational networks promote product dependency on parent companies, high level inter-subsidiary purchases and an integrated configuration of manufacturing, and downstream activities (distribution, sales, service, and advertising). Local implementers have high degree of relationships on the product dependency and inter-subsidiary purchasing and have low value-chain configuration. Specialized contributors have high network relationships in all areas. Finally, world mandates display low product dependency and inter-subsidiary purchases and medium value-chain network relationships.

Autonomy

Autonomy has been identified as one of the most important areas of research in cases where the subsidiary is the unit of analysis (Paterson/Brock 2002) and researchers have extensively studied the process of autonomy granted to subsidiaries in host locations (Jarillo/Martinez 1990, Birkinshaw/Hood 1998b). Further, the relationships between autonomy and knowledge creation processes have often been emphasized (Brockhoff/Schmaul 1996, Taggart 1997, Taggart/Hood 1999, Ensign/Birkinshaw/Frost 2000). Clearly, autonomy plays an important role in the strategic development of subsidiaries.

The definition of autonomy used in this paper is the one provided by Brooke (1984, p. 9) where autonomy refers to an organization "in which units and sub-units possess the ability to take decisions for themselves on issues which are reserved to a higher level in comparable organizations". This definition indicates that the subsidiary possesses some strategic decision making authority (O'Donnell 2000), though in most cases autonomy will mainly relate to its daily operations, (Edwards/Ahmad/Moss 2002). The extent of autonomy granted to subsidiaries is also connected to the value-chain of the subsidiary where Vachani (1999) found that subsidiary autonomy was greater for marketing and personnel decisions than for R&D and finance. Furthermore, autonomy relates to the negotiation processes between parent company and its subsidiary, showing that decisions are not necessarily exclusively made by either the parent company or the subsidiary, but rather being an outcome of a bargaining process leading to either joint decisions, or decision made by one of the partner after consulting the other (Taggart 1999, Dorrenbacher/ Gammelgaard 2006). Clearly, there are a multitude of factors that underpin the decision by MNCs to grant autonomy or to retain centralised control (Young/Tavares 2004).

Autonomy is often associated to the subsidiary's ability to establish inter-organisational relationships. These local networks enhance the ability to attain collective learning and innovation benefits (Lundvall 1999) and to acquire spillover benefits associated with proximity (Porter/Solvell 1998), and advantages of tapping into clusters (Driffield/Munday 2000). Cantwell and Mudambi (2005) argue that enhanced autonomy can lead to competence creating mandates to exploit locally available assets that increase R&D intensity and thereby induce an increased demand for skilled labour. Increased effective autonomy helps subsidiary management to more successfully establish and deal with beneficial inter-organisational relationships because of a decreased need to obtain approval from the parent company (Birkinshaw/Hood/Young 2005). Autonomy is then predicted to extend the quality and scope of subsidiary operations, due to improved entrepreneurial capabilities and utilisation of host country localization advantages. Autonomy that leads to the development of inter-organisational relationships can lead to a changed composition of the labour force by increasing the value of operations by reducing transaction costs, improve learning effects and gaining access to desirable local assets. Further, entrepreneurial activities are likely to occur, where the subsidiary for example start up independent R&D projects or product development and new product development projects. These types of entrepreneurial behaviour have been found in R&D ventures (Papanastassiou/Pearce 2005) and in areas such as product and market development (Birkinshaw 1998, Birkinshaw/Hood/Young 2005). These types of entrepreneurial activities require an increased proportion of skilled labour in subsidiaries, as entrepreneurship and derived innovations typically make existing market and technical capabilities of the subsidiary increasingly obsolete (Abernathy/Clark 1985). This effect often requires, for example, workers from other scientific, engineering, technical and knowledge based disciplines, to fill in the resource gap that the innovations produced (Teng 2007).

Relating this discussion to predict developed small country effects, subsidiary autonomy buttresses both resource-seeking FDI, as autonomy closely relates to the ability of tapping into these clusters. Further, from a market-seeking point of view, autonomy maybe associated with incentives to subsidiary management to boost sales in regions or blocs. As World Mandates are given the highest level of autonomy, we predict such subsidiaries to have the highest proportion of skilled labour to either carry out their international activities, by for example, autonomous-based innovation, or to manage international sales relationships. Specialized contributors on the other hand have lower autonomy and are therefore less likely to demand a higher proportion of skilled labour, and local implementers will have the lowest proportion of skilled labour. This reasoning leads to our first proposition.

Proposition 1. In a small developed country, a subsidiary acting as a world mandate will have a higher proportion of skilled labour in order to manage autonomous-based innovation or international sales-oriented activities, than a subsidiary acting as a specialized contributor or a local implementer, and a specialized contributor will have a higher proportion of skilled labour than a local implementer.

Intra-organisational Relationships

Intra-organisational relationships are the links that the subsidiary has established with the parent company and other subsidiaries within the MNC (Birkinshaw/Hood/Young 2005). Intra-organisational relationships provide the means to access resources within the MNC that can increase organisational learning (Lundvall 1999), access to valuable knowledge (Schmid/Schurig 2003, Forsgren/Hohn/Johanson 2005), and lower transactions costs (Birkinshaw/Hood 1998a, Dunning 2000, Hennart 2001). Accessing technological knowledge that enhances capabilities to innovate is often regarded as being the major benefits that arises from intra-organisational relationships (Papanastassiou/Pearce 1997, Taggart 1998a, Pearce 1999, Ivarsson 2002).

To obtain these benefits from intra-organisational relationships, the subsidiary needs to recruit more senior management, professional, technical, and other expertise to effectively managing and exploit the internal relationships within the MNC. This implies an increased proportion of skilled labour. Some of these heavily integrated subsidiaries will provide goods and/or services for all or large parts of the MNC and/or service specific parts of the global markets of the MNC (Holm/Pedersen 2000). Such subsidiaries are likely to operate within more narrowly defined areas of specializations (Birkinshaw/Morrison 1995) and this specialization within high value activities, such as R&D, requires more skilled labour. In some cases, management of intra-organisational relationships will only require a minor increase in the proportion of skilled labour, for example in order to coordinate activities with parent companies. In other cases, where the level of specialisation resulting from intra-organisational relationships is stronger, for example in knowledge creation and innovation processes, this is likely to lead to a higher proportion of skilled labour (e.g., technicians and associated professionals). Furthermore, skilled labour to produce additional reports, enquires and feedback to the parent company and other subsidiaries are often required for the efficient operation of MNC supply chains. To obtain these benefits from intra-organisational relationships, the subsidiary needs to expand senior management, professional, technical, and other knowledge intensive expertise, and this implies an increased proportion of skilled labour.

Specialization from a manufacturing and R&D point of view is likely to correlate with small developed countries, because an economy of this size typically offers niches and have specialities in narrowly defined area. From a resource-seeking point of view, MNC can establish specialized contributors by greenfield or by acquisition of a local firm to access desirable assets and they will therefore require skilled labour to manage such operations. Furthermore, a consequence of high international configuration of value-chain activities is the need to manage the relationships with external and internal partners respectively, and to establish of cross-functional interfaces among inter and intra-organisational relationships (Trent/Monozka 2002). Thus, a high proportion of skilled labour is needed. However, more locally sales oriented subsidiaries, like the local implementer, maybe disadvantage from being locally embedded in a small country. It might require skills to operate with particular business-to-business relationships, but employment is not directed to achieve scale and scope in international sales operations. Furthermore, interconnected flows of products with other organization units are typical one-way from the parent company, and hence the proportion of skilled labour is, therefore, suggested to be lower. Finally, world mandates are predicted to have a medium need for skilled labour, as it has to operate internationally in terms of sales, but international value-chain configuration is predicted to be less than for the specialized contributor. Therefore, less skilled labour, compared to the case for specialized contributors, will be required to manage intra-MNC relationships. This leads to our second proposition.

Proposition 2. In a small developed country, a subsidiary acting as a specialized contributor will employ a higher proportion of skilled labour in order to manage intraorganizational relationships than a subsidiary acting as a world mandates or a local implementer, and a world mandate will have a higher proportion of skilled labour than a local implementer.

Conclusions

This paper postulates that the proportion of skilled labour employed by subsidiaries is influenced by the size of its host country location, and the strategic role played by this entity in the MNC. Utilizing Birkinshaw and Morrison's (1995) framework on subsidiary roles we predict the proportion of skilled labour employed by a subsidiary located in a small developed country will be highest in case of world mandates that stimulates autonomous-based operations by the subsidiary. When the emphasis is on intra-organizational relationships based on product flows and integrated international value-chain configuration, we predict the proportion of employment of skilled labour will be highest in the cases of specialized contributors. In all cases, we predict that the proportion of employment of skilled labour will be lowest in local implementers.

The conceptual framework developed in this paper provides a structure to construct research agendas that will be useful to verify the postulated relationships that are derived from the framework, and also provide evidence on the strength of these relationships. Empirical evidence derived from the conceptual framework will provide useful information to illuminate the debate about the impact of the globalisation process on the host locations of foreign owned subsidiaries. This would help to provide regional policy makers with greater understanding on the impact of the globalisation process on national and local economies and labour markets, and to help the adjustment to the emerging international division of labour between developing and emerging economies. Identification of the conditions that are likely to attract, retain and develop FDI for specialized contributors and world mandate subsidiaries would help government and regional policymakers to develop strategies that would appeal to and encourage the development of the type of subsidiaries that are most likely to be successful in the present era of globalisation.

Attracting and developing these types of subsidiaries will crucially depend on the ability of host locations in small countries to provide desirable homes for resource seeking and possibly market seeking FDI. In these circumstances, providing pools of attractive assets, especially appropriately skilled labour will be important. The key labour factors are likely to be skills connected to the effective creation and exploitation of locally available assets that is in accord with the overall strategic objectives of the MNC. This implies that not only scientific and technical skills will be required, but also managerial and negotiating competencies that will enable the effective management and development of complex interactions between subsidiary autonomy and intra-organisational relationships. Low cost access to large markets for buying and selling goods and services by, for example, membership of regional economic integration blocs, may also be necessary to overcome barriers connected to the small size of host countries.

The model and extensions of the model together with appropriate empirical evidence would be also be helpful for parent company managers to assess the likely effect of developments in autonomy and intra-organisational relationships of their subsidiaries. Even without empirical evidence from large-scale studies, the predictions can frame research on the effects on the direct employment by their subsidiaries of the strategic decisions of the parent company. This type of exercise could be helpful to develop public relations policies to counter the views, harmful to the achieving of the strategic objectives of the MNC that are often expressed by anti-globalisation activists. Thus a positive spin could be placed on the role that MNCs play in helping small developed economies to adjust to the new patterns of employment that are being generated by the globalisation process. This can be painted in a positive light as MNCs with world mandate and specialised contributors subsidiaries will push them develop higher valued operations that face less competition from lower labour cost countries, and also from those emerging economies that lack the specialized assets that are available in small developed countries.

Subsidiary managers will also find these predictions useful, as it would provide guidance on some of the implications for direct employment of developing autonomy and intra-organisational relationships. This could be used to assess the possible impact of entrepreneurial activities to develop these factors and/or to help to put a case to parent companies for enhancement of autonomy and the development of organisational relationships. This type of analysis could help subsidiary managers to develop strategies that will allow their subsidiaries to survive, or even flourish, in the emerging international division of labour that is arising from the present globalisation process. Subsidiaries in steady state and decline phases of strategic development could also use this framework for identifying where and what type of entrepreneurial action was needed to revive the status of such subsidiaries and move them towards higher value activities. This kind of analysis could also be used by subsidiary managers to enlist the support of government and regional policymakers to help struggling subsidiaries to adjust to the demands of globalisation.

The model, and empirical evidence derived from it, would therefore provide useful material for small country development decision makers because it indicates likely effects for the direct employment of skilled labour in host locations of the strategic development of foreign owned subsidiaries. To be useful for these proposes evidence on whether host locations had key subsidiaries in terms of autonomy and international value-chain configuration is important to policy makers in order to support such subsidiaries in their further development, as both factors positively related to recruitment of skilled labour.

Received: 01.02.2008 / Revised: 01.04.2008 / Accepted: 01.05.2008

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Associate Professor J. Gammelgaard ([mail])

Department of international Economics and Management, Copenhagen Business School, Copenhagen, Denmark.

Professor F. McDonald

Bradford Centre in International Business, Bradford University School of Management, Bradford, United Kingdom.

Professor H. Tuselmann

Centre of International Business and Innovation, Manchester Metropolitan University, Manchester, United Kingdom.

Assistant Professor C. Dorrenbacher

Department of International Business and Management, University of Groningen, Groningen, Netherlands.

Associate Professor A. Stephan

Jonkoping International Business School, Jonkoping University, Jonkoping, Sweden.
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Title Annotation:RESEARCH ARTICLE
Author:Gammelgaard, Jens; McDonald, Frank; Tuselmann, Heinz; Dorrenbacher, Christoph; Stephan, Andreas
Publication:Management International Review
Geographic Code:4EUUK
Date:Jan 1, 2009
Words:7283
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