Subsidiary Types, Activities, and Location: An Empirical Investigation

Subsidiaries” than North American firms. The subsidiaries of European firms are more likely tobe “Production Bases” than the subsidiaries of North American firms. Hypotheses 3a and b aretherefore supported.The estimates for the impact of the market size are interesting. It has a positive influence on thelikelihood that subsidiaries will be of the “Full Functional Subsidiaries” and “Management andDevelopment” Subsidiaries. On the other hand, market size shows a negative effect on the likelylocation of a “Production Base”. Hypothesis 4 is therefore partially supported.The parameter estimates for GROWTH and DEVELOPMENT are not statistically significant andhence hypotheses 5 and 6 are not supported. Openness has a predictable impact on the location of“Production Bases”. Multinationals are more likely to rationalize manufacturing investments inthe presence of reduced tariff and non-tariff barriers to imports. On the other hand, an openeconomy apparently encourages free flow of information that may have an influence the locationof a “Management and Development” subsidiary. Openness does not have a statisticallysignificant impact on the likelihood of a “Full Functional Subsidiary”. Hypothesis 7 is thereforepartially supported. The parameter estimates for TAX RATES are not statistically significant andhence hypothesis 8 is not supported.DISCUSSIONThe two-stage analysis yields a number of interesting results. The cluster analysis providessupport for a four-part typology of subsidiary roles. In contrast to past studies (which also employcluster techniques), this study uses the firm’s activities rather than some theoretically inducedvariable such as product and geographic scope, autonomy, integration and responsiveness, amongmany others (See Table 1). This alternate approach shows that the data can identify patterns ofsubsidiaries with distinct roles. The cluster analysis results also show that a significant number of24