Subsidiaries, Knowledge Development and MNE Re-Investments

Scholars and policy-makers have long been interested in different methods of increasing the level of foreign direct investment (FDI). Many governments thus offer different incentives, explicit or implicit, to MNEs to invest and establish operations in their markets (Globerman and Shapiro, 1999). The primary goal of such policy-making is to increase the attractiveness of the market to potential investors. Although literature concerning this issue has mostly examined the establishment of new affiliates in host countries, the importance of enhancing the value adding role of already established subsidiaries has also received some attention as an important objective for policy-makers (Birkinshaw, 1996). Different subsidiaries can contribute to the competitiveness of nations to different degrees, depending on, for instance, their corporate strategic role and level of technology (O’Donnell and Blumentritt, 1999). As a result, understanding the process by which MNEs re-invest in host-country subsidiaries is important to policy-makers.