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The Organization of European Multinationals

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  • Marin, Dalia
  • Rousová, Linda

Abstract

Recent literature on international trade has established that the most productive firms become multinationals. But our data reveal a startling variation in productivity levels of foreign affiliates across the countries in Eastern Europe of the same European multinational parent firms suggesting that not all multinationals transplant their home productivity advantage to the new EU Member States and Emerging Europe. One candidate for this startling difference in productivity levels among foreign affiliates is the ability of European multinationals to transport their business model abroad. This paper examines the conditions under which European multinationals give autonomy to their subsidiaries and delegate authority to them. We also analyse the conditions under which European multinationals transplant their business model to Eastern Europe. We collect original and unique matched parent and affiliate data on the internal organization of 660 German and Austrian parent firms and 2200 of their subsidiaries in Eastern Europe including the former Soviet Union. We test the hypothesis that the ability of European multinationals to transplant their business model to foreign affiliates is determined by the organization of European multinationals on the one hand and the market environment their affiliate firms face in Eastern Europe on the other hand. We show that the business culture of parent firms accounts for about 50 percent of the variation of the organization of subsidiaries, while the market environment of subsidiaries contributes the rest.

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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 12453.

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Date of creation: Dec 2011
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Handle: RePEc:lmu:muenec:12453

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Related research

Keywords: International Trade and Organizations; Multinational firm with internal hierarchies; Empirical test of the theory of the firm; Technology transfer to Eastern Europe; Organizational transfer across countries;

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References

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  1. Raquel Fernandez & Alessandra Fogli, 2005. "Culture: An Empirical Investigation of Beliefs, Work, and Fertility," NBER Working Papers 11268, National Bureau of Economic Research, Inc.
  2. Bloom, Nicholas & Sadun, Raffaella & Van Reenen, John, 2007. "Americans Do I.T. Better: US Multinationals and the Productivity Miracle," CEPR Discussion Papers 6291, C.E.P.R. Discussion Papers.
  3. Dalia Marin & Thierry Verdier, 2008. "Corporate Hierarchies and the Size of Nations: Theory and Evidence," Discussion Papers 227, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Bloom, Nicholas & Sadun, Raffaella & Van Reenen, John, 2009. "The Organization of Firms Across Countries," CEPR Discussion Papers 7338, C.E.P.R. Discussion Papers.
  5. Dalia Marin, 2009. "The battle for talent: globalisation and the rise of executive pay," Working Papers 236, Bruegel.
  6. Dalia Marin & Thierry Verdier, 2008. "Power Inside The Firm and The Market: A General Equilibrium Approach," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 752-788, 06.
  7. Raghuram Rajan & Julie Wulf, 2003. "The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies," NBER Working Papers 9633, National Bureau of Economic Research, Inc.
  8. Dalia Marin & Thierry Verdier, 2007. "Competing in Organizations: Firm Heterogeneity and International Trade," Discussion Papers 207, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  9. Dalia Marin & Thierry Verdier, 2004. "Globalization and the Empowerment of Talent," Discussion Papers 1, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  10. Guadalupe, Maria & Wulf, Julie, 2009. "The Flattening Firm and Product Market Competition," CEPR Discussion Papers 7253, C.E.P.R. Discussion Papers.
  11. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers.
  12. Marin, Dalia, 2004. "A Nation of Poets and Thinkers - Less so with Eastern Enlargement? Austria and Germany," CEPR Discussion Papers 4358, C.E.P.R. Discussion Papers.
  13. Dalia Marin, 2008. "The new corporation in Europe," Policy Briefs 3, Bruegel.
  14. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
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