Subsidiary role development: The effect of micro-political headquarters-subsidiary negotiations on the product, market and value-added scope of foreign-owned subsidiaries

This paper focuses on subsidiary role development in terms of changes in the market, product and value-added scope of foreign subsidiaries within multinational corporations (MNC). In its theoretical part, it identifies three interrelated reasons to explain such role changes: (1) subsidiary capabilities, (2) host-country localization advantages and (3) headquarters' realized strategies--that is, headquarters' intended strategies and the outcomes of micro-political headquarter-subsidiary negotiations. Based on the results of interviews with 65 managers in 11 German headquarters and their 13 Hungarian subsidiaries, the paper reveals the interrelated effects of the three factors on subsidiary role development and shows that headquarters' intended strategies are decisive to explain role development in peripheral host countries, though micro-political headquarter-subsidiary negotiations being an integral part of subsidiary role development.