MNE in Scotland Context

Managing the Multinational Enterprises

BU52046
• To understand the progression of multinational enterprise (MNE)
subsidiaries, drawing upon insights and evidence from Scotland.
• The key transformations that have taken place in MNE strategies in
Scotland are explored from a historical perspective, along with the
main policy changes that have occurred, and the subsequent effects
on economic development that MNE subsidiary activities and Scottish
policies have triggered.
Context of FDI in Scotland
• After 1945, Scottish manufacturing remained characterised by the old staple sectors
of shipbuilding, steel, coalmining and heavy engineering, on which prewar prosperity
had been built (Payne, 1996).
• Scotland largely failed to participate in the ‘Golden Age’ between 1951 and 1973
(Peden, 2005), instead suffering relative decline as growth and investment focused
on the consumer goods boom in the rest of the UK (Scott & Hughes, 1980).
• Knox (1999) has pointed to the irony that deindustrialisation in Scotland was both
slower and, in the end, more complete, than in the rest of the UK.
• GDP per capita, which was at 92% of the UK level in 1951, fell to 87% by 1964; while
unemployment in Scotland began to reach levels that brought significant political
attention (Buxton, 1985; McCrone, 1965; The Scottish Government, 2006)
Context of FDI in Scotland
• In Scotland, the post-war difficulties were considerable, and the
benefits of multinational investment, notably technology and
knowledge transfer, productivity improvements, supply-chain demand
and spinoff firms were all seen as potentially transformative (Buxton,
1985; Payne, 1996; Peters, Hood, & Young, 2000; UNIDO, 2005).
• Scotland was extremely successful in attracting overseas-owned enterprises.
• 6 US Firms in 1945
• 73 in 1964
• 124 in 1969
• 70% of American plants in UK, in Scotland- 1966 to 1977
• In 2000 overseas-owned manufacturing units in Scotland rose from 65 to 357
• Scotland recorded its highest ever level of the past decade — far outpacing the
growth and recovery of the rest of the UK and Europe following COVID-19.
• Scotland expanded its share from 11% in 2020 to 12.3% in 2021.
• Scotland remains second as the UK favoured destination for FDI, beaten only by
London once again, with new projects reaching an all-time high of 122. 
Aspects of FDI
• There are three aspects of this FDI
• Inward investment
• Dominance of USA
• Predominance of electronic and instrument engineering in overseas
investment
Policy towards FDI
• To assist the process of renewal and transformation in the Scottish
economy
• Efficiency improvement and technological development were the
main foci of industrial policy, and policy towards foreign investment
was, on the whole, no different.
• Scottish industrial structure has remained slow to change, and the
conventional measurements of economic wellbeing, namely new firm
formation, productivity growth, growth in per capita GDP, remain
lower than in the rest of the UK.
Failures of FDI and successful spin- offs

• Difficulties in developing deep linkages and supply chains in host

economies
• Trading links are significantly more unequal; cost-cutting rather than
adding value is the key element in the indigenous–multinational firm
relationship; technology is neither developed nor shared; and there is
very little in the way of sophisticated supply-chain benefits or system-
wide learning.
• System is vulnerable to external forces and distant corporate decision-
making.
• Industrial diversification, skill upgrading and enhancement of domestic competencies were the key goals
of inward investment policy in the UK.
• UK policy included offering grants and incentives to foreign firms to locate in particular regions, and the
Scottish case was given priority. Industrial Development Certificates (IDCs) were required before any firm
could set up a new factory, and these could be used as a tool to direct investments to particular locations.
• The Scottish New Towns, established in sequence from the late 1940s through to the 1960s, offered
opportunities and assistance for greenfield investments and quickly became the centres of new industrial
growth.
• Impact of regional policy in Scotland have generally concluded that the greater attention paid to planning
from the 1960s had a positive effect on the number of factory openings and employment generated; and
that this impact was significantly greater on the foreign-owned than the indigenous manufacturing sector
• One of the important implications of this, however, is that, if firms were sufficiently mobile, then their
location could be influenced in this way. Therefore, the level of commitment to the specific locality was
limited.
Choosing Scotland
• Scotland has, both welcoming and attractive to new FDI.
• Government financial inducements as the most important factor in the decision to invest in Scotland.
• Labour was the second ranking factor, followed by IDC policy and the possibility of market growth in Scotland.
• Low start-up costs, including readily available and subsidised factories, and the availability of skilled, relatively cheap workers,
to be the main attractions of Scotland.
• The shift from the early 1950s incomers, who were attracted by the availability of Regional Development Grants and the
presence of low-cost labour; through to the later period in the 1960s and 1970s, when skills, proximity to universities and
some early economies of concentration began to appear in the emerging cluster of firms and technologies.
• It is from the late 1960s that the indigenous Scottish electronics sector began to appear (Firn & Roberts, 1984) and, by the
second half of the 1970s, some 58% of electronics enterprises in the country were Scottish, though they accounted for only
10% of employment (Booz, Allen & Hamilton, 1979).
• By this period, therefore, it is clear that the policy strategy was having some success: inward investment was contributing
significantly to Scottish employment, and manufacturing was beginning to diversify. In at least one sector, notably electronics,
the emergence of a cluster of firms and technologies gave hope that an indigenous industry could be developed, and that the
spill over, supply-chain and learning benefits would begin to accrue.
• It is worth noting, however, that the early explanations for investment in Scotland, namely financial incentives, the availability
of cheap, skilled labour and the opportunity to move into ready-built factory units could all be easily replicated elsewhere.
MNE evolution
• MNEs focused on the headquarters as the key actor in the multinational system and also considered the
parent–subsidiary relationship from a traditional hierarchical perspective

• Subsidiary roles can be ‘assigned’ by the parent, ‘assumed’ through

subsidiary initiative, or determined by environmental influence;while
in most cases they are defined through an interaction of these three
mechanisms.
• Analytically, MNEs were perceived to evolve from decisively
hierarchical organisations towards strategically-networked
differentiated heterarchies, with subsidiaries being assigned different
mandates in order to secure a range of objectives.
• The emphasises the impact of knowledge competencies in the global economy; suggesting a more direct
emphasis on the subsidiary’s creativity and access to valuable resources. #
• This ‘knowledge-based’ approach is based on the assumption that as MNEs seek to achieve global
competitiveness, they are forced to manage dispersed activities across numerous continents and cultures
simultaneously, rendering the need for inter-unit coordination an imperative.
• MNEs as networks of transactions that comprise capital, product and knowledge flows.
MNE -Subsidiary initiative and the
entrepreneurial subsidiary
• An important shift to the focus of MNE study towards a more
heterarchical or subsidiary-based view.
• the aforementioned FDI developments and MNE research undertaken
in Scotland informed a creative and productive stream of subsidiary-
focused research concerning subsidiary strategies, evolution and
innovation.
• Study suggests that MNE subsidiaries in leading-edge clusters tended to be more autonomous, more
embedded in local clusters, and have greater market scope than their counterparts in other industry sectors.
• Subsidiary is initiative as ‘essentially an entrepreneurial process’ manifested through one or a set of
autonomous actions ‘undertaken with a view to expanding the subsidiary’s scope of responsibility’ .
• A strong entrepreneurial culture in the subsidiary may permeate various levels and functions of the MNE
subsidiary, contributing to dispersed corporate entrepreneurship.
Summary
• In an era of significant MNE restructuring and cost-reducing strategies, the role of headquarters seems vital
• The major policy implication for Scotland and other countries refers to the fact that enhanced efforts are
required to support subsidiary upgrading; and that features of the entrepreneurial subsidiary may provide a
model upon which a new policy paradigm can be developed
• Refinement of supply-side measures fostering innovation and entrepreneurialism, and enhancing networking
and spill overs in the host environment is important.
• Principal policy challenge is to promote the distinctive characteristics of the entrepreneurial subsidiary,
namely the quality of management, its vision and leadership; effective motivation within the subsidiary; and
embeddedness of an entrepreneurial culture within the modern MNE.
References
• Pavlos Dimitratos , Ioanna Liouka , Duncan Ross & Stephen Young
(2009) The multinational enterprise and subsidiary evolution:
Scotland since 1945, Business History, 51:3, 401-425, DOI:
10.1080/00076790902844013
Thank you