Intangible investments at multinational companies’ manufacturing subsidiaries: do they promote innovation-based upgrading?

  • Andrea Szalavetz Hungarian Academy of Sciences


Research background: Despite a widely acknowledged importance of intangible capital as the main driver of value creation, papers discussing corporate intangible investments tend to focus only on multinational companies, i.e. on headquarters (HQ). There are few papers scrutinising the specific attributes of intangible investments at manufacturing subsidiary level. This is, however, an important topic to investigate, since intangible investments can boost subsidiary upgrading. Intangible investments contribute to subsidiaries’ acquiring capabilities that allow them to enhance the scope of their responsibilities and specialise in increasingly high-value activities.
Purpose: The purpose of this paper is to explore the features of intangible investment at MNCs’ manufacturing subsidiaries, on the example of Hungary. Research questions addressed are as follows.
a) What exactly do local manufacturing subsidiaries invest in, when they implement intangible investments?
b) Is there a difference between the role of intangible investments at MNC level and at manufacturing subsidiary level?
c) What is the association between subsidiary-level intangible investments and upgrading?
Methodology: We analyse a sample of 44 manufacturing subsidiaries in the Hungarian automotive and electronics industries. We carry out a qualitative content analysis of sample companies’ notes to their financial statements, complemented with other sources of corporate information.
Findings: We find that intangible investments are aligned with subsidiaries’ functional specialisation: with operations. Their main role is to contribute to subsidiaries’ absorption of the headquarters’ technology transfer and enhance the productivity of the local core activities. This is sharply different from their traditional, MNC-level role: support to non-price competitiveness. We find support for the argument that subsidiary-level intangible investments and subsidiary upgrading are associated in a self-reinforcing virtuous circle.


Arrighetti, A., Landini, F., & Lasagni, A. (2014). Intangible assets and firm heterogeneity: Evidence from Italy. Research Policy, 43(1), doi: 10.1016/j.respol.2013.07.015.
Ács, Z. J., Szerb, L., & Autio, E. (2015). Global Entrepreneurship and Development Index 2013. Cheltenham: Edward Elgar
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1).
Bloom, N., & Van Reenen, J. (2010). Why do management practices differ across firms and countries? Journal of Economic Perspectives, 24(1). doi: 10.1257/089533010797456229.
Buckley, P. J., & Casson, M. C. (1976). The future of the multinational enterprise. London: Macmillan.
Corrado, C., Haltiwanger, J., & Sichel, D. (Eds.). (2009). Measuring capital in the new economy. Chicago: University of Chicago Press.
Corrado, C., Haskel, J., Jona-Lasinio, C., & Iommi, M. (2012). Intangible capital and growth in advanced economies: Measurement methods and comparative results. IZA Discussion Paper, 6733, Bonn: Institute for the Study of Labor.
Corrado, C., Haskel, J., Jona-Lasinio, C., & Iommi, M. (2013). Innovation and intangible investment in Europe, Japan, and the United States. Oxford Review of Economic Policy, 29(2). doi: 10.1093/oxrep/grt017.
Denicolai, S., Cotta Ramusino, E., & Sotti, F. (2015). The impact of intangibles on firm growth. Technology Analysis & Strategic Management, 27(2). doi: 10.1080/09537325.2014.959484.
Drenkovska, M., & Redek, T. (2015). Intangible capital, innovation and export-led growth: empirical comparative study of Slovenia and the Western Balkans. Economic and Business Review, 17(1).
Griliches, Z. (1979). Issues in assessing the contribution of research and development to productivity growth. Bell Journal of Economics, 10(1).
Hall, R. (1993). A framework linking intangible resources and capabilities to sustainable competitive advantage. Strategic Management Journal, 14(8). doi: 10.1002/smj.4250140804.
Hand, J. R., & Lev, B. (Eds.). (2003). Intangible assets: values, measures, and risks. Oxford: Oxford University Press.
Harding, T., & Javorcik, B. S. (2012). Foreign direct investment and export upgrading. Review of Economics and Statistics, 94(4). doi:10.1162/REST _a_00226.
Haskel, J., Jona-Lasinio, C., & Iommi, M. (2012). Intangible capital and growth in advanced economies: Measurement methods and comparative results. IZA Discussion Paper, 6733, Bonn: Institute for the Study of Labor
Humphrey, J., & Schmitz, H. (2002). How does insertion in global value chains affect upgrading in industrial clusters? Regional Studies, 36(9). doi: 10.1080/0034340022000022198.
Ilmakunnas, P., & Piekkola, H. (2014). Intangible investment in people and productivity. Journal of Productivity Analysis, 41(3). doi:10.1007/s11123-013-0348-9.
Jurajda, Š., & Stančík, J. (2013). Organization and firm performance in the Czech Republic. Prague Economic Papers, 2013(1). doi: 10.18267/j.pep.442.
Kafouros, M., & Aliyev, M. (2016). Institutions and foreign subsidiary growth in transition economies: The role of intangible assets and capabilities. Journal of Management Studies, 53(4). doi: 10.1111/joms.12169.
Kagermann, H., Helbig, J., Hellinger, A., & Wahlster, W. (2013). Recommendations for Implementing the Strategic Initiative INDUSTRIE 4.0: Securing the Future of German Manufacturing Industry; Final Report of the Industrie 4.0 Working Group. Forschungsunion.
Madhok, A., & Liu, C. (2006). A coevolutionary theory of the multinational firm. Journal of International Management, 12(1). doi: 10.1016/j.intman.2006 .01.001.
Makó, Cs., Illéssy, M., & Csizmadia, P. (2012). Innovation performance of the Hungarian economy: Special focus on organizational innovation (the example of the European community innovation survey—CIS). Journal of Entrepreneurship, Management and Innovation, 8(1).
Marrocu, E., Paci, R., & Pontis, M. (2012). Intangible capital and firms’ productivity. Industrial and Corporate Change, 21(2). doi: 10.1093/icc/dtr042.
Monostori, L. (2015). Cyber-physical production systems: roots from manufacturing science and technology. at-Automatisierungstechnik, 63(10). doi: 10.1515/auto-2015-0066.
Mudambi, R., & Navarra, P. (2004). Is knowledge power? Knowledge flows, subsidiary power and rent-seeking within MNCs. Journal of International Business Studies, 35(5). doi: 10.1057/palgrave.jibs.8400093.
Mytelka, L. K., & Smith, K. 2002. Policy learning and innovation theory: an interactive and co-evolving process. Research Policy, 31(8). doi: 10.1016/S0048-7333(02)00076-8.
OECD (2013). Supporting Investment in Knowledge Capital, Growth and Innovation. Paris: OECD Publishing. doi: 10.1787/9789264193307-en.
O’Mahony, M., & Vecchi, M. (2009). R&D, knowledge spillovers and company productivity performance. Research Policy, 38(1). doi: 10.1016/j.respol.2008. 09.003.
Sass, M., & Szalavetz, A. (2014). R&D-based integration and upgrading in Hungary. Acta Oeconomica, 64(1) Supplement. doi: 10.1556/AOecon.64.2014 .S1.6.
Verbič, M., & Polanec, S. (2014). Innovativeness and intangibles in transition: the case of Slovenia. Economic Research-Ekonomska Istraživanja, 27(1). doi: 10.1080/1331677X.2014.947109
How to Cite
Szalavetz, A. (2017). Intangible investments at multinational companies’ manufacturing subsidiaries: do they promote innovation-based upgrading?. Equilibrium. Quarterly Journal Of Economics And Economic Policy, 12(1), 63-80. doi:10.24136/eq.v12i1.4
Regional convergence and growth based on innovations