Impact of Global Companies’ Real Options Implementation on Their Hungarian Subsidiaries

  • Andrea Szalavetz


This paper analyzes the crisis-driven organizational reconfiguration actions in global companies, the timing of investments/divestments and their impact on Hungarian subsidiaries. Exploratory research is applied, based on interviews with 13 manufacturing subsidiaries in Hungary. It is found that, on balance, the surveyed Hungarian subsidiaries have benefited from their owners’ cost-cutting and restructuring actions. Global companies increased their local commitment: they performed tangible and intangible investments in capacity expansion and product upgrading at subsidiaries and delegated additional tasks and responsibilities to subsidiary level. Prior commitment was often regarded as an important explanatory factor of subsequent investments during and after the crisis. However, global companies’ quests for flexibility and their systematic organizational experimentation have sometimes resulted in subsidiaries’ loss of previously gained mandates.


  1. Adner, R., & Levinthal, D. A. (2004). What is not a real option: Considering boundaries for the application of RO to business strategy. Academy of Management Review, 29, 74–85.Google Scholar
  2. Barnett, M. L. (2003). Falling off the fence? A realistic appraisal of a real options approach to corporate strategy. Journal of Management Inquiry, 12, 185–196.CrossRefGoogle Scholar
  3. Belderbos, R., & Zou, J. (2009). Real options and foreign affiliate divestments: A portfolio perspective. Journal of International Business Studies, 40, 600–620.CrossRefGoogle Scholar
  4. Birkinshaw, J., Hood, N., & Young, S. (2005). Subsidiary entrepreneurship, internal and external competitive forces, and subsidiary performance. International Business Review, 14, 227–248.CrossRefGoogle Scholar
  5. Bowman, E. H., & Singh, H. (1993). Corporate restructuring: Reconfiguring the firm. Strategic Management Journal, 14(S1), 5–14.CrossRefGoogle Scholar
  6. Cattaneo, O., Gereffi, G., & Staritz, C. (Eds.). (2010). Global value chains in a postcrisis world: A development perspective. Washington, DC: World Bank.Google Scholar
  7. Christopher, M., & Holweg, M. (2011). “Supply chain 2.0”: Managing supply chains in the era of turbulence. International Journal of Physical Distribution & Logistics Management, 41, 63–82.Google Scholar
  8. Chung, C. C., Lee, S. H., Beamish, P. W., & Isobe, T. (2010). Subsidiary expansion/contraction during times of economic crisis. Journal of International Business Studies, 41, 500–516.CrossRefGoogle Scholar
  9. Chung, C. C., Lee, S. H., Beamish, P. W., Southam, C., & Nam, D. D. (2013). Pitting real options theory against risk diversification theory: International diversification and joint ownership control in economic crisis. Journal of World Business, 48, 122–136.CrossRefGoogle Scholar
  10. Coe, N. M., & Yeung, H. W. C. (2015). Global production networks: Theorizing economic development in an interconnected world. Oxford: Oxford University Press.CrossRefGoogle Scholar
  11. Csáki, G. (2001). The inflow of foreign direct investment into Hungary. In G. Csáki & G. Karsai (Eds.), From Transition to Integration: Macroeconomic Development in Hungary 1990–2002 (pp. 226–261). New York: Columbia University Press.Google Scholar
  12. Damaraju, N. L., Barney, J. B., & Makhija, A. K. (2015). Real options in divestment alternatives. Strategic Management Journal, 36, 728–744.CrossRefGoogle Scholar
  13. Dikova, D., Smeets, R., Garretsen, H., & Van Ees, H. (2013). Immediate responses to financial crises: A focus on US MNE subsidiaries. International Business Review, 22, 202–215.CrossRefGoogle Scholar
  14. Domański, B., Guzik, R., Gwosdz, K., & Dej, M. (2013). The crisis and beyond: The dynamics and restructuring of automotive industry in Poland. International Journal of Automotive Technology and Management, 13, 151–166.CrossRefGoogle Scholar
  15. Doz, Y. (2011). Qualitative research for international business. Journal of International Business Studies, 42, 582–590.CrossRefGoogle Scholar
  16. Driouchi, T., & Bennett, D. (2011). RO in multinational decision-making: Managerial awareness and risk implications. Journal of World Business, 46, 205–219.CrossRefGoogle Scholar
  17. Driouchi, T., & Bennett, D. J. (2012). Real options in management and organizational strategy: A review of decision-making and performance implications. International Journal of Management Reviews, 14, 39–62.CrossRefGoogle Scholar
  18. Eisenhardt, K. M. (1989). Building theories from case study research. Academy of Management Review, 14, 532–550.Google Scholar
  19. Filippov, S., & Kalotay, K. (2011). Global crisis and activities of multinational enterprises in new EU member states. International Journal of Emerging Markets, 6, 304–328.CrossRefGoogle Scholar
  20. Fisch, J. H., & Zschoche, M. (2012). The effect of operational flexibility on decisions to withdraw from foreign production locations. International Business Review, 21, 806–816.CrossRefGoogle Scholar
  21. Gibbert, M., Ruigrok, W., & Wicki, B. (2008). Research notes and commentaries what passes as a rigorous case study. Strategic Management Journal, 29, 1465–1474.CrossRefGoogle Scholar
  22. Glaser, B. G., & Strauss, A. (1967). The discovery of grounded theory: Strategies for qualitative research. New York: Aldine Publishing Co.Google Scholar
  23. Jensen, P. D. Ø., & Pedersen, T. (2011). The economic geography of offshoring: The fit between activities and local context. Journal of Management Studies, 48, 352–372.Google Scholar
  24. Kinkel, S. (2012). Trends in production relocation and backshoring activities: Changing patterns in the course of the global economic crisis. International Journal of Operations & Production Management, 32, 696–720.CrossRefGoogle Scholar
  25. Knudsen, E. S., & Foss, K. (2015). The effect of recessions on firms’ boundaries. Industrial and Corporate Change, 24, 1081–1108.CrossRefGoogle Scholar
  26. Kogut, B. (1985). Designing global strategies: Profiting from operational flexibility. Sloan Management Review, 27, 27–38.Google Scholar
  27. Kumar, S. (2005). The value from acquiring and divesting a joint venture: A real options approach. Strategic Management Journal, 26, 321–331.CrossRefGoogle Scholar
  28. Lee, A. P. J. Y. (2013). Dual-option subsidiaries and exit decisions during times of economic crisis. Management International Review, 53, 555–577.CrossRefGoogle Scholar
  29. Lee, S. H., & Makhija, M. (2009). Flexibility in internationalization: Is it valuable during an economic crisis? Strategic Management Journal, 30, 537–555.CrossRefGoogle Scholar
  30. Maitland, E., & Sammartino, A. (2009). Subsidiaries in motion: Assessing the impact of sunk versus flexible assets. In J. L. C. Cheng, E. Maitland, & S. Nicholas (Eds.), Managing subsidiary dynamics: Headquarters role, capability development, and china strategy, Advances in international management, No. 22 (pp. 55–83). Bingley: Emerald Group Publishing.Google Scholar
  31. Mudambi, R. (2008). Location, control and innovation in knowledge-intensive industries. Journal of Economic Geography, 8, 699–725.CrossRefGoogle Scholar
  32. Nachum, L., & Song, S. (2011). The MNE as a portfolio: Interdependencies in MNE growth trajectory. Journal of International Business Studies, 42, 381–405.CrossRefGoogle Scholar
  33. Patton, M. Q. (1990). Qualitative evaluation and research methods. Newbury Park: SAGE Publications.Google Scholar
  34. Pavlínek, P. (2015). The impact of the 2008–2009 crisis on the automotive industry: Global trends and firm-level effects in Central Europe. European Urban and Regional Studies, 22, 20–40.CrossRefGoogle Scholar
  35. Reuer, J. J., & Tong, T. W. (Eds.). (2007). Real options theory (Advances in strategic management, Vol. 24). Greenwich, CT: Elsevier/JAI Press.Google Scholar
  36. Rugraff, E., & Sass, M. (2016a). Voting for staying: Why didn’t the foreign-owned automotive component suppliers relocate their activity from Hungary to lower-wage countries as a response to the economic crisis? Post-Communist Economies, 28, 16–33.CrossRefGoogle Scholar
  37. Rugraff, E., & Sass, M. (2016b). How did the automotive component suppliers cope with the economic crisis in Hungary? Europe-Asia Studies, 68, 1396–1420.CrossRefGoogle Scholar
  38. Sass, M., & Szalavetz, A. (2013). Crisis and upgrading: The case of the Hungarian automotive and electronics sectors. Europe-Asia Studies, 65, 489–507.CrossRefGoogle Scholar
  39. Schloetzer, J. D., Tonello, M., & Aguilar, M. (2015). CEO succession practices: 2015 edition (Research Rep No. 1575-15-RR). New York: The Conference Board.Google Scholar
  40. Schuh, A. (2012). Strategy review for Central and Eastern Europe: Strategic responses of foreign multinational corporations to the recent economic and financial crisis. Journal of East-West Business, 18, 185–207.CrossRefGoogle Scholar
  41. Shih, S. (1996). Me-too is not my style: Challenge difficulties, break through bottlenecks, create values. Taipei: The Acer Foundation.Google Scholar
  42. Song, S. (2013). FDI structure, investment specificity, and multinationality value under host market uncertainty. Management International Review, 53, 795–817.CrossRefGoogle Scholar
  43. Song, S., Makhija, M., & Lee, S. H. (2014). Within-country growth options versus across-country switching options in foreign direct investment. Global Strategy Journal, 4, 127–142.CrossRefGoogle Scholar
  44. Sturgeon, T. J., & Kawakami, M. (2011). Global value chains in the electronics industry: Characteristics, crisis, and upgrading opportunities for firms from developing countries. International Journal of Technological Learning, Innovation and Development, 4, 120–147.CrossRefGoogle Scholar
  45. Szanyi, M. (2001). Privatization and greenfield FDI in the economic restructuring of Hungary. Transnational Corporations, 10, 25–38.Google Scholar
  46. Szent-Iványi, B., & Vigvári, G. (2012). Spillovers from foreign direct investment in Central and Eastern Europe: An index for measuring a country’s potential to benefit from technology spillovers. Society and Economy, 34, 51–72.CrossRefGoogle Scholar
  47. Tong, T. W., & Reuer, J. J. (2007a). Real options in multinational corporations: Organizational challenges and risk implications. Journal of International Business Studies, 38, 213–230.CrossRefGoogle Scholar
  48. Tong, T. W., & Reuer, J. J. (2007b). Real options in strategic management. In J. J. Reuer & T. W. Tong (Eds.), Real options theory (Advances in strategic management, Vol. 24, pp. 3–28). Greenwich, CT: Elsevier/JAI Press.Google Scholar
  49. Trigeorgis, L. (1996). Real options: Managerial flexibility and strategy in resource allocation. Cambridge, MA: MIT Press.Google Scholar
  50. van Tuijl, E. (2014). Car makers and upgrading: Renault in Romania. Journal of Business Strategy, 35, 13–18.CrossRefGoogle Scholar
  51. Yin, R. K. (2003). Case study research: Design and methods (Vol. 5). California: Thousaend Oaks.Google Scholar
  52. Zschoche, M. (2015). Performance effects of divesting foreign production affiliates: A network perspective. Long Range Planning, 49, 196–206.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Andrea Szalavetz
    • 1
  1. 1.Institute of World EconomicsCentre for Economic and Regional Studies, Hungarian Academy of SciencesBudapestHungary

Personalised recommendations