Profitability differences between MNE subsidiaries and domestic firms: The case of the food industry in Greece

Abstract

Abstract This report analyzes determinants of profitability differences between subsidiaries of Multinational Enterprises (MNEs) and Domestic Enterprises (DMEs) in the Greek food industry using company level data. Previous studies have tested the hypothesis that ownership‐specific advantages are a major determinant of performance differences. This study analyzes the processed food sector (SIC = 20), using a panel data set for 75 firms and 5 years. The model is evaluated using a random effects model. The results indicate that the determinants of profitability differ between MNEs subsidiaries and DMEs. MNEs' profitability depends on their market share, knowledge, and experience of the local market; training intensity; and product differentiation through the use of technological inputs from abroad and local advertising. DMEs' profitability depends on their market share and product differentiation, through local advertising and local R&D. Size has a negative effect on profitability for both groups of companies. Even after allowing for all of these determinants of profitability, ownership has an independent effect on profitability (namely higher for MNE subsidiaries than DMEs). [EconLit citations: F23, L66, L69]. © 2004 Wiley Periodicals, Inc. Agribusiness 20: 45–60, 2004.

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