Head Office Assignment as a Determining Factor of Subsidiary Upgrading in the Clothing Industry in Albania

In this paper we try to analyze the impact of head office assignment of a multinational enterprise (MNE) towards the upgrading path of its subsidiaries in host economies. In our analysis we follow a case study methodology based on the extensive field work in two Italian clothing manufacturing subsidiaries located in Albania. Our first case study is Shqiperia Trikot sh.p.k a subsidiary of Cotonella S.p.A and the second case is Valcuvia Alba sh.p.k a subsidiary of Valcuvia s.r.l. These subsidiaries have in common the products they manufacture (underwear), the nationality of enterprises they represent (Italian), and the host economy in which they are located (fiscal regime, legal environment, macroeconomic indicators). However, the two subsidiaries differ in the level of responsibilities assigned by respective head offices. By comparing the different head office assignment strategies of the two Italian enterprises towards their subsidiaries in Albania we try to draw useful lessons on the different levels of upgrading the two subsidiaries have achieved over the last twenty years. We start our analysis by introducing the activity of the two Italian enterprises including international clients, suppliers of raw materials, portfolio of products, and the main reasons that induced them to locate production in Albania. What follows is our analysis on the two kinds of subsidiary upgrading. We look into upgrading in the complexity of activities realized in the subsidiary (process, product, functional) and the level of embeddedness (linkages with local suppliers and local employment in management positions) experienced by Shqiperia Trikot sh.p.k and Valcuvia Alba sh.p.k since their establishment in Albania in the early 1990s. In parallel, we analyze the level of investments in operating facilities, manufacturing technology, and trainining of the employees occuring in each subsidiary as necessary instruments for upgrading. Our findings indicate that subsidiary upgrading is encouraged when head office assignment allows subsidiaries to participate in complex activities like research and development, design, and brand promotion that have traditionally characterized the head office activity. Facing the same market conditions while operating in Albania, manufacturing of similar goods, and having head offices located in the north of Italy the two subsidiaries reached a different upgrading level due to the contrasting head office assignment strategies towards them: Cotonella S.p.A oriented by a strong cooperation and partnership transformed Shqiperia Trikot sh.p.k, into one of the most technologically advanced clothing manufacturing company in Albania. On the other hand, the head office assignment strategy of Valcuvia S.r.l guided by an ongoing control of the operational activity has limited upgrading of its only subsidiary, Valcuvia Alba sh.p.k.