Achieving Subsidiary Integration in International Innovation by Managerial “Tools”

Abstract

Our study articulates and empirically tests a theory of how the parent firm of a multinational corporation (MNC) can achieve global integration of subsidiaries into the MNC’s intrafirm network by using managerial “tools” to manipulate the MNC’s formal organizational architecture. Taking a subsidiary’s performance as an observable criterion to measure the success of its integration into the global intra-firm network, the model is tested on a unique dataset of 287 international R&D subsidiaries. Our findings suggest that the parent firm can actively improve a subsidiary’s performance and hence its integration by encouraging knowledge asset transfer, by granting the subsidiary a mandate for undertaking activities on behalf of the corporation as a whole, and by providing it with more operational autonomy. These findings open up a deep perspective of how subsidiary integration can be achieved by appropriate managerial “tools” in the context of international innovation. We discuss the implications of these results for the literature and for managers.