Building Dynamic Capabilities in Emerging Markets: The Roles of Networks and National Culture

Abstract

Building on social networks theory and the dynamic capabilities framework, this study investigates the effects of wholly owned foreign subsidiaries’ formal (contractual) and informal (relational) business networks on their capability building activities. We also examine how moderating effects of Assertiveness and Power Distance dimensions of cultural distance (CD) between the host and home countries of wholly owned foreign subsidiaries (WOFS) will influence the above relationships. Data from 175 WOFS in the Philippines reports that while formal business networks are negatively related to capability building activities, informal business networks are positively related to capability building activities. Further, our findings show a negative interaction between formal business networks and the Power Distance dimension of CD, while the interaction between informal business networks and the Assertiveness dimension of CD is positively related to capability building. These results indicate that WOFS’ ability to...