Do emerging market multinational corporations headquarter-subsidiary relationships foster subsidiary innovation and performance in developed markets?

Abstract

This study investigates sources of innovation and performance for emerging market multinational corporations (EMNCs). We develop a contingency framework that examines how internal administrative embeddedness (IAE) and internal knowledge embeddedness (IKE) shape EMNC overseas subsidiary innovation capabilities, and how these relationships are contingent on EMNC headquarter host country experience and subsidiary embeddedness with host-country business partners. Data were collected from a survey of 242 dyads composed of Chinese EMNC headquarters and overseas subsidiaries located in 30 developed countries. Secondary data were also collected for EMNC host country experience and subsidiary performance. The empirical results show that IAE negatively influences EMNC subsidiary innovation capability, and this negative relationship is stronger when subsidiary host-country embeddedness increases. The findings further reveal that IKE positively influences subsidiary innovation capability. This relationship becomes stronger as subsidiary host-country embeddedness and headquarter host country experience increase. We also find that subsidiary innovation capability mediates the relationship between HQ-subsidiary embeddedness and subsidiary performance. Theoretical and managerial implications are discussed.