From local to global innovation: The role of subsidiaries’ external relational embeddedness in an emerging market

Abstract

This study examines factors that influence the development and transformation of local innovations into global innovations from an emerging market subsidiary. We argue that subsidiaries’ relational embeddedness with the external local network is essential for the development of local innovations. Turning local innovations into global ones is the result of the level of innovativeness evoked by the subsidiary located in an emerging market. However, the transformation of local into global innovations is more likely to happen in the case of subsidiaries having previous reverse knowledge transfers in functional areas. Reverse knowledge transfers indicate internal embeddedness, which is essential for local innovation to be transformed into global innovation. We draw on survey evidence from 131 foreign subsidiaries operating in Brazil. Using a Structural Equation Modeling technique, our results support our hypotheses and show that subsidiaries’ relational embeddedness with the external local network is positively associated with local innovation, which is transformed into global innovation, especially when innovation is developed in the subsidiary´s functional areas with previous reverse knowledge transfers. We draw implications for the field of subsidiary management research, specifically to understand the role of local innovation from foreign subsidiaries in emerging markets.