Abstract
While extant literature acknowledges the role of international subsidiaries as important sources of innovation, the understanding of how international diversification affects firm innovation is surprisingly limited. To advance this understanding, we take a portfolio perspective of firms’ foreign subsidiaries and expand the conceptualization of international diversification to comprise organizational components (i.e., asset complementarity and mandate broadness) in addition to the geographical component. Empirical testing on a unique multi-source dataset of Japanese listed electronics firms (N=242) and their international subsidiaries (N=2,944) suggests that the three components of international diversification distinctly influence MNE innovation and that the non-linear relationship between geographical diversification and MNE innovation depends on the asset complementarity of the foreign subsidiary portfolio.
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