Local relational embeddedness and subsidiaries’ innovative performance

Abstract

We examine how foreign subsidiaries’ local networks with clients, suppliers, and research institutes in emerging markets affect their innovative performance by incorporating resource- based view with local embeddedness perspective. Utilizing a survey dataset of 381 multinational corporation subsidiaries in China, we explore both quality and quantity of subsidiaries’ relations with local clients, suppliers, and research institutes and their impact on subsidiaries’ innovative performance. Specifically, we find that high-quality relations with local clients, broader network with local suppliers, and collaboration with local research institutes all contribute to subsidiaries’ innovative performance. The follow-up on-site interviews with senior executives of foreign subsidiaries provide strong support to all of our empirical findings. This study provides theoretical and practical implications in understanding subsidiaries’ innovative performance.