Location Choice of Product Development and Product Innovation: The Moderator Effect of Embeddedness

Abstract

In this study, based on both the location choice perspective and the local embeddedness perspective, we investigate how the location choice of product development activities at parent companies or at foreign subsidiaries, local embeddedness, and the interaction term of location choice and local embeddedness affect product innovation. We test the effects by using data derived from a questionnaire survey of 397 Japanese subsidiaries in East Asia and South-East Asia. Through this analysis, we confirmed that the location of product development activities at foreign subsidiaries instead of parent companies and the local embeddedness are found to promote product innovation. On the other hand, the interaction term of the location choice of product development and the local embeddedness is negatively related to product innovation. This means that the location of new product development at foreign subsidiaries is found to drive down product innovation when foreign subsidiaries are more deeply embedded in local environment.