R&D subsidiary isolation in knowledge‐intensive industries: evidence from Austria

Abstract

We investigate R&D subsidiary isolation within Multinational Corporations (MNCs) competing in knowledge‐intensive industries. For such MNCs, accessing knowledge and nurturing the innovative potential of R&D subsidiaries is vital for on‐going competitiveness. This, according to conventional thinking, requires integration of the subsidiary within the host country as well as internally within the MNC. Recent studies have shown, however, that overseas subsidiaries can become isolated (i.e., losing requisite integration), even in high‐technology sectors. We tackle this issue by focusing on organizational factors at corporate and subsidiary levels that have the potential to explain subsidiary isolation. We analyze a sample of 45 foreign‐owned Austrian subsidiaries undertaking R&D in knowledge‐intensive industries using a combination of questionnaire and secondary data. The results suggest that parent and subsidiary experience, the degree of early‐stage research conducted by the subsidiary and the use of training and rotation practices by the subsidiary, all act to counter isolation. Interestingly, we find that proximity between parent and R&D subsidiary does not play a significant role in predicting isolation. We also show how these factors influence communication frequency between the R&D subsidiary and various actors within the internal and the external networks in different ways.