R&D activities and innovation performance of MNE subsidiaries: The moderating effects of government support and entry mode

Abstract

In the past few decades, the extant literature has examined the impact of R&D internationalization on innovation performance at the individual team member, team or project, subsidiary, and organizational levels. Despite this progress, however, research on conditional and contextual variables that may underpin the relationships between R&D internationalization and firm innovation performance at the subsidiary level remains scarce, and this area deserves further investigation. Using a large, unique dataset containing 524 foreign firms (216 wholly-owned subsidiaries (WOSs) and 308 international joint ventures (IJVs) with R&D subsidiaries in China), we show that: (a) local government support positively moderates the effect of foreign firms’ local R&D investment on their local subsidiaries’ innovation performance in China; (b) this relationship is stronger for IJVs than for WOSs; and (c) local government support appears to have a stronger moderating effect for IJVs than for WOSs on this relationship. Our study contributes to the growing literature on foreign firms’ internationalization of R&D, emerging market innovations and organizational entry modes.