Role of Subsidiary Autonomy and Embeddedness in Subsidiary Knowledge Development: Emerging Economy Perspective

Abstract

ABSTRACT: This study examines the factors contributing to developing subsidiary knowledge in Malaysian foreign subsidiaries. Prior research on subsidiaries in multinational corporations has either concentrated on transferring knowledge from headquarters to subsidiaries or vice versa, ignoring the factors associated with subsidiary knowledge development through embedded relationship factors. Although embedded relations are essential for developing knowledge, the direction is most important for developing subsidiary knowledge. The significance of subsidiary knowledge development, subsidiary autonomy, and external and internal embeddedness has been poorly illuminated by prior research. This is because the perception of knowledge development is emphasized from the headquarters' perspective, while the subsidiary functions as a passive recipient. Using the resource-based and network theories, we argue that subsidiary development depends on the subsidiary's autonomy practice and the level of engagement or network relations between external and internal network partners. Our research shows that subsidiary autonomy and external embeddedness are the most significant predictors of subsidiary knowledge development. Internal embeddedness in subsidiary knowledge development is inconsistent with the theoretical assumptions for subsidiary autonomy and external embeddedness. In regression analysis, the survey results of 170 foreign-owned subsidiaries in Malaysia validate our hypotheses. According to the results of this study, subsidiary autonomy and external and internal embeddedness are the most significant predictors of subsidiary knowledge development. This study's findings have implications for subsidiary administrators in developing nations and multinational corporations. While subsidiaries are developing their knowledge, multinationals need to consider how much autonomy to offer them in this process. When subsidiaries are able to make independent decisions, embedded relationships will increase, and knowledge will be more likely to develop. This specific knowledge eventually contributes to the knowledge base of the MNE.