The Effect of Local Relational Embeddedness on the Innovative Performance of Foreign Subsidiaries

Abstract

By incorporating resource based view with the social network perspective, we examine foreign subsidiaries’ local relational embeddedness in the host country and its impact on their innovative performance.We propose that foreign subsidiaries’ relational embeddedness with different local network units such as clients, suppliers, and research institutes affect subsidiaries’ product and process innovations. Using data on 381 multinational corporation subsidiaries in China, we find that subsidiaries’ relational capital with clients and suppliers positively associated with their product and process innovations. In particular, subsidiaries’quantity and quality of the relationship with clients are positively associated with product innovation, while the quantity of suppliers affects process innovation. We discuss theoretical and practical implications of this study.