The Geography of Host Country Knowledge Sourcing and Subsidiary Innovation Performance

Abstract

We investigate the influence of the geography of host country knowledge sources developing different types of knowledge on the quality and generality of a foreign subsidiary innovation. We suggest that the quality of subsidiary innovation is greater when more familiar knowledge is sourced in distant host country locations. We also argue that the generality of subsidiary innovation is greater when less familiar knowledge is sourced from not too distant host country locations because the novel combination potential is limited when source and recipient are close together and codification becomes too complex when they are far apart. We test our arguments on a sample of US subsidiaries of the top European and Asian multinationals operating in the global semiconductor industry and find support for our arguments.