THE IMPACT OF NETWORK INVOLVEMENT ON A FIRM�S ABSORPTIVE CAPACITY: A DYNAMIC MODEL OF SUBSIDIARY ROLE EVOLUATION

Abstract

ABSTRACT This paper develops a new construct to distinguish two types of potential absorptive capacity of a MNC subsidiary: one arising from the subsidiary’s involvement in its intra-firm MNC network (PACAP-M), and the other arising from its participation in external inter-firm networks (so-called “local networks”) (PACAP-L). We argue that a subsidiary tends to develop these two sets of absorptive capacity simultaneously, and that the extent to which a subsidiary’s absorptive capacity of each type will be enhanced is determined by the degree of its involvement in each network. Using this two-dimensional construct, we build a dynamic model of subsidiary role evolution. This new model distinguishes three types of subsidiaries: the International Competence Exploitation subsidiary (ICE), the Local Competence Exploration subsidiary (LCE), and the Global Competence Creation subsidiary (GCC). and suggests that over time, MNC subsidiaries tend to evolve to become Global Competence Creators. Upon achieving this role, a subsidiary’s level of embeddedness in each network will increase, resulting as well in the increase of its overall absorptive capacity (Pu & Qiu, 2010). Keywords Absorptive capacity, subsidiary networks, subsidiary roles, exploration/exploitation