What drives the R&D capacity growth of foreign subsidiaries? A study of MNE subsidiaries in Korea

Abstract

We propose and test a model of antecedents of research and development (R&D) capacity growth in foreign subsidiaries of multinational enterprises (MNEs) which considers subsidiaries’ knowledge sourcing activities as well as aspects of headquarters–subsidiary relationships. An analysis of survey data collected from 118 foreign subsidiaries in South Korea reveals that their R&D capacity growth is positively related to external knowledge sourcing, but only marginally associated with internal knowledge sourcing. We also find that subsidiaries’ R&D capacity growth is positively related to their managerial autonomy. Furthermore, cultural distance between MNE home and host countries has a marginal negative effect on R&D capacity growth and weakens the link between internal knowledge sourcing and R&D capacity growth. Overall, our results suggest that researchers, managers, and policy-makers who are concerned with the growth of R&D activities by MNE foreign subsidiaries should consider knowledge sourcing dimensions and relational factors not in an isolated manner, but in concert.