Subsidiary Innovation Research Articles

Towards Innovation in Multinational Corporation Subsidiaries: Development of an Instrument to Select and Evaluate Value Driven Strategies

This paper examines the complex, interdependent relationship between multinational companies and their subsidiaries. It discusses how subsidiary role development and specific strategic initiatives may add new value to corporations. While previous studies have identified the need for more proactive management practices, there are few practical guides available to managers to help them improve their performance. This paper addresses this deficit and contributes new knowledge on subsidiary role development practices in terms of selection and evaluation. Through an in-depth analysis of extant literature, the research developed and tested an instrument that allows decision makers to assess their company against good practice. This instrument (or audit tool) is an accurate, reliable and valid mechanism to measure a subsidiary’s role development strategies.

Sources of open innovation in foreign subsidiaries: An enriched typology

This paper analyzes the drivers of multinational affiliates’ innovation, using a dataset based on the Community Innovation Survey for Belgium. Specifically, we investigate the role of external knowledge sources on foreign affiliates’ research efforts and innovation. We thereby develop an enriched typology by taking both the MNC and the host country perspective into consideration and distinguish between different types of subsidiaries, in order to disentangle differences in the use of knowledge sources between technology exploiting, seeking and creating subsidiaries. Our findings show that technology-creating foreign affiliates are able to tap into a combination of industry-based value chain partners and science-based partners. In particular, a combination of clients and universities have a powerful impetus on the research effort of technology creating firms. Our results also indicate that technology-seeking subsidiaries make more use of collaboration with competitors. Technology exploiting subsidiaries make significantly less use of external knowledge sources and have a lower R&D intensity.

Technology Policy, R&D Investment Decisions, and MNC Subsidiary Innovation Performance

Host country policies shape the incentives and opportunities of MNC subsidiaries to innovate. While strategy and international business literature has broadly acknowledged government action as an i...

Perspectives of Manufacturing Subsidiaries of Foreign Companies in Russia: Frontier, Faubourg or Sticks?

We present the dynamics of the position of Russian manufacturing subsidiaries of Western MNCs in 2012-2016. The analysis is based on interviews with the heads of subsidiaries, a repeated survey of plant managers and on secondary data on subsidiaries’ activities. We propose a new portfolio model that desalinates “the core” and “the periphery” of the corporation and further allocates peripheral subsidiaries into several classes depending on intensity of value transfer from and to a subsidiary and the possibility to apply a “standard” set of instruments for capital allocation decisions. We argue that in the current situation of the Russian economy the only possibility for Russian manufacturing subsidiaries to remain close to the corporate core is to demonstrate high net profitability of assets. Otherwise subsidiaries are downgraded into “sticks”. That position enables subsidiary managers to enjoy high autonomy and wide subsidiary mandates, but endanger the long-term perspectives on maintaining innovativeness and competitiveness of subsidiaries.

Subsidiary Innovation in a Developing Economy: Towards a Comprehensive Model and Directions for Future Research

With the internationalization of innovation, multinational enterprise (MNE) subsidiaries have been found to play a critical role in product and process innovation. Deriving from a rich and diverse subsidiary innovation (SI) literature, this article attempts to develop a comprehensive model to study the factors that impact SI in a developing economy by devising three macro constructs, namely, (a) local environment (LE), (b) subsidiary traits (ST) and (c) headquarters (HQ) strategy (HS). The 15 factors associated with these macro constructs identified through literature review are statistically validated through an ‘Idea Engineering’ exercise for their contextual relevance. Based on an expert survey carried out in the developing economy context of India, barring 2 HS factors, rest of them have been found to be statistically significant in the Indian context. Antecedents of SI, identified by this article, can be used by domain practitioners and experts in the field to improve their organization’s innovative capability. The proposed model in this study can be further empirically validated by researchers working in the area of SI.

Exploitation versus exploration

PurposeThis paper aims to draw on the network perspective of organizational innovation to present an argument on how a subsidiary should select innovation behavior.Design/methodology/approachIn this framework, the paper analyzes middle- and high-level managers of subsidiaries from various industries located in the Chinese Mainland.FindingsThe results suggest the following ideas: internal embeddedness is positively related to exploitation innovation, external embeddedness is inverted-U related to exploration innovation, the availability of alternatives positively moderates the main effects, whereas restraint in the use of power negatively moderates them.Research limitations/implicationsThe current study has a few limitations that provide meaningful research directions for future investigations. First, it only considers the industry and ownership as control variables. Second, this study was conducted in the Chinese context.Practical implicationsThe analysis of the relationship between embeddedness and innovation behavior also shows that focal subsidiary must dynamically adjust the way of embeddedness on the basis of its strategy, and it can reasonable leverage strategic assets for exploitation innovation or exploration innovation. From the perspective of headquarters, establishing deep embeddedness with a subsidiary and giving it indispensable support are important to promote that subsidiary’s exploitation innovation.Social implicationsThe focal subsidiary should establish relationships with more alternative partners and develop relationships with power-advantaged partners through strategies such as a long-term contract, establishing an R&D alliance and entering a joint venture. Besides this, more powerful partners in the internal network should adopt various power usage strategies to promote focal subsidiary exploitation innovation and more powerful partners in the external network should show restraint in the use of power toward any subsidiary in an over-embedded situation. The result shows environment dynamism affects subsidiary exploration innovation more deeply than exploitation innovation. Consequently, managers should recognize the importance of dynamic adaptation to environmental changes and adjust their firms’ innovation behavior accordingly, especially when they are implementing an exploration innovation strategy.Originality/valueThe extent of embeddedness in an innovation network shapes the subsidiary innovation behavior, and this effect is moderated by power. The focal subsidiary should dynamically and strategically adjust its innovation behavior considering various its type and level of embeddedness.

Product innovation and decision-making autonomy in subsidiaries of multinational companies

This paper investigates the relationship between subsidiary decision-making autonomy and their development of product innovations. Using survey data from 563 subsidiaries located in six European countries, we show how the degree of decision-making autonomy, as well as the functional area in which the subsidiary has decision-making autonomy, affect the probability of a subsidiary developing product innovations. We find that higher decision-making autonomy increases the probability of a subsidiary developing a product innovation. This effect is particularly pronounced, but not restricted to, decision-making in the area of R&D or the adoption of technologies. The positive effect extends also to functional areas such as investment, finance, supplier selection as well as marketing and sales. In addition, our study suggests that higher degrees of novelty of product innovation still benefit from subsidiaries’ autonomy, but may require higher degrees of managerial involvement by headquarters.

Stakeholder pressures, EMS implementation, and green innovation in MNC overseas subsidiaries

In this paper, we address the issue of green innovation by the overseas subsidiaries of multinational corporations (MNCs). Drawing upon stakeholder theory and institutional theory, we propose a conceptual model to explain how stakeholder pressures in host countries prompt MNC subsidiaries to undertake green product and process innovations. Our findings indicate that MNC subsidiaries need to meet market stakeholders’ pressures in order to achieve social legitimacy in host countries, and that the implementation of formal environmental management systems (EMS) is an important mechanism translating these pressures into green innovation initiatives. Furthermore, we find that the positive relationship between market stakeholder pressures and EMS implementation is reinforced by global ‘green’ institutional pressures in the different host countries.

A microfoundations approach to studying innovation in multinational subsidiaries

Research Summary:We study antecedents of innovation performance for the subsidiaries of multinational enterprises (MNEs) using the microfoundations approach. Based on the upper echelon perspective, we argue that managers’ characteristics, such as prior MNE work experience and industry experience, affect subsidiary innovation. We tested our hypotheses on a sample of 228 MNE subsidiaries from 11 countries. Results indicate that managers’ industry experience serves as an external boundary‐spanning capability and, therefore, it has a greater effect on autonomous subsidiaries. In contrast, managers’ prior MNE work experience functions as an internal boundary‐spanning capability and, therefore, it has a smaller effect on subsidiaries that are less autonomous or engage in R&D.Managerial Summary:The success of an MNE now increasingly depends on its ability to generate knowledge anywhere in the world. Thus, the ability of foreign subsidiaries to generate innovation plays an increasingly important role in enhancing the performance of MNEs. In this regard, what factors determine the innovativeness of foreign subsidiaries is an important question for managers. Our study suggests that the international experience of the top management team (TMT) of a subsidiary and its CEO’s industry experience positively affect subsidiary innovation. Furthermore, the TMT’s international experience has a greater effect on the innovativeness of subsidiaries that remain dependent on their headquarters for knowledge transfer. In contrast, the CEO’s industry experience has a greater effect on the innovativeness of autonomous subsidiaries.

Beyond Simple Configurations: The Dual Involvement of Divisional and Corporate Headquarters in Subsidiary Innovation Activities in Multibusiness Firms

We investigate “dual headquarters involvement”, i.e., corporate and divisional headquarters’ simultaneous involvement in innovation development projects hosted by subsidiaries of multibusiness firms. Drawing on selective hierarchical involvement theory and the literature on subsidiary network embeddedness, we analyze 83 innovation projects in 22 multibusiness firms and find that the number of partners in the projects, rather than subsidiary intra- and inter-divisional embeddedness acts as a driver of dual headquarters involvement. We do however find that intra- and inter-divisional embeddedness is positively related to dual headquarters involvement when the number of partners in the innovation project is relatively large. These results lend support to the idea that parenting in complex organizations entail complex headquarters structures. Our results suggest that we need to go beyond simple conceptualizations of headquarters and that considering different dimensions of the innovating subsidiary’s network helps in explaining dual headquarters involvement.

The Geography of Host Country Knowledge Sourcing and Subsidiary Innovation Performance

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.

Open innovation in multinational companies' subsidiaries: the role of internal and external knowledge

The mainstream literature on innovation management has recognised that most organisations can and must innovate using both internal and external knowledge sources. The management of knowledge in multinational companies (MNCs) implies that subsidiaries should achieve centrality because they are in the unique position to tap into many different sources of knowledge from different cultural contexts. In this context, this paper aims to highlight the importance of 'openness' at the subsidiary level, combining both external and internal knowledge (within the MNC but outside the subsidiary). To do so, we test the single and joint effects of external and internal 'openness' on subsidiaries' innovation performance. Using Amadeus databases, 163 subsidiaries were selected and data were collected through a standardised questionnaire. Then, three hypotheses were tested through an OLS regression model. The results indicate that external and internal knowledge openness positively affects subsidiaries' innovation performance. Moreover, the inclusion of the interaction term shows that a high level of both leads to a multiplicative and positive effect. The findings are discussed in the light of the extant literature, and several implications for future research and MNC and subsidiary managers are highlighted.

Open innovation in multinational companies' subsidiaries: the role of internal and external knowledge

The mainstream literature on innovation management has recognised that most organisations can and must innovate using both internal and external knowledge sources. The management of knowledge in multinational companies (MNCs) implies that subsidiaries should achieve centrality because they are in the unique position to tap into many different sources of knowledge from different cultural contexts. In this context, this paper aims to highlight the importance of 'openness' at the subsidiary level, combining both external and internal knowledge (within the MNC but outside the subsidiary). To do so, we test the single and joint effects of external and internal 'openness' on subsidiaries' innovation performance. Using Amadeus databases, 163 subsidiaries were selected and data were collected through a standardised questionnaire. Then, three hypotheses were tested through an OLS regression model. The results indicate that external and internal knowledge openness positively affects subsidiaries' innovation performance. Moreover, the inclusion of the interaction term shows that a high level of both leads to a multiplicative and positive effect. The findings are discussed in the light of the extant literature, and several implications for future research and MNC and subsidiary managers are highlighted.

Value Creation at the Subsidiary Level: Testing the MNC Headquarters Parenting Advantage Logic

The purpose of this study is to test the assumptions of the headquarters parenting advantage in multinational firms within the context of subsidiary innovation processes. Specifically, we explore the relationship between the selective involvement of headquarters in both innovation development and transfer processes and their related performance in a data set of 85 innovation projects analysed with structural equation modelling. The findings provide only limited support to the parenting advantage logic as they show that although the headquarters are able to select subsidiary-level strategic innovation processes, their involvement is hampering the performance of these processes. Consequently, we offer new extensions to the reasoning behind the parenting advantage logic by introducing four complementary theoretical explanations for the potentially harmful effects of headquarters' involvement in subsidiary innovation-related activities.

Human Resource Management and Radical Innovation. A Fuzzy-Set QCA of US Multinationals in Germany, Switzerland, and the UK

This paper explores, based on the varieties-of-capitalism approach, configurations of key human resource management practices that explain radical innovation in subsidiaries. A fuzzy-set qualitative comparative analysis is conducted with data for 69 subsidiaries of US-based MNEs in Germany, Switzerland, and the UK. Contrary to the implications of the varieties-of-capitalism literature, combining numerical flexibility and employing a high share of academics does not necessarily achieve radical innovation. Various paths to radical innovation exist, and most of them involve functional flexibility. Overall, the findings emphasize the strategic discretion MNEs have, and accentuate that functional flexibility is a key HR practice to achieve radical innovation across differing varieties of capitalism countries.

Human resource management and radical innovation: a fuzzy-set QCA of US multinationals in Germany, Switzerland, and the UK

This paper explores, based on the varieties-of-capitalism approach, configurations of key human resource management practices that explain radical innovation in subsidiaries. A fuzzy-set qualitative comparative analysis is conducted with data for 69 subsidiaries of US-based MNEs in Germany, Switzerland, and the UK. Contrary to the implications of the varieties-of-capitalism literature, combining numerical flexibility and employing a high share of academics does not necessarily achieve radical innovation. Various paths to radical innovation exist, and most of them involve functional flexibility. Overall, the findings emphasize the strategic discretion MNEs have, and accentuate that functional flexibility is a key HR practice to achieve radical innovation across differing varieties of capitalism countries.

Subsidiary capabilities and innovation in developing countries

This study examines the innovativeness of multinational company (MNC) subsidiaries in developing countries. The extant literature assumes that MNC subsidiaries in developing countries are less like...

DETERMINANTES DE LA INNOVACIÓN Y LA PRODUCTIVIDAD EN LAS SUBSIDIARIAS EXTRANJERAS Y LAS EMPRESAS EXPORTADORAS EN LA INDUSTRIA EN COLOMBIA

En esta investigación se evalúan los determinantes de la innovación y su efecto sobre la productividad en las empresas extranjeras y domésticas exportadoras utilizando datos de sección cruzada a nivel de empresa para la industria manufacturera en Colombia. Entre los principales hallazgos están: (i) el esfuerzo realizado por las empresas exportadoras y las subsidiarias extranjeras en actividades de innovación favorece la obtención de innovaciones tanto en productos como en procesos. Sin embargo difieren tanto en el nivel de los rendimientos de la inversión obtenidos por la inversión en innovación como en el tipo de actividad innovadora en que se basa la producción de innovaciones; (ii) tan sólo la innovación en producto tiene un impacto positivo en la productividad, en especial cuando la producción de innovaciones está relacionada con la ejecución de actividades de I+D y (iii) entre las principales variables con efectos relevantes sobre la innovación en las empresas internacionalizadas están las barreras financieras, la disponibilidad de recursos humanos, la protección de innovaciones, la cooperación, en especial, en la cadena de producción, y en el caso específico de las subsidiarias su posición en el grupo multinacional.AbstractThis paper investigates the determinants of innovation and productivity in foreign subsidiaries and national exporters firms, using cross-sectional data at firm level for the industry in Colombia. The major findings suggest that: (i) the effort made by export companies and foreign subsidiaries in innovation activities favours the obtaining of innovations in both product and process. However, they differ in the level of investment returns and the type of innovation activities in which is based the knowledge production; (ii) only product innovation has a positive impact on productivity, especially when it is the result of the implementation of R&D activities and (iii) the main factors that affect innovation in exporting companies and foreign subsidiaries are financial barriers, levels of human resources, protection of innovations, cooperation with clients and suppliers and, specifically, in foreign subsidiaries their position in the multinational group.

Intra-MNE advantage transfer and subsidiary innovativeness: The moderating effect of international diversification

This study focuses on multinational enterprise (MNE) advantage transfer and focuses on the new trend about subsidiary innovativeness. This study explores the intra-MNE advantage transfer from parent companies to their subsidiaries and the effect on innovativeness and performance of foreign subsidiaries, and further examines the moderating effect of the international diversification. The empirical results support the existence of an invert-U relationship between intra-MNE advantage transfer and subsidiary performance. In addition, findings support the moderating effect of international diversification of intra-MNE advantage transfer on subsidiary innovativeness and performance.

The liability of localness in innovation

I analyze differences in the innovativeness of domestic firms and subsidiaries of foreign firms operating in the same country. I argue that domestic firms suffer a liability of localness in innovation, or a competitive disadvantage in product innovation relative to subsidiaries of foreign firms. I propose that this liability of localness is driven by the relatively lower levels of multiculturalism in employees of domestic firms in comparison with subsidiaries, which limit the identification, transfer, and integration of a large diversity of knowledge that supports product innovation. I also propose that managers of domestic firms can compensate for this liability of localness in two ways: by investing in the training of their employees and by exporting. Training modifies the mindsets and abilities of employees and enables them to become more cognitively multicultural, which facilitates product innovation. Exporting changes employees’ mindsets as they become exposed to new ideas available abroad, which also facilitates product innovation. I test these arguments on a sample of manufacturing firms and find that, although domestic firms introduce fewer new products than subsidiaries of foreign firms, they introduce more new products than subsidiaries at the same level of investment in language training and of exports.