Do we really know the predictors of competence-creating R&D subsidiaries? Uncovering the mediation of dual network embeddedness

Abstract

Many changes have been recorded in the R&D role played by the foreign subsidiaries of multinational corporations (MNCs), to the extent that today many are recognised as key players in the development of firm innovation-related competences. Given this trend, we examine the predictors of a subsidiary's R&D role as a competence-creating contributor to the MNC's long-term success. Traditionally, the predictors of subsidiaries' R&D roles have been sought in the specific features of the internal corporate and external host-country environments. However, we find that favourable corporate-and country-level conditions may not necessarily lead to the enhancement of a subsidiary's R&D role unless dual embeddedness-that is, the subsidiary's embeddedness in the knowledge networks of the MNC (internal embeddedness) and in those of the host country (external embeddedness)-is well established. The main contribution of this paper is the development of a multiple mediation model that disentangles the way in which corporate and host-country environments interrelate with a subsidiary's dual embeddedness in the expected configuration of its competence-creating R&D role. In developing the model, we use the PLS-SEM method to estimate the relationship between these elements and, eventually, to forecast the subsidiary's competence-creating R&D role. The proposed model should help managers shape the fate of the subsidiary's R&D strategic role.

Environmental conditions, subsidiaries’ autonomy and global innovation in multinational enterprises

“…Given this context, advances related to the innovation process in subsidiaries of MNEs have been extensively studied (Lim et al, 2017). In general, many changes have been seen in the role played by the subsidiaries, as many are now being recognized as key players in the development of skills related to innovation (Achcaoucaou et al, 2017;Clark and Ramachandran, 2019). Thus, MNEs have begun to use their foreign subsidiaries to improve their innovation capacity (Mudambi et al, 2007;Zhu et al, 2017), as the subsidiaries are performing as active providers of knowledge and innovation (Nuruzzaman et al, 2019;Liu et al, 2017).…”

“…The global innovation process developed by the subsidiary can be influenced by different elements (Costa and Borini, 2017). The environment of the subsidiary host country has relevance in this new competences development context (Porter, 1990;Andersson et al, 2014;Birkinshaw et al, 1998;Lavie et al, 2010;Achcaoucaou et al, 2017;Zhu et al, 2017). The effect of the environment and its institutions, considering their different geographic dimensions (local, regional, national or global), is relevant for the development of competences and innovations (Degelsegger-Márquez et al, 2017;Achcaoucaou et al, 2017).…”

“…However, environmental determinism in the creation of competencies in subsidiaries still presents contradictions in the literature, because inverse (Birkinshaw et al, 1998), positive (Andersson et al, 2014) and insufficient results (Achcaoucaou et al, 2017) have already been identified. Given this contradiction of the external environment to explain subsidiaries developing non-local capabilities (Cantwell and Mudambi, 2005;Frost et al, 2002;Achcaoucaou et al, 2017), we understand that this factor does not generate innovation only by itself. In our understanding, the phenomenon of the subsidiary's autonomy can influence this process.…”

“…The success of a multinational enterprise (MNE) increasingly depends on its ability to generate knowledge and innovation anywhere in the world (Nuruzzaman et al, 2019;Zhang et al, 2018). The ability of the subsidiary to identify opportunities in the host country and subsequently exploit these opportunities through global innovation can create competitive advantages for the whole corporation (Clark and Ramachandran, 2019;Achcaoucaou et al, 2017). In view of the evolution of the subsidiaries' role, the activities of subsidiaries have changed from passive recipients of knowledge to proactive providers of knowledge and innovation (Nuruzzaman et al, 2019).…”

“…The environmental elements that influence the innovation creation dynamics of the subsidiary can be characterized by two dimensions: local market conditions and local competitive dynamics. The dimension "local market conditions" is permeated by institutional factors, including government policies about education and training; labor market regulations; incentives for innovation; public knowledge created by local universities and public research institutes; local infrastructure; and market demand (Achcaoucaou et al, 2017;Andersson et al, 2014). The dimension "local competitive dynamics" refers to the degree to which a company faces competition in a market.…”