Institutional Distance and MNE‐subsidiary Initiative Collaboration: The Role of Dual Embeddedness

Abstract

Entrepreneurial initiatives by subsidiaries are greeted as well as contested. We examine the effect of institutional distance between the host country of a subsidiary and the home country of its parent multinational enterprise (MNE) on the resource support a subsidiary receives from the MNE for its entrepreneurial initiatives. Drawing on social exchange theory, and resource dependence theory, we argue that while informal institutional distance inhibits MNE resource support for initiatives, and formal institutional distance further exacerbates the subsidiaries' options, external embeddedness and reverse knowledge transfers may help subsidiaries bypass the negative effects of institutional distance and encourage MNE involvement in subsidiary initiatives. Using survey data from 429 foreign subsidiaries in New Zealand, and secondary data on formal institutional distance from the Worldwide Governance Indicators, the results from structural equation modeling provide support to our hypotheses. This study extends institutional distance, embeddedness, and subsidiary initiative research. Importantly, it contributes by demonstrating how contingencies such as dual embeddedness and (low) formal institutional distance can counterbalance the negative effects of informal institutional distance on subsidiary initiatives and MNE‐subsidiary initiative collaboration.

International Diversification and MNE Innovativeness: A Contingency Perspective of Foreign Subsidiary Portfolio Characteristics

“…In line with these ideas, research finds that headquarters tend to benefit more from knowledge coming from locations with similar characteristics because of the similar expectation in knowledge structure and better fit in the conventions with the foreign subsidiary providing the knowledge (Ambos et al, 2006). Also, research shows that institutional distance reduces headquarter support for subsidiary initiative due to perceived relational distance (Raziq et al, 2021). Therefore, institutional distance constrains MNE's ability to leverage geographical distance for innovation because it makes it more difficult for the subsidiaries to tap into foreign resources and for the MNE to recognize the value and combine geographically dispersed resources.…”

The differentiated role of organizational ambidexterity and organizational innovation in the subsidiary reverse knowledge transfer process

“…Our conceptual limitation is that we drew on only two aspects for the RKT process: organizational ambidexterity and organizational innovation. Future research may further identify other aspects that intervene or interact in the RKT process, for example, organizational structures or institutional distance (Raziq et al, 2021). The second limitation refers to the unit of analysis, i.e.…”

“Distance” in intellectual property protection and MNEs’ foreign subsidiary innovation performance

“…Thus, although in the upward direction MNEs have to bear with the costs and conflicts of engaging with different institutional protocols (Alexy et al, 2009), which would negatively affect foreign subsidiary innovation, we expect that this negative effect will be of relatively smaller magnitude. In contrast, with greater distance in the downward direction, foreign subsidiaries would have to put greater efforts in adapting to the informal cultural idiosyncrasies of the weaker IP protection regime and develop new practices to innovate effectively (Raziq et al, 2021; Schmiele, 2013). However, at the same time, such practices will be considered less legitimate and risky, given the knowledge‐protective practices institutionalized within the MNE in its home base.…”