The roles of external embeddedness and institutional distance in the subsidiary product/process innovation and R&D capacity

Abstract

Purpose This study aims to look at the relationship of external embeddedness and institutional distance (governance aspects) with the foreign subsidiary research and development (R&D) capacity. Furthermore, it examines whether these relationships are mediated by subsidiary product and process innovation, and whether institutional distance plays a moderating role in the relationship between subsidiary innovation and R&D capacity. Design/methodology/approach The authors draw on survey data from 130 foreign subsidiaries operating in Brazil and test their model using variance-based structural equation modeling. Findings Results suggest that subsidiary (product and process) innovation fully mediates the relationships between: subsidiary external embeddedness and R&D capacity; and institutional distance and subsidiary R&D capacity, such that the relationship is positive in case of the former and negative in case of the latter. The relationship between subsidiary product and process innovation and R&D capacity is positive and stronger at lower levels of institutional distance. Originality/value The research ignores the underlying mechanisms of the external embeddedness and institutional distance relationship with subsidiary R&D capacity. Furthermore, institutional distance based on formal governance aspects and their impacts on subsidiary innovation and R&D capacity are rarely investigated. This paper contributes with regard to these aspects.

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

“…This approach has been used in previous studies (see e.g. Gaur and Lu, 2007; Abdi and Aulakh, 2012; Ho et al ., 2018; Rodrigues et al ., 2020).…”

“…Institutional distance negatively influences the subsidiary's competence creating abilities (Asmussen et al ., 2009; Williams and Nones, 2009), product and process innovation (Rodrigues et al ., 2020) as well as autonomy (Jong et al ., 2015). Competences and autonomy should enable subsidiaries to take entrepreneurial initiatives (Crookell, 1986; Birkinshaw et al ., 1998; Birkinshaw, 2014), because to be able to effectively respond to a threat or opportunity, the subsidiary must possess a set of relevant, rare and valuable competencies as well as some discretion that would enable them to take an action to outperform their local/international competitors.…”

Knowledge management within a strategic alliances context: past, present and future

“…On the basis of a bibliographic coupling network, we thus deduce that organizational learning has been an important theme in KM research in strategic alliances; however, the focus of KM research is shifting toward more specific areas such as knowledge transfer and relationship of knowledge transfer with performance outcomes. For example, external embeddedness and research and development capacity of foreign subsidiaries (Rodrigues et al , 2020); knowledge flow; and innovation system evolution (Zhao et al , 2019).…”

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

“…Institutional distance increases the costs and risks of managing foreign locations as MNEs have a lower understanding of how to operate in these distant institutional environments, leading to more inefficient transactions (Kostova & Roth, 2002). Previous research finds that institutional distance constrains subsidiaries' competence creating abilities (Asmussen et al, 2009;Williams & Nones, 2009), their own innovation process (Rodrigues et al, 2020), and their overall performance (Shirodkar & Konara, 2017). Therefore, although geographical diversification implies access to diverse resource, it is more challenging for MNEs to access and use these resources when their subsidiaries tend to be located in more institutionally different countries.…”