This paper studies the influence of external knowledge on innovation in subsidiaries of multinational firms. The focus on subsidiaries is especially interesting since they are simultaneously embedded in two knowledge contexts: (a) the internal multinational corporation (MNC) comprised of the headquarters and other subsidiaries; and (b) an external environment of regional or host country firms. We develop hypotheses to suggest that the extent of influences of these contexts on subsidiary technological innovation depends on the characteristics of the knowledge network (technological richness and diversity) and the knowledge linkages of the subsidiary with other entities. The study uses patent citation data pertaining to innovations by foreign subsidiaries of U.S. semiconductor firms to test these hypotheses. The paper finds that (a) the technological richness of the MNC, (b) the subsidiary's knowledge linkages to host country firms, and (c) the technological diversity within the host country have a positive impact on innovation.

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Subsidiaries of multinational firms play an important role in the globalization of innovation, yet we have an incomplete idea of the influences on their innovative activity. Drawing on prior research in international business and strategy, we identify two sets of factors that influence the absorption and utilization of knowledge in multinational corporation subsidiaries: (a) the range of external and internal knowledge sources available; and (b) the subsidiary capabilities associated with knowledge absorption and utilization. We find that knowledge absorbed from the host country is useful to subsidiary innovation. We also find support for the role of subsidiary capabilities: both sourcing capability and combinative capability have a significant influence on the scale and quality of innovation. Journal of International Business Studies (2008) 39, 901–919. doi:10.1057/palgrave.jibs.8400383

Previous research has suggested that firms need to balance exploitation and exploration. Acquisitions can be used as a way to explore (i.e., develop new areas of technological expertise) or exploit (i.e., reinforce existing technological capabilities). This article examines acquisitions in the semiconductor industry to answer the following question: Under what conditions do acquisitions facilitate exploitation and/or exploratory activity by the acquirer firm? The authors posit that an acquirer firm's ability to develop such exploratory innovation is a function of three key factors: opportunity available to the acquirer firm for exploration, ability of the acquirer firm to effectively assimilate and establish innovations in new technologies, and extent of control of target firm postacquisition. The results demonstrate strong support for the hypotheses indicating the benefits of target technological uniqueness and for the moderating effects of commonality between acquirer and target firms in geographic bases for exploration. However, the findings contradict expectations about the effects of mergers and suggest that merger enables the acquirer to engage in effective exploration. For exploitation, the authors find negative effects of target technological uniqueness and positive effects of commonality of geographic bases.

T his paper examines knowledge flows within and across geographic boundaries of clusters and nations in the biotechnology industry. We hypothesize that these flows are characterized by various factors relating to the knowledge itself and by firm innovativeness and the presence of prior knowledge flows at the firm level. Surprisingly, our findings suggest that geographic proximity does not matter in some instances, while in others it has a decidedly nonlinear effect opposite to that hypothesized. The pattern of findings points to the greatest contrast in the comparison of between-cluster and between-country flows and presents an opportunity to reevaluate the role of geography and knowledge flows.