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In this paper, we investigate the evolution of multinational corporation (MNC) research and development (R&D) subsidiaries through evolution of innovation networks. Their evolution within and outside MNC R&D subsidiaries has not been investigated in the context of MNCs that source innovation from emerging economies. We do so, using two dimensions: geographical and organizational boundaries. In order to identify a pattern, we chose the information technology (IT) cluster in Bangalore, India, as the context for a qualitative study; for there are MNC subsidiaries that operate and innovate within and outside organizational boundaries, and have strong links with firms within and outside of Bangalore cluster. The globalized nature of the cluster helps us infer the evolution of innovation networks by taking a knowledge flow perspective. We identify four distinct phases based on where and how knowledge flows. We find that the innovation networks of these MNC subsidiaries in emerging economies first develop as hierarchical networks and then extend to the local markets. Within the first part, the networks start with a non‐local nature (phase A) and get embedded into local networks (phase B and phase C), finally developing into non‐local (phase D) market ties that enable MNC headquarters to source innovation from the host country. In an emerging economy context, clusters can serve as a springboard by providing a local environment that can help overcome institutional voids.

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