R&D subsidiary isolation in knowledge‐intensive industries: evidence from Austria

Abstract

We investigate R&D subsidiary isolation within Multinational Corporations (MNCs) competing in knowledge‐intensive industries. For such MNCs, accessing knowledge and nurturing the innovative potential of R&D subsidiaries is vital for on‐going competitiveness. This, according to conventional thinking, requires integration of the subsidiary within the host country as well as internally within the MNC. Recent studies have shown, however, that overseas subsidiaries can become isolated (i.e., losing requisite integration), even in high‐technology sectors. We tackle this issue by focusing on organizational factors at corporate and subsidiary levels that have the potential to explain subsidiary isolation. We analyze a sample of 45 foreign‐owned Austrian subsidiaries undertaking R&D in knowledge‐intensive industries using a combination of questionnaire and secondary data. The results suggest that parent and subsidiary experience, the degree of early‐stage research conducted by the subsidiary and the use of training and rotation practices by the subsidiary, all act to counter isolation. Interestingly, we find that proximity between parent and R&D subsidiary does not play a significant role in predicting isolation. We also show how these factors influence communication frequency between the R&D subsidiary and various actors within the internal and the external networks in different ways.

Dynamic capabilities and innovation in MNC subsidiaries

“…Firms are using various paths to commercialize both external and internal ideas (Chesbrough, 2003(Chesbrough, , 2006 and are generating value by commercializing ideas through channels that are outside their current business model; firms may find it is easier to look outside for a technology than it is to develop the technology internally (Chesbrough & Crowther, 2006;Cooper, 2009). The embeddedness of a subsidiary in the external environment can allow the subsidiary to acquire and exploit knowledge critical for R&D (Williams & Nones, 2009) because it better understands the complexities inherent in the local knowledge. This effort can lead to innovation at the subsidiary level.…”

Knowledge-intensive business services: does dual embeddedness matter?

“…Knowledge-intensive companies operate in an environment characterized by high levels of uncertainty and instability, because of fast changes occurring in the competitive landscape (Williams & Nones, 2009). As a result, although the knowledge residing in the The Service Industries Journal local environment is a core competitive advantage of foreign subsidiaries, absorbing such knowledge is not an easy task.…”

Internal Embeddedness, Headquarters Involvement, and Innovation Importance in Multinational Enterprises

“…relationships characterized by closeness, which is manifested by a high degree of adaptation (Andersson et al., 2001, 2002, 2007; Forsgren et al., 2005). We decided to focus on the internal embeddedness of subsidiaries since research in this area is scarce (Garcia‐Pont et al., 2009) and previous studies focus on structural characteristics, such as relationship frequency (Williams and Nones, 2009), density (Ghoshal and Bartlett, 1990), and centrality (Gulati, 1999). In terms of characteristics and outcomes, the relational perspective means that the subsidiaries involved in developing an innovation have become closer and have adapted their activities to each other, which affects their economic activities.…”

“…Studies of internal embeddedness mostly focus on the structural dimension (e.g. Ambos and Schlegelmilch, 2007; Williams and Nones, 2009) while the present study focuses on the relational dimension of embeddedness (Granovetter, 1985). The centre of excellence (CoE) literature suggests that it is important to look at the specific network relationships of subsidiaries and at headquarters role in relation to subsidiary development processes (Holm and Pedersen, 2000).…”