Product Innovation Processes in Foreign Subsidiaries – The Influence of Local Stakeholders

In international business (IB) literature, it has been repeatedly stated that Multinational Corporations (MNCs) can benefit from their foreign subsidiaries in various ways. The early IB literature emphasized that competitive advantages are usually created at home and subsidiaries can then be established abroad in order to exploit these advantages across borders (Hymer 1976, pp. 41-43, Kutschker/Schmid 2008, pp. 412-416). More recent literature has stressed that foreign subsidiaries can also be a major contribution to competitive advantages or even be a source of competitive advantages for the entire MNC (Bartlett/Ghoshal 1990, p. 216, Hedlund/Kogut 1993, p. 344, Bartlett/Ghoshal 1998, pp. 135-136). For instance, foreign subsidiaries absorb local knowledge in their host markets, develop specific capabilities and transfer them to other units of the MNC, such as headquarters (HQs) or sister subsidiaries (McEvily/Zaheer 1999, pp. 1135-1137).

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Often a subsidiary's knowledge and capabilities are shaped by business relationships to local firms or local partners (Hedlund/Kogut 1993, p. 344, Kuemmerle 1999, pp. 2-4, Schmid/Schurig 2003) such as customers (O'Dowd et al. 2005), suppliers (Lindstrand 2003a, 2003b), universities, research institutions (Davis/Meyer 2004) or the government (Chang/Rosenzweig 2009, p. 97).