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Innovation in multinational subsidiaries: The role of knowledge assimilation and subsidiary capabilities

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Abstract

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.

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Notes

  1. MNC subsidiaries can assimilate knowledge from a set of six exhaustive and mutually exclusive sources: the subsidiary itself (i.e., utilizing own knowledge), MNC headquarters, other MNC subsidiaries, other firms in the host country, other firms in the home country, and other firms in other countries. Our theoretical arguments focus on a few of these sources since they have been deemed to be important; however, we control for the effects of all six sources.

  2. We use the term “host country” to reflect the country where the subsidiary is located; “home country” refers to the country where MNC headquarters are located. This is in line with convention in the subsidiary literature (Almeida & Phene, 2004; Frost, 2001; Kuemmerle, 1999).

  3. While we focus on knowledge assimilated from these three sources, our empirical analysis includes all six sources.

  4. Although it is the subsidiaries that demonstrate differentiation and diversity, the HQ is also expected to play a role in channeling knowledge to the appropriate subsidiary in the absence of lateral linkages between the subsidiaries.

  5. We thank the editor for this suggestion.

  6. The six semiconductor firms represented in our sample are AT&T, Intel, Motorola, National Semiconductor, Rockwell Semiconductor and Texas Instruments.

  7. The US patent system classifies patents into broad technology classes that do not map easily onto SIC codes. There are approximately 400 broad technology classes at the three-digit level. Our discussion with patent examiners indicated that 20 broad technology classes, encompassing hundreds of nine-digit technology classes, covered the entire spectrum of semiconductor knowledge and contributed to 95% of the innovatory activity in the semiconductor industry. Thus scale of subsidiary innovation measures the number of patents filed by the subsidiary in these 20 classes in a particular year.

  8. Typically, five years is the duration of a product life cycle in the semiconductor industry (Stuart & Podolny, 1996), and therefore allowing for a 6-year period for citations should provide an accurate reflection of the importance of the patent.

  9. We used the integer value of this variable (e.g., if this variable had a value of 7.71, it was rounded up to 8) in order to use the negative binomial regression and facilitate comparisons with the model for scale of innovation. We also computed an alternative measure of quality as a pure count of total cites (rather than the average), and ran our regressions with the alternative measure. Our findings were robust across both measures.

  10. We compared assignee names on the subsidiary patent and the cited patent to ensure that they belonged to the same firm.

  11. The country of MNC headquarters in our sample was the US, since our sample consists only of US semiconductor firms.

  12. This eliminates citations to MNC headquarters that are considered separately and self-citations by the subsidiary that are discussed in the controls.

  13. We are grateful to an anonymous reviewer for suggesting this approach.

  14. We would have preferred to use subsidiary-level R&D intensity and contacted the firms in our sample for information on subsidiary R&D expenditure and sales. However, they were unwilling to disclose this information.

  15. Thanks to a reviewer for pointing this out.

  16. We thank the editor for this suggestion.

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Acknowledgements

Each author contributed equally to this paper. We thank Rob Grant, Elaine Romanelli and Steve Tallman for their suggestions and comments. We also acknowledge the insightful comments and suggestions of two JIBS reviewers and the guidance of the editor Arie Y Lewin. We are grateful to Peter Farkas for his research assistance. This project was supported through a grant from the R&D Fund of the McDonough School of Business, Georgetown University.

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Authors and Affiliations

  1. David Eccles School of Business, University of Utah, Salt Lake City, USA

    Anupama Phene

  2. McDonough School of Business, Georgetown University, Washington DC, USA

    Paul Almeida

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  1. Anupama Phene
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  2. Paul Almeida
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Correspondence to Anupama Phene.

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Accepted by Arie Y Lewin, Editor-in-Chief, 25 September 2007. This paper has been with the authors for three revisions.

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Table a1 Means, standard deviations and correlations
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Phene, A., Almeida, P. Innovation in multinational subsidiaries: The role of knowledge assimilation and subsidiary capabilities. J Int Bus Stud 39, 901–919 (2008). https://doi.org/10.1057/palgrave.jibs.8400383

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