Contributions of Overseas R&D Subsidiaries on Headquarter Innovation Performance

Abstract

Overseas R&D subsidiaries contribute to the cross-border knowledge sourcing of MNC headquarters by providing tacit and context-specific knowledge and reducing the search costs borne by the headquarters. This study examines how overseas R&D subsidiaries allow their headquarters to source local knowledge from the host country. The study also investigates the effect on overseas knowledge sourcing caused by the external embeddedness of an overseas R&D subsidiary in the local network of the host country upon the formation of and experience with alliances entered into with local entities. In addition, the degree of knowledge digestibility that each headquarters retains as a condition by which host country knowledge sourcing of headquarter can be effectively facilitated by the host country R&D subsidiary is also investigated. The study tests the hypotheses established using a data sample representative of the geographical distribution of overseas R&D subsidiaries of 100 multinationals which were included on the Fortune 500 MNC list in the year 2008 and the patent data of each firm. The study provides empirical evidence that the headquarters can benefit from the existence of a R&D subsidiary when it exists in a host country with abundant knowledge. Moreover, the findings suggest that the degree of overseas R&D subsidiarys embeddedness in the host country local network will reinforce the role of host country R&D subsidiary on host country knowledge acquisition and learning of the headquarters.