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Subsidiaries act as both creators and contributors of knowledge and innovation within the Multinational Enterprise (MNE), (Ghoshal and Bartlett, 1983; Birkinshaw, 1995, 2000; Almeida and Phene, 2004; Cantwell and Mudambi, 2005; Andersson et al., 2008; Phene and Almeida, 2008), but according to the literature, how this occurs, and how this contributes to a differentiated role for the subsidiary within the MNE, demands attention (Frost, 2001; Cantwell and Mudambi, 2005; Figueiredo, 2011). This study seeks to address this research gap. Specifically, the research examines whether, how, and under what conditions, subsidiaries develop innovative capabilities through innovations and/or initiatives, within their internal and external multinational networks, and if, and how this innovative activity can contribute to role evolution for the subsidiary within the MNE. Drawing upon the theoretical lenses of both a network and a resource-based perspective, and additionally incorporating resource dependency theory, the study contributes to an understanding of the development of capabilities within the subsidiary. Recognising the value to the wider MNE of subsidiary innovation, the study unlocks the ‘black box’ of the subsidiary’s innovation activities, by illuminating the various activities and the processes that link them (Birkinshaw et al., 1998), to establish new insights into how the internal and external networks of the subsidiary influence subsidiary innovative capability. The literature has tended to assume that subsidiaries automatically benefit from linkages in its network environment, but the role of subsidiary management initiative in the entrepreneurial tapping of new resources has not been considered sufficiently (Stahl, 2004). So, whilst the internal network, the external network (and related embeddedness and linkage factors) impact the innovative capability of the subsidiary, the headquarters, the munificence of the local environment, but also the autonomous choices of the subsidiary itself, drive innovation and capability development within the subsidiary. The study therefore examines how innovative initiative activity, alongside the network linkages of the subsidiary, and through the exercise of autonomy shapes and influences subsidiary role evolution. Ireland, as a highly developed and globalised economy, has achieved much success in attracting key MNE subsidiary players into knowledge-intensive sectors, and these subsidiaries are evolving into high value R&D units, undertaking key innovations for the entire MNE. The success story of Irelands’ FDI model makes it a particularly insightful context in which to study innovative activity in multinational subsidiaries. Five case-studies of high-technology subsidiaries which are located in close geographic proximity at the sub national level provide the empirical basis for the study’s agenda, with senior managers with key functional roles as the key respondents. The study contributes to the study of subsidiary innovation and innovative capability development in a number of ways. First, the study provides insight into how subsidiaries generate innovation through the mechanism of proactive and self-determined subsidiary initiatives. In particular, subsidiaries, through these innovations, initiate and develop meaningful linkages with key actors in the local external environment, which creates credibility and legitimacy for future initiative-taking. This suggests that a subsidiary choice perspective and initiative may be a valid perspective to adopt when considering subsidiary innovations and capability enhancement in MNEs. Subsidiaries develop few but important linkages in both their internal and external networks. To a large extent, the evolution of linkages and relationship is not automatic but the linkages are initiated and shaped by the deliberate strategies of the subsidiaries which, by corollary, means that the environment is reflected in the strategies and interests of the subsidiary. The study also sheds light on the controversies surrounding the exercise of, and role of, autonomy, and its relevance to innovative capability within the subsidiary. To note, all subsidiaries have strategically advanced roles in terms of R&D capability, and to varying degrees the subsidiaries act as pivots for R&D development within the global MNE. Whilst the autonomy of the subsidiary is both assumed and revealed in the actual initiatives pursued by the subsidiaries, interestingly, the study finds that due to increasing technological specialisation of the subsidiaries, autonomy is not something that is ‘fought for’, rather integration and contribution to the MNE is deemed valuable for future role development. As regards role change of the subsidiary within the MNE, the findings are more indeterminate. Clearly, role change may take many years to actually surface. However, it is clear that subsidiaries are becoming more specialised in their mandate focus, through purposefully outsourcing manufacturing, progressively upgrading R&D capabilities, and further strengthening collaborative linkages for technological innovation. As an ‘insider in two systems’ (Collinson and Wang, 2012), the study shows that generating innovations within subsidiaries is a path-dependent process, building on proven capabilities and the credibility of the subsidiary. Innovation capability is not only the result of the overall ‘entrepreneurial orientation’ or initiative-taking capability of the subsidiary in tight networks, but also in the ability of the subsidiaries to combine and recombine resources from its linkages in both internal and external networks for differential contribution to an ever more integrative MNE. Finally, the findings are synthesised into a new model capturing how and under what conditions innovative capabilities develop within the subsidiary, within the MNE. The study deepens and extends the analysis of the situated nature of knowledge and competence development to an understanding of the subsidiary’s own strategies in the generation of new knowledge for subsidiary-specific advantage, and illustrates some of the reasons as to why not all subsidiaries are equal. |
