What drives the R&D capacity growth of foreign subsidiaries? A study of MNE subsidiaries in Korea

We propose and test a model of antecedents of research and development (R&D) capacitygrowth in foreign subsidiaries of multinational enterprises (MNEs) which considerssubsidiaries’ knowledge sourcing activities as well as aspects of headquarters– subsidiaryrelationships. An analysis of survey data collected from 118 foreign subsidiaries in SouthKorea reveals that their R&D capacity growth is positively related to external knowledgesourcing, but only marginally associated with internal knowledge sourcing. We also findthat subsidiaries’ R&D capacity growth is positively related to their managerial autonomy. Furthermore, cultural distance between MNE home and host countries has a marginalnegative effect on R&D capacity growth and weakens the link between internal knowledgesourcing and R&D capacity growth. Overall, our results suggest that researchers, managers,and policy-makers who are concerned with the growth of R&D activities by MNE foreignsubsidiaries should consider knowledge sourcing dimensions and relational factors not in anisolated manner, but in concert.