Contributions of Overseas R&D Subsidiaries on Headquarters Innovation Performance: The Moderating Roles of Social Embeddedness and Knowledge Digestibility

Overseas R&D subsidiaries contribute to the cross-border knowledge sourcing of multinational corporation (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 in an efficient way. The study also investigates the effect on overseas knowledge sourcing which derives from the external embeddedness of an overseas R&D subsidiary in the local network of the host country upon experiencing the alliance with local entities. In addition, the degree of knowledge digestibility that each headquarters retains as a condition by which host country knowledge sourcing of headquarters can be effectively facilitated by the host country R&D subsidiary is also investigated. The study tests the hypotheses established with the data of geographical distribution of overseas R&D subsidiaries of 162 multinationals which were included on the Fortune 500 MNC list in the year 2008 and the patent data of each firm along with the alliance and financial data. 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 headquarters having a degree of knowledge digestibility will reinforce the role of host country R&D subsidiary on host country knowledge acquisition, learning, and innovation of the headquarters.