Essays on location and development of subsidiary R&D strategic role: A matter of dual network embeddedness

Abstract

The integration of subsidiaries into international networks is altering the scholarly conception of the Multinational Corporation (MNC), forcing us to see subsidiaries as differentiated nodes of the internal corporate network embedded at the same time in the external host-local networks. This double-network paradigm highlights the potential of the subsidiary to tap into specific bodies of local knowledge and to make it available to the rest of the MNC, enabling the subsidiary to become an important source of technological competencies and to contribute to the MNC’s overall competitive advantage. This view has revived interest in the configuration of subsidiary R&D roles, especially in those with a particularly contributive disposition that is conducive to long-term success. Nevertheless, the literature examining subsidiary R&D roles has tended to focus mainly on just one side of the dual phenomenon, either its embeddedness in the internal or in the external network. To fill this void, this dissertation seeks to advance our understanding of the location and development of subsidiary R&D roles at the interface of internal and external knowledge networks.

This dissertation is made up of three essays that together form a unique line of argument, where each essay delves more deeply into the findings of the preceding essay. The first essay revisits the commonly cited location advantages for R&D and explores the extent to which they influence the R&D-contributing roles of subsidiaries. Adopting a case study methodology and examining eight subsidiaries with centres of research excellence in Spain, it is shown that supply-side factors impacting technology have a greater power of attraction than demand-side market factors on the R&D-contributing role. However, the Spanish environment appears to be characterised by a greater prevalence of demand-side factors than it is by supply-side factors, which accounts for Spain’s ranking as an ‘intermediate’ country when it comes to attracting foreign direct investment in R&D and innovation. Nevertheless, the high R&D-contributing subsidiaries studied demonstrate that the moderate innovative context of the host country does not hinder their technological potential, provided they maintain relatively stable relations with local agents in the environment. As a result, the degree of embeddedness of affiliates in the local networks emerges as a catalyst for foreign direct investment (FDI) in R&D. This finding prompted us to focus on the network effects of interacting with multiple agents on the evolution in R&D roles and guided the subsequent research.

The second essay focuses on changes in subsidiary capabilities and on the dynamic mechanisms by which their R&D role might evolve, especially, as a consequence of their interaction with a variety of knowledge networks. This issue is examined through four longitudinal case studies of subsidiaries operating in Spain. Using an inductive approach to theory building, we develop a general theoretical framework considering the subsidiary’s embeddedness in knowledge networks within the MNC (internal) and within the host country (external). We find that the evolution towards a competence-creating mandate is characterised by the simultaneous growth of embeddedness in both internal and external networks; otherwise, a subsidiary may actually gravitate away from upgrading its R&D role.

The results of the first and second essays revealed the confounding effects of country factors, corporate factors and dual-embeddedness on subsidiary R&D roles and redirected the focus of the third essay toward this issue. Adopting a partial least square approach to structural equation modelling, the third essay provides empirical evidence for the interaction of these elements based on a survey of 111 foreign-owned subsidiaries located in Spain. This chapter finds that favourable internal and external context conditions do not necessarily lead to the enhancement of a subsidiary’s R&D-contributing role unless dual embeddedness is well established, since internal embeddedness acts as a full mediator for corporate effects, external embeddedness acts as a partial mediator for country effects and, in turn, dual embeddedness (with external embeddedness preceding internal embeddedness) acts as a partial mediator of country effects.