The roles of external embeddedness and institutional distance in the subsidiary product/process innovation and R&D capacity

• Published in: Journal of knowledge management Vol. 24; no. 10; pp. 2513 - 2530
• Main Authors: Rodrigues, Cristina Doritta, Borini, Felipe Mendes, Raziq, Muhammad Mustafa, Bernardes, Roberto Carlos
• Format: Journal Article
• Language: English
• Published: Kempston Emerald Publishing Limited 19-11-2020; Emerald Group Publishing Limited
• Subjects: Emerging markets; Executives; Foreign subsidiaries; Hypotheses; Industrialized nations; Innovations; International business; Investments; Knowledge management; Model testing; Multinational corporations; Multivariate statistical analysis; R&D; Research & development; Subsidiaries; Brazil; External embeddedness; R&D capacity; Institutional distance; Product and process innovation
• ISSN: 1367-3270; 1758-7484
• DOI: 10.1108/JKM-02-2020-0083

Purpose
This study aims to look at the relationship of external embeddedness and institutional distance (governance aspects) with the foreign subsidiary research and development (R&D) capacity. Furthermore, it examines whether these relationships are mediated by subsidiary product and process innovation, and whether institutional distance plays a moderating role in the relationship between subsidiary innovation and R&D capacity.
Design/methodology/approach
The authors draw on survey data from 130 foreign subsidiaries operating in Brazil and test their model using variance-based structural equation modeling.
Findings
Results suggest that subsidiary (product and process) innovation fully mediates the relationships between: subsidiary external embeddedness and R&D capacity; and institutional distance and subsidiary R&D capacity, such that the relationship is positive in case of the former and negative in case of the latter. The relationship between subsidiary product and process innovation and R&D capacity is positive and stronger at lower levels of institutional distance.
Originality/value
The research ignores the underlying mechanisms of the external embeddedness and institutional distance relationship with subsidiary R&D capacity. Furthermore, institutional distance based on formal governance aspects and their impacts on subsidiary innovation and R&D capacity are rarely investigated. This paper contributes with regard to these aspects.