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Catching Up, Spillovers and Innovation Networks in a Schumpeterian Perspective pp 171–194Cite as

The Innovation Performance of MNE Subsidiaries and Local Embeddedness: Evidence from an Emerging Economy

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Abstract

We examine the innovation performance of MNE subsidiaries and their embeddedness in sources of local knowledge in a policy framework within the context of an emerging economy. Based on first-hand evidence from multiple case studies, we found that: (1) there was variability between the subsidiaries in terms of the cumulative manner and speed at which they improved their innovation performance over time, using progressively levels of accumulated capability as a proxy; (2) these differences in innovation performance improvement reflected heterogeneity between the subsidiaries in terms of the learning efforts made to acquire knowledge from local organizations; (3) the varied frequency in which the subsidiaries developed such local relationships reflects their differing responses to a common industrial policy that makes use of tax incentives to stimulate such links. The paper reveals the limitations of this conventional type of industrial policy in stimulating industrial development and the embeddedness of MNEs. It also suggests that a new direction for policy, which incorporates public-private negotiations and a focus on the firm-centred building of innovation capabilities, should be pursued in order to accelerate the innovation performance progress of latecomer firms.

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Notes

  1. 1.

    Indeed, in the broader study from which this paper derives, we have examined the role of both intra-corporate and local link in affecting the innovation performance improvement of subsidiaries.

  2. 2.

    This paper does not consider levels of innovation performance achieved by the case-study firms as a measure of success or failure. Our purpose is to explore heterogeneity across the cases in terms of the extent of and speed at which they have improved their innovation performance and the role embeddedness.

  3. 3.

    This is a method of digital wireless communications transmission allowing a large number of users to access a single radio-frequency channel without interference.

  4. 4.

    Indeed, Omega had started its relationships, based on joint education and training program, with research institutes (e.g., Cesar) and universities in North-eastern Brazil as early as 1999. Omega’s first approached neighboring universities in South-eastern Brazil, but its proposals to develop such kind of relationship were turned down.

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Acknowledgments

This paper forms one of the outcomes of a research project on the business strategies and competitive performance of MNE subsidiaries in the electronics industry in Brazil at EBAPE/FGV. An earlier version of this paper was presented at the 12th Conference of the International Joseph A. Schumpeter Society in Rio de Janeiro, Brazil, in July 2008. We thank the participants of the conference, two anonymous JEE reviewers and the editors of this Special Issue for their useful comments, and suggestions. We also thank Marcela Cohen for her assistance in carrying out this research. Any errors that remain are our own. We also gratefully acknowledge funding from the Brazilian Association for the Electro-electronics Industry (Abinee). All disclaimers apply.

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Authors and Affiliations

  1. Brazilian School of Public and Business Administration (EBAPE), Getulio Vargas Foundation (FGV), Rio de Janeiro, RJ, Brazil

    Paulo N. Figueiredo & Klauber Brito

Authors
  1. Paulo N. Figueiredo
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  2. Klauber Brito
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Correspondence to Paulo N. Figueiredo .

Editor information

Editors and Affiliations

  1. , Institut für Volkswirtschaftslehre, Universität Hohenheim, Wollgrasweg 23, Stuttgart, 70593, Germany

    Andreas Pyka

  2. UFRJ - Instituto de Economia, Campus da Praia Vermelha, Universidade Federal do Rio de Janeiro, Av. Pasteur 250, Rio de Janeiro, 22290-240, Rio de Janeiro, Brazil

    Maria da Graça Derengowski Fonseca

Appendix

Appendix

1.1 Typology for Levels of Capability (Condensed Version)

Levels of innovative and production performance

Illustrative activities that express levels of production and innovative performance levels

Innovative performance

World leading (frontier pushing) (Level 7)

Undertaking cutting-edge innovation in products, production and organizational processes and systems (e.g., development of processes and tools for complex testing adopted corporation, subsidiaries and other companies in the sector; development of products and processes that are original to the world)

Advanced (Level 6)

Closing in on leading global leaders in terms of innovation (e.g., development of tools for automatic inspection of code and software test; design, prototyping and development of products with clients, corporation, subsidiaries and/or partners)

Intermediate (Level 5)

Implementation of relatively complex modifications to products, processes organization, and systems (advanced techniques and automated to control of software development; development of non-original products and processes internally and/or with partners)

Basic (Level 4)

Undertaking minor adaptations (e.g., formal planning and coordination of projects in medium complexity; development of software in medium complexity; simple improvements in products without change its functionality

Production performance

Advanced (Level 3)

Implementation of production processes embodying advanced technological features Products and services incorporate technical and design specifications and performance features that are close to the most advanced in global markets

Intermediate (Level 2)

Implementation of relatively complex production system with basic standardization of procedures that meet the requirement of national market

Basic (Level 1)

Implementation of non-formal operational procedures (each project follows a different process). Simple replication of specifications into processes production or products

  1. The original framework applied during the fieldwork involved the use of a tailored matrix that identified the levels of capabilities appropriate for specific technological activities (e.g., project management, software engineering and processes, processes and production organisation for hardware, and products and solutions in ICT). The adaptation of this framework for the ICT industry took approximately 6 months and involved several consultations with industry experts to validate it. The qualitative data obtained from the application of these frameworks were transformed into quantitative observations, in order to allow the speed of capability accumulation to be calculated. The levels of capability that were achieved by each subsidiary for these four specific activities were then aggregated to represent the capability level of each subsidiary at different times

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Figueiredo, P.N., Brito, K. (2011). The Innovation Performance of MNE Subsidiaries and Local Embeddedness: Evidence from an Emerging Economy. In: Pyka, A., Derengowski Fonseca, M. (eds) Catching Up, Spillovers and Innovation Networks in a Schumpeterian Perspective. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-15886-5_8

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