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Subsidiary roles as determinants of subsidiary technology sourcing: empirical evidence from China

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Abstract

Emerging economies have become new destinations for knowledge sourcing, forcing Multinational Enterprises (MNEs) to reconfigure their global innovation strategies and structure. While foreign subsidiaries located in emerging economies were conventionally viewed as having market or efficiency seeking roles, they have started to evolve towards knowledge-seeking roles. We argue that the conventional wisdom shall be reassessed considering this recent shift. We empirically investigate 129 manufacturing MNE subsidiaries of Fortune 500 companies in China, in terms of their roles and sources of technology. Our results indicate that market and knowledge seeking subsidiaries located in China tend to have a positive impact on the generation of new knowledge, either through locally established MNE R&D laboratories or through collaborations with local firms and scientific institutions.

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Notes

  1. However, it is worth noting that this stream of research seems to mainly focus on the context of advanced economies as the host environment for subsidiary capability building (e.g. Birkinshaw 1994; Birkinshaw and Hood 1998; Hood et al. 1994; Dimitratos et al. 2009).

  2. All three papers embrace the impact of “reverse innovation” i.e., innovation that takes place in emerging economies and then is “trickled up” to developed countries. However, Govindarajan and Ramamurti (2011) focus on where innovation is firstly adopted whilst Zhang and Pearce (2010) and von Zedtwitz et al. (2015) focus on where innovation is firstly developed, assigning a more dynamic role to both MNE subsidiaries and the host economy.

  3. This can involve production (or assembly) of a part of a group’s range of final products: supply of components for assembly elsewhere in the network; or the performance of one stage in a vertically-integrated process.

  4. For Dunning and Lundan (2008) strategic-asset seeking FDI involves “acquiring the assets of foreign corporations, to promote their long-term strategic objectives- especially that of sustaining or advancing their global competitiveness” (p. 72). Our KS focuses more explicitly on inputs into creative activity and thus extends the relevant learning processes into investigation (R&D, market research, etc.) of potentials that have not yet been fully formulated as strategic assets.

  5. This was originally generated through study of the roles of MNE subsidiaries in Canada (White and Poynter 1984; D’Cruz 1986) and later applied, in varied formulations, to the European context (e.g. Hood and Young 1988; Hood et al. 1994; Taggart 1996, 1997; Papanastassiou and Pearce 1999; Pearce and Tavares 2002).

  6. The programme oriented towards national economic construction and aimed to solve problems that affect country’s development.

  7. Program aimed to assist the development in rural areas in the name of improving the living quality of the rural population.

  8. National Hi-tech Research and Development Program. Aimed at creation of new technology that is immediately applicable in production.

  9. The Program mainly aimed at developing new technology, such as new materials, biotechnology, electronic information, integrated mechanical–electrical technology, and advanced and energy-saving technology.

  10. The program encouraged outstanding scientists to carry out key research in cutting-edge science.

  11. The degree of correlation between ES1 and ES2, MS1 and MS2, KS1 and KS2 is very high (in the order of 0.7 and above) and thus justifies the use of PCA.

  12. Overall the results remain consistent after accounting for endogeneity.

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Authors and Affiliations

  1. University of Chinese Academy of Sciences Huaibeizhen, Huairou, Beijing, China

    Si Zhang

  2. Middlesex University Business School, Hendon, London, NW4 4BT, UK

    Shasha Zhao, Ioannis Bournakis & Marina Papanastassiou

  3. University of Reading Henley Business School, Reading, RG6 6UD, UK

    Robert Pearce

Authors
  1. Si Zhang
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  2. Shasha Zhao
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  3. Ioannis Bournakis
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  4. Robert Pearce
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  5. Marina Papanastassiou
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Corresponding author

Correspondence to Marina Papanastassiou.

Appendices

Appendix A: definitions of variables

See Figs. 2 and 3.

Appendix B: principal components analysis

See Tables 4 and 5.

Table 4 Correlation matrix of raw data (as extracted from questionnaire survey)
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Table 5 Correlation of principal components (PCA)
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Zhang, S., Zhao, S., Bournakis, I. et al. Subsidiary roles as determinants of subsidiary technology sourcing: empirical evidence from China. Econ Polit 35, 623–648 (2018). https://doi.org/10.1007/s40888-018-0120-8

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