Innovation Offshoring, Institutional Context and Innovation Performance: A Meta‐Analysis

• Date: 01 January 2019
• Author: Nina Rosenbusch,Michael Gusenbauer,Matthias Fink,Isabella Hatak,Klaus E. Meyer
• DOI: http://doi.org/10.1111/joms.12407
• Published date: 01 January 2019

© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies

Innovation Offshoring, Institutional Context and

Innovation Performance: A Meta-Analysis

Nina Rosenbusch, Michael Gusenbauer, Isabella Hatak,

Matthias Fink and Klaus E. Meyer

Lazarid is School of Busi ness and Econom ics, Wilfr id Laur ier Universit y; In stitute for Inno vation

Management , Johannes Kepler Univers ity; Swiss Rese arch Institute of S mall Busin ess and

Entrepreneu rship, Universit y of St. Galle n; Netherlan ds Institute for Knowledge-Inte nsive

Entrepreneu rship, Universit y of Twente; Ivey Business S ch ool, Western Unive rsity

ABST RACT Innovation offs hor ing (IO) has become a widespread management pract ice. Yet,

evidence on the performa nce implications is inconsistent, and scatt ered across disciplines and

contexts. We argue that t he benefits firms ca n derive from IO depend on the institutional

environment at home. Drawing on recent work on in stitutional theory in internat ional busi-

ness, we explore instit ut ions that facilitate reverse knowledge t ransfer and/or institutional

arbitrage wit h respect to innovation-related activ it ies. The results of our meta-analysi s that

synthesizes ev idence from 48 samples show that IO is related positively to i nnovation perfor-

mance. As predicted , this relationship is moderated by di fferences in the institutional env iron-

ments across countries . Specifically, when national in novat ion systems are weak at home, IO

appears to enable inst itutional arbitrage strateg y wherea s Confucian cultures enable more

effective reverse k nowledge transfer. However, cont rary to our expectations, t he beneficial

effects of IO appear to have d iminished over time.

Keywo rds: innovat ion offshoring, innovation per for mance, institutional a rbit rage,

institut ional theory, meta-ana lysis

INTRODUCTION

Innovation offshoring ( IO) – the foreign sourcing of knowledge-intensive act ivities as

inputs to the innovation process – has become a widespread management practice.

Modern information technologies, shr inking trade barriers, converging consumer

tastes, and specia lized human capital developments al l contribute to the growth of IO

Journal of Man agement Studi es 56:1 January 2019

doi:10. 1111/j om s .12 40 7

Address for re print s: Nina Rosenbus ch, Wilfr id Laurier Un iversity, Lazar idis School of Bu siness and

Economics, Waterloo, Onta rio, Canada (nrosenbusch@w lu.ca).

204 N. Rosenbusch et al.

© 2018 John Wiley & Sons Lt d and Society for the Adva ncement of Management Stud ies

(Hutzschenreuter et al., 2011; Lew in and Volberda, 2011). By sourcing innovation input

abroad, firm s may be able to reduce costs , increase their flexibilit y, and access ex pertise

abroad, allowing them to differentiate their innovations and to enhance their competi-

tive advantages ( Doh et al., 2009; Lewin et al., 2009). However, critics of IO argue that

the shift of critical capabilities to foreign countr ies might lead to a loss of control over

these capabilities (Kotab e et a l., 20 07 ), which may be detr imental to the offshoring fi rm

in the longer run.

Scholars from different disciplines have investigated outcomes of offshoring in general

and IO specifically (for overviews see Rilla and Squicciarini, 2011; Schmeisser, 2013).

While early research on offshoring mainly focused on its cost advantages (Musteen and

Ahsan, 2013), more recent research takes into account strategic outcomes such as inno-

vation performance (see Lahiri, 2010; Kotabe et al., 2007; Nieto and Rodriguez, 2011;

Steinberg et al., 2017) – an important driver of financial perfor mance (Rosenbusch

et al., 2011; Rousseau et al., 2016). However, as research on the relationship between IO

and innovation performance is scattered across disciplines and contexts, we have limited

understanding how and to what extent IO relates to innovation performance, and which

external conditions facilitate or hinder the success of IO.

Recent research on the moderators of the IO–innovation performance relationship

mainly focuses on the offshoring firm; examining, for example, top management team

characteristics (Mihalache et al., 2012), absorptive capacity (Kotabe et al., 2011; van

Wijk et al., 2008), or the capabilities of the fir m’s subsidiaries (Almeida and Phene, 2004).

However, the IO–innovation performance relationship may also depend on external

factors such as the institutional environments in which the offshoring firm is operating

(Lam, 2003). Recent studies show that host-country environments play an important role

for the location and organizational forms of offshore innovation (Doh et al., 2009; Sartor

and Beamish, 2014). International business research also points to the crucial influence

of home-country institutions on the strategies and performance of multinational firms more

generally (e.g., Marano et al., 2016; Meyer and Thein, 2014; Wan and Hoskisson, 2003).

Additionally, time may affect IO and its outcomes as institutional environments co-evolve

with the growth of multinational corporations globally (Cantwell et al., 2010).

Home-country institutions and time likely influence the relationship between IO and

innovation performance in two main ways. First, a critical element of IO is the reverse

transfer of knowledge from overseas research and development (R&D) units and its in-

tegration with the parent organization (Kotabe et al., 2007; van Wijk et al., 2008; Yang

et al., 2008). Institutions can either facilitate or hinder knowledge transfer from foreign

sources to the parent company and the translation of knowledge into the firm’s inno-

vation process (Kshetri, 2007). IO changes the direction of knowledge transfer from

conventional parent-to-subunit knowledge flows to reverse subunit-to-parent knowledge

flows. As a result, economic actors may consider the location of innovation activity to

other countries as not legitimate due to social norms, and thus inhibit the successful

implementation of such a relocation. Hence, when institutions, including social norms,

are supportive of learning from abroad, IO is more likely to benefit the parent firm. We

focus on Asian Confucianism, which is associated with more cooperative organizational

cultures (Ghauri and Fang, 2001; Lam, 2003), to test this line of argument. Moreover,