A microfoundations approach to studying innovation in multinational subsidiaries

• DOI: http://doi.org/10.1002/gsj.1202
• Author: Rakesh B. Sambharya,N. Nuruzzaman,Ajai S. Gaur
• Date: 01 February 2019
• Published date: 01 February 2019

SPECIAL ISSUE ARTICLE

A microfoundations approach to studying

innovation in multinational subsidiaries

N. Nuruzzaman

1

| Ajai S. Gaur

1

| Rakesh B. Sambharya

2

1

Department of Management and Global

Business, Rutgers Business School - Newark and

New Brunswick, Newark, New Jersey

2

School of Business, Rutgers University, Camden,

New Jersey

Correspondence

Ajai S. Gaur, Department of Management and

Global Business, Rutgers Business School -

Newark and New Brunswick, 1 Washington Park,

Newark, NJ 07102.

Email: ajai@business.rutgers.edu

Funding information

Rutgers Business School’s RAISED research

award

Research Summary: We study antecedents of innovation

performance for the subsidiaries of multinational enter-

prises (MNEs) using the microfoundations approach.

Based on the upper echelon perspective, we argue that

managers’characteristics, such as prior MNE work expe-

rience and industry experience, affect subsidiary innova-

tion. We tested our hypotheses on a sample of 228 MNE

subsidiaries from 11 countries. Results indicate that man-

agers’industry experience serves as an external

boundary-spanning capability and, therefore, it has a

greater effect on autonomous subsidiaries. In contrast,

managers’prior MNE work experience functions as an

internal boundary-spanning capability and, therefore, it

has a smaller effect on subsidiaries that are less autono-

mous or engage in R&D.

Managerial Summary: The success of an MNE now

increasingly depends on its ability to generate knowledge

anywhere in the world. Thus, the ability of foreign sub-

sidiaries to generate innovation plays an increasingly

important role in enhancing the performance of MNEs. In

this regard, what factors determine the innovativeness of

foreign subsidiaries is an important question for man-

agers. Our study suggests that the international experi-

ence of the top management team (TMT) of a subsidiary

and its CEO’s industry experience positively affect sub-

sidiary innovation. Furthermore, the TMT’s international

experience has a greater effect on the innovativeness of

subsidiaries that remain dependent on their headquarters

for knowledge transfer. In contrast, the CEO’s industry

experience has a greater effect on the innovativeness of

autonomous subsidiaries.

Received: 31 May 2016 Revised: 5 September 2017 Accepted: 2 November 2017

DOI: 10.1002/gsj.1202

Copyright © 2017 Strategic Management Society

92 wileyonlinelibrary.com/journal/gsj Global Strategy Journal. 2019;9:92–116.

KEYWORDS

autonomy, boundary spanning, managerial experience,

MNEs, subsidiary innovation

1|INTRODUCTION

The success of a multinational enterprise (MNE) now increasingly depends on its ability to generate

knowledge anywhere in the world. Foreign subsidiaries have become an important source of new

knowledge creation for MNEs; subsidiaries are developing innovations that are used by other sub-

sidiaries and the MNE itself (Birkinshaw & Pedersen, 2008). As a result, the role of MNE subsidi-

aries has changed from that of passive recipients of knowledge to that of proactive generators of

knowledge. There has been significant research on the innovation practices of subsidiaries in the

MNE network (see review by Michailova & Mustaffa, 2012). However, the focus in much of this

research has been on macro-level factors such as the role of MNEs and their relationships with sub-

sidiaries. This research has not paid adequate attention to the importance of subsidiary managers in

affecting subsidiary innovation. In this article, we redress this oversight.

In an exhaustive review of the literature on subsidiary knowledge flows, Michailova and Mus-

taffa (2012) identified factors such as characteristics of actors (MNEs and subsidiaries), characteris-

tics of knowledge, and characteristics of relationships between actors in the context of innovation

and knowledge flows in MNEs. Knowledge generation at its most basic level is a result of cross-

border connections and interactions between senior managers in headquarters (HQ) and subsidiaries

(Song, 2014). Given the importance of individual actors, Cano-Kollman, Cantwell, Hannigan,

Mudambi, and Song (2016) called for incorporating the microfoundations perspective in interna-

tional business (IB) research. Felin, Foss, and Ployhart (2015) identified the upper echelon theory as

a suitable lens to study innovation from the microfoundations perspective because of its focus on

the top managers in an organization. In the foreign subsidiary literature, scholars have acknowledged

the role of expatriate managers in facilitating innovation at the subsidiary level (Choi & Johanson,

2012; Fang, Jiang, Makino, & Beamish, 2010). Clearly there is a linkage between managerial char-

acteristics and innovation in foreign subsidiaries (Bantel & Jackson, 1989). However, this linkage

has not been systematically examined in the context of foreign subsidiaries. The purpose of our

study is to investigate the importance of subsidiary managers in subsidiary innovation. We develop

our theoretical arguments by integrating the literature on upper echelon theory, boundary spanning

in subsidiaries, and knowledge management and testing them on a sample of 228 foreign subsidi-

aries in 11 countries.

Our article makes important contributions to the IB and knowledge management literature. First,

using the microfoundations approach, we argue that subsidiary managers act as boundary spanners

between the parent firm and its subsidiaries. In this role, subsidiary managers can help integrate and

diffuse knowledge across MNC networks throughout the innovation process. In doing so, we con-

tribute to the emerging literature on the role of boundary spanners in global organizations (Schotter,

Mudambi, Doz, & Gaur, 2017). Second, much of the extant literature measures innovation using

proxies such as research intensity, number of patents, and patent citations; these measures have limi-

tations because they reflect inputs and the intermediate stage in the innovation process, respectively.

NURUZZAMAN ET AL.93