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

Abstract

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.

Citation

Rodrigues, C.D., Borini, F.M., Raziq, M.M. and Bernardes, R.C. (2020), "The roles of external embeddedness and institutional distance in the subsidiary product/process innovation and R&D capacity", Journal of Knowledge Management, Vol. 24 No. 10, pp. 2513-2530. https://doi.org/10.1108/JKM-02-2020-0083