Author Abstract
While there is a rich literature of knowledge inflows into the multinational subsidiary, the literature is rooted in how subsidiaries inherit knowledge from the headquarters (HQ). In this paper we take the first step to liberate the construct of “subsidiary knowledge inheritance” from its umbilical attachment to the MNC HQ. We build on the prior theory of subsidiary absorptive capacity and argue that larger subsidiaries, characterized by greater knowledge stock and a greater fraction of local employees, could plausibly absorb more knowledge from the local host country context compared to absorbing knowledge from the HQ. We test our theoretical prediction using a novel methodology based on the classic gravity equation in economics and measures of knowledge distance. Using a custom dataset of patents filed by all global subsidiaries of the top 25 patenting US multinationals, we find that the relative influence of the HQ and the host country on knowledge inflows to the subsidiary depends on subsidiary knowledge stock. Our findings show that as knowledge stock at the subsidiary grows, it absorbs more knowledge from the host country compared to the HQ. We additionally provide a stylized case study of CISCO Systems opening a “second HQ” in India to exemplify our core proposition.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: September 2018
- HBS Working Paper Number: HBS Working Paper #19-020
- Faculty Unit(s): Technology and Operations Management
