Subsidiaries and Knowledge Networks: The Evolving Influences of the MNC and Host Country on Innovation

This paper views MNC subsidiaries as being embedded in two knowledge networks (a) an internal network comprised of the subsidiaries and headquarters of the MNC and (b) an external network of host country firms. We hypothesize that the position (centrality) of the subsidiary in these networks and the characteristics (richness) of the networks will impact the extent of their influence on subsidiary innovation. The paper also suggests that the relative influences of these two networks change as the subsidiary evolves. The study uses patent citation data pertaining to innovations by foreign subsidiaries of U.S. semiconductor firms to analyze the influences on subsidiary innovation. The paper finds that for the host country network centrality matters, while for the MNC network richness matters to subsidiary innovation. The study also shows that as the subsidiary evolves, the influence of the host country on innovation increases.