What drives the R&D capacity growth of foreign subsidiaries? A study of MNE subsidiaries in Korea

Abstract

We propose and test a model of antecedents of research and development (R&D) capacity growth in foreign subsidiaries of multinational enterprises (MNEs) which considers subsidiaries' knowledge sourcing activities as well as aspects of headquarters-subsidiary relationships. An analysis of survey data collected from 118 foreign subsidiaries in South Korea reveals that their R&D capacity growth is positively related to external knowledge sourcing, but only marginally associated with internal knowledge sourcing. We also find that subsidiaries' R&D capacity growth is positively related to their managerial autonomy. Furthermore, cultural distance between MNE home and host countries has a marginal negative effect on R&D capacity growth and weakens the link between internal knowledge sourcing and R&D capacity growth. Overall, our results suggest that researchers, managers, and policy-makers who are concerned with the growth of R&D activities by MNE foreign subsidiaries should consider knowledge sourcing dimensions and relational factors not in an isolated manner, but in concert.