Innovation Performance of Foreign Subsidiaries in Post-Transition Economy: Evidence from Poland

Abstract

The host country environment is an important source of knowledge for multinational enterprises (MNEs). The resources and competencies of MNEs’ foreign subsidiaries (FS) as well as internal and external relationships are perceived to be critically important for their performance. This study intends to fill a cognitive gap in the understanding of factors influencing the innovation performance of FS established in Poland. FS innovation performance is explained by their resource-based specific advantages, internal embeddedness in the corporate network, external embeddedness, and by interactions between their systemic power and autonomy. The analysis is based on a 2018 survey of 436 manufacturing FS in Poland. The ordinary least squares (OLS) regression model was applied, along with three quantile regression equations to provide additional layers of detail. We observed a positive influence of FS’ own assets on innovation performance, especially if coupled with their deep internal embeddedness. The study also found a positive influence of internal embeddedness on innovation performance enhanced for high/ medium-high-tech firms if coinciding with strong resource-based specific advantages. Another finding was that the external embeddedness of FS had a positive effect on their innovation performance. Besides, the positive influence of systemic power on innovation performance was only revealed for high/medium-high-tech FS, while the subsidiaries’ autonomy showed no significant influence on their innovation performance. External embeddedness has a generally positive impact on innovation performance, enabling subsidiaries to take advantage of external links in knowledge sourcing. But again, in the case of low-tech firms, strong links with external partners did not support innovation performance as much as in the case of more technologically advanced industries. Interestingly, the positive effect of external embeddedness was also weaker in the case of large foreign subsidiaries. Such firms were probably less dependent on their local partners in their innovative activities. A possible explanation for this is that many of the large manufacturing subsidiaries located in Poland are included in the multinational enterprises’ global value chains as suppliers of intermediate or final goods, and innovation activities are mainly coordinated within multinational enterprise internal networks. results of the study indicate that foreign subsidiaries located in find it difficult to exploit potential benefits from interactions between internal and external relationships to increase their innovation performance. Dual embeddedness is recognised as an important mechanism by which the FS, being the link between the host country partners and the internal multinational enterprise network, is able to bind and recombine complementary knowledge extracted from both types of relationships. The resulting new competencies and innovative solutions and their application in the network increase innovation performance and competitiveness (e.g. Ciabuschi et al. 2014 et al. [ 2020 Deep dual embeddedness may positively affect the subsidiary’s influence/power within the multinational enterprise [ Søberg, Wæhrens, 2020 ]. Limited knowledge acquisition opportunities in low innovative host countries force subsidiaries to orient them-selves toward internal relationships within the MNE network. Thus, they limit the potential benefits of dual embedding. Moreover, the negative interaction between the two types of relationships revealed in the study suggests a substitution of one form of embeddedness by another.