Cristina Doritta Rodrigues, Felipe Mendes Borini, Muhammad Mustafa Raziq, Roberto Carlos Bernardes
Journal of Knowledge Management

ISSN: 1367-3270

Publication date: 30 September 2020

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.

The authors draw on survey data from 130 foreign subsidiaries operating in Brazil and test their model using variance-based structural equation modeling.

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.

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.

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