A microfoundations approach to studying innovation in multinational subsidiaries

Research Summary: We study antecedents of innovation performance for the subsidiaries of multinational enterprises (MNEs) using the microfoundations approach. Based on the upper echelon perspective, we argue that managers’ characteristics, such as prior MNE work experience and industry experience, affect subsidiary innovation. We tested our hypotheses on a sample of 228 MNE subsidiaries from 11 countries. Results indicate that managers’ industry experience serves as an external boundary‐spanning capability and, therefore, it has a greater effect on autonomous subsidiaries. In contrast, managers’ prior MNE work experience functions as an internal boundary‐spanning capability and, therefore, it has a smaller effect on subsidiaries that are less autonomous or engage in R&D. Managerial Summary: The success of an MNE now increasingly depends on its ability to generate knowledge anywhere in the world. Thus, the ability of foreign subsidiaries to generate innovation plays an increasingly important role in enhancing the performance of MNEs. In this regard, what factors determine the innovativeness of foreign subsidiaries is an important question for managers. Our study suggests that the international experience of the top management team (TMT) of a subsidiary and its CEO’s industry experience positively affect subsidiary innovation. Furthermore, the TMT’s international experience has a greater effect on the innovativeness of subsidiaries that remain dependent on their headquarters for knowledge transfer. In contrast, the CEO’s industry experience has a greater effect on the innovativeness of autonomous subsidiaries.