Institutions and the Diversity and Prevalence of Multinationals’ Knowledge-Augmenting Subsidiaries

Multinational corporations increasingly seek to gain access to, and exploit, locationally specific sources of advanced knowledge and technological capabilities, creating a need to explain 1) the diversity amongst these facilities and 2) how institutions influence MNCs’ abilities to invest in different subsidiary types. Extending debates on firms’ knowledge-augmenting activities, we integrate institutions into our analytical framework to a greater extent than previous work has done. Moreover, existing contributions provide typologies of R&D subsidiaries. In contrast, we focus on a particular subset of subsidiaries, knowledge-augmenting ones, and put forward a theory to explain their variety and their prevalence, enabling us to identify previously neglected subsidiary types that have important managerial and policy implications. By downplaying the diversity of these subsidiaries, existing work has not been able to capture the full range of managerial challenges as well as the costs and benefits of different subsidiary types to host countries. We, therefore, problematize firms’ abilities to gain access to foreign knowledge-generating assets, highlight the importance of institutional environments, provide policy recommendations and identify areas for future research.