Chinese Mnes' Outward Fdi And Home Country Productivity: The Moderating Effect Of Technology Gap

Plain language summaryThe rules for business vary not only between countries, but within countries. Subsidiaries of multinational enterprises (MNEs), thus, have to consider both the national level and the local context when designing their business practices. To examine this impact, we study R&D outsourcing in four Eastern member states of the European Union and find that local R&D outsourcing is used more frequently where local institutions are strong. However, this local impact depends on the MNE's overall knowledge sourcing practice and is weaker when MNE subsidiaries' knowledge management prioritizes external sources of knowledge.Technical summaryMultinational enterprises (MNEs) face multiple institutional contexts across and within countries. We analyze subnational institutions in the local environment of MNE subsidiaries to investigate their impact on subsidiaries' knowledge sourcing-strategies. Drawing on institutional and transaction cost economics, we argue that the degree of local R&D outsourcing is greater in high quality subnational institutional contexts. However, the quality of local institutions has less impact on the degree of R&D outsourcing by subsidiaries that are more open to external knowledge. These subsidiaries are more experienced in collaborating with external partners and, thus, have developed internal mechanisms to protect their intellectual property even in low quality institutional contexts. We test our arguments on a survey of MNE subsidiaries in four Eastern member states of the European Union. Copyright (c) 2016 Strategic Management Society.