CAGE distance and innovation performance in MNEs: the moderating role of CSR

Based on extant theories of the Liability of Foreignness (LOF) and knowledge-based view, this study examines the relationship between the innovation performance of Multinational Enterprises (MNEs) and CAGE distance, an aggregate indicator of cross-national differences which includes cultural, administrative, geographic and economic distance. Using a sample of 202 wholly-owned foreign subsidiaries of Chinese MNEs operating in 26 host countries, we provide empirical evidence that CAGE distance between home and host countries impedes innovation productivity of the parent, and such effects could be weakened by the MNE's active engagement in corporate social responsibility. Our research contributes to the existing conversation on cross-national distances in the literature, especially in the background of China's Belt and Road Initiative in an attempt to build international connectivity and cooperation. Several managerial implications are suggested for multinationals and governments to be aware of the CAGE distance challenge and to use CSR strategy to mitigate the hindering effect of such distance when operating abroad, thereby strengthening knowledge sharing and technology transfer within the subsidiary-parent network. Findings of the major challenges and recommendations for counter-measures to those challenges are needed for global efforts such as the Belt and Road Initiative to be effectively promoted.