Subsidiaries' local linkage characteristics and R&D assignments in a small developing economy

Previous studies on global research and development (R&D) contend that supply (market motivation) and demand (resource motivation) conditions are the primary factors motivating an multinational corporation (MNC) to assign R&D activities to a foreign subsidiary. However, recent evidence shows that a growing number of MNCs are beginning to set up R&D activities in subsidiaries located in small developing economies with small local markets and scant innovative resources. Despite this evidence, we still have limited understanding of the phenomenon. Hence, this study aims to fill this gap by proposing that a subsidiary's linkages characteristics, including local linkages diversity (LLD) and local linkages intensity (LLI), play a critical role in attracting R&D assignments. The results of logistic regression analysis of 60 MNC subsidiaries in Taiwan revealed that LLD and LLI both have positive impacts on the likelihood of R&D assignment to a subsidiary. Furthermore, relative locational advantages increase the impacts of LLI and LLD on R&D assignment, while industry global integration decreases the influence of LLI. The implications are that MNC subsidiaries in small developing countries have the potential to conduct R&D activities and thus subsidiaries should actively establish diverse and deep relationships with local institutions to enhance their innovative contributions. Asian Business & Management (2011) 10, 209-232. doi:10.1057/abm.2010.7; published online 12 May 2010