This paper aims to examine how the institutional characteristics of a local market (i.e. the external environments of multinational enterprise (MNE) subsidiary host markets) and the level of control exercised by MNE headquarters (as a determinant of the internal environment) affect subsidiaries’ adoption of disruptive innovation. It also investigates the causal relationships between subsidiaries’ disruptive and social innovation and the moderating effect of international marketing (IM) capabilities on these relationships.
The authors propose a conceptual model based on institutional and resource dependence theories using data collected from a survey of MNE subsidiaries in China, empirically tested using structural equation modeling. The authors use a snapshot approach to highlight the relationships among institutional environments, headquarters’ control and subsidiaries’ innovation activities.
The results show that all external institutional factors significantly impact subsidiary innovation. They also confirm that the focus of control and control mechanisms that MNE headquarters exercise over subsidiaries have a negative causal relationship with disruptive innovation adoption within subsidiaries and, ultimately, their social innovation. Moreover, the authors empirically demonstrate that IM capabilities do not moderate the relationship between subsidiaries’ disruptive and social innovation, suggesting that subsidiaries must focus on either enhancing disruptive innovation adoption or cultivating IM capabilities to foster social innovation.
This study relies on survey data from a specific context (i.e. MNE subsidiaries in China). Thus, future studies should attempt to enhance the robustness of the findings by using alternative contexts and research methods.
Managers can use the results to gain a clear understanding of how the control level exercised by MNE headquarters affects subsidiary innovation. Additionally, the findings can be used to clarify the influence of external institutional environment complexity on these activities. This knowledge can provide valuable insights into enhancing innovation efforts within subsidiaries.
A central theme in this research is clarifying the role of MNE subsidiaries in developing social innovation – new practices that aim to meet social needs more effectively and help improve lives in local markets.
Existing research has yet to examine how institutional factors affect subsidiaries’ adoption of disruptive innovation and, ultimately, social innovation, particularly in the context of emerging markets. Additionally, there is a lack of empirical studies examining how the control exercised by MNE headquarters impacts their subsidiaries’ disruptive and social innovation in host markets. Furthermore, this study fills a void in the literature by addressing the effect of IM capabilities on the relationship between these two innovation types.
