Descripción
Purpose – This study aims to look at the relationship of external embeddedness and institutional
distance (governance aspects) with the foreign subsidiary research and development (R&D) capacity.
Furthermore, it examines whether these relationships are mediated by subsidiary product and process
innovation, and whether institutional distance plays a moderating role in the relationship between
subsidiary innovation and R&D capacity.
Design/methodology/approach – The authors draw on survey data from 130 foreign subsidiaries
operating in Brazil and test their model using variance-based structural equation modeling.
Findings – Results suggest that subsidiary (product and process) innovation fully mediates the
relationships between: subsidiary external embeddedness and R&D capacity; and institutional distance
and subsidiary R&D capacity, such that the relationship is positive in case of the former and negative in
case of the latter. The relationship between subsidiary product and process innovation and R&D capacity
is positive and stronger at lower levels of institutional distance.
Originality/value – The research ignores the underlying mechanisms of the external embeddedness
and institutional distance relationship with subsidiary R&D capacity. Furthermore, institutional distance
based on formal governance aspects and their impacts on subsidiary innovation and R&D capacity are
rarely investigated. This paper contributes with regard to these aspects.
