Innovation Systems and FDI: Firms' Market Entry Modes and Subsidiary Autonomy

Although there is much valuable evidence on the growing importance of firms’ foreign technological activities, there is limited work on how those overseas capabilities are established and managed. In this paper, we put forward a theoretical framework, based on an integrated knowledge generation, organizational capabilities, and innovation systems perspective, to explain the contrasting entry modes and integration of firms’ overseas R&D activities. Entry modes can range from acquisitions to joint ventures to greenfield subsidiaries, and MNCs’ foreign R&D establishments can have more or less autonomy within the multinational corporation. The core argument is that entry modes and organizational forms reflect 1) how tacit the knowledge that firms wish to access and generate is and 2) the institutional embeddedness of that knowledge. The more tacit the knowledge and the greater its institutional embeddedness, the more likely firms are to acquire existing businesses and grant them a relatively high degree of autonomy. We focus on the acquisition and generation of knowledge in foreign subsidiaries and the implications that this has for MNCs’ R&D structures. We draw on existing studies to support our proposed theoretical model.