Climbing the ladders of competence: The evolution of technological capabilities in MNE subsidiaries

This dissertation consists of three papers that explore the evolution of technological capabilities in foreign subsidiaries of semiconductor firms. The research first explores whether the technological capabilities of multinational enterprise (MNE) subsidiaries have evolved over time by tracking the growth in the scale and scope of patenting activity. It uses patent citation data to examine if the external influences on, and the impact of, subsidiary technological innovation change over time. Concepts from the evolutionary theory of the firm are used to develop hypotheses on different dimensions of technological change. Secondly, it goes on to investigate the role of firm embeddedness in knowledge networks on innovative ability. Using social capital theory, a model is constructed to reflect the knowledge influences of internal MNE and external host country networks on the innovatory performance of multinational subsidiaries. Finally the dissertation explores the factors affecting the innovative abilities of multinational subsidiaries by focussing on the roles played by (a) internal knowledge resources and capabilities and (b) 'environmental' or network resources within the multinational system and in the host country. Concepts from the resource-based view of the firm and network analysis are used to examine the process of technological evolution of subsidiaries.; The findings indicate changes in subsidiary learning behavior over time; subsidiaries increasingly source knowledge from their headquarters and from local firms. Our findings suggest that subsidiary absorptive resources impact the formation of knowledge seeking ties and that the scale and scope of subsidiary innovatory activity are influenced by 'learning ties' within the host country. Subsidiary innovation also leads to the formation of 'contributing ties' within the host country. Semiconductor subsidiaries appear to be embedded primarily in the regional host country networks. Regression analysis reveals that both internal firm resources and capabilities as well as network resources have an impact on innovation. However, the impact of network resources is mixed---while integration into the MNE network adversely affects subsidiary innovation, integration into the host country network has a positive impact on innovation. To build innovative capabilities, firms must strategically choose and proactively build both internal and environmental resources.