2016.10.19 subsidiary strategies for local knowledge creation and protection in high technology...
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Subsidiary knowledge creation and protection: The case of horizontal partners in evolving high-tech clusters
Majella Giblin Co-authors: Ulf Andersson, Alessandra Perri, Paul Ryan
Innovation & Structural Change Research Cluster, Whitaker Institute, 19th Oct 2016
Research Question
“How do MNE subsidiaries manage –through local linkages with horizontal partners – the trade-off between sourcing and protecting knowledge as a cluster evolves?”
Literature Review
• Opportunities and risks: MNEs in knowledge-based clusters
• Two contrasting views: – Strategic deterrence view (Shaver & Flyer, 2000; Alcácer, 2006;
Alcácer & Chung, 2007)
• Spillover risks – interaction avoidance, ‘best in class’ leading MNEs avoid co-locating in high industry concentrations
– Physical attraction view(Cantwell & Mudambi, 2011)
• Opportunities – ‘best in class’ leading MNEs attract partners; become ‘insiders’; deep and wide-ranging embeddedness
Literature Review - issues
• Snapshots of relationships between MNE and host-location • MNEs and location (cluster) shape each other over time (Cano-Kollmann et al.
2016)
è Knowledge sourcing and spillover risks may change over time
• From HQ to subsidiaries: • Trade-off of knowledge sourcing and risks does not just occur at the moment
of foreign location choice; it persists over time
è Managing knowledge sourcing and spillover risks is not an exclusive of HQ; subsidiaries may have to manage linkages (Perri and Andersson 2014) – our knowledge of what happens after the location choice is made is limited
Literature Review - issues
• Focus on vertical linkages • Subsidiaries are found to adjust the ‘quality’ of linkages
(interdependence, mutual adaptation and breadth of interaction) to vertical partners to balance knowledge spillover risk and sourcing opportunity – depends on subsidiary’ competencies
• What about horizontal (non value-chain) partners? Differ in terms of knowledge spillover risk and opportunity
è For a more comprehensive understanding of managing knowledge sourcing and risks locally we need to also examine horizontal partners of the MNE subsidiary
Contributions of this research
• More comprehensive understanding on how subsidiaries manage the trade-offs between knowledge sourcing and protecting with respect to local linkages: • We account for temporal dimensions – evolution of the cluster, subsidiary
and linkages over time (how the trade-off between knowledge sourcing and spillover changes over time)
• We investigate linkages with horizontal partners – moving beyond vertical linkages
• We address Cantwell and Mudambi (2011): that the physical attraction and strategic deterrence perspectives may best predict MNE behaviour when used in combination
• We take the subsidiary perspective
Research Design
• Context: Medical Technology knowledge cluster in the West of Ireland, Galway • Inward FDI • Supply an international marketplace (customers/users
are predominantly international) • Local university – specialised research and teaching
activities • Two market leading MNE subsidiaries: Boston
Scientific and Medtronic
Research Design – Case Studies
• Two subsidiary cases: CR Bard/Medtronic and Boston Scientific • Dominant positions held in the cluster (relevance of physical attraction)
• Direct competitors (relevance for investigating horizontal linkages)
• Supply an international marketplace and are embedded in own vertical international production chains (relevance for investigating horizontal linkages)
• Both are competence creators (relevance for their ability to adjust the ‘quantity’ and ‘quality’ of linkages locally for managing a trade-off)
• Both operate within the same product bandwidths in the cluster, both are of US origin, both play a strategic role within respective corporations (relevance as quasi-control – allowing for comparisons)
Data Collection
• 35 interviews in total: – 15 interviews: current subsidiary R&D directors/CEOs across the
two cases (2005 and 2008)
– 2 interviews: one interview (2015) with ex-R&D Director of CR Bard (1990-1996), one interview (2010) with ex- Managing Director of Boston Scientific (1993 – 2001)
– 9 interviews: relevant research centres and offices at NUIG
– 9 interviews: cluster-relevant organisations
– Patent (US) analysis of subsidiaries – number, application year, technological classes, backward citations
Technological Specialisation Technological Diversification (related) Evolution of the cluster
Evolution of leading case subsidiaries in region
• Manufacturing to R&D with manufacturing • Global Centres of Excellence/Innovation Centres • Patent analysis:
– Medtronic (133), Boston Scientific (130); no other subsidiary in cluster comes close
– Patent production soared for both after 2000
– Increase in technological scope over time
– Convergence between their respective knowledge bases (technological proximity) – increasing competition between them
– Backward citations
Evolution of Relations with Academia
• As subsidiaries evolved into knowledge intensive activities and cluster evolves: – They became more attractive partners to university – Quality of relations (interdependencies, level of
interaction and mutual adaptation) enhances over time • Transition from arms-length contracts to joint research
activities • Understanding develops on the need for secrecy and an
appreciation of the different environmnets in which they operate
Evolution of Relations among Competitors
• As subsidiaries evolved into knowledge intensive activities and the cluster evolves: – Quality of linkages decreases over time
• Early stages of the cluster: evidence of leading subsidiaries establishing temporary direct relations to facilitate mutually beneficial resource inflows to the cluster
• Always avoid direct relations on technical development, irrespective of stage of cluster development (e.g. backward citations)
• As cluster evolves: a communal state suspicion evolves and subsidiaries more attentively avoid interaction to avoid knowledge leakage
Discussion and Conclusion
• Leading subsidiaries selectively manage their local linkages for knowledge creation and protection associated (in contrast with laggard subsidiaries)
• Leading subsidiaries’ linkage behaviour varies over time to adapt to changing conditions in the local cluster
• As the cluster begins to develop:
– A physical attraction logic dominates – university and competitors
• Once the cluster knowledge base evolves and the dominant nodes stabilise:
– A strategic deterrence logic starts to prevail in relation to competitors in particular
Discussion and Conclusion
• The two logics are not mutually exclusive: – The prominence of one over the other shifts with the
evolution of the cluster and the partners involved – Subsidiaries selectively manage linkages with local
partners based on a careful evaluation of knowledge access opportunities and spillover threats associated with each linkage at different stages of the cluster evolution (resource acquisition versus technical knowledge)
THANK YOU
Majella.giblin@nuigalway.ie
Innovation & Structural Change Research Cluster, Whitaker Institute, 19th Oct 2016
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