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Does a foreign subsidiary's network status affect its innovation activity? Evidence from post-socialist economies

  • Jože P. Damijan

    (University of Ljubljana (Faculty of Economics); LICOS, KU Leuven, Belgium.)

  • Črt Kostevc

    (University of Ljubljana (Faculty of Economics).)

  • Matija Rojec

    (University of Ljubljana (Faculty of Social Sciences); Institute for Macroecopnomic Analysis and Development, Ljubljana.)

A detailed questionnaire survey among 809 foreign subsidiaries in five post-socialist economies (East Germany, Poland, Romania, Slovenia and Croatia) is used to study determinants of innovation activity of foreign subsidiaries. Survey data comprise traditional firm innovation activity determinants and indicators of a foreign subsidiary status. Our findings demonstrate that foreign subsidiaries are relatively independent as far as innovation activity is concerned, while at the same time subsidiaries with better access to foreign parent companies R&D results are more likely to innovate. Important differences, however, are found in factors that determine product and process innovation: (i) subsidiaries that invest more in R&D exhibit higher probability for product but not for process innovation; (ii) acquisition of external knowledge and company size have significant and positive impact on on process innovation only, (iii) transfer of responsibilities from headquarters to subsidiaries and foreign investor being a MNE is conducive to process innovation; (iv) marketseeking motivation of foreign investors has a negative impact on product innovation status; (v) higher age of subsidiary is positive for its process innovation, i.e. a foreign investor needs some time to initiate innovation activities in a subsidiary.

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Paper provided by Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales in its series Working Papers del Instituto Complutense de Estudios Internacionales with number 06-10.

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Length: 33 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ucm:wpaper:06-10
Note: Paper prepared within the Sixth Framework Programme project “Understanding the Relationship between Knowledge and Competitiveness in the Enlarging European Union (U-Know)”.
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