The impact of trust and local learning on the innovative performance of MNE subsidiaries in China

We investigate innovative performance of subsidiaries in multinational enterprises (MNEs) in China from an external local embeddedness perspective. We draw from prior research on subsidiary embeddedness and use social exchange theory (SET) to develop hypotheses relating to how trust with local partners and learning from local partners will impact innovative performance of MNE subsidiaries in China. Given the nature of the Chinese context, we argue that innovative performance will be positively influenced by trusting relationships with local external partners regardless of the location of the subsidiary in China. On the other hand, we argue that the role that learning from local partners plays on subsidiary innovative performance is location-specific, being dependent on the degree to which the location supports an innovative, knowledge economy. In addition, we hypothesize a location-specific interaction effect between trust and local learning. Using data from a survey of 306 MNE subsidiary managers in three tier-1 locations in China (Beijing, Shanghai, and Guangzhou) we find strong support for our hypotheses, and identify the strongest interaction effect between trust and local learning in Beijing. Copyright Springer Science+Business Media New York 2014