The Impact of Entrepreneurship and Interorganizational Networks on Global Innovations Development: The Evidence of Foreign Subsidiaries Operating in the Country

Throughout the last decade, the focus of international business studies guided by the theory of networks has highlighted the role of integration of subsidiaries in the host country business networks as a key factor in explaining the generation of knowledge and innovation in subsidiaries (ANDERSSON, 2003; ANDERSSON; BJÖRKMAN; FORSGREN, 2005; ANDERSSON; FORSGREN; HOLM, 2002; CIABUSCHI; HOLM; MARTÍN MARTÍN, 2014; DELLESTRAND, 2011). In parallel, with the growing importance of networks to explain the global innovation generation, studies in management of multinational companies were marked by an evolutionary perspective of subsidiaries (BIRKINSHAW, 1997, 2001; BIRKINSHAW; HOOD; JONSSON, 1998). Birkinshaw (1997). This paved the way for a series of studies investigating the role of entrepreneurial orientation and the initiative of subsidiaries with global innovation potential (SCHMID; DZEDEK; LEHRER, 2014). These two aspects reported above, the inclusion of subsidiaries in the network and their entrepreneurial orientation, raise an important issue in relation to the dilemma of the geographical scope of innovation.

While most innovation has been made in developed markets, emerging markets such as Brazil, India, South Africa, Turkey, Mexico, Argentina, Malaysia, Hungary and China (GII[1], 2015) are increasingly investing in innovation not only in the form of loans and technologies from other countries, but also in those geared to their distinctive realities. According to GII (2015) the BRICS are at the top of the ranking of quality of innovation among developing economies. This group of nations—except for the number of patents filed by Brazil—increased its position on three indicators: quality of universities; patents, and documents cited in the H index.[2]

In this context, this research seeks to deepen understanding of the drivers of innovation in foreign subsidiaries located in Brazil focused on initiatives by subsidiaries to undertake and cooperate with other foreign companies and multinational corporations. Its main goal is to ascertain the factors that influence subsidiaries to innovate and transfer those innovations to the company’s matrix and its subsidiaries from the perspective of theories of business networks and entrepreneurship. The assumption is that the entrepreneurial orientation that the subsidiary has is positively associated with a strong presence of the subsidiary in the interorganizational network. When the subsidiary has a greater presence on the network strategy, the chance it has to create products / new processes is higher because the partnership leads to the development of a different strategic setting for innovation compared to other subsidiaries and the matrix.

The results suggest that the entrepreneurial orientation of the subsidiary significantly influences the deepening of partnerships. This rootedness in the network is a driver for the development of local innovation. The innovations developed locally by the foreign subsidiary are then transferred to the matrix. However, note that the partners in the network influence more substantially in the development of innovations that go beyond the local context for which they were planned, which agrees with Govindarajan and Trimble’s (2012) research explaining that emerging markets are important sources of potential innovations to be marketed globally. Subsidiaries thus play an important role, providing, often, products that exceed local expectations and become global.

While traditionally multinationals have succeeded in concentrating their expertise and strengths in the matrix of their home countries, experience has pointed out new paths forward for MNCs, suggesting that strategies that were profitable before need to be rethought. The old model of replicating the knowledge and techniques of the matrix around the world is no longer the most efficient way of doing business. Executives must render more flexible the company in order to make use of the knowledge and techniques developed in other regions in the world without losing the global view of their operations. They must also understand that the use of the strategies employed in developed markets is not sufficiently effective in emerging markets. The results suggest that the subsidiary must deepen ties with its network partners to make its discoveries a nonlocal capacity—i.e., one that can be transferred and even become a global innovation.