Abstract

While much research has been conducted on the link between embeddedness and innovation outcomes, less attention has been paid on how and when MNE subsidiaries can effectively leverage their internal embeddedness to achieve greater innovation performance. We hypothesize knowledge transfer as a mediating mechanism to channel the potential role of MNE subsidiaries’ internal embeddedness in innovation performance. Moreover, we explore the moderating influences of external search depth and breadth on subsidiaries’ internal knowledge transfer and innovation performance. To test our framework, we rely on primary data collected from 91 subsidiaries of eleven European MNEs. The results show the degree of knowledge transfer from other MNE units mediates the link between subsidiaries’ internal embeddedness and their innovation performance. We also find that external search depth positively moderates the link between the degree of knowledge transfer and subsidiary’s innovation performance, while external search breadth does not. We illustrate that knowledge transfer mechanisms and the moderating role of external search approaches can be instrumental in channeling and effectively realizing the role of subsidiary internal embeddedness in innovation performance.