Multinational subsidiaries and green innovation

https://doi.org/10.1016/j.ibusrev.2022.102027Get rights and content

Highlights

  • Subsidiaries are more likely than domestic firms to green innovate.

  • This is especially the case for competence creating (vs exploiting) subsidiaries.

  • Intra-MNC cooperation and extra-MNC cooperation drives higher GI propensity.

  • The two networks are substitute.

Abstract

We address the questions of whether multinational (MNC) subsidiaries are more likely to introduce green innovation (GI) than domestic firms and how intra-MNC resources are likely contribute to this effort. Using the Community Innovation Survey for 14 European countries and adopting a knowledge-based view of the MNC, our results suggest that subsidiaries have an advantage of foreignness in GI as respect to domestic firms, especially when they have an innovation mandate (i.e., competence-creating subsidiaries). Our findings also support that intra-MNC and extra-MNC cooperation for innovation increases subsidiary probability to introduce GIs, the two being substitutes.

Introduction

Firms are increasingly challenged to consider the environmental impact of their activities and contribute to the reduction of the climate crisis. The activism of civil society via bottom-up movements, the campaigns of NGOs that scrutinize the impacts of businesses, and the implementation of regulations to tackle the climate crisis (Ponte, 2019) are just some of the signs of the increased pressure on firms to go green(er). Such a transition toward the mitigation of environmental degradation needs to take place via the introduction of environmental or green innovations (GI) – new products, processes or business models that can redirect production toward environmental goals while improving competitiveness for green innovators (Konara et al., 2021). Multinational corporations (MNCs) have long been considered at the cutting end of innovation (Bartlett and Ghoshal, 1990, Frenz and Ietto-Gillies, 2007, Yonekura and McKinney, 2005,); but is this true also when it comes to green innovation?

This is a particularly interesting question since GIs represent a sub-set of innovations with specific features compared to other innovations, because of their complexity. Indeed, developing innovations that tackle climate change or biodiversity losses is quite a complex issue, as there is uncertainty regarding technological trajectories, and there is the need for a systemic approach, which cannot be delivered by firms single-handedly (Cainelli et al., 2015, Pinkse and Kolk, 2010). Such complexity might play even stronger for MNCs, as they are active in different countries, each characterized by specific pressures toward sustainability (Konara et al., 2021, van Tulder and Kolk, 2001) and by peculiar environmental problems, requiring a local understanding (King & Shaver, 2001). Indeed, opposite view have been explored in the literature regarding the environmental performances of MNC subsidiaries, especially in the context of countries with laxer environmental standards. On the one hand, it has been suggested that these firms might have higher environmental performance than local units, as for the need to ensure environmental standardization within the MNC and account for a diverse range of stakeholder pressures (Aguilera-Caracuel et al., 2012, Konara et al., 2021, Luxmore et al., 2018, Muller, 2006). On the other hand, it has been suggested that the international organization of activities might be used to offshore the most polluting activities and performing all sort of wrongdoing (Giuliani, 2018, Levinson and Taylor, 2008). There are no empirical studies that directly compare subsidiaries and domestic firms with specific reference to green innovation, if not focused on very specific and limited empirical setting (Cainelli et al., 2012, Chiarvesio et al., 2015). Thus, the question if subsidiaries are more likely than local firms to represent the engine of green transformation remains an open one.

Leveraging on the knowledge-based view of the firm, in this paper we suggest that MNC subsidiaries outperform domestic firms in the development of innovations driving environmental improvements as they can rely on an “advantage of foreignness” – the presence of a diversified set of resources and capabilities that subsidiaries can tap into or might develop thanks to specific intra-MNC knowledge flows and cooperation efforts for innovation – which is essential to successfully overcome complexities related to GI. We empirically test this hypothesis using information drawn from the Community Innovation Survey. Our sample is composed of 39,000 manufacturing firms operating in 14 European countries. Controlling for contingencies related the subsidiaries’ innovation mandate (e.g., Álvarez & Cantwell, 2011; Cantwell & Mudambi, 2005; Phene & Almeida, 2008) and the country where firms are located (Alonso‐Martínez et al., 2020, Konara et al., 2021), our results suggests that the superior performance of subsidiaries (as compared to domestic firms) is stronger for GI than for other types of innovation. Furthermore, we discuss differences in the innovation development process of subsidiaries vs domestic firms, investigating the importance of intra-MNC flows of knowledge and explicit cooperation activities on innovation in contributing to this differential performance.

We contribute to the literature on the knowledge of firms’ GI in an international business (IB) context, by empirically testing if MNC subsidiaries are more likely to introduce to the market innovative products or processes, as compared to domestic firms. Over the last decade, the discussion regarding how MNCs and their subsidiaries contribute – positively or negatively – to the sustainable development agenda has gained increasing attention, particularly in the international business field (Wettstein et al., 2019). The vast majority of those studies, however, focused on the motivations that drives firms to adopt environmentally responsible management practices (Choi and Park, 2014, Tatoglu et al., 2014, Yang and Rivers, 2009) – more recently also focusing specifically on the introduction of GI (Kawai et al., 2018, Konara et al., 2021). While those analyses allow appreciating why subsidiaries decided to go green, they leave open the question if subsidiaries are rather leaders or laggard in the introduction of GI, as compared to local firms. Furthermore, our analysis contributes to the literature by investigating how subsidiaries and local firms differs in the way they develop GI, with a special focus on the resources and capabilities they enact, contributing to the literature of innovation in MNC (Almeida and Phene, 2004, Isaac et al., 2019, Phene and Almeida, 2008) by highlighting what are the peculiarities related to GI (as opposed to other types of innovation); and to the evolving research on the heterogeneities across subsidiaries in terms of their innovation mandate (Álvarez and Cantwell, 2011, Cantwell and Mudambi, 2005, Geleilate et al., 2020, Ryan et al., 2018).

The paper is organized as follows. Section 2 discusses and develops our theoretical motivation. Section 3 describes our dataset and the econometric strategy adopted. Section 4 sets out and discusses our main empirical results, and Section 5 concludes.

Section snippets

Multinational subsidiaries and green innovation: the advantage of foreignness

Throughout their long history, MNCs have always had the role of innovation leaders in their sectors (Bartlett and Ghoshal, 1990, Yonekura and McKinney, 2005). The innovation-driven MNC has dominated international business research (Cano-Kollmann et al., 2016). For these new Leviathans of the present time – to use the beautiful metaphor coined by Chandler and Mazlish (2005) – their ability to innovate is strongly linked to the reproduction of their competitive advantage and market power. Their

Data and variables

To test our hypotheses, we use a dataset drawn from the Community Innovation Survey (CIS). As part of the European Union’s (EU’s) science and technology statistics, this survey is carried out by Eurostat every two years. Data are collected by EU member states through a standard questionnaire following a set of definitions and methodological recommendations according to the Oslo Manual (2005) and adopting strict quality assurance and assessment criteria.2

Results

Table 3, Model I, sets out the analysis addressing Hypothesis 1, i.e. if MNC subsidiaries are more likely than domestic firms to introduce innovations reducing environmental impacts. Our results confirm that MNC subsidiaries are significantly more likely than domestic firms to introduce new products, processes, or methods that reduce CO2 emissions into the atmosphere, eliminate toxic inputs, recycle waste, or the like. Subsidiaries embedded in knowledge and resource flows spanning national

Discussion and conclusion

Firms need to face the mounting pressure to reduce the environmental footprint of their activities in order to support and meet sustainable development goals on the climate agenda. In this context, GI has been identified as a key avenue for firms to reduce adverse environmental impacts, being a sub-type of innovations characterized by an intrinsic complex nature (Cainelli et al., 2015, De Marchi, 2012). Adopting a knowledge-based view of the firm, this paper investigates GI involving MNCs and

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