Subsidiary knowledge creation and protection: The case of horizontal partners in evolving high-tech clusters

Majella Giblin Co-authors: Ulf Andersson, Alessandra Perri, Paul Ryan

Innovation & Structural Change Research Cluster, Whitaker Institute, 19th Oct 2016

Research Question

“How do MNE subsidiaries manage –through local linkages with horizontal partners – the trade-off between sourcing and protecting knowledge as a cluster evolves?”

Literature Review

•  Opportunities and risks: MNEs in knowledge-based clusters

•  Two contrasting views: –  Strategic deterrence view (Shaver & Flyer, 2000; Alcácer, 2006;

Alcácer & Chung, 2007)

•  Spillover risks – interaction avoidance, ‘best in class’ leading MNEs avoid co-locating in high industry concentrations

–  Physical attraction view(Cantwell & Mudambi, 2011)

•  Opportunities – ‘best in class’ leading MNEs attract partners; become ‘insiders’; deep and wide-ranging embeddedness

Literature Review - issues

•  Snapshots of relationships between MNE and host-location •  MNEs and location (cluster) shape each other over time (Cano-Kollmann et al.

2016)

è Knowledge sourcing and spillover risks may change over time

•  From HQ to subsidiaries: •  Trade-off of knowledge sourcing and risks does not just occur at the moment

of foreign location choice; it persists over time

è Managing knowledge sourcing and spillover risks is not an exclusive of HQ; subsidiaries may have to manage linkages (Perri and Andersson 2014) – our knowledge of what happens after the location choice is made is limited

Literature Review - issues

•  Focus on vertical linkages •  Subsidiaries are found to adjust the ‘quality’ of linkages

(interdependence, mutual adaptation and breadth of interaction) to vertical partners to balance knowledge spillover risk and sourcing opportunity – depends on subsidiary’ competencies

•  What about horizontal (non value-chain) partners? Differ in terms of knowledge spillover risk and opportunity

è For a more comprehensive understanding of managing knowledge sourcing and risks locally we need to also examine horizontal partners of the MNE subsidiary

Contributions of this research

•  More comprehensive understanding on how subsidiaries manage the trade-offs between knowledge sourcing and protecting with respect to local linkages: •  We account for temporal dimensions – evolution of the cluster, subsidiary

and linkages over time (how the trade-off between knowledge sourcing and spillover changes over time)

•  We investigate linkages with horizontal partners – moving beyond vertical linkages

•  We address Cantwell and Mudambi (2011): that the physical attraction and strategic deterrence perspectives may best predict MNE behaviour when used in combination

•  We take the subsidiary perspective

Research Design

•  Context: Medical Technology knowledge cluster in the West of Ireland, Galway •  Inward FDI •  Supply an international marketplace (customers/users

are predominantly international) •  Local university – specialised research and teaching

activities •  Two market leading MNE subsidiaries: Boston

Scientific and Medtronic

Research Design – Case Studies

•  Two subsidiary cases: CR Bard/Medtronic and Boston Scientific •  Dominant positions held in the cluster (relevance of physical attraction)

•  Direct competitors (relevance for investigating horizontal linkages)

•  Supply an international marketplace and are embedded in own vertical international production chains (relevance for investigating horizontal linkages)

•  Both are competence creators (relevance for their ability to adjust the ‘quantity’ and ‘quality’ of linkages locally for managing a trade-off)

•  Both operate within the same product bandwidths in the cluster, both are of US origin, both play a strategic role within respective corporations (relevance as quasi-control – allowing for comparisons)

Data Collection

•  35 interviews in total: –  15 interviews: current subsidiary R&D directors/CEOs across the

two cases (2005 and 2008)

–  2 interviews: one interview (2015) with ex-R&D Director of CR Bard (1990-1996), one interview (2010) with ex- Managing Director of Boston Scientific (1993 – 2001)

–  9 interviews: relevant research centres and offices at NUIG

–  9 interviews: cluster-relevant organisations

–  Patent (US) analysis of subsidiaries – number, application year, technological classes, backward citations

Technological Specialisation Technological Diversification (related) Evolution of the cluster

Evolution of leading case subsidiaries in region

•  Manufacturing to R&D with manufacturing •  Global Centres of Excellence/Innovation Centres •  Patent analysis:

–  Medtronic (133), Boston Scientific (130); no other subsidiary in cluster comes close

–  Patent production soared for both after 2000

–  Increase in technological scope over time

–  Convergence between their respective knowledge bases (technological proximity) – increasing competition between them

–  Backward citations

Evolution of Relations with Academia

•  As subsidiaries evolved into knowledge intensive activities and cluster evolves: –  They became more attractive partners to university –  Quality of relations (interdependencies, level of

interaction and mutual adaptation) enhances over time •  Transition from arms-length contracts to joint research

activities •  Understanding develops on the need for secrecy and an

appreciation of the different environmnets in which they operate

Evolution of Relations among Competitors

•  As subsidiaries evolved into knowledge intensive activities and the cluster evolves: –  Quality of linkages decreases over time

•  Early stages of the cluster: evidence of leading subsidiaries establishing temporary direct relations to facilitate mutually beneficial resource inflows to the cluster

•  Always avoid direct relations on technical development, irrespective of stage of cluster development (e.g. backward citations)

•  As cluster evolves: a communal state suspicion evolves and subsidiaries more attentively avoid interaction to avoid knowledge leakage

Discussion and Conclusion

•  Leading subsidiaries selectively manage their local linkages for knowledge creation and protection associated (in contrast with laggard subsidiaries)

•  Leading subsidiaries’ linkage behaviour varies over time to adapt to changing conditions in the local cluster

•  As the cluster begins to develop:

–  A physical attraction logic dominates – university and competitors

•  Once the cluster knowledge base evolves and the dominant nodes stabilise:

–  A strategic deterrence logic starts to prevail in relation to competitors in particular

Discussion and Conclusion

•  The two logics are not mutually exclusive: –  The prominence of one over the other shifts with the

evolution of the cluster and the partners involved –  Subsidiaries selectively manage linkages with local

partners based on a careful evaluation of knowledge access opportunities and spillover threats associated with each linkage at different stages of the cluster evolution (resource acquisition versus technical knowledge)

THANK YOU

Majella.giblin@nuigalway.ie

Innovation & Structural Change Research Cluster, Whitaker Institute, 19th Oct 2016