Product innovation of domestic firms versus foreign MNE subsidiaries: The role of external knowledge sources

Abstract

We build upon the knowledge-based view and the open innovation literature to examine product innovation of domestic firms relative to subsidiaries of foreign multinational enterprises, and the mechanisms that domestic firms could use to catch up to foreign subsidiaries for product innovation. We propose three external knowledge sources that will have a positive impact on product innovation, namely, R&D collaborations, inward technology licensing, and external R&D. We hypothesise that the effects would be greater for domestic firms than for foreign subsidiaries. We empirically test our hypotheses using panel data from Spain (2006–2016). We find that domestic firms introduce fewer product innovations than foreign subsidiaries, and that the external knowledge sources are effective mechanisms for domestic firms to reach, or outperform, foreign subsidiaries in terms of product innovation.