Showing papers in "Journal of International Business Studies in 2012"

What drives corporate social performance? The role of nation-level institutions

Abstract: Based on Whitley's “national business systems” (NBS) institutional framework, we theorize about and empirically investigate the impact of nation-level institutions on firms’ corporate social performance (CSP). Using a sample of firms from 42 countries spanning seven years, we construct an annual composite CSP index for each firm, based on social and environmental metrics. We find that the political system, followed by the labor and education system, and the cultural system are the most important NBS categories of institutions that impact CSP. Interestingly, the financial system appears to have a relatively less significant impact. We discuss implications for research, practice and policymaking.

State ownership effect on firms' FDI ownership decisions under institutional pressure: a study of Chinese outward-investing firms

Abstract: This study investigates the effect of state ownership on Chinese firms’ foreign direct investment (FDI) ownership decisions. It adopts a political perspective to extend the application of institutional theory in international business research. Specifically, it examines firms’ heterogeneous responses to external institutional processes during foreign market entry, while taking into consideration the political affiliation of firms with the external institutions. We argue that state ownership creates the political affiliation of a firm with its home-country government, which increases the firm's resource dependence on home-country institutions, while at the same time influencing its image as perceived by host-country institutional constituents. Such resource dependence and political perception increase firms’ tendency to conform to, rather than resist, isomorphic institutional pressures. We tested our hypotheses using primary data for 132 FDI entries made by Chinese firms during 2000–2006, and we found that the effects of home regulatory, host regulatory and host normative pressures on a firm to choose a joint ownership structure were stronger when the share of equity held by state entities in the firm was high.

Exploring the role of government involvement in outward FDI from emerging economies

Abstract: We explain the mechanisms through which government impacts the internationalization of emerging-market enterprises (EMEs). Rather than merely viewing internationalization as the result of differences in resource positions, we demonstrate that an important source of variation is the idiosyncratic manner in which EMEs are affiliated with government agencies. Although government involvement has a strong effect on international expansion, this effect is contingent upon the level at which the firm is affiliated with government and the degree of state ownership. Different types and levels of governments have different objectives, exert different institutional pressures on EMEs, and impact their willingness and ability to internationalize differently. Government involvement influences the level of overseas investment, its location (developed vs developing countries) and its type (resource- vs market-seeking). These effects depend on firms’ own resources and capabilities, suggesting that not all firms possess equal ability to internalize government-related advantages and respond to institutional pressures. By demonstrating that resource-based and institutional constructs are highly dependent on one another, we enhance understanding of how EMEs succeed in expanding overseas, and why governments matter.

Distance without direction: Restoring credibility to a much-loved construct

Abstract: In this commentary we build on Shenkar's (2001) award-winning critique of cultural distance, arguing that most distance constructs, in fact, suffer the same flaws because they oversimplify the relationship between countries, overlook their subjective and context-specific nature, and pay insufficient attention to the mechanisms through which distance operates. The idea of distance, however, has intrinsic value. Moreover, its considerable appeal and undeniable effectiveness have made it a well-entrenched construct. Therefore we see merit in redressing its weaknesses, and offer several suggestions for doing so. These include allowing for the influence of firm-level characteristics that either moderate the effects of distance or render distance – at least in part – subjective with varying consequences for different MNEs; maintaining directionality by distinguishing between distance and the tendency toward a particular characteristic and acknowledging asymmetry; and conceptualizing the effects of distance and the mechanisms through which it operates more carefully by drawing on concepts and measures from a variety of disciplines. By offering ways to strengthen both its theoretical foundations and measurement, we hope to enhance the usefulness of one of international business theory's most central constructs.

Catch-up strategies in the Indian auto components industry: Domestic firms’ responses to market liberalization

Abstract: Market liberalization in emerging-market economies and the entry of multinational firms spur significant changes to the industry/institutional environment faced by domestic firms. Prior studies have described how such changes tend to be disruptive to the relatively backward domestic firms, and negatively affect their performance and survival prospects. In this paper, we study how domestic supplier firms may adapt and continue to perform, as market liberalization progresses, through catch-up strategies aimed at integrating with the industry's global value chain. Drawing on internalization theory and the literatures on upgrading and catch-up processes, learning and relational networks, we hypothesize that, for continued performance, domestic supplier firms need to adapt their strategies from catching up initially through technology licensing/collaborations and joint ventures with multinational enterprises (MNEs) to also developing strong customer relationships with downstream firms (especially MNEs). Further, we propose that successful catch-up through these two strategies lays the foundation for a strategy of knowledge creation during the integration of domestic industry with the global value chain. Our analysis of data from the auto components industry in India during the period 1992–2002, that is, the decade since liberalization began in 1991, offers support for our hypotheses.

Institutional distance and local isomorphism strategy

Abstract: Firms face disadvantages when operating abroad. To overcome these disadvantages, foreign firms often adopt mitigating strategies. One such strategy is to imitate the practices of domestic firms (i.e., pursuing a strategy of local isomorphism). We understand little, however, about how firms vary in the extent of local isomorphism. To fill that gap, this paper explores the institutional drivers of local isomorphism decisions. The findings indicate that foreign firms choose a higher level of local isomorphism as the cultural, economic, and regulatory distances between the home country and the host country increase. Moreover, the evidence suggests that such local isomorphism is relatively enduring, as experience does not systematically moderate the relationship between distance and local isomorphism.

From the Editors: Endogeneity in international business research

Abstract: This essay builds on the exposition by Thomas et al. and focuses on analyzing cause and effect in international business research. We attempt to explain how endogeneity problems occur and why they are so prevalent in international business research in a non-technical fashion. We then discuss the importance of explicitly identifying how the chosen research design best approximates a randomized-controlled experiment. Finally, we provide some guidelines on achieving this goal and emphasize the practices that seem most relevant to JIBS reviewers in evaluating high-quality international business research.

Multinationals and corporate social responsibility in host countries: Does distance matter?

Abstract: Prior studies have found that foreign affiliates of multinational enterprises (MNEs) suffer from liability of foreignness (LOF). Foreign affiliates may be able to improve their social legitimacy and overcome LOF by demonstrating social commitment to host-country constituents through corporate social responsibility (CSR). If LOF is positively related to the distance between the home and host countries, and CSR activities confer social legitimacy benefits on foreign affiliates, we should expect CSR activities and distance to be positively related. However, we argue that, despite this potential motivation, foreign affiliates from more distant home countries are in fact less likely to engage in host-country CSR. Our argument focuses on the ways in which distance affects the MNE's willingness and ability to engage in CSR abroad. We also predict that host-country CSR reputation negatively moderates this relationship. Using Community Reinvestment Act data for foreign bank affiliates from 32 countries in the United States over 1990–2007, we find strong support for our hypotheses. The paper enriches our understanding of CSR practices in MNEs, and of when and how MNEs try to overcome legitimacy issues in host countries.

Cosmopolitan consumers as a target group for segmentation

Abstract: For international companies, the literature recommends directing segmentation efforts at customer characteristics rather than country characteristics. Consumers’ degree of cosmopolitan orientation has been suggested as a powerful segmentation base, as this characteristic is expected to drive consumers’ tastes and preferences. To advance research on this segmentation base, this article offers a conceptualization of the consumer cosmopolitanism construct by: (1) delineating its conceptual domain; (2) highlighting its key dimensions, namely open-mindedness, diversity appreciation, and consumption transcending borders; and (3) examining its links with theoretically relevant variables, specifically consumer ethnocentrism and global consumption orientation. Based on the aforementioned conceptualization, a consumer-research-specific and psychometrically sound measurement instrument – the C-COSMO scale – is subsequently developed and tested in a series of complementary studies. Finally, empirically based insights into the characteristics of cosmopolitan consumers are offered, by: (1) profiling them on consumption-relevant variables (innovativeness, risk aversion, susceptibility to normative influence, consumer ethnocentrism, and demographic characteristics); (2) examining the link between consumer cosmopolitanism and willingness to buy foreign products; and (3) developing an empirically based typology of cosmopolitan/local consumers using a cluster analysis approach. From a managerial perspective, findings suggest that the identification and subsequent targeting of cosmopolitan consumers may well represent an appropriate strategy for internationally active companies.

The liability of foreignness in capital markets: Sources and remedies

Abstract: The accelerating pace of global capital market integration has provided new opportunities for firms to raise capital abroad through global debt issues, cross-listings, and initial public offerings in foreign stock exchanges. However, existing empirical evidence suggests that foreign firms tend to be at a disadvantage compared with domestic firms, and they often suffer from investors’ “home bias”. The objective of this paper is to understand why firms are facing problems when accessing capital in foreign markets, and possible mechanisms that can help to mitigate these problems. It expands the liability of foreignness (LOF) research beyond the product market domain to include liabilities faced by firms attempting to secure resources in foreign capital markets. We identify key differences between product and capital markets related to information environment, time structure of transactions, and linkages between buyers and sellers. We analyze institutional distance, information asymmetry, unfamiliarity, and cultural differences as the main sources of capital market LOF (CMLOF). We suggest possible mechanisms that managers can employ to mitigate CMLOF and overcome investors’ “home bias”: bonding, signaling, organizational isomorphism, and reputational endorsements. We also outline directions for further theoretical and empirical development of the CMLOF research.

Multilevel models in international business research

Abstract: Multiple-level (or mixed linear) modeling (MLM) can simultaneously test hypotheses at several levels of analysis (usually two or three), or control for confounding effects at one level while testing hypotheses at others. Advances in multi-level modeling allow increased precision in quantitative international business (IB) research, and open up new methodological and conceptual possibilities. However, they create new challenges, and they are still not frequently used in IB research. In this editorial we outline some key methodological issues for the uses of MLM in IB, including criteria, sample size, and measure equivalence issues. We then examine promising directions for future multilevel IB research considering comparative opportunities at nation, multiple-nation cluster, and within-nation region levels, including large multilevel databases. We also consider its promise for MNE research about semi-globalization, interorganizational effects across nations, clusters within nations, and teams and subsidiaries within MNEs.

How foreign firms curtail local supplier opportunism in China: Detailed contracts, centralized control, and relational governance

Abstract: An ongoing debate in the interfirm exchange literature concerns whether economic and social governance mechanisms function as substitutes or complements. We advance a more nuanced approach to examining how detailed contracts and centralized control interact with relational governance differentially in curbing local supplier opportunism in emerging markets. We suggest that where legal institutions are weak, detailed contracts are ineffective in containing partner opportunism in contractually specified areas. Under such circumstances, relational governance provides a proxy for legal institutions to ensure contract execution. Meanwhile, relational governance serves as an alternative mechanism to centralized control for ensuring contingency adaptations. Based on a sample of 168 foreign buyer–local supplier exchanges in China, we find that relational governance complements detailed contracts but substitutes for centralized control in curtailing opportunism. Therefore foreign firms must be cautious in their combinative use of social and economic mechanisms in governing exchanges with local suppliers in emerging markets.

Export propensity, export intensity and firm performance:the role of the entrepreneurial founding team

Abstract: We investigate how the characteristics and experience of the entrepreneurial founding team (EFT) affect the export orientation and subsequent performance of the businesses they establish, while allowing for the mutually reinforcing relationship between exporting and productivity. Using a sample of UK technology-based firms, we hypothesise and confirm that the set of EFT human capital needed for entering export markets is different from that required for succeeding in export markets. Commercial and managerial experience helps firms become exporters, but once over the exporting hurdle it is education, both general and specific, that has a substantially positive effect. The overall pattern of human capital effects on productivity is similar to those for export propensity. We also find evidence that productive firms are more likely both to enter export markets and to be export intensive, and that exporting boosts subsequent firm productivity.

Beyond cultural distance: Switching to a friction lens in the study of cultural differences

Abstract: My 2001 article provided a critical review of one of the most popular constructs in international business, and in the management and business literature as a whole, namely cultural distance It listed various illusions, implicit yet unsubstantiated and refutable assumptions that underpinned a construct set to capture the essence of cultural differences The paper questioned the validity of the measure; the resultant findings obtained in such international business applications as foreign direct investment patterns, sequence, entry mode, and performance; and, ultimately, the wisdom of continuing the use of the measure and its underlying construct In this retrospective, I review subsequent work that tested some of the original observations, the impact the article has had, and, in particular, how we can redirect research away from the static cultural distance paradigm toward the dynamic interaction of the actual entities that come into contact in international business

Do country-level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationships?

Abstract: Interfirm relationships among partners from institutionally distant environments are subject to governance difficulties, owing to the paucity of shared cognitive and regulatory frameworks. We examine the potential of formal contracting and relational governance developed at the partnership level to overcome the formal and informal institutional gap at the country level. Empirical results from a sample of 184 international partnerships of large US firms support an overall substitutive relationship between informal institutional frameworks and interorganizational relational arrangements whereby the performance benefits of relational governance are reinforced at higher degrees of informal institutional distance. Contrastingly, formal institutional frameworks and contractual governance are found to have a complementary relationship, with performance gains from formal contracting undermined at higher degrees of formal distance.

Multinational enterprises and climate change: Exploring institutional failures and embeddedness

Abstract: This paper explores how climate change affects multinational enterprises (MNEs), focusing on the challenges they face in overcoming liabilities and filling institutional voids related to the issue. Climate change is characterized by institutional failures, because there is neither an enforceable global agreement nor a market morality. Climate change is also a distinctive international business issue, as its institutional failures materialize differently in different countries. As governments are still highly involved, MNEs need to consider carefully their strategies to cope with non-market forces, including their embeddedness in multiple institutional settings. Using some illustrative examples of MNE responses to climate-related components in stimulus packages, we explore MNEs’ balancing act concerning their institutional embeddedness (or lack thereof) in home, host and supranational contexts as input for further research on the dynamics of MNE activities in relation to climate change.

The effects of spatial and contextual factors on headquarters resource allocation to MNE subsidiaries

Abstract: Subsidiaries of multinational enterprises are located in a range of environments, in which they are exposed to organizational, national, and sub-national characteristics Instead of being distribut

An institution-based view of executive compensation: A multilevel meta-analytic test

Abstract: We offer a multilevel meta-analytic study of the firm performance – executive compensation relationship, comprising prior tests derived from 332 primary studies nested in 29 countries. Although our work modestly supports the optimal contracting theory-based expectation that compensation is positively associated with performance, it also reveals considerable cross-country variability in this relationship. We trace this variance to differences in the level of development of the formal and informal institutions protecting investors against managerial overcompensation and underperformance. In terms of intentionally devised and enforced formal institutions, we find significant positive moderating effects on the focal relationship of the rule of law and strength of investor protection variables. For self-enforcing informal institutions, we find similar effects for concentrated ownership and compensation-related entries in codes of good corporate governance. We also find that formal and informal institutions function in a complementary manner in shaping the performance sensitivity of executive compensation. The focal relationship becomes stronger when concentrated owners have access to well-functioning courts, and when informal norms of good governance are supported by shareholder protection laws. Our study thus suggests that optimal contracting theory must be supplemented with an institution-based view, to account for the conditioning effects of institutions on national contracting environments.

Asset specificity and foreign market entry mode choice of small and medium-sized enterprises: The moderating influence of knowledge safeguards and institutional safeguards

Abstract: According to transaction cost economics (TCE) reasoning, firms choose equity (as opposed to non-equity) foreign market entry modes to safeguard specific assets. The present paper contextualizes the well-researched relationship between asset specificity and foreign market entry mode choice by introducing knowledge safeguards (international experience, host-country networks, and imitation) and institutional safeguards (property rights protection and cultural proximity) as alternative mechanisms for securing a firm's specific assets. Testing our hypotheses on a sample of 206 small and medium-sized enterprises, we find that knowledge safeguards and institutional safeguards weaken the effect of asset specificity on the choice of equity foreign market entry modes. Contextualizing the relationship between asset specificity and foreign market entry mode choice helps to enhance our understanding of the scope conditions of TCE-based entry mode studies and beyond.

Travel time and the liability of distance in foreign direct investment: Location choice and entry mode

Abstract: Measures of geographic distance are often used to proxy for the impact of spatial separation on firm decisions and performance. We develop a construct, dyad travel time, to measure the friction of interacting and costs of uncertainty from ex post behavioral monitoring across non-collocated sites. We measure the actual time required to travel between 1171 parent–subsidiary dyads, and show that dyad travel time (but not geographic distance) has significant predictive power in firm governance and location decisions. While prior literature has independently modeled these, we specify a simultaneous model offering stronger support for the interrelation of these decisions.

Do countries matter for voluntary disclosure? Evidence from cross-listed firms in the US

Abstract: This paper explores the likelihood and consequences of voluntary disclosure (proxied by management earnings forecasts) for a sample of 1005 cross-listed firms in the US from 40 countries over the period 1996–2005. Our study is grounded in a three-tiered conceptual framework that relies on insights from and implications of institutional theory, agency theory and bonding theory to explain the costs and benefits associated with voluntary disclosure. Consistent with institutional theory and agency theory, our results indicate that disclosure likelihood increases with the strength of cross-listed firms’ home-country legal institutions, and is also influenced by US listing type, product market internationalization, and ownership structure. Further, our results show that voluntarily committing to US disclosure practice is associated with lower information asymmetry, which supports reputational bonding theory. Overall, our study provides a costs-and-benefits framework to understand voluntary disclosure practices in an international context. Our work also presents evidence that home-country institutions still matter when foreign firms migrate into the US financial market, which highlights the importance of country-level institution development.

Language policies and practices in wholly owned foreign subsidiaries: A recontextualization perspective

Abstract: This study adopts a recontextualization perspective on language policies and practices in wholly owned foreign subsidiaries. Drawing on a field study of 101 subsidiaries in Japan, we develop a contingency model that distinguishes between four different types of recontextualization with characteristic language policies and practices: developing/locally adaptive, developing/globally integrated, established/locally adaptive, and established/globally integrated. Our analysis shows how each of these four types is accompanied by specific problems and challenges. In particular, it elucidates five important aspects of language implementation: (1) the emergence of language praxis from the interplay of headquarters strategies and local responses; (2) the hybridization of language practices; (3) the central role of key actors such as subsidiary presidents in recontextualization; (4) the pervasive power implications of language policies and practices; and (5) the multifaceted implications for strategic human resource management. By so doing, our analysis opens up new avenues for context-specific and practice-oriented studies of language in multinational companies.

Start-up rates and innovation : A cross-country examination

Abstract: Despite the widespread assumptions of the positive relationship between start-up rates and innovation, the empirical support for this conjecture in the cross-country context is largely lacking. We draw upon recent advances in the entrepreneurship literature to propose that the relationship between start-up rates and innovation is not uniformly positive, as expected by the early scholars of entrepreneurship, but instead depends on the country's stage of development. The relationship is positive in the developed countries, but negative in countries in early development stages. On balance, there is a weak negative association between start-up rates and innovation. We test our hypotheses on a multi-source dataset that covers 35 countries over the period from 1996 to 2002. The relationships are robust to the choice of three moderators and two dependent variables, as well as a number of post-hoc tests. Our findings indicate that broad-strokes policy efforts that aim at promotion of entrepreneurship as a means to boost country innovativeness may be misguided, and instead suggest a contingency approach.

Routine microprocesses and capability learning in international new ventures

Abstract: Drawing on the distinction between the ostensive aspects (abstract patterns) and performative aspects (specific actions) of organizational routines, the paper offers a micro-level explanation of capability learning in international new ventures (INVs), that is, firms that internationalize actively from inception. The paper argues that variability in the performative aspects of internationalization routines is associated with improvisational learning and new capability development, whereas variability in the ostensive aspects is associated with trial-and-error learning and existing capability improvement. Furthermore, psychic distance moderates these relationships. Low psychic distance facilitates both improvisation and trial-and-error learning; high psychic distance frustrates learning of both types. Moderate psychic distance makes the success of both learning forms more likely – but only for more experienced INVs. The paper also argues that social capital may mitigate the negative effects of high psychic distance. It contributes to the extant literature by providing a micro-level explanation of how INVs accomplish capability learning and avoid wasteful learning efforts, and by theorizing the moderating effects of psychic distance on the relationships between routine microprocesses and capability learning.

Foreignness and exit over the life cycle of firms

Abstract: Received wisdom indicates that, owing to a liability of foreignness, foreign firms exit with greater likelihood than do comparable domestic firms, and that the difference attenuates as firms age and overcome the liability. We posit that foreign firms are also intrinsically more volatile and footloose than domestic ones, and that this leads to an increasing divergence between the exit rates of foreign and domestic firms. Empirically, we find that the difference between exit rates of foreign firms and domestic firms increases with age, as exit of foreign firms increases with age while that of purely domestic firms decreases. Exit rates of domestic-based multinationals do not change significantly with age; they are between those of foreign and purely domestic firms, but are closer to the latter. This suggests that the footlooseness observed for foreign firms is due to foreignness more than to multinationality.

Social structure and technology spillovers from foreign to domestic firms

Abstract: Do domestic firms benefit from the presence of foreign multinational firms? The FDI spillovers literature addresses this very issue, primarily examining whether the presence of foreign firms in a host market leads to technology spillovers and upgrading in domestic firms. A key finding is that spillovers depend on the absorptive capacity of the domestic firm. Yet, in conceptualizing absorptive capacity, scholars have largely overlooked how social structure shapes it. Integrating insights from social networks, technology upgrading, and innovation literatures, I emphasize that a domestic firm's ability to absorb spillovers depends on the social structure it is embedded in. I argue that ties with foreign firms reduce the constraints that domestic firms usually face in searching for and transferring in foreign technologies. However, while search benefits from sparse network structures, transfer is facilitated by cohesive ones. Also, while affect-based ties might motivate foreign firms sufficiently to share information with domestic firms at the search stage, reciprocal benefits and social monitoring conferred by common third-party ties are necessary in the transfer stage. Any effect of ties also depends on the routine repertoire of domestic firms. Put together, these arguments offer a more socialized account of the spillover process.

Why and how might firms respond strategically to violent conflict

Abstract: The aim of this study is to investigate factors – specifically stakeholder pressures – that may affect the likelihood that firms will respond to violent conflict. Survey and archival data on respondents from 471 multinational and local firms operating in 80 countries were used to explore these issues. Key findings include: (1) local stakeholder pressure is associated with the likelihood that firms will respond directly to violent conflict, collaborating with other organizations or working alone when doing so; and (2) international stakeholder pressure is associated with the likelihood that firms will respond indirectly to violent conflict, collaborating with other organizations or working alone.

Trapped or spurred by the home region?the effects of potential social capital on involvement in foreign markets for goods and technology

Abstract: Drawing on social capital theory and the international business literature, we argue that domestic geography, in terms of localized potential social capital, facilitates individual firms’ awareness of business opportunities, including knowledge related to involvement in the foreign markets for goods and technology, thereby enhancing firms’ involvement in those foreign markets. When potential social capital reaches a certain threshold, it may work to trap firms into operating only within their home regions, thus reducing involvement in foreign markets. We conjecture that firms’ research and development investment moderates the relationship between potential social capital and degree of involvement in foreign markets, but given the very different properties of the two markets, with different signs for each market: a positive moderation effect for the markets for goods, and a negative effect for the markets for technology. We find empirical support for our arguments based on a representative sample of around 2000 Italian firms. Journal of International Business Studies (2012) 43, 783–807. doi:10.1057/jibs.2012.27

Individualism–collectivism as a moderator of the work demands–strains relationship: A cross-level and cross-national examination

Abstract: Surveying 6509 managers from 24 countries/geopolitical entities, we tested the process through which individualism–collectivism at the country level relates to employees’ appraisals of and reactions to three types of work demands (i.e., work hours, workload, and organizational constraints). Our multilevel modeling results suggested that, while working the same number of hours, employees from individualistic countries reported a higher perceived workload than their counterparts in collectivistic countries. Furthermore, relationships of perceived workload and organizational constraints with job dissatisfaction and turnover intentions were stronger in individualistic than in collectivistic countries. Importantly, results of supplementary analyses suggested that the cultural value of individualism–collectivism moderated the mediation effect of perceived workload between work hours and both job dissatisfaction and turnover intentions. Our findings highlight the need to expand contemporary theories of work stress by applying multilevel approaches and incorporating cross-national differences in dimensions such as individualism–collectivism while studying how employees appraise and react to important work stressors.

Problem solving in MNCs: How local and global solutions are (and are not) created

Abstract: It is widely acknowledged in the international business literature that subsidiaries can make a strategic contribution to multinational corporations (MNCs). Departing from the common focus on subsidiary role, contexts and organizational MNC factors, this study explores the micro-level details of managers’ actions and interactions. We conducted an in-depth qualitative study into 38 problem-solving processes employed across four subsidiaries. Taking a non-routine problem-solving perspective on how subsidiaries contribute strategically to renewing MNC competences, this paper uncovers four problem-solving approaches: local template adaptation; superior technology creation; local template creation; and global principle creation. The findings depict how the way problems are framed influences knowledge search and solution-finding activities, and how these different activities may result in local and global solutions. The paper extends insights into MNC innovation and subsidiary initiative by detailing how subsidiary managers navigate different problem-solving approaches, and contributes to discussions on the micro-foundations and social aspects of MNC knowledge flows, revealing factors that trigger distance-spanning knowledge search.