Location Choice and Innovation Quality
When MNCs seek to internationalize, they must decide where to locate their foreign subsidiaries to maximize their benefits of innovation. The internationalization process of firms, especially those whose home countries are emerging economies, affect parents’ innovation quality (Hsu et al., 2015), improve productivity (Esteban-Jardim & Urraca-Ruiz, 2019), promote reverse knowledge transfer (Driffield et al., 2016), and increase intangible assets (Ahsan & Sinha, 2022). The essence of these innovation-related efforts is carried out by geographically dispersed team members who are dependent on MNCs. Through internationalization, MNCs with unique capabilities expect to acquire valuable skills in foreign markets to earn more profits and transfer them back to their parents (Chung & Alcácer, 2002). They may establish subsidiaries in certain countries where the rules, norms, and values of the parent are similar. This similarity helps subsidiaries embed themselves in the interpersonal and organizational networks of the host country (Fornahl et al., 2011). It also helps MNCs to gain access to more information and knowledge exchange and enhance innovation quality through in-depth interactive learning with foreign stakeholders (Chen et al., 2012; Zheng et al., 2023).
The role of location choice of foreign subsidiaries on firm innovation has been well explored by international business scholars. Multilocation establishment enables parent firms to adapt to the new market through the existing technical knowledge, access to new sources of knowledge, and improve innovation capabilities (Schulze & Brojerdi, 2012; Shahzad et al., 2022). For them, remote geographic distance represents new technologies, allowing them to avoid familiar pitfalls and providing the foundational conditions for innovation (Phene et al., 2006). Some scholars argue that the location diversity of foreign subsidiaries facilitates technological upgrading of parent firms (Jain et al., 2019). This exposes MNCs to a more intense market environment and increases operational risk, but to some extent, it encourages MNCs to upgrade products and innovate rapidly (Wu et al., 2015). In addition, knowledge integration across regions can also facilitate knowledge flows, and improvements in innovation quality may be the result of knowledge integration due to the mobility of people (Singh, 2008). However, some scholars have shown that when subsidiary locations are centralized, members of different teams have similar understanding of expertise at a high level of relational intensity, which will reduce coordination costs among members and decrease the negative impact of information overload (Tzabbar & Vestal, 2015). Proximity creates trust, overcomes conflicts of culture and belief, and shares tacit knowledge (Kapetaniou & Lee, 2018), thus facilitating knowledge exchange and absorption (Molina-Morales et al., 2011).