The increasing role of non - localized knowledge in MNC sub - unit competence creating activity

The access to local knowledge in a host country has been recognized as a crucial factor in explaining the capacity of MNC sub-units for locally exploratory activity. We argue that as international business has moved away from the traditional model of unidirectional transfer of technological knowledge from the parent company to its foreign sub-units, over time new factors have come to influence the local innovative creativity of sub-units. In particular, the more open is the local system in which an MNC sub-unit is located, and the more that system facilitates access to non-localized knowledge, the more likely it is that a sub-unit will develop greater local creativity. Moreover, since in recent times local sub-unit creativity is typically founded on a search for novel combinations of the core knowledge of the MNC with knowledge acquired from external sources through the local system, the richness of the parent company knowledge stock on which a sub-unit can draw has become increasingly important to the development of competence creating activity in a sub-unit. Using data on the innovative activities of the world's largest industrial firms at the sub-unit level, over the period 1930-95, we find that the local host system’s international openness and the access to parent company knowledge increasingly positively influence the relative extent of subsidiary competence creating (CC) activities.