Balancing the Trade-Off between Learning Prospects and Spillover Risks: MNC Subsidiaries' Vertical Linkage Patterns in Developed Countries

Journal of World Business, Forthcoming

44 Pages Posted: 12 Sep 2012

See all articles by Alessandra Perri

Alessandra Perri

Ca Foscari University of Venice - Department of Management

Ulf Andersson

Copenhagen Business School - Department of Strategic Management and Globalization; Uppsala University - Department of Business Studies

Phillip C. Nell

Vienna University of Economics and Business - Department of Global Business and Trade; Copenhagen Business School - Department of Strategy and Innovation

Grazia D. Santangelo

Università degli Studi di Catania

Date Written: September 11, 2011

Abstract

This study investigates local vertical linkage patterns of foreign subsidiaries. Specifically, we look at the dual role of such linkages as conduits for learning as well as potential channels for spillovers to competitors. On the basis of data from 97 subsidiaries and their most important local partners (customers and suppliers), we analyze the quality of such linkages under varying levels of competition and subsidiary capabilities. We capture the quality of local vertical linkages using a multidimensional measure that focuses on mutual adaptation and breadth of interaction between the subsidiary and the local partner. Our theoretical development and the results from our empirical analysis document a far more complex and dynamic relationship between levels of competition and MNCs’ local participation in knowledge intensive activities, i.e. learning and spillovers, than previous studies do. We find a curvilinear relationship between the extent of competitive pressure and the quality of local linkages confirming our argument of a trade-off between learning prospects and spillover risks. In situations of a lot of competition, our subsidiaries seem to shy away from further increasing the relationship quality to their most important customers and suppliers. Furthermore, the level of subsidiary capabilities moderates this relationship. These are truly new findings with interesting implications for the study of FDI, local vertical linkages, and the MNC literature.

Keywords: Quality of local vertical linkages, competitive pressure, subsidiary capabilities, learning, spillovers

JEL Classification: M1

Suggested Citation

Perri, Alessandra and Andersson, Ulf and Nell, Phillip C. and Santangelo, Grazia D., Balancing the Trade-Off between Learning Prospects and Spillover Risks: MNC Subsidiaries' Vertical Linkage Patterns in Developed Countries (September 11, 2011). Journal of World Business, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2144886

Alessandra Perri

Ca Foscari University of Venice - Department of Management ( email )

San Giobbe
Cannaregio 873
Venice, 30121
Italy

Ulf Andersson

Copenhagen Business School - Department of Strategic Management and Globalization ( email )

Porcelænshaven 24
Frederiksberg, 2000
Denmark

Uppsala University - Department of Business Studies ( email )

Box 513
SE 751 20 Uppsala
Sweden

Phillip C. Nell (Contact Author)

Vienna University of Economics and Business - Department of Global Business and Trade ( email )

Welthandelsplatz 1
Building D1
Vienna, 1020
Austria

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilevej 14
Frederiksberg, 2000
Denmark

HOME PAGE: http://www.cbs.dk/

Grazia D. Santangelo

Università degli Studi di Catania ( email )

Università degli Studi di Catania
Via V. Emanuele 8
Catania, Sicily 95128
Italy

HOME PAGE: http://www.fscpo.unict.it/docenti/prof.ssa_Santangelo.htm

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