Discussions and conclusion
In recent years, increasing globalization and innovative capacity of indigenous firms in emerging economies has created opportunities and challenges for MNCs to combine firm-specific resources with country-specific advantage (Meyer & Estrin, 2014). Understanding how subsidiaries evolve and develop their competence and scope enables MNCs to exploit effectively the comparative advantages of local contexts while adding more regionally specialized operations along the global supply chains. Previous research has found that knowledge flows through embedded networks drive MNC and subsidiary performance, but the issue of knowledge use and adoption in subsidiaries has been left relatively unexplored. Current literature offers limited insights as to whether the knowledge transferred is being progressively processed and applied at the receiving subsidiary (Andersson et al., 2015a). Furthermore, most studies of subsidiary embeddedness have focused on either internal networks or external networks. Few empirical studies discuss the simultaneous impact of internal and external embeddedness (Meyer et al., 2011; Ciabuschi et al., 2014). Therefore, it is unclear whether and how internal and external embeddedness have differential impact on the development of the subsidiary.
In this study, we develop a conceptual model to illustrate the direct effects of internal and external embeddedness on subsidiary development in terms of competence and scope, and their indirect effects via the process of organizational learning in receiving subsidiaries. From a learning process view, individual subsidiaries not only obtain knowledge benefits directly from their internal and external linkages but also adapt their learning processes to assess, interpret, distribute and retain the knowledge for their own development and future use. Our findings provide support for the positive relationships between external embeddedness and subsidiary scope, and between internal embeddedness and subsidiary competence. And, organizational learning fully mediates the effect of internal embeddedness on subsidiary competence.