Dual embeddedness, influence and performance of innovating subsidiaries in the multinational corporation Francesco Ciabuschi a , Ulf Holm a, *, Oscar Martı ´n Martı ´n b,a a Department of Business Studies, Uppsala University, Sweden b Public University of Navarre, Spain 1. Introduction It is frequently argued that the ability to innovate is a source of competitive advantage, particularly in multinational corporations (MNCs), where innovation often occurs at the subsidiary level (Birkinshaw & Hood, 1998; Pearce, 1999; Schmid & Schurig, 2003). Subsidiary innovation has been associated with a variety of driving factors, such as autonomy (Cantwell & Mudambi, 2005; Ghoshal & Bartlett, 1988), geographic factors or distance from headquarters (Frost, 2001; Porter & So ¨ lvell, 1998; Prahalad & Doz, 1981), communication (e.g., Schulz, 2003), dynamics in the business environment (Porter, 1990), and embeddedness in network relationships (Andersson, Forsgren, & Holm, 2002; Hallin, Holm, & Sharma, 2011). Our study is related to the latter stream of research and explores how the embeddedness of subsidiaries, during innovation development, affects the performance of innovations. The direct relation between embeddedness and performance is extensively discussed in the literature on innovation, which essentially suggests that the strength of relationships provides a capability for learning that enhances the ability to evaluate innovation requirements among business actors (Cho & Pucik, 2005; Dyer & Singh, 1998; Echols & Tsai, 2005; Moran, 2005; Uzzi, 1996). Departing from the argument that subsidiaries often retain corporate as well as external relationships (Almeida & Phene, 2004; Bouquet & Birkinshaw, 2008; Forsgren, Holm, & Johanson, 2005), we move forward by investigating the relation between the corporate and external embeddedness of those relationships and their concurrent effects on innovation-related business perfor- mance. We thereby explore the effects of embeddedness in a ‘‘dual’’ business context of subsidiaries, which is an increasingly addressed distinction in the MNC literature. For instance, Achcaoucaou, Miravitlles, and Leon-Darder (2013), recently proposed an analytical framework centered on dual embedded- ness for the analysis of subsidiary competence-creation mandates. However, as Meyer, Mudambi, and Narula (2011) noted, there has been hardly any empirical research into the simultaneous impact of corporate and external embeddedness. In fact, most research has either analyzed the impact of the external network or the corporate network, and it is, therefore, unclear how innovations within the respective contexts relate to the business performance of subsidiaries. Although there seems to be a belief that embeddedness is positively associated with innovation perfor- mance, corporate and external relationships may pull subsidiary innovations in different directions, creating a ‘trade-off’ between the two contexts whereby the subsidiary must balance its corporate embeddedness with its local external embeddedness (ibid.). International Business Review xxx (2014) xxx–xxx A R T I C L E I N F O Article history: Received 22 April 2013 Received in revised form 4 February 2014 Accepted 5 February 2014 Keywords: Business networks Corporate embeddedness Dual embeddedness External embeddedness Innovation development Innovation performance Subsidiary influence A B S T R A C T This study adopts a business network view to study the effects of subsidiary embeddedness on both subsidiary influence within the MNC and innovation-related business performance. Through Structural Equation Modeling we analyze subsidiary relationships connected to 85 innovation projects. The results show that external and corporate embeddedness are complementary contexts, although they affect subsidiary influence and performance differently. Whereas external embeddedness directly affects innovation-related business performance, corporate embeddedness strengthens the subsidiary’s influence within the MNC, which in turn positively relates to performance. Moreover, as the study also finds that external and corporate embeddedness are positively associated, it stresses the issue of simultaneously balancing both external and corporate relationships (i.e., dual embeddedness) to nurture innovation projects. ß 2014 Elsevier Ltd. All rights reserved. * Corresponding author at: Department of Business Studies, Uppsala University, Box 513, SE-751 20 Uppsala, Sweden. Tel.: +46 18 471 16 12; fax: +46 18 471 68 10. E-mail address: ulf.holm@fek.uu.se (U. Holm). G Model IBR-1073; No. of Pages 13 Please cite this article in press as: Ciabuschi, F., et al. Dual embeddedness, influence and performance of innovating subsidiaries in the multinational corporation. International Business Review (2014), http://dx.doi.org/10.1016/j.ibusrev.2014.02.002 Contents lists available at ScienceDirect International Business Review jo u rn al h om epag e: ww w.els evier.c o m/lo cat e/ibu s rev http://dx.doi.org/10.1016/j.ibusrev.2014.02.002 0969-5931/ß 2014 Elsevier Ltd. All rights reserved.