Int. Journal of Economics and Management 11(1): 31 – 47 (2017) 31 IJEM International Journal of Economics and Management Journal homepage: http://www.econ.upm.edu.my/ijem VO VAN DUT a* AND LE HOANG DONG PHUONG b a Department of International Business, The College of Economics, Can Tho University, Vietnam b Panda Global Logistics Co., Ltd, Ho Chi Minh City, Vietnam, ABSTRACT International business literature often states that the ability to exploit external knowledge and ideas is a crucial component of the innovative performance of frms. Adopting a business network theory, we hypothesize that subsidiaries are likely to reach high levels of innovation as they engage in the networks of external linkages (i.e. backward and forward linkages) with domestic business actors. To test the proposed hypotheses, we use survey data extracted from a data set from the General Statistics Ofce of Vietnam for 354 subsidiaries located in Vietnam. A noticeable diference in institution-foreign frm and foreign frm-local partner relationships still remains after the 30-year period of Vietnam’s revolution due to political perspectives; and this has motivated us to investigate this unique transition economy. Probit regression reveals that our hypotheses are strongly supported, in regards to controlling the characteristics of a subsidiary, a parent frm or home country. The paper provides theoretical and practical implications for international business literature. JEL Classifcation : F23, O31, O32 Keywords : backward linkage, external linkage, forward linkage, multinational enterprise, subsidiary product innovation External Linkages and Product Innovation: Theory and Empirical Evidence from Subsidiaries in Vietnam Article history: Received: 12 May 2016 Accepted: 20 March 2017 *Corresponding author: E-mail: vvdut@ctu.edu.vn