Exploring the paradox of competence-creating subsidiaries: balancing bandwidth and dispersion in MNEs

Rajneesh Narula


This paper seeks to synthesise the various contributions to the special issue of Long Range Planningon competence-creating subsidiaries (CCS), and identifies avenues for future research. Effective competence-creation through a network of subsidiaries requires an appropriate balance between internal and external embeddedness. There are multiple types of firm-specific advantages (FSAs) essential to achieve this. In addition, wide-bandwidth pathways are needed with collaborators, suppliers, customers as well as internally within the MNE. Paradoxically, there is a natural tendency for bandwidth to shrink as dispersion increases. As distances (technological, organisational, and physical) become greater, there may be decreasing returns to MNE spread. Greater resources for knowledge integration and coordination are needed as intra- and inter-firm R&D cooperation becomes more intensive and extensive. MNEs need to invest in mechanisms to promote wide-bandwidth knowledge flows, without which widely dispersed and networked MNEs can suffer from internal market failures.

Keywords: R&D, globalization, dispersion, embeddedness, knowledge flows

JEL Classification: F23, Z13, M21

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