Impact of subsidiaries' cross-border knowledge tacitness shared and social capital on MNCs' explorative and exploitative innovation capability

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Impact of subsidiaries' cross-border knowledge tacitness shared and social capital on MNCs' explorative and exploitative innovation capability ⁎

Sheng Margaret L.a, , Hartmann Nathaniel N.b a b

School of Management, National Taiwan University of Science and Technology, 43 Keelung Road, Section 4, Taipei 106, Taiwan Shidler College of Business, University of Hawai'i at Mānoa, 2404 Maile Way #C501k, Honolulu, HI 96822, United States of America

A R T IC LE I N F O

ABS TRA CT

Keywords: Explorative and exploitative innovation capability Cross-border knowledge tacitness shared Dynamic capabilities Multinational corporation subsidiaries management Resource-based theory Social capital theory

As subsidiaries' cross-border knowledge increases in tacitness, it becomes more difficult for subsidiaries to articulate and for multinational corporations' (MNCs') headquarters to integrate and apply. Herein, dynamic capabilities and social capital theory frame structural and relational social capital as capabilities that improve the productivity of subsidiaries' cross-border knowledge tacitness shared on MNCs' headquarters explorative and exploitative innovation capability. The hypotheses are tested on a data set consisting of survey data collected from 220 senior managers or executives at the headquarters of Taiwan-based MNCs. Interestingly, structural social capital between headquarters and subsidiaries strengthens the negative association between subsidiaries' cross-border knowledge tacitness shared and explorative innovation capability; relational social capital attenuates the negative association between subsidiaries' crossborder knowledge tacitness shared and both explorative and exploitative innovation capability. Stated differently, different types of social capital can facilitate (i.e., relational social capital) or impede (i.e., structural social capital) innovation capability when cross-border knowledge tacitness is high. The validity and managerial implications of these findings are explored through interviews with senior managers or executives of MNCs headquarters or subsidiaries. Theoretically, this study emphasizes the importance of understanding relationships between subsidiaries and MNCs' headquarters to understand the association between subsidiaries' resources and MNCs' headquarters innovation capability.

1. Introduction Multinational corporations (MNCs) can derive sustained competitive advantage from pursuing explorative (i.e., breakthrough, new, and distinguishable) and exploitative (i.e., incremental, extension, refinement) innovation (March, 1991). MNCs that overweight exploitative innovation may be more likely to harvest relatively stable positive returns in the short-term, but face obsolesce in the long-term. MNCs that over-weight explorative innovation may be more likely to reap above-average returns in the long-term, but fall subject to bankruptcy due to uncertain, distal, and often negative returns (March, 1991). Therefore, managers of MNCs should consider both the short-term and long-term and simultaneously pursue explorative and exploitative innovation (Phene et al., 2012). To simultaneously pursue both, MNCs must develop explorative and exploitative innovative capability. To develop explorative and exploitative innovation capability, MNCs often rely on the resources of overseas subsidiaries ⁎

Corresponding author. E-mail addresses: [email protected] (M.L. Sheng), [email protected] (N.N. Hartmann).

https://doi.org/10.1016/j.intman.2019.100705 Received 16 December 2017; Received in revised form 18 July 2019; Accepted 20 July 2019 1075-4253/ © 2019 Published by Elsevier Inc.

Please cite this article as: Sheng Margaret L. and Hartmann Nathaniel N., Journal of International Management, https://doi.org/10.1016/j.intman.2019.100705

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(Dellestrand, 2011; Mudambi and Swift, 2011). These resources are broad and include knowledge, information, relationships, assets, capabilities, processes, etc. which empower the MNC to think of and execute strategies (Barney, 1991). Subsidiary knowledge resources are vital to MNCs' headquarters' innovation efforts. The unique network of each subsidiary affords it with distinctive knowledge that MNCs' headquarters can only acquire via knowledge transfer (Dellestrand, 2011). Valuable, rare, inimitable, and nonsubstitutable cross-border knowledge— profound knowledge linked to the context from which it is derived— related to local markets served is of particular interest to MNCs (Becker-Ritterspach, 2006; Schmidt and Sofka, 2009; Subramaniam and Venkatraman, 2001). However, cross-border knowledge is located in foreign subsidiaries and typically tacit (Subramaniam and Venkatraman, 2001). As Dellestrand (2011), points out, research (Gupta and Govindarajan, 2000; Szulanski, 1996; Teece et al., 1997; Zander and Kogut, 1995) shows that transfer of knowledge high in tacitness within MNCs is often difficult, costly, and time-consuming. The same characteristics that make knowledge high in tacitness (i.e., contextual, personal, abstract, and subtle) an important resource also make articulation, integration, and application of it difficult (Nonaka, 1994; Nonaka and Konno, 1998; Nonaka and Takeuchi, 1995). As knowledge tacitness increases, distance and differences (e.g., location, performance objectives, environment, etc.), between MNCs' headquarters and their subsidiaries may increase the challenge of subsidiaries communicating and MNCs' headquarters understanding the contextual, personal, abstract, and subtle nature of it. After all, as Ambos et al. (2016) point out, scholars have argued “that as the spatial distance between individuals increases, communication becomes less frequent and less effective (Allen, 1977)”, and international management research shows that “distance renders knowledge transfers less effective due to the cost of sending information across geographical distance and reinterpreting it across cultural distance” (pg. 316). Not surprisingly, related findings regarding the effectiveness of knowledge flows in the international business literature are inconclusive (see Ambos et al., 2016) and the sparse research that specifically examines the relation between subsidiary tacit knowledge level or tacitness of information shared and MNCs' innovation ability point to a negative or non-existent relationship. For example, Sheng et al. (2015) find a negative relationship between subsidiary tacit knowledge level shared and MNCs' product innovation ability, and Subramaniam and Venkatraman (2001) find no relationship between tacitness of information received from overseas subsidiaries and MNCs' new product development capability. While we recognize the merits of these works, our research offers and tests a novel alternative framework which proposes that the challenges of transferring cross-border knowledge high in tacitness MNCs' headquarters innovation can be eased by quantity and quality of relations between subsidiaries and MNCs' headquarters. As Nonaka and Konno (1998) point to, obtaining, integrating, and applying knowledge high in tacitness from others is shaped by the frequency and quality of their relations. This emphasis on interaction frequency and quality of relations is consistent with conceptualizations of innovation as a social process involving persons throughout the organization and their reciprocal interactions (Madhavan and Grover, 1998). Moreover, it is consistent with research that stresses the importance of the relationship between MNCs' headquarters and their subsidiaries to achieving innovation outcomes (e.g. see Dellestrand, 2011). Drawing from the rich tradition of Social Capital Theory (SCT), which contends that actors can benefit through their ability to access and use the resources of other actors (Burt, 1992; Coleman, 1988), and Dynamic Capabilities Theory (DCT), which accentuates the importance of capabilities to leveraging resources, we position frequency of interactions and quality of relations between members of MNCs' headquarters and their overseas subsidiaries as forms of structural and relational social capital, respectively, enhance utilization of subsidiary cross-border knowledge tacitness shared for explorative and exploitative capability. Moreover, we propose that such frequency of interactions and quality of relations directly enhance MNCs' headquarters explorative and exploitative capability. Whereas structural social capital refers to the “overall pattern of connection between actors,” (p. 244), relational social capital refers to the affective nature and essential qualities of the relationship (Nahapiet and Ghoshal, 1998). This multi-dimensional approach (i.e., structural and relational) can provide a deeper understanding of when and which forms of social capital are beneficial to MNCs' in reaping benefits of subsidiary cross-border knowledge tacitness shared for explorative and exploitative innovation capability, respectively. Given their strategic and other differences, explorative and exploitative innovation capability are presumed to require different organizational antecedents. Whereas exploration has been related to decentralization and flexibility, exploitation has been associated with centralization and efficiency (Benner and Tushman, 2003). Exploration and exploitation are linked to different strategic goals that generate paradoxical challenges (March, 1991). We argue that structural and relational social capital are dynamic capabilities that enable MNCs to more effectively access and utilize subsidiary resources, such as cross-border knowledge, when balancing the contradictory demands of explorative and exploitative innovation capability and reach both. We reason that more frequent interactions (i.e., structural social capital) afford subsidiaries additional opportunity to share resources such as knowledge high in tacitness to MNCs' headquarters, and MNCs' headquarters more opportunity to receive and act on such resources. Structural social capital produces behavioral norms to guide interactions, interpretation, and facilitate the frequent requests. It also helps firms deal with established expectations and well-organized information, and punish disobedience (Coleman, 1988). We reason that relational social capital provides the foundation needed for subsidiaries to effectively share and MNCs' headquarters to effectively apply resources such as context-rich knowledge. This is because relational social capital improves shared meaning between subsidiaries and MNCs' headquarters, and reduces concerns about opportunistic behavior by the other. The remainder of this paper is structured as follows. First, we briefly introduce and review explorative and exploitative innovation capability, DCT, and SCT. After introducing the theoretical framework, we develop and propose the main and interaction effect hypotheses. These hypotheses are tested on a dataset consisting of survey data from 220 senior managers or executives at the headquarters of Taiwan-based MNCs. The results and their implications for theoreticians and MNC managers are then discussed. Prior to the conclusion, limitations and future research opportunities are briefly offered.

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2. Theoretical framework 2.1. MNCs' explorative and exploitative innovation capability Explorative innovation capability is focused on creating radically new and distinguishable products, services, and markets (March, 1991). As such, explorative innovation capability is based on radical and novel knowledge, competencies, skills, and processes. Consequently, terms such as discover, experiment, and research are used to characterize the processes of explorative innovation (He and Wong, 2004). Exploitative innovation capability is focused on incrementally refining and extending existing products and services for existing markets (March, 1991). Innovation of this type relies on and builds upon existing knowledge, competencies, skills, and processes. Therefore, terms such as product/process improvement, efficiency, and refinement are often used to characterize the processes of exploitative innovation (He and Wong, 2004). The relation between the decision to explore or exploit in earlier studies was demonstrated by March (1991) to be a trade-off: an organization chooses either to explore or to exploit. However, scholars (e.g., Benner and Tushman, 2003; Burton et al., 2012; Gibson and Birkinshaw, 2004; O'Reilly and Tushman, 2011) suggest that MNCs often recognize the value of simultaneous exploration and exploitative innovation (i.e., innovation ambidexterity) within organizations and have begun shifting their focus from trade-offs to paradoxical thinking. Innovation ambidexterity indicates that explorative and exploitative innovation should be distinguished yet consequently integrated to produce value. Innovation ambidexterity enables MNCs to successfully pursue multiple paradoxical innovation streams by creating integrative value across explorative and exploitative units (Tushman et al., 2010). In the MNC context, exploration and exploitation may disperse at different locations (i.e., subsidiaries vs. headquarters) and safeguard experimental activities from subsidiaries for explorative innovations and inertia present in the headquarters' mainstream activities for exploitative innovations. In this way, coexistence of paradoxical explorative and exploitative innovation can take place at different locations where motivation can be built exclusively throughout mainstream or emerging business opportunities (Gilbert, 2006). Given the differences between explorative and exploitative innovation capability, a multi-dimensional approach to innovation is used. 2.2. Dynamic capabilities theory (DCT) The RBV emphasizes the importance of valuable, rare, in-imitable, and non-substitutable (VRIN) resources to competitive advantage (Barney, 1991). The RBV can therefore be applied to conceptualize cross-border knowledge high in tacitness as a VRIN resource that positively influences MNCs' explorative and exploitative innovation capability. However, as stated, higher levels of tacitness may make such knowledge more difficult for subsidiaries to articulate, and for MNC's to integrate and apply. To address this paradox, we turn to DCT which addresses several issues that the RBV does not. The first issue dynamic capabilities addresses is the ability and process of managing resources effectively (Teece, 2014). Second, dynamic capabilities can be developed from order capabilities, permitting MNCs' explorative and exploitative innovation capability to arise from the extent and quality of interactions between actors, such as MNCs headquarters and subsidiaries. Third, DCT extends RBT to emphasize the importance of continually developing and refining resources and capabilities to attain and maintain competitive advantage and its antecedents, such as innovation (Eisenhardt and Martin, 2000). Most importantly, O'Reilly and Tushman (2011) argue that the ability of a firm to be ambidextrous is at the core of dynamic capabilities. Dynamic capabilities help the MNC reallocate and reconfigure organizational resources to permit the firm to exploit current capabilities and develop new ones (Taylor and Helfat, 2009). These capabilities support the organization's ability to sustain ecological fitness and, when necessary, reconfigure current assets and develop the new skills needed to attend to emerging opportunities and threats. Herein, we position structural and relational social capital as dynamic capabilities that not only improve the effectiveness of subsidiary cross-border knowledge tacitness shared with respect to improving MNCs' headquarters explorative and exploitative innovation capability, but also directly enhance such innovation capability. 2.3. Social capital theory Social capital represents the “sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit,” (Nahapiet and Ghoshal, 1998, p. 243). Hence, actors can benefit from their social capital (Burt, 1992; Coleman, 1988). While some studies (e.g., Chuang et al., 2013; Leana and Pil, 2006) describe social capital as a uni-dimensional construct, other studies (Andrews, 2010; Atuahene-Gima and Murray, 2007; Rowley et al., 2000; Wasko and Faraj, 2005) adopt Nahapiet and Ghoshal (1998) multi-dimensional (e.g., relational, structural, cognitive) conceptualization. In support of this multi-dimensional conceptualization, such empirical studies (Andrews, 2010; Atuahene-Gima and Murray, 2007; Rowley et al., 2000; Wasko and Faraj, 2005) often report modest correlations between the dimensions, and show that relationships with other variables materially differ for structural and relational social capital. Structural social capital refers to the “overall pattern of connection between actors,” (Nahapiet and Ghoshal, 1998, p. 244); stated differently, it encompasses interaction which can be used “to obtain information, or to access specific resources” (p. 465). Relational social capital refers to the affective nature and essential qualities of the relationships between actors. Nahapiet and Ghoshal (1998) accentuate that trust can motivate mutual effort toward an end and the “other actors' support for achieving goals to an extent that would not be possible in a situation where trust did not exist” (p. 465). Cognitive social capital refers to the shared representations, interpretations, and meanings between actors. Although Nahapiet and Ghoshal (1998) distinguish between these three dimensions, they emphasize Granovetter's (1992) distinction between structural and relational embeddedness. Given our interest in the frequency 3

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Fig. 1. Conceptual framework.

of interactions and quality of relations between MNCs' headquarters and their subsidiaries, this study focuses on the structural and relational dimensions. By capturing both dimensions, insights regarding the differential influence of both the frequency and pattern of interactions and quality of the relationships between MNCs' headquarters and their subsidiaries can be offered. Nahapiet and Ghoshal (1998) adopt Granovetter's (1992) reference to structural embeddedness concerning “the properties of the social system and of the network of relations as a whole…which describes the interpersonal configuration of linkages between people or units” (Nahapiet and Ghoshal, 1998, p. 244). This research draws from Nahapiet and Ghoshal (1998) and focuses on the presence, density, and connectivity of ties between the MNCs' subsidiaries and its headquarters. As we later explain, greater presence, density, and connectivity of ties may increase the MNCs' headquarters' abilities to integrate and productively apply subsidiaries' resources. Nahapiet and Ghoshal (1998) also adopt Granovetter's (1992) reference to relational embeddedness which “describes the kind of personal relationships people have developed with each other through a history of interactions… which focuses on the particular relations people have, such as respect and friendship, that influence their behavior” (p. 244). Hence, the relational dimension emphasizes trust, norms, obligations, and identification. Of the aforementioned aspects (i.e., trust, norms, obligations, and identification), trust is the only dimension theorized by Nahapiet and Ghoshal (1998) to influence all of the following: access to parties for knowledge exchange, anticipation of value by sharing and integrating knowledge, and motivation to exchange and integrate knowledge. Nahapiet and Ghoshal (1998) postulate that each of these trust outcomes influence the creation of new knowledge. For the aforementioned reasons, among others, greater relational social capital, manifested by trust between the MNCs' subsidiaries and their headquarters, may increase the MNCs' headquarters' abilities to integrate and effectively apply subsidiaries' resources. The conceptual model shown in Fig. 1 is motived by this and other aforementioned reasoning. 2.4. Integrating theory to address gaps in the literature Our research addresses three inter-related research gaps with regard to knowledge characteristics, social capital, and exploitative and explorative innovation capability. First, many studies search for notable insight on how MNCs can structure and procedurally manage knowledge resources to enhance innovation capability. A main tenet motivating such studies is that the effective sourcing, sharing, and assimilation of cross-border knowledge is central to innovation capability (Ettlie and Subramaniam, 2004). Considerable emphasis is put on approaches such as networks (i.e., structural social capital) to facilitate sourcing diverse strands of knowledge. Considerable emphasis is also put on trusting relationships (i.e., relational social capital) tied to interaction quality, which can complement and encourage the sharing and assimilation of knowledge. Such studies seek out organizational capabilities that improve transfer of cross-border knowledge into innovation capability. Teece et al. (1997) suggest dynamic capabilities as a firm's capacity to sense and seize resources, and to maintain competitiveness through reconfiguring and transforming resources. We position structural and relational social capital as dynamic capabilities, and take the view that MNCs can reduce the difficulties of transferring subsidiary cross-border knowledge high in tacitness to improve explorative and exploitative innovation capability. Second, in revisiting March (1991) through a comprehensive structured review, Wilden et al. (2018) encourage future research “to isolate the particular capabilities needed to support exploration and exploitation” (pg. 364) and accentuate the importance of studying whether and how particular capabilities influence exploration versus exploitation. Specifically, this study examines how frequency and quality of relations between subsidiaries and MNC's headquarters improves MNC's headquarters explorative and 4

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exploitative innovation capability by altering the effectiveness of subsidiaries' cross-border knowledge tacitness shared. Given the impact of various organizational antecedents (structural and relational social capital), our study contributes to the innovation capability literature by using a multi-dimensional approach (i.e., explorative and exploitative innovation capability) to innovation. Third, our study contributes to discussion regarding the relation between knowledge resources and innovation capability. Particularly for RBV scholars, subsidiary knowledge, on the basis of it being a VRIN resource (Barney, 1991) is assumed to positively contribute to MNCs' innovation capability and competitive advantage. However, research focused on knowledge transfer between subsidiaries and MNC headquarters (Sheng et al., 2015; Subramaniam and Venkatraman, 2001) as well as other research within and outside of the MNC context (see Ambos et al., 2016), provides reason to re-examine this when the sharer and applier of knowledge are different. As mentioned, Sheng et al. (2015) find a negative relationship between subsidiary tacit knowledge level shared and MNCs' product innovation ability, and Subramaniam and Venkatraman (2001) find no relationship between tacitness of information received from overseas subsidiaries and MNCs' new product development capability. Moreover, Ambos et al. (2016) find that uneven distribution of team members (culturally and geographically) within a firm division increase the difficulty of knowledge transfer. Our study challenges common assumptions regarding knowledge tacitness and advocates that structural and relational social capital alters the impact of this knowledge characteristic on innovation capability.

3. Hypotheses development 3.1. Subsidiaries' cross-border knowledge tacitness shared, explorative and exploitative innovation capability The success of overseas subsidiaries is highly reliant on how well they come to understand local market conditions, business practices, and cultures (Du and Williams, 2017; Foss and Pedersen, 2002; Un and Rodríguez, 2018). As stated, MNCs' headquarters rely on subsidiaries' cross-border knowledge tacitness, which refers to subsidiaries' profound knowledge of the unique traits, characteristics, and other intricacies of the local market it serves to develop innovation capability (Becker-Ritterspach, 2006; Lee et al., 2008; Schmidt and Sofka, 2009). As Sheng et al. (2015) point to, research links tacit knowledge to understanding of problems (Bindroo et al., 2012), idea novelty (Brockman and Morgan, 2003), and problem solving (Goffin and Koners, 2011). As knowledge increases in tacitness it become more difficult to imitate and immobile, but may also stimulate creative solutions to market opportunities and problems (Berman et al., 2002). Hargadon and Fanelli (2002) argue that higher levels of knowledge tacitness provide firms with more novel ideas by permitting the firm to deviate from existing patterns of action and to explore new possibilities. Thus, a firm's successful efforts incorporating knowledge of high tacitness can increase novel innovation (i.e., explorative innovation), such as via new product concepts that offer distinctive and unique solutions to customers (Pérez-Luño et al., 2011). However, MNCs' headquarters and their overseas subsidiaries are characterized by geographical, cultural, and functional distances, differences in relative market focus (e.g., local or global), differences in languages (Ambos et al., 2016; Ambos and Ambos, 2009; Dörrenbächer and Gammelgaard, 2006; Schmidt and Sofka, 2009), and varying institutional arrangements (i.e., practices, assumptions, beliefs, and values among other attributes), (Roth et al., 2009; Schleimer et al., 2014; Sheng et al., 2015). As Ambos et al. (2016) point to, attempts to transfer knowledge between geographically dispersed actors is often performed using electronic tools (i.e., e-mail, shared databases, videos calls, phones, calls, documents) that lack the richness of face-to-face communication and are often perceived as cumbersome. Moreover, that since culture facilitates how knowledge is shared and learned, cultural differences can result in misunderstandings and miscommunications that impede effective knowledge transfer (Ambos et al., 2016). In further support of such points, Peltokorpi (2015) finds that both media richness and headquarter proficiency in the subsidiaries native language improves knowledge transfer. Functional, market focus, and institutional differences may result in disparity between which knowledge is valued and how knowledge is shared and learned. Hence, such distances and differences may limit the interaction, reasoning, and inference needed for subsidiaries to comprehensively and accurately articulate cross-border knowledge of high tacitness, and for MNCs' headquarters to integrate and apply it for explorative innovation capability. H1(a). Cross-border knowledge tacitness shared is negatively associated to MNCs' explorative innovation capability. Similarly, reliance on cross-border knowledge tacitness shared will have a negative impact on exploitative innovation capability. This is because exploitative innovation capability requires MNCs to integrate knowledge that is explicit (i.e., opposite of tacit knowledge) so that it can be acted on (Pérez-Luño et al., 2011). Therefore, tacit knowledge must be converted to explicit knowledge. “The transfer of tacit knowledge requires richer context and richer media, because tacit knowledge requires more than just codification (i.e., indexing),” (Bhagat et al., 2002, pg. 207). As knowledge increases in tacitness, it becomes more difficult to communicate and less amenable to codification efforts (Hansen, 1999). Knowledge of high tacitness is context-specific, difficult to formalize, and much more difficult to share among different units than is codified knowledge (Nonaka, 1994). Teece (1998) also argues that knowledge high in tacitness transfer slowly and costly to different units because its ambiguous characteristics inhibit communication. Thus, knowledge of high tacitness often prevents working units with different functional backgrounds from communicating and sharing information with each other, which limits subsidiaries in sharing and MNCs' headquarters in effectively integrating and applying such knowledge from overseas subsidiaries for exploitative innovation capability. H1(b). Cross-border knowledge tacitness shared is negatively associated to MNCs' exploitative innovation capability.

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3.2. Structural social capital, explorative and exploitative innovation capability Structural social capital refers to the pattern of relationships among the network actors (Nahapiet and Ghoshal, 1998), which represents the existence of network ties (Inkpen and Tsang, 2005). Chiu et al. (2006) conclude that network ties also represent the strength of a relationship, amount of time invested, and communication frequency between collaborative partners. Overseas subsidiaries are embedded in the internal network of their multinational parents as well as their external local business networks. As van Wijk et al. (2008) point to, many studies have shown that a large number of relationships with other firms and units can improve access to knowledge and the ability to process such knowledge. While network ties may permit the development of knowledge diversity (Fang, 2008) and are generally tied to novel information (Granovetter, 1973), it is important to note that “knowledge within firms is likely to be less diverse” (van Wijk et al., 2008, pg. 841) than knowledge across firms. Moreover, that since subsidiaries are part of a single firm, they are more likely to transfer diverse knowledge to the headquarters that the headquarters is not familiar with (van Wijk et al., 2008). Furthermore, that network ties allow divergent perspectives to make problem solving more effective (Kavadias and Sommer, 2009), and improve fine-grained information exchange between partners (Uzzi, 1997). When operating in global markets, foreign subsidiaries are highly reliant on local businesses to ensure required knowledge resources and to comprehend local market conditions, business practices, and host country-specific commercial practices and cultures (Li et al., 2009; Steensma et al., 2008). Subsidiaries' network ties provide greater access and flexibility in exploring new knowledge from host country markets, and when discovered, improved transfer to the headquarters'. Access to such new knowledge permits additional combinations of knowledge, thereby permitting greater explorative innovation. Therefore, structural social capital reflected by network ties between MNCs' headquarters and their subsidiaries may help such MNCs' headquarters tap into subsidiaries new and diverse knowledge, fostering explorative innovation capability. H2(a). Structural social capital is positively associated with MNCs' explorative innovation capability. Strong ties may be beneficial for exploitative innovation capability. Strong ties build strong feelings of identification within the MNC. Stronger identification within the MNC can increase organizational members' familiarity with other members' aptitudes for given tasks; therefore, time spent seeking for information associated with subtasks and redundant knowledge overlap is decreased. If robust, strong ties will advance organizational members a more consistent set of beliefs, a higher level of shared values, and greater consensus regarding process and approaches. Therefore, strong ties can quickly facilitate unit members sharing their experiences regarding implementation of certain improvements (Jansen et al., 2006). Structural social capital reflected by strong ties enables MNCs to efficiently cultivate a thorough understanding and to solve problems for further refining and improving existing knowledge, which can nurture exploitative innovation capability. H2(b). Structural social capital is positively associated with MNCs' exploitative innovation capability.

3.3. Relational social capital, explorative and exploitative innovation capability Relational social capital refers to the nature of relationships and the assets accessible through them (Tsai and Ghoshal, 1998). Notably, previous research focuses on relational social capital as trust (Andrews, 2010; Atuahene-Gima and Murray, 2007; Wu, 2008). In trusting relationships, network actors freely exchange knowledge, and decision makers are less likely to feel that they must protect themselves from the opportunistic behavior of others (Becerra et al., 2008). As subsidiaries acquire knowledge from host countries, trust can result in MNCs headquarters' pursuing additional opportunities, proactively maintaining competitive advantages, and taking greater risks to acquire knowledge fostering explorative innovation capability. Trust may also improve an organization's overall learning ability and may drive the creation of a broad scope of knowledge that builds and reconfigures the source of innovation. Additionally, as Rowley et al. (2000) highlight, trust may facilitate knowledge exchange and provide access to divergent viewpoints. Subsequently, trust may inspire subsidiaries to perform wide searches for diverse knowledge resources and encourage consideration of alternative ways of action. Therefore, relational social capital reflected by trust may enhance explorative innovation capability. H3(a). Relational social capital is positively associated with MNCs' explorative innovation capability. On the other hand, higher trust fosters a shared meaning and consensus among unit members (Peters et al., 2010), thereby reducing the likelihood of conflict regarding goals and implementations. According to Mouzas et al. (2008), a collective mind can be found in trust-intensive environments because interactions between actors result in the sharing of knowledge, which subsequently alters the understanding of the actors. Chowdhury (2005) suggests that companies characterizes as high trust build trust between corporate units to secure organizational knowledge development, which is vital for continuous innovation (i.e. exploitative innovation). Thus, relational social capital reflected by higher trust helps the exploitation of existing knowledge, which leads to exploitative innovation capability. H3(b). Relational social capital is positively associated with MNCs' exploitative innovation capability.

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3.4. Subsidiaries' cross-border knowledge tacitness shared, structural social capital, relational social capital, explorative and exploitative innovation capability Nonaka and Takeuchi (1995) show a dynamic model for the conversion of tacit knowledge to explicit knowledge that begins with deep tacit understanding, continues through a social process, and ends with the reabsorption of new knowledge into the firm. This “spiral of knowledge creation offers profound insights into the essentially human aspect of innovation” (Mascitelli, 2000, p. 183). In other words, for tacit knowledge to be transferred within a firm, it must be converted to explicit knowledge through a social process. Structural and relational social capital can merge the tacit knowledge of subsidiaries into a powerful source for MNCs' explorative and exploitative innovation capability. Developing and nurturing such knowledge-sharing capabilities may be extremely vital to explorative and exploitative innovation capability. We propose that as subsidiary cross-border knowledge tacitness shared increases, structural social capital increases the productively of transferring it with regard to explorative and exploitative innovation capability. Previous research links frequent interaction between actors to greater communication richness and increased mutual understanding which aids the evaluation, transfer, absorption, and effective application of knowledge and other resources (Tortoriello and Krackhardt, 2010). In addition, research (Dyer and Nobeoka, 2000) suggests that frequent interactions may increase the speed of knowledge transfer while reducing its costs. This is because frequent interaction creates “the necessary pathways among members to facilitate efficient knowledge flows” (Dyer and Nobeoka, 2000). Moreover, increased interaction across organization boundaries enhances observation, replication of activities (Friedkin, 1991), and organizational learning (Kogut and Zander, 1996). Hence, as subsidiary cross-border knowledge tacitness shared increases, frequent interaction between subsidiaries and headquarters' may enhance the abilities of subsidiaries to effectively articulate this knowledge and of headquarters to integrate and apply this knowledge effectively to increase explorative and exploitative innovation capability. We also contend that as subsidiary cross-border knowledge tacitness shared increases, relational social capital facilitates the ability for such knowledge to be effectively transferred to increases explorative and exploitative innovation capability. Previous research suggests that trust reduces concerns associated with sharing privileged resources, such as knowledge high in tacitness (Katsikeas et al., 2009). Although this is partially attributed to curtailed opportunist behavior, trust also fosters an environment “in which people feel secure and psychologically safe to make mistakes and offer and receive criticism” (Atuahene-Gima and Murray, 2007, pg. 7). Additionally, actors in trusting relationships are more willing to help each other understand new knowledge (Lane et al., 2001) and trust fosters effective communications and relationships (Cometto et al., 2016). Furthermore, according to Mouzas et al. (2008), trust relationships bring about shared beliefs, ideas, and values. Moreover, in trusting relationships, feedback mechanisms serve to ensure knowledge shared is accurately transferred (Dhanaraj et al., 2004) which may increase MNCs' headquarters' willingness and abilities to act on such knowledge. Not surprisingly, trust has been linked to comprehensive understandings of parties operations (Rowley et al., 2000). It follows that when subsidiary cross-border knowledge tacitness increases, relational social capital may permit subsidiaries to more effectively articulate such knowledge and for MNC headquarters to more effectively integrate and apply it. Explorative and exploitative innovation capability represents different strategic direction, structures, processes, and abilities. Thus, explorative and exploitative innovation capability may require a different level of structural and relational social capital to achieve. The key feature of exploitation is the refinement of existing knowledge; it is related to focus and convergent thinking. The key feature of exploration is experimentation with new knowledge; it is related to flexibility and divergent thinking (March, 1991). Hence, the degree of ‘newness’ will be the primary criterion that differs exploration of transferred knowledge from its exploitation (Bierly et al., 2009). As cross-border knowledge tacitness increases, structural and relational social capital becomes critical to convert tacit knowledge to explicit knowledge. Network ties can offer added diverse knowledge increasing explorative innovation capability, whereas strong ties can offer knowledge that incrementally extends existing knowledge increasing exploitative innovation capability. Similarly, trust encourages flexibility to explore new knowledge increasingly explorative innovation capability, and higher trust inspires focus and refinement of existing knowledge increasing exploitative innovation capability. H4. Structural social capital moderates the relationship between subsidiary cross-border knowledge tacitness shared and explorative and exploitative innovation capability. As structural social capital increases, the relationship between subsidiary cross-border knowledge tacitness shared and (a) explorative and (b) exploitative innovation capability weakens. H5. Relational social capital moderates the relationship between subsidiary cross-border knowledge tacitness shared and explorative and exploitative innovation capability. As relational social capital increases, the relationship between subsidiary cross-border knowledge tacitness shared and (a) explorative and (b) exploitative innovation capability weakens.

4. Research method 4.1. Instrument, sample, and data collection The instrument was prepared in English and then translated into Chinese. Instrument accuracy was assessed using the conventional back-translation process. The questionnaire was pilot tested with 16 informants participated in innovation to assess face validity and determine whether the informants comprehended the survey questions. On the basis of such feedback, items were selected for inclusion in the formal survey and minor changes in the wording of some items were made. The formal survey was 7

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completed with a sample acquired from the 1000 leading companies of 2013 in Taiwan, as listed in Common Wealth Magazine. As per the recent Global Competitiveness Report (Schwab, 2017), Taiwan's economy can be characterized as being in the most advanced stage of development (Stage 3: Innovation-driven), the 13th most globally competitive, and 4th most with regard to innovation capability. Taiwan-based MNCs are progressively finding themselves as major global economic contributors and, as a set, are highly active in international business and the global market. Interviewers called the headquarters for each of the 1000 leading companies of 2013 in Taiwan. Of these 1000 companies, 515 indicated a willingness to participate in this research, classified themselves as a MNC, and aided in identifying senior managers or executives at the MNCs' headquarters involved in innovation. Recognizing that many of these MNCs were large and engaged in developing several distinct categories of products, we urged them to offer us multiple responses. Three senior managers or executives for each MNC were asked to complete the questionnaire. Thus, 1545 questionnaires were distributed. To promote participation and accurate responses, respondents were assured anonymity and that their responses would not be matched to their MNC. Overall, 220 valid questionnaires (14.24% of the 1545 distributed questionnaires) from respondents representing 91 MNCs in Taiwan were obtained. For each MNC represented, two or three respondents completed the questionnaire. The respondents indicated working in the following industries: pharmaceuticals (n = 15); food and beverages (n = 30); chemicals (n = 31); electronics (n = 79); metal (n = 33); biotechnology (n = 16); and plastics (n = 16). Respondents averaged 21.8 years of experience in product innovation projects and 32.2 years of MNC business experience. Titles of respondents included chief executive officer, chief operation officer, marketing director, general manager, chief research and development officer, and senior marketing managers among others. Results of an independent t-test comparing the mean revenue–collected from secondary sources–of responding and nonresponding companies was nonsignificant, suggesting nonresponse bias is not a substantive concern. 4.2. Measures The latent constructs were assessed using established and adapted seven-point Likert-type scale items. Table 1 displays the items and related information for the constructs of primary interest. MNC explorative and exploitative innovation capability were each assessed using three items, adopted from (Jansen et al., 2006). Structural and relational social capital were assessed using four and five items, respectively, regarding the relationships between senior managers of the MNC's headquarters and their overseas subsidiaries. The structural social capital items, adopted from Lee et al. (2008) and Antia and Frazier (2001), focused on the connectivity of ties and interactions between the MNC's headquarters and subsidiaries. The relational social capital items, adopted from Zaheer et al. (1998), focused on the trust between the MNC's headquarters and subsidiaries. Subsidiaries' cross-border knowledge tacitness shared was assessed using five items, adapted from Subramaniam and Venkatraman (2001), regarding the characteristics of Table 1 Items and outer loadings. Item

Outer loading

Explorative innovation capability: Respondents indicated the extent to which their multinational company was much worse or much better than key competitors on the following items: We accept demands that go beyond existing products and services. We experiment with new products and services in our local market. We invent new products and services. Exploitative innovation capability: Respondents indicated the extent to which their multinational company was much worse or much better than key competitors on the following items: We frequently refine existing products and services. We regularly implement small adaptations to existing products and services. We introduce improved, but existing products and services in markets we serve. Cross-border knowledge tacitness shared: Respondents indicated how strongly they disagreed or agreed with the following statements regarding the characteristics of knowledge shared from overseas subsidiaries. Difficult to imitate. None to very few of our competitors were familiar with. Different from the kind of knowledge our competitors had. Difficult to precisely communicate through written documents. Is complex (vs. simple). Structural social capital: Respondents indicated how strongly they disagreed or agreed with the following statements regarding the relationship with overseas subsidiaries. Subsidiaries share close ties with headquarters. Subsidiaries have frequent interactions with headquarters. Subsidiaries share frequent communications with headquarters. Subsidiaries discuss common problems frequently with headquarters. Relational social capital: Respondents indicated how strongly they disagreed or agreed with the following statements regarding the relationship with overseas subsidiaries. Based on past experience, we can rely on each other to keep promises made to us. Given the track record, there is no reason to doubt one another's competence. We never use opportunities that arise to profit at one another's expense. We consider one another to be trustworthy. We can count on one another to act as expected.

8

0.88 0.50 0.82

0.81 0.79 0.65

0.75 0.83 0.89 0.89 0.86

0.88 0.89 0.89 0.74

0.77 0.86 0.73 0.88 0.84

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knowledge shared from foreign subsidiaries. Given our interest regarding cross-border knowledge tacitness shared from all subsidiaries, respondents working at the MNCs' headquarters responded to the items. The study controlled for the influence of MNC size with respect to number of employees and subsidiaries, age, industry, absorptive capacity, and entry mode strategies (i.e., strategic alliance, joint venture, and merger and acquisition) on explorative and exploitative innovation capability. Number of employees was assessed by asking respondents to provide the number of persons employed by the MNC, ranging from fewer than 1000 to greater than 6000. Respondents were asked to indicate the number of foreign subsidiaries, ranging from fewer than 10 to more than 60. Firm age was assessed by asking respondents to provide the MNC's total years of operations ranging from less than 10 to more than 60 years. Number of employees, age, and number of subsidiaries were assessed using seven-point interval items. Absorptive capacity was assessed using ten items, adapted from prior work (Jansen et al., 2005; Lichtenthaler, 2009). Each of the entry mode strategy variables (i.e., strategic alliance, joint venture, and merger and acquisition) were measured using two items, based on Keegan and Green (2005). Both absorptive capacity and entry mode strategies were measured using seven-point Likert-type scale items anchored with strongly disagree and strongly agree. Respondents self-reported the industry within which the MNC they work for operates. Classification within a particular industry was dummy coded. Pharmaceutical industry served as the reference category. 4.3. Structure of the interviews and related methodological details To evaluate the validity of the hypotheses and tease out additional managerial implications, twelve high ranking managers or executives at MNCs' headquarters and subsidiaries were interviewed. The titles of interviewees included chief executive officer, chief operation officer, marketing director, general manager, among others. These interviewees had an average of 27.8 years of working experience in innovation projects. To diminish the risk of information bias, we interviewed two high ranking managers or executives from each of 6 MNCs. All interviews, which included plant tours, were done on-site using a semi-structured but relatively open-ended interview structure. This allows taking advantage of flexible data collection, a typical element of the multiple case study methodology. Interviews ranged from 1 to 3 h. All interviews were performed in Chinese and then translated to English. Personal observations were recorded as soon as possible after the tour to capture both immediate reactions and insights. The data were analyzed using a basic qualitative approach of reading the interviews several times, each time going deeper into the material to note connections and patterns. Interviewee responses aligned with the findings, offering additional validity. 5. Data analysis and results Partial least squares (PLS) structural equation modeling (SEM) using SmartPLS was used to analyze the data. PLS, variance-based SEM was chosen because normality tests (i.e. Shapiro-Wilk, Kolmogorov-Smirnov) indicate each of the variables and items of interest departed from normality. PLS is well suited for testing complex models with small samples because the estimator relaxes distributional assumptions allowing distribution-free tests (Hair et al., 2014), characteristic of this study. Following Hair et al. (2014), the hypotheses were tested using 5000 bootstrapped samples. Before generating the interaction terms, we mean-centered the variables to improve interpretation (Aiken and West, 1991). Given the directional nature of the hypotheses, all hypotheses were tested using onetailed tests. 5.1. Assessment of the measurement model The measurement model was assessed following the approach detailed by Hair et al. (2014). Specifically, internal consistency, indicator reliability, convergent validity, and discriminant validity of the PLS measure model were assessed. Composite reliabilities and average variance extracted (AVE) estimates surpassed recommended levels, providing evidence of internal reliability and convergent validity. Each outer item (see Table 1) loading was significant, and all but two exceeded the ideal 0.70 value. Hair et al. (2014) indicate that “researchers frequently observe weaker outer loadings in social science studies” and that “indicators with outer loadings between .40 and .70 should be considered for removal from the scale only when deleting the indicator leads to an increase in the composite reliability [or average variance extracted] above the suggested threshold level” (pg. 102). Therefore, we retained the two items and concluded that the evidence supported convergent validity. Each outer-loading exceeded cross-loadings, and the square root of the AVE for each construct surpassed the “highest correlation with any other construct” offering evidence of discriminant validity (Hair et al., 2014, pg. 104). Table 2 displays construct bivariate correlations and descriptives. The greatest variance inflation factor (i.e., 4.15) was less than 10, implying multicollinearity is not a concern. 5.2. Common method bias Characteristics (i.e., cross-sectional and self-reported) of the data make it susceptible to common method bias (CMB). To assuage CMB, we followed several of the recommendations advanced by Podsakoff et al. (2003). Specifically, we used measures with different anchors, separated independent and dependent variables in the survey, and promised respondent anonymity. As Fuller et al. (2016) show, high levels of common method variance (CMV) are needed to materially bias relationships and caution against assuming that single source data is biased due to common methods. Moreover, interaction effects are not artifacts of CMV (Siemsen et al., 2010). Harman's single-factor test was performed to estimate CMV. The first factor accounted for 23.80% of the variance, less than the 9

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Table 2 Bivariate correlations and descriptives. Construct

1

2

3

4

5

6

7

8

1. Number of employeesa 2. Agea 3. Number of subsidiariesa 4. Joint Venture Strategy Entry Mode 5. Merger and Acquisition Entry Mode 6. Strategic Alliance Entry Mode 7. Absorptive capacity 8. Structural social capital 9. Relational social capital 10. Cross-border knowledge tacitness shared 11. Explorative innovation capability 12. Exploitative innovation capability Mean Standard deviation Composite reliability Average variance extracted

1 0.31** 0.54** −0.02 −0.02 −0.12 −0.07 −0.08 0.08 0.10 0.04 −0.11 4.06 0.97 NA NA

1 0.34** −0.09 0.01 0.09 −0.13* −0.17** 0.05 0.05 0.01 −0.22** 3.87 1.82 NA NA

1 −0.08 0.06 0.04 −0.12 −12 0.11 0.04 0.05 −0.22** 2.51 1.76 NA NA

1 0.32 0.12 0.32** 0.49** 0.34** 0.20** 0.17** 0.19** 4.58 1.44 0.96 0.92

1 0.07 0.34** 0.32** 0.18** 0.18** 0.05 0.12 4.65 1.20 0.88 0.79

1 −0.13* −0.02 0.14* 0.09 0.04 0.00 3.36 1.31 0.81 0.69

1 0.64** 1 0.29** 0.39** 0.11 0.11 −0.04 0.08 0.23** 0.24** 5.32 5.33 0.85 0.96 0.94 0.91 0.61 0.73

9

10

11

12

1 0.19** 0.16* 0.19** 5.07 0.96 0.91 0.67

1 −0.16** −0.09 4.26 1.14 0.93 0.71

1 0.33** 5.26 0.97 0.79 0.57

1 5.46 0.89 0.80 0.57

Notes: *p < .05, **p < .01. n = 220. a Assessed using seven-point interval items.

50% threshold, suggesting CMB does not appear to be a substantive concern. Factor analysis was used to explore whether one or two social capital constructs better explained the data. Eigen values, the scree plot, and items loadings support the two social capital construct conceptualization.

5.3. Main and moderation effects Table 3 displays the main and moderating effects. Cross-border knowledge tacitness shared negatively influenced MNC explorative (β = −0.23, p < .01) and exploitative (β = −0.15, p < .05) innovation, supporting H1(a) and H1(b). Structural social capital had no association with MNCs' explorative (β = 0.04, p = n.s.), or exploitative (β = 0.04, p = n.s.) innovation. Neither H2(a) nor H2(b) was supported. Relational social capital positively influenced MNC exploratory (β = 0.23, p < .05) and exploitative (β = 0.25, p < .01) innovation supporting H3(a) and H3(b). H4(a) and (b) proposed that structural social capital attenuates the negative association between cross-border knowledge tacitness shared and MNC explorative and exploitative innovation capability. Contrary to expectations, the interaction effect of structural Table 3 Main and moderating effects.

Number of employees Age Number of subsidiaries Industry Food and beverages Chemicals Electronics Metal Biotechnology Plastics Joint Venture Strategy Entry Mode Merger and Acquisition Entry Mode Strategic Alliance Entry Mode Absorptive capacity Structural social capital (SSC) Relational social capital (RSC) Cross-border knowledge tacitness shared (CBTKS) CBTKS X SSC CBTKS X RSC R2 Adjusted R2

Explorative innovation capability

Exploitative innovation capability

Model 1

Model 2

Model 1

Model 2

−0.02 0.01 0.01

−0.03 −0.12 −0.15

0.03 −0.15* −0.15

0.19 0.09 0.14 0.17 0.02 0.03 0.13 0.08 −0.03 −0.20* 0.09 0.17 −0.27** −0.14* 0.26** 0.222 0.152

−0.07 0.10 −0.11 0.03 −0.21* 0.02 0.09 0.09 −0.05 0.04 0.04 0.25** −0.15*

−0.04 −0.08 −0.07 0.02 0.21* 0.02 0.08 0.11 −0.05 0.01 0.08 0.22* −0.19** −0.04 0.18** 0.277 0.212

0.03 0.04 0.01 0.17 0.07 0.16 0.21 0.03 0.04 0.16* 0.04 −0.06 −0.18* 0.04 0.23* −0.23**

0.167 0.101

0.243 0.183

Notes: *p < .05, **p < .01. n = 220. Model 1: Main effects (SRMR = 0.073, Chi-Square = 2466.58); Model 2: Main and moderating effects (SRMR = 0.073, Chi-Square = 2452.69). 10

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Low (-1 SD) Relational Social Capital High (+1 SD) Relational Social Capital

Low Cross-border Knowledge Tacitness Shared

High Cross-border Knowledge Tacitness Shared

Fig. 2. MNC explorative innovation capability: subsidiaries' cross-border knowledge tacitness shared, relational social capital.

social capital and cross-border knowledge tacitness shared was significant but opposite of the hypothesized direction for MNC explorative (β = −0.14, p < .05) innovation. The interaction effect of structural social capital and cross-border knowledge tacitness shared was nonsignificant for MNC exploitative (β = −0.04, p = n.s.) innovation. H5(a) and (b) postulated that as relational social capital attenuates the negative association between cross-border knowledge tacitness shared and MNC explorative and exploitative innovation capability. As Figs. 2 and 3 display, as relational social capital increased, the negative relationship between cross-border knowledge tacitness shared and MNC explorative (β = 0.26, p < .01) and exploitative (β = 0.18, p < .01) innovation weakened, supporting H5(a) and (b).

5.4. Key interview findings

Exploitative Innovation Capability

To managers of MNCs, our findings highlight the importance of reducing the difficulties of tacitness of subsidiaries' cross-border knowledge shared to nurturing MNCs' headquarters' explorative and exploitative innovation capability. Our findings also reveal the importance of social processes and, particularly, relational social capital over structural social capital to improving MNCs' innovation capability. Interestingly, structural social capital strengthens the negatively relationship between subsidiary cross-border knowledge tacitness shared and MNCs explorative innovation capability. To managers of MNCs, our findings alert MNCs to consider emphasizing the development of relational social capital between subsidiaries' and MNCs' headquarters' and limiting attempts to foster structural

Low (-1 SD) Relational Social Capital High (+1 SD) Relational Social Capital

Low Cross-border Knowledge Tacitness Shared

High Cross-border Knowledge Tacitness Shared

Fig. 3. MNC exploitative innovation capability: subsidiaries' cross-border knowledge tacitness shared, relational social capital. 11

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social capital. Findings from the interviews were consistent with survey findings. Although interviewees emphasized the importance of subsidiary resources to MNC innovation capability, interviewees expressed that as cross-border knowledge became higher in tacitness, it limited MNCs' headquarters innovation capability. Interviewees expressed that this was, at least partially, because managers of subsidiaries often struggled to articulate such knowledge, and that MNCs' headquarters often found it difficult to integrate, reconfigure, and apply such knowledge. With regard to social capital, the interviewees distinguished between the importance of frequency of interactions (structural social capital) and trust (relationship social capital) between members of subsidiaries and the MNCs' headquarters to explorative and exploitative innovation capability. Specifically, interviewees expressed that frequency of interactions did not necessarily imply that more resources or knowledge would be shared, but that trust facilitated the effective sharing and use of subsidiary tacit knowledge resources which aided both explorative and exploitative innovation capability. A manager of an MNC's headquarters' in the automotive market space revealed that the development of relationships face-to-face had been effective in developing relational social capital and increasing effective transfer of knowledge of high tacitness, thereby increasing innovation capability. This manager, for instance, specifically referenced the benefit of sending engineers to subsidiaries in Europe to build relationships and acquire information about driving circumstances in that market, in the process of creating their new car and improving an existing car. This manager claimed that sending engineers increased trust between engineers and managers of the headquarters' and subsidiary leading to a greater willingness and ability to share, synthesize, and apply contextual, personal, abstract, and subtle knowledge fostering innovation capability. 6. Discussion 6.1. Theoretical and managerial implications This research examines the relationships among subsidiaries' cross-border knowledge tacitness shared, structural and relational social capital, and MNC explorative and exploitative innovation capability. Our research builds on prior work emphasizing that innovation is a social process (Madhavan and Grover, 1998), and draws from RBV, DCT, and SCT. We find that subsidiaries' crossborder knowledge tacitness shared is negatively associated with MNCs' headquarters explorative and exploitative innovation capability. In addition, we find that higher levels of structural and relational social capital alter the productivity of subsidiaries' crossborder knowledge tacitness shared to MNCs' headquarters innovation capability. The logic underlying the model is that examining the relationships between subsidiaries' cross-border knowledge tacitness shared on MNCs' innovation capability under a universal lens can have limitations. Therefore, taking a contingency perspective helps with the drawing of boundary conditions and offers a deeper understanding of when and how subsidiaries' cross-border knowledge tacitness shared aids MNCs' explorative and exploitative innovation capability, depending on the levels of structural and relational social capital. Overall, a large degree of support is obtained for this contingency perspective. Many of the hypotheses received support. Moreover, the model including the direct and moderating effects explained 22.2% and 27.7% of the variance in explorative and exploitation innovation capability, respectively. This study is one of few that examine the influence of subsidiaries' cross-border knowledge tacitness shared on MNCs' innovation capability. Diverging from the sizeable literature emphasizing the benefits of knowledge high in tacitness (Bindroo et al., 2012; Brockman and Morgan, 2003; Goffin and Koners, 2011), the findings highlight contingencies. Interestingly, the results reveal that subsidiaries' cross-border knowledge tacitness shared is negatively associated with MNCs' explorative and exploitative innovation capability. These findings caution MNCs' managers of the liabilities of subsidiaries' cross-border knowledge tacitness shared, and offer support to research (Sheng et al., 2015) reporting a negative relationship between subsidiaries' knowledge tacitness shared and MNCs' innovation abilities. With regard to whether structural and relational social capital attenuate the negative influence of subsidiaries' cross-border knowledge tacitness shared, the results are mixed. The pattern of relationships observed suggests it is the quality of relationship interaction— not the density and connectivity— between subsidiaries and MNCs' headquarters that aids the effectiveness of subsidiaries' cross-border knowledge for MNCs innovation capability. That is, as expected, as relational social capital increases, the negative relationship between cross-border knowledge tacitness shared and MNCs' explorative and exploitative innovation capability is weakened. This pattern can be attributed, at least partially, to the need the ability of relational social capital to foster a supportive environment for communication (Atuahene-Gima and Murray, 2007), encourage mutual understanding (Rowley et al., 2000), and advance the development of feedback mechanisms (Dhanaraj et al., 2004). The findings should encourage MNCs to seek out means of increasing subsidiary-headquarter trust. Research (Bolino et al., 2002) suggests that relational social capital can be cultivated by sacrificing self-interests for the benefit of the firm and honoring policy and precedent. Hence, MNCs seeking to build relational social capital between subsidiaries and headquarters may want to tout managerial decisions that benefit the MNC as a whole, discourage opportunistic behaviors that harm subsidiaries or headquarters, and emphasize MNC accomplishments over those of individual subsidiary's or the headquarter's. When relational social capital is low and unlikely to be changed, MNCs' managers may enrich explorative and exploitative innovation capability by implementing incentives which reward subsidiary and headquarter managers for codifying subsidiaries' cross-border knowledge anticipated to be useful in innovation efforts. As the interviewee example pointed to in the section above, having members of subsidiaries' and MNC's headquarters' meet face-to-face may build trust and improve the sharing of subsidiaries' cross-border knowledge high in tacitness for explorative and exploitative innovation capability. 12

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Low (-1 SD) Structural Social Capital High ( +1 SD) Structural Social Capital

Low Cross-border Knowledge Tacitness Shared

High Cross-border Knowledge Tacitness Shared

Fig. 4. MNC explorative innovation capability: subsidiaries' cross-border knowledge tacitness shared, structural social capital.

Contrary to expectations, the relationship between subsidiaries' cross-border knowledge tacitness shared and MNCs' exploitative innovation capability did not vary across levels of structural social capital. However, the relationship between subsidiaries' crossborder knowledge tacitness shared and MNCs' explorative innovation capability varies across levels of structural social capital. Specifically, higher structural social capital strengthens the negative relationship between subsidiaries' cross-border knowledge tacitness shared and explorative innovation capability. This relationship is plotted below in Fig. 4. One explanation for this interesting and unexpected finding is that structural social capital is likely to form work environments that are portrayed by normative schemas and stringent cognitive regarding ‘how things are done around here.’ This creates inconsistent concepts for the constituent parts of valuable and new cross-border knowledge, which are likely to be decreased, therefore weakening the relationship between subsidiaries' cross-border knowledge tacitness shared and MNCs' explorative innovation capability. The following statements made by a manager for an MNC headquarters which develops fitness equipment for the European market offers additional insight into why such an effect may occur. In reference to attempt to aid explorative innovation capability, this manager stated “A critical failure in this case was the ‘interdependence’ created among different subsidiary offices. The leader was typically the general manager of a ‘lead’ country- a status assigned product by product and rotated among country managers in Europe. Lead country managers found that they needed to depend on the support of other subsidiary managers for the success of their products.” This manager explained that although such dependence fostered close coordination and integrated operations, it also encouraged subsidiary managers to heavily emphasize harmonious relationships, avoiding conflict and discouraging independent ideas. This manager implied that this tendency discouraged substantive discussion and debate when contextual, personal, abstract, and subtle knowledge was introduced leading to ineffective explorative innovation capability development. Hence, MNCs' headquarters may need a different mindset to assimilate new subsidiaries' cross-border knowledge into an existing knowledge base and to act on this new knowledge in a manner that results in explorative innovation capability. To develop this different mindset, the MNC may need to unlearn what it already knows (Leal-Rodríguez et al., 2015). This is because the costs related to learning new knowledge and unlearning existing knowledge may urge MNCs to rationally lessen their explorative behaviors (March, 2006). Also, MNCs often possess organizational inertia that discourages explorative innovation (Phelps, 2010). Explorative innovation often disrupts existing structures of a MNC's routines and forces the support of new sets of processes that may be conflicting with existing ones. Consequently, explorative innovation capability development may be strongly resisted by MNCs if high levels of cross-border knowledge tacitness and structural social capital increase. It follows that to develop explorative innovation capability, MNCs should prime managers to overcome the boundaries of their existing knowledge and constraints of existing routines and processes. One means of doing so is to regularly ask managers to participate in explorative innovation capability focused brainstorming sessions where they are asked to conceptualize new radical products and services and what requirements are needed to bring such products and services about. On the basis that relational social capital may help explain the unexpected direction of the subsidiaries' cross-border knowledge tacitness shared by structural social capital interaction term to predicting MNCs' explorative innovation capability, we explored the possibility of a three-way interaction between subsidiaries' cross-border knowledge tacitness shared, structural social capital, and relational social capital post-hoc using hierarchical linear modeling. All control and independent variables were entered in the first step, all two-way interactions were entered in the second step, and the three-way interaction was entered in the third step. The results of the first and second step are consistent with those reported in Table 3. The three-way interaction term entered in the third step was not significant. Hence, relational social capital does not help explain the interaction between subsidiaries' cross-border knowledge tacitness shared and structural social capital in predicting explorative innovation capability.

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6.2. Limitations and future research Limitations of this study warrant discussion. Akin to other research (Andrews, 2010; Atuahene-Gima and Murray, 2007; Rowley et al., 2000; Wasko and Faraj, 2005), this study does not model a relationship between relational and structural social capital nor examine cognitive social capital. A longitudinal or quasi-experimental research design, which examines all three social capital dimensions, offers the potential to explore causality among the social capital dimensions and outcomes of interest. Furthermore, the relationships were tested using survey data collected from a limited number of headquarter representatives (n = 220) of Taiwan-based MNCs. Prior research demonstrates that country associated factors influence coordination between actors (e.g., Ertug et al., 2013). Hence, although limiting the data collection to a single country minimizes potential confounds, it raises concerns whether the findings were influenced by unique attributes of Taiwan (e.g., cultural, legal, governance, environmental) and are therefore generalizable. To address this concern as well as those attributable to a limited sample size, future research can use a larger sample size to re-examine the findings and explore whether the examined relationships are moderated across countries and/or attributes that vary across country. The findings raise interesting questions. For example, do relationships between some actors (e.g., type of rank, function, etc.) of the headquarters and subsidiaries matter more than others for innovation? Does the level of subsidiaries cross-border knowledge tacitness shared impact the relationships between relational and structural social capital on MNC explorative and exploitative innovation capability similarly for all these actors? If so, MNCs may achieve improvement in innovation by prioritizing lowering crossborder knowledge tacitness shared for some combinations of actors. Also, do the experiences of actors in subsidiaries influence their abilities to articulate and share cross-border knowledge, and do the experiences of actors in headquarters influence their abilities to integrate and apply such knowledge for MNC explorative and exploitative innovation capability? Take, for example, an executive or manager at the MNC's headquarters. Arguments could be made that experience, perhaps due to the greater reference base it provides or path dependencies in thinking it provokes, results in either greater or lesser ability to recognize, integrate, and apply subsidiaries' cross-border knowledge tacitness shared. Answering this question may aid MNCs in developing targeted training programs designed to help less experienced headquarter managers or executives develop abilities to recognize opportunities to gain cross-border knowledge during interactions with subsidiary actors, or to prevent more experienced actors from developing rigid thinking, thereby forgoing opportunities to integrate subsidiaries' crossborder knowledge. Lastly, it would be worthwhile to examine whether the relationships observed vary for different business models or ecosystems (see Hartmann et al., 2018; Wieland et al., 2017). Acknowledgement The research is supported by Ministry of Science and Technology of Taiwan Grant No. 107-2410-H-011-009-MY2. References Aiken, L.S., West, S.G., 1991. Multiple Regression: Testing and Interpreting Interactions. Sage Publications, Thousand Oaks, CA. Allen, T.J., 1977. 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