Reverse transfer of innovation and subsidiary power: A moderated mediation model

Journal of Business Research 103 (2019) 328–337

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Reverse transfer of innovation and subsidiary power: A moderated mediation model☆ Na Wanga, Ying Huab, Guoying Wuc, Chunxia Zhaod, Yonggui Wange,

T

⁎

a

College of Business Administration, Huaqiao University, Quanzhou 362021, Fujian, China School of Information Technology and Management, University of International Business and Economics, Beijing 100029, China c College of Business and Administration, Hebei University of Economics and Business, Shijiazhuang 050000, Hebei Province, China d Hebei Normal University of Science & Technology, Qinhuangdao 066004, Hebei Province, China e School of Business, University of International Business and Economics, Beijing 100029, China b

A R T I C LE I N FO

A B S T R A C T

Keywords: Reverse transfer of innovation Formal attention of the parent company Subsidiary power Business culture specificity Intrafirm competition intensity Issue selling

Existing studies provide insufficient information regarding why reverse transfer of innovation does not necessarily lead to subsidiary power gains. Informed by issue selling perspectives, we examine how reverse transfer of innovation impacts subsidiary power through formal attention of the parent company. Using data collected from a multiple-informant survey of 145 MNC subsidiaries, the results reveal that formal attention of the parent company fully mediates the relationship between reverse transfer of innovation and subsidiary power. Moreover, this indirect relationship is moderated by business culture specificity and intrafirm competition intensity. The effect of reverse transfer of innovation on subsidiary power through formal attention of the parent company is weaker when business culture specificity and intrafirm competition intensity are high.

1. Introduction In recent years, subsidiaries of multinational enterprises (MNEs) have been increasingly undertaking innovation development and transfer (Dellestrand, 2010; Frost, Birkinshaw, & Ensign, 2002; Phene & Almeida, 2008). Reverse transfer of innovation is the cross-border transfer of innovation from overseas subsidiaries to their parent company (Chung, 2014). There is considerable agreement that subsidiaries can gain power through reverse transfer of innovation (Chung, 2014; Najafi-Tavani, Giroud, & Andersson, 2014). In turn, increased power can provide significant advantages for subsidiaries, including increased control of key value-creating activities (Mudambi & Navarra, 2004), enhanced status as a center of excellence (Frost et al., 2002), and being granted a mandate within the MNEs (Birkinshaw, Hood, and Jonsson, 1998; Dellestrand, 2010). However, reverse transfer of innovation does not always lead to power gains for subsidiaries of MNEs (Birkinshaw & Fry, 1998; Birkinshaw & Hood, 2001; Gupta & Govindarajan, 1991; Najafi-Tavani, Zaefarian, Naudé, & Giroud, 2015). For example, Hewlett-Packard's new projects initiated by X terminal and the Calgary development group and GE Canada's energy management business were both

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challenged and failed to obtain support from the parent company (Birkinshaw & Fry, 1998). Although previous studies observe a relationship between reverse transfer of innovation and subsidiary power (Najafi-Tavani et al., 2014, 2015), none have examined the mechanisms through which this relationship works. The purpose of this research is to examine the mechanisms through which reverse transfer of innovation influences subsidiary power. We propose that formal attention of the parent company acts as an important mediating mechanism. Formal attention of the parent company in this study refers to the extent to which a parent company gives recognition and credit to the subsidiary for innovations that contribute to the success of the MNE (Bouquet & Birkinshaw, 2008a). Furthermore, our model incorporates two moderating variables in an attempt to establish some boundary conditions for the mediating role of formal attention of the parent company. Business culture specificity is used to examine whether or not the innovation transferred from the subsidiaries receives formal attention of the parent company depends on the cultural characteristics of the innovation. Business culture specificity refers to the unique characteristic of the culture based on which the innovation is developed and the extent of which the culture

The authors gratefully acknowledge the support from National Natural Science Foundation of China (No. 71702060 and No. 71725003) and Social Science Foundation of Beijing, China (No. 15JDJGA044); each author contributes equally. ⁎ Corresponding author. E-mail address: [email protected] (Y. Wang). https://doi.org/10.1016/j.jbusres.2019.01.057

Available online 23 February 2019 0148-2963/ © 2019 Elsevier Inc. All rights reserved.

Journal of Business Research 103 (2019) 328–337 The greater the total knowledge output of the subsidiary, the greater its bargaining power within the MNEs. Subsidiary initiatives have a direct effect on subsidiary autonomy.

Technology transfer competence increases subsidiary power. Subsidiary knowledge development does not impact subsidiary influence directly but the relationship is mediated by reverse knowledge transfer.

The effect of reverse knowledge transfer on subsidiary autonomy is nonsignificant.

Subsidiary bargaining power Subsidiary influence, Subsidiary autonomy Bargaining power Subsidiary strategic influence

2. Literature review 2.1. Reverse transfer of innovation in MNEs Research on reverse transfer of innovation in the MNEs is grounded in the knowledge transfer literature (Bjorkaman, Barner-Rasmussen, & Li, 2004; Easterby-Smith, Lyles, & Tsang, 2008; Jensen & Szulanski, 2004), specifically in reverse knowledge transfer research (e.g., Ambos, Ambos, & Schlegelmilch, 2006; Borini, de Miranda Oliveira, Silveira, & de Oliveira Concer, 2012; Driffield, Love, & Yang, 2016; Håkanson & Nobel, 2001; Najafi-Tavani et al., 2014; Najafi-Tavani et al., 2015; Park & Vertinsky, 2016). Existing research has illuminated several aspects of the nomological network of reverse knowledge transfer. Regarding the antecedents of reverse transfer of knowledge, researchers have identified the salience of issues relating to knowledge relevance between parent company and subsidiaries (Qin, Ramburuth, & Wang, 2008), subsidiary characteristics (Rabbiosi, 2011), relationship characteristics (Najafi-Tavani, Giroud, & Sinkovics, 2012), subsidiary innovativeness (Mudambi, Pedersen, & Andersson, 2014) and parent intentionality (Chung, 2014). In terms of the consequences of reverse knowledge transfer, most previous studies draw upon knowledge transfer theory, which assumes that successful knowledge transfer depends on subsidiaries' resources and capabilities, parent-subsidiary interaction dynamics and innovation characteristics (Easterby-Smith et al., 2008). Therefore, existing studies mostly follow a direct logic that posits that subsidiaries' past initiatives (Ambos, Andersson, & Birkinshaw, 2010), knowledge outflows (Mudambi & Navarra, 2004) and knowledge development competence (Ciabuschi, Dellestrand, & Kappen, 2012) lead to power gains for subsidiaries of MNEs. In this study, we consider subsidiary power as an MNE's internal distribution of power to the subsidiary, which means that the subsidiary is authorized by the parent company to control some critical activities, such as hiring the subsidiary's top managers, developing new markets in the host country, restructuring of the subsidiary organization, etc. (Jun, Yu, & Lin, 2017; Pfeffer & Salancik, 1978).

Subsidiary influence, Subsidiary autonomy Najafi-Tavani et al. (2015)

Technology transfer competence Subsidiary-headquarter embeddedness, External embeddedness Reverse knowledge transfer Ciabuschi et al. (2012) Najafi-Tavani et al. (2014)

Reverse knowledge transfer, Subsidiary knowledge development

Knowledge output, pattern of knowledge flows Past subsidiary initiatives Mudambi and Navarra (2004) Ambos et al. (2010)

Headquarters' attention, Headquarters' monitoring

Moderator Mediator Independent variables Authors

Table 1 Summary of selected literature on reverse transfer of innovation and subsidiary power.

may vary from the international standards (Cavusgil, Zou, & Naidu, 1993; Luo, 2002). In addition, MNE intrafirm competition intensity is the degree of competition among peer subsidiaries in the MNEs (Luo, 2005). MNE intrafirm competition intensity may impose pressure on the parent company (Luo, 2005) and thus prevent the reverse transfer of innovation from receiving formal attention of the parent company. Therefore, we introduce business culture specificity and intrafirm competition intensity as boundary conditions under which the relationship between reverse transfer of innovation and formal attention of the parent company will be attenuated. This study aims to make two main contributions. First, this study draws upon issue selling perspectives (Dutton, 1986; Dutton & Ashford, 1993; Dutton, Ashford, O'Neill, & Lawrence, 2001) and develops a new framework that integrates formal attention of the parent company to examine the indirect effect of reverse transfer of innovation on subsidiary power. In doing so, our research model provides a more complete picture of how reverse transfer of innovation in the MNEs influences subsidiary power. Second, this study highlights the important contingency roles of business culture specificity and intrafirm competition intensity. The mechanisms that impede the influence of reverse transfer of innovation on subsidiary power has been largely overlooked in the prior literature. We shed new light on the negative effects of business culture specificity and intrafirm competition intensity in terms of moderating the indirect effect of reverse transfer of innovation on subsidiary power through formal attention of the parent company. Moreover, our research responds to the call for more research on the impact of external factors that may influence the subsidiary power gaining (Najafi-Tavani et al., 2014).

Internal embeddedness, External embeddedness

Main results Dependent variables

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relational bonds and solidifies subsidiaries as “allies” (Ambos et al., 2010). Specifically, most of the research focuses on positive attention, which includes supportive provision of resources to the subsidiary's development, relative recognition assigned to the focal subsidiary compared with peer subsidiaries and visible recognition of subsidiary's existence and achievements (Bouquet & Birkinshaw, 2008a). Conversely, negative attention is the excessive involvement of the parent company, which may result in parent monitoring (Conroy & Collings, 2016). Based on existing studies, our research focuses on formal attention of the parent company, a form of positive attention, capturing the notion that the parent company provides formal recognition of the innovation transferred from the subsidiaries and realizes the contribution of the innovation (Bouquet & Birkinshaw, 2008a). Formal attention reflects an explicit form of attention, which can be shaped more easily by direct managerial choices than the informal mechanisms (Palmié, Keupp, & Gassmann, 2014). Existing studies have paid insufficient attention to formal attention in realizing organizational power. To advance this stream of research, this study emphasizes the formal dimension of parent positive attention, because formal attention is weighted more heavily and more influential to subsidiary power (Frost et al., 2002; Palmié et al., 2014). Therefore, we argue that formal attention of the reverse transfer of innovation is a key mechanism that may influence the power afforded to the subsidiary (Bouquet & Birkinshaw, 2008a).

As Table 1 indicates, existing research on reverse knowledge transfer mainly focuses on explaining the various antecedents of subsidiary influence, autonomy and bargaining power (e.g., Ambos et al., 2010; Ciabuschi et al., 2012; Mudambi & Navarra, 2004; Najafi-Tavani et al., 2014; Najafi-Tavani et al., 2015). In particular, researchers agree that knowledge transfer increases the power of subsidiaries (Ciabuschi et al., 2012; Mudambi & Navarra, 2004; Najafi-Tavani et al., 2014; Najafi-Tavani et al., 2015). Some recent studies further examine the indirect effects of knowledge-related activities on subsidiary power by exploring the contingency value of knowledge transfer. For example, while Najafi-Tavani et al. (2014) find no direct relationship between subsidiary knowledge development and subsidiary influence, they do observe that the relationship is mediated by reverse knowledge transfer. Najafi-Tavani et al. (2015) reveal that the influence of reverse knowledge transfer on subsidiary power is stronger at higher levels of subsidiary internal embeddedness and weaker at higher levels of external embeddedness. Despite these important contributions to knowledge regarding reverse knowledge transfer, there is a lack of research that examines the mechanisms that link reverse transfer of innovation with subsidiary power. Other theoretical lenses could enhance our understanding of this important relationship. 2.2. Issue selling and reverse transfer of innovation Knowledge transfer theory posits that subsidiaries are assumed to gain power from reverse transfer of knowledge (Najafi-Tavani et al., 2015). Despite the increasingly acknowledged benefits of reverse transfer of innovation, it remains unclear why reverse transfer of innovation does not necessarily increase subsidiary power. To address this knowledge gap, we draw on issue-selling perspective (Conroy & Collings, 2016). Dutton and Ashford (1993) define issue selling as a lower-level management behavior that directs the higher-level management attention to the issues that have implications for the organization. They provide a generic framework for describing the issue selling process. Dutton et al. (2001) explore managerial motives for issue selling and contextual knowledge that is critical to the success of issue selling. Existing research on issue selling merely provides a general explanation of the factors that affect the issue selling process and how to implement issue selling successfully. However, few studies have investigated the process of issue selling in the specific context of MNEs. In the international business (IB) research, for example, Ling, Floyd, and Baldridge (2005) develop a conceptual model of how subsidiary managers in the MNEs implement successful issue selling. Conroy and Collings (2016) explore how subsidiaries legitimize issue selling to balance their parent company's positive attention and negative attention. To fill this research gap, we conceptually consider reverse transfer of innovation as an issue-selling activity. Issue-selling in MNEs is the process by which a subsidiary sells issues that are strategic important to MNE performance to affect top-level management attention via persuasive efforts (Dutton et al., 2001). Thus, successful issue selling can shape the attention and investment of the organization.

3. Conceptual framework and hypotheses development 3.1. The mediating effect of formal attention of the parent company Issue selling perspectives provide an ideal theoretical lens to explain how and why reverse transfer of innovation contributes to subsidiary power through formal attention of the parent company. According to issue selling perspectives, subsidiaries act as “sellers” of innovation to be “bought” by the parent company. Subsidiaries of MNEs compete in the “attention market” for positive attention of the parent company (Conroy & Collings, 2016, p. 612). By transferring innovation, subsidiaries demonstrate their voice to the parent company and gain the parent company's attention. As described by Bouquet and Birkinshaw (2008a, p.579)-, subsidiaries' consistent demonstrating voice is an internally generated stimulus for obtaining parent company's attention that potentially “occupies the consciousness” of the parent company. Furthermore, the formal attention provided by a parent company with regards to the contributions of a subsidiary can facilitate the future development of the subsidiary. First, the parent company may interact with the subsidiary more intensively and allocate substantial resources to help the subsidiary to achieve its goals. Second, formal attention of the parent company shows public support for the subsidiary, which increases the perceived status of that subsidiary relative to other subsidiaries in the corporate network. Theoretically, it is important to discuss whether relationship between reverse transfer of innovation and subsidiary power is mediated by formal attention of parent company. From the managerial perspective, revealing the mechanisms of how reverse transfer of innovation can successfully enhance subsidiary power may provide fresh insights. First, knowledge-based activities can be used as means to direct the parent company's attention (Najafi-Tavani et al., 2015). Specifically, parent company attention provides the subsidiary identification and reputation, which helps to enhance the subsidiary's power within the MNE. It is argued that attention granted to the subsidiary by the parent company acts as a mechanism of subsidiary development, leading to increase of power (Ambos et al., 2010). Second, legitimacy arises from an organization's achievements relative to its peers (Conroy & Collings, 2016). Best practice transfer from the subsidiary demonstrates relative valuable contribution of the subsidiary to parent company, through which subsidiary competence is legitimized and subsidiary power is

2.3. Formal attention of the parent company A stream of research endeavors to study parent company's attention in the MNEs. These studies discuss the attention issues either from the subsidiary side or from the parent company side. On the subsidiary side, Bouquet and Birkinshaw (2008a) define positive attention as the extent to which the MNEs recognize and value the importance of the contributions made by subsidiaries, to the overall performance of the MNE. Subsidiaries can gain parent attention from their structural positions and relational activities. From a parent company perspective, formal attention of subsidiary initiative-taking activities is a corporate priority that strengthens 330

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individuals can be best achieved through coordination mechanisms. First, intrafirm competition has a direct detrimental effect on the information sharing process by creating excessive duplications and incurring coordination costs. Intrafirm competition within the MNEs manifests as subsidiaries engaging in competitive behaviors for parent resources and support, system status and market expansion to their own advantage (Luo, 2005). High intrafirm competition intensity tends to destabilize the internal equilibrium of the MNE network (Bouquet & Birkinshaw, 2008b), As a result, intrafirm competition is more likely to deter the established innovation transfer process. Thus, the recognition process of reverse transfer of innovation from the focal subsidiary will be weakened by high intrafirm competition intensity. Second, intrafirm competition intensity introduces instability into the MNE global division of labor, and particularly has greater implications for subsidiaries (Becker-Ritterspach & Dörrenbächer, 2011). As noted, reverse transfer of innovation can get formal attention by parent company through framing issues that meet the parent company's preferences. When intrafirm competition intensity is high, peer subsidiaries possess some important specialized technology or competencies that are probably more important to the parent goal and firm's long-term orientation. In such a situation, it is difficult for existing reverse transfer of innovation from the focal subsidiary to frame and establish norms that match the parent company's objectives. As such, it is less likely that the subsidiaries may motivate formal attention of the parent company based on reverse transfer of innovation to get power at higher levels of intrafirm competition intensity.

increased. Taken together, we hypothesize that reverse transfer of innovation increases subsidiary power through formal attention of the parent company. H1. Formal attention of the parent company mediates the effect of reverse transfer of innovation on subsidiary power. 3.2. The moderating effect of business culture specificity Subsidiary innovation is developed in host countries with specific cultural features. Business culture specificity refers to the unique characteristic of a host country's business culture and the extent to which it may vary from international standards (Luo, 2002). Research shows that business culture plays an important role in the issue selling process (Dutton, 1986; Ling et al., 2005). According to the issue selling perspective, business culture determines the variety of issues (Dutton, 1986). When the business cultural background of the issue shows high consensus with the dominant concern of the receiver, the selling process will be smoother. Conversely, if low consensus exists, it is less likely the issue selling will be successful (Dutton, 1986). We argue that the success of issue selling, reverse transfer of innovation, will be less effective when high business culture specificity of the issue exists. Business culture specificity of the innovation transferred from the subsidiaries reflects that innovation caters to the needs of a specific culture or subculture (Cavusgil et al., 1993). When high business culture specificity exists, the business culture of the subsidiary might be incompatible with that of the parent company. This incompatibility might increase the parent company's perception of the riskiness of the innovation, which in turn might impede the provision of formal attention of the innovation by the parent company. Successful issue selling is significantly related to the issue framing to establish norms and content of the issue (Pfeffer, Salancik, & Leblebici, 1976). Business culture specificity of the subsidiary innovation indicates that the content of the issue that subsidiary managers attempt to sell to the parent company may be heterogeneous, and thus less likely to be consistent with the parent company's existing expertise. Such inconsistency provides obstacles in framing the issue. Therefore, high business culture specificity has the potential to impede the “selling” of reverse transfer of innovation to obtain formal attention of the parent company which in turn increases subsidiary power.

H3. Intrafirm competition intensity moderates the indirect effect of reverse transfer of innovation on subsidiary power through formal attention of the parent company: The indirect effect is weaker when intrafirm competition intensity is high. 4. Methodology 4.1. Sample Our research was conducted using multiple informant survey data (Kumar, Stern, & Anderson, 1993) of managers from a sample of 145 subsidiaries of MNEs from different countries. Parent companies are located in 19 countries and subsidiaries are from 16 countries. We selected the MNE subsidiaries based on two criteria. First, most of these subsidiaries operated in knowledge-intensive industry in China and plausibly undertook innovation development and transfer, which indicates reverse transfer of innovation is a dominant form in the MNE knowledge flow. Second, the selected MNEs must have a global presence and the parent companies of the MNEs compete in many developed countries, which allowed us to study the varieties in the attention allocation process of reverse transfer of innovation. We obtained records of MNE's subsidiaries from government published directories. We first obtained the endorsement from government administrative agencies in many areas in China and secured their support to hand out the survey questionnaire before contacting the subsidiaries. As such, we contacted 220 subsidiaries located in developed regions of China. First, we interviewed the senior managers of the subsidiaries. Through the interviews, we confirmed that the subsidiary had previously undertaken or was currently undertaking innovation projects. Second, we set specific criteria for the manager to specify innovation: a) the innovation should be developed within the last three years and b) the innovation must have the potential to be transferred to the parent company.

H2. Business culture specificity moderates the indirect effect of reverse transfer of innovation on subsidiary power through formal attention of the parent company: The indirect effect is weaker when business culture specificity is high. 3.3. The moderating effect of intrafirm competition intensity MNEs operate as internal markets, in which intrafirm competition regularly exists. MNEs not only encourage interunit cooperation in order to realize economies of scope, but also permit internal competition to achieve greater efficiency (Luo, 2005). Intrafirm competition intensity refers to the extent to which actors in a firm compete for scarce resources and produce and market similar products or services (Osarenkhoe, 2010). Intrafirm competition within MNEs reflects hostile activities among peer subsidiaries in horizontal and vertical relationships. It is helpful for the subsidiaries to engage in innovation transfer activities as issue selling to get recognized, and at the same time it is a threat that subsidiaries are facing the competition pressure from peer subsidiaries which undertake competitive activities aiming to gain influence in the MNEs. In this situation, the recognition process of reverse transfer of innovation is threatened by intrafirm competition intensity (Fig. 1). Subsidiaries undertaking reverse transfer of innovation obtain parent attention through revealing information. A firm's primary task that integrates the specialized knowledge of diverse subunits or

4.2. Data collection We employed a multiple-informant approach to collect data. First, we designed two different survey questionnaires for two types of subsidiary managers. The respondents include junior, middle and senior 331

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Business culture specificity

Reverse transfer

Formal attention of

Subsidiary

of innovation

the parent company

power

Intrafirm competition intensity

Fig. 1. Research framework.

construct the measure of formal attention of the parent company by aggregating the responses from the two sides of the managers. To ensure the relative consistency of responses among different raters for one variable, we use intraclass correlation coefficient (ICC). ICC (1) is 0.90 and high (Bliese, 2000), indicating high interrater agreement. We employed a four-item, seven-point Likert scale to measure formal attention of the parent company. We adapt the items to fit our research context based on the studies of Frost et al. (2002) and Mudambi, Piscitello, and Rabbiosi (2014). Business culture specificity. In line with Luo (2002), we use a twoitem, seven-point Likert scale to measure business culture specificity which captures the degree to which business culture difference based on which the innovation is developed from that of the international standard and the extent to which business culture based on which the innovation is developed is location specific. Intrafirm competition intensity. We used the five-item, seven-point Likert scale adapted from O'Cass and Weerawardena (2010) to measure intrafirm competition intensity. This measure captures the extent to which peer subsidiaries in an MNE develop and produce similar or substitutable products and services to compete for scarce resources (Osarenkhoe, 2010).

managers. A back-translation process was used to ensure conceptual equivalence (Brislin, 1986). To ensure content validity and face validity, we conducted a pilot study in which senior managers and middle managers were interviewed and asked to review the questionnaire. Based on feedback from the interviews, some items were revised before the questionnaires were finalized. Of the 220 subsidiaries invited, 180 agreed to participate in our study. 360 questionnaires were sent out and 297 responses were obtained, in which only 7 subsidiaries returned responses from one informant. Then, we deleted these cases that offered only one informant response to the questionnaire. Finally, our sample frame consists of 145 pairs of multiple informant data from subsidiaries of MNEs, indicating an effective response rate of 82.5%. To check for potential nonresponse bias, we conducted a t-test to compare the scores between earlier and later respondents on parent control, subsidiary size, parent size, parent expatriates and subsidiary industry. The results of t-tests demonstrate that nonresponse bias is not a concern for the sample (parent control: t = 0.72; subsidiary size: t = 0.39; parent size: t = −0.20; parent expatriates: t = 0.59; subsidiary industry: t = 0.15). 4.3. Measures

4.3.3. Control variables We control for subsidiary size (coded 1 if the number of employees was higher than 5000, and 0 otherwise) and subsidiary sales (coded 1 if the subsidiary sale was between 10 million and 50 million per year, and 0 otherwise) because they are critical factors that affect knowledge transfer (Foss & Pedersen, 2004; Mudambi, Piscitello, & Rabbiosi, 2014). We also controlled for parent expatriates, which is measured by a percentage of total top management team (TMT) members in the foreign operations (Berry, 2015; Luo, Shenkar, & Nyaw, 2001).

4.3.1. Dependent variable Subsidiary power captures the extent to which subsidiary has authority conferred by the parent company on some strategic decisions (Najafi-Tavani et al., 2015), such as hiring the subsidiary's senior managers, developing new market in the host country, restructuring of the subsidiary organization, introduction of new services or new product. We measure subsidiary power using a five-item, seven-point Likert scale adapted from Najafi-Tavani et al. (2015).

5. Analyses and results

4.3.2. Independent variables Reverse transfer of innovation is the extent to which subsidiaries transfer innovation (with regards to sales and marketing, strategy, distribution, management systems and practices), originally developed in their local markets, to their parent company (Gupta & Govindarajan, 2000; Yang, Mudambi, & Meyer, 2008). To measure this construct we used a four-item, seven-point Likert scale adopted the scale developed by Najafi-Tavani et al. (2015). Formal attention of the parent company refers to the extent to which a parent company recognizes and realizes the value of the innovation transferred from the subsidiary (Bouquet & Birkinshaw, 2008a). We

5.1. Confirmatory factor analysis We conducted a confirmatory factor analysis (CFA) to access the reliability and validity of the measurement model (Kline, 2005). In Table 2, all the factors' standardized loadings ranged from 0.571 to 0.975. The composite reliabilities of all factors ranged from 0.778 to 0.981, higher than the threshold of 0.70. The average variance extracted (AVE) for each construct is higher than 0.50, which was higher than the threshold value of 0.50, in support of good convergent validity 332

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Table 2 Measurement items and validity assessment. Items

Standardized loading

Reverse innovation transfer CR= 0.930, AVE= 0.767 To what extent, during the last three years, did your company transfer which were originally developed in the local market to your parent company? 1. innovative sales and marketing know-how 2. innovative strategy know-how 3. innovative distribution know-how 4. innovative management systems and practices know-how

0.571 0.826 0.678 0.862

Business culture specificity CR= 0.778, AVE= 0.641 To what extent do you think the commercial practices and business culture based on which the innovation is developed differ from that of commonly accepted international standards? To what extent do you think the commercial practices and business culture based on which the innovation is developed are location specific?

0.679 0.906

Intrafirm competition intensity CR= 0.919, AVE=0.655 Anything new that our company can offer, other subsidiaries can match readily. Our company faces considerable pressure from better substitutes from other subsidiaries. There is strong competition from substitutes from other subsidiaries. There are substitutes of the existing innovative products/services that limit profitability in the industry and within the MNE system. Our innovative products/services serve a function easily served by other subsidiaries. There are large numbers of potential substitutes being developed by other subsidiaries.

0.831 0.772 0.814 0.871 0.722 0.837

Formal attention of the parent companya CR= 0.981, AVE=0.927, The parent company recognizes the reverse innovation transferred by our company. The parent company understands the importance of the reverse innovation transferred by our company. The parent company realizes the potential value of the reverse innovation transferred by our company for the whole corporation. The parent company agrees that the reverse innovation transfer by our company is reasonable.

0.966 0.975 0.962 0.949

Formal attention of the parent companya CR=0.963, AVE=0.868 The parent company recognizes the reverse innovation transferred by our company. The parent company understands the importance of the reverse innovation transferred by our company. The parent company realizes the potential value of the reverse innovation transferred by our company for the whole corporation. The parent company agrees that the reverse innovation transfer by our company is reasonable.

0.954 0.956 0.937 0.878

Subsidiary power CR=0.862, AVE=0.560 To what extent does the parent company confer authority to your company regarding the following? 1. Hiring the subsidiary's top managers 2. Developing new market in the host country 3. Restructuring of the subsidiary organization 4. Introduction of new services and/or new products 5. Approval of quarterly plans/schedules

0.571 0.826 0.678 0.862 0.765

a

Based on survey data from two types of managers.

Table 3 Descriptive statistics and correlations. Constructs

1

2

3

4

5

6

7

8

9

1. Subsidiary size 2. Parent expatriates 3. Subsidiary sales 4. Subsidiary industry 5. Reverse transfer of innovation 6. Business culture specificity 7. Intrafirm competition intensity 8. Formal attention of the parent company 9. Subsidiary power Mean S.D.

1.000 −0.008 0.189⁎ 0.212⁎ 0.211⁎ 0.124 0.091 0.136 −0.075 0.579 0.495

1.000 0.062 −0.184⁎ −0.023 −0.172⁎ −0.084 0.095 0.033 0.564 0.498

1.000 0.112 0.160 −0.034 0.047 0.163 0.107 0.938 0.243

1.000 0.055 0.124 0.079 0.153 0.032 0.434 0.497

1.000 −0.131 0.131 0.601⁎ 0.249⁎ 4.098 1.415

1.000 0.170⁎ −0.037 0.006 4.194 3.116

1.000 0.148 −0.020 3.150 1.249

1.000 0.395⁎ 4.684 1.108

1.000 4.982 1.034

⁎

Significant at the.05 level (two-tailed test).

subsidiary power is measured from the responses of the other type of the managers. The measure of formal attention of the parent company is calculated based on the survey data of both sides. To assess whether CMV was a potential threat in our study, we performed Harman's onefactor test. The results showed that no dominant factor emerged, and the percentage of covariance accounted by the first factor was much lower than the suggested threshold 50%, suggesting that common method bias is not a concern in our study.

(Fornell & Larcker, 1981). In addition, the correlation between each pair of the constructs was smaller than the square root of the AVE for each construct (Fornell & Larcker, 1981), leading further support for discriminant validity (Table 3). 5.2. Common method variance (CMV) We collected data from surveys from two sources to reduce the possible common method variance that may arise from a single source (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). We obtained all studied measures from different sources. Reverse transfer of innovation, business culture specificity, and intrafirm competition intensity are measured based on the survey of one type of the managers, and

5.3. Regression results We employed a multiple hierarchical regression analysis to test the theoretical model. Variance inflation factor (VIF) was calculated for 333

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Table 4 Results of mediation analysis. Total effect of reverse transfer of innovation on subsidiary power

Direct effect of reverse transfer of innovation on subsidiary power

Indirect effect of reverse transfer of innovation on subsidiary power

Effect

Effect

Effect

0.175⁎

s.e.

95%CIs 0.062

[0.052, 0.299]

0.029

s.e.

95%CIs 0.074

[−0.118, 0.176]

0.146⁎

s.e.

95%CIs 0.055

[0.045, 0.263]

Notes: 5000 bootstrap samples. †p < 0.1, *p < 0.05, **p < 0.01. s.e. = standard error.

(β = 0.800, p < 0.01).

each model, which ranged from 1.07 to 1.81, much lower than the benchmark value of 10, indicating that multicollinearity is not a concern for the research model.

6. Discussion 5.3.1. The mediating effect of formal attention of the parent company To test the mediating effect of formal attention of the parent company, we apply the bootstrapping method (Preacher, Rucker, & Hayes, 2007) using Hayes's PROCESS macro (2016). As is shown in Table 4, reverser transfer of innovation has a significant total effect on subsidiary power (95% confidence interval = 0.052, 0.299). After adding the mediator, formal attention of the parent company, the direct effect of reverse transfer of innovation on subsidiary power becomes nonsignificant (95% confidence interval = −0.118, 0.176). However, the indirect effect of reverse transfer of innovation on subsidiary power is significant (95% confidence interval = 0.045, 0.263), indicating that formal attention of the parent company fully mediates the relationship between reverse transfer of innovation and subsidiary power.

In this study, we applied the issue selling perspective to understand the mechanisms through which subsidiaries gain power from reverse transfer of innovation. Using multiple informant survey data from 145 MNE subsidiaries, we found important constructs that link reverse transfer of innovation and subsidiary power, confirming the argument of issue selling. Specifically, formal attention of the parent company played a full mediating role in the relationship between reverse transfer of innovation and subsidiary power. The mediating mechanism is further contingent on business culture specificity and intrafirm competition intensity, whereby business culture specificity and intrafirm competition intensity weaken the indirect effect of reverse transfer of innovation on subsidiary power through formal attention of the parent company. Overall, our study highlights the importance of taking into account formal attention of the parent company in linking reverse transfer of innovation with subsidiary power. This provides an avenue to explore more diverse mechanisms and contextual factors that may advance the existing findings on the effect of reverse transfer of innovation on subsidiary power.

5.3.2. The moderating effects of business culture specificity and intrafirm competition intensity Our conceptual model proposes that business culture specificity and intrafirm competition intensity moderate the effect of reverse transfer of innovation on formal attention of the parent company, which in turn affects subsidiary power. As is shown in Table 4, the results of our firststage model (Edwards & Lambert, 2007) and conditional indirect effects confirm the support of the moderated mediation effect. With high business culture specificity and intrafirm competition intensity, the conditional indirect effect of reverse transfer of innovation on subsidiary power through formal attention of the parent company is not significant (95% confidence interval = −0.006, 0.171). The conditional indirect effect of reverse transfer of innovation on subsidiary power through formal attention of the parent company is positive and significant at low levels of business culture specificity (95% confidence interval = 0.043, 0.370) and intrafirm competition intensity (95% confidence interval = 0.036, 0.316). Therefore, these results provide strong evidence that the mediating effect of formal attention of the parent company is moderated by business culture specificity and intrafirm competition intensity (Table 5). To further interpret the moderating effect of business culture specificity, we plotted the interaction effects in Fig. 2 and Fig. 3. In Fig. 2, the positive effect of reverse transfer of innovation on formal attention of the parent company is less pronounced when business culture specificity is high than it is low. Simple slope analysis shows that the relationship between reverse transfer of innovation and formal attention of the parent company is nonsignificant when business culture specificity is high (β = 0.288, p > 0.1) but is positive and significant when business culture specificity is low (β = 0.808, p < 0.01). That is, business culture specificity weakens the positive effect of reverse transfer of innovation on formal attention of the parent company. Fig. 3 shows that intrafirm competition intensity weakens the positive effect of reverse transfer of innovation on formal attention of the parent company. The slope between reverse transfer of innovation and formal attention of the parent company is nonsignificant at high levels of intrafirm competition intensity (β = 0.296, p > 0.1) while is positive and significant at low levels of intrafirm competition intensity

6.1. Theoretical implications Drawing on issue selling perspectives, our study conceptualizes reverse transfer of innovation as an “issue” that the subsidiary attempts to “sell” to the parent company. First, we fill the existing research gap by exploring why knowledge transfer does not necessarily lead to power gaining (Birkinshaw & Fry, 1998; Birkinshaw & Hood, 2001; Gupta & Govindarajan, 1991; Najafi-Tavani et al., 2015). In the existing literature, most research has investigated the direct influence of reverse knowledge transfer on subsidiary power (Ambos et al., 2010; NajafiTavani et al., 2014; Najafi-Tavani et al., 2015). We incorporate issue selling perspective and show that only through the formal attention of the parent company can reverse transfer of knowledge increase subsidiary power. To examine the possible link between reverse transfer of innovation and subsidiary power, we introduced a moderated mediation model. The research findings not only establish a hitherto unexplored theoretical link between reverse transfer of innovation and subsidiary power, but also provide empirical evidence that supports the application of issue selling perspectives in knowledge transfer research. Second, our study also examines the moderating effects of business culture specificity and intrafirm competition intensity on the indirect effect of reverse transfer of innovation on subsidiary power through formal intention of the parent company, which has been neglected in the previous studies. The empirical findings reveal that in some situations (i.e., business culture specificity and intrafirm competition intensity) reverse knowledge transfer may not be potent in gaining power for the subsidiaries (Najafi-Tavani et al., 2014). Our research findings on the negative moderating role of business culture specificity and intrafirm competition intensity provides a deeper understanding of the contribution of reverse transfer of innovation on subsidiary power.

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Table 5 Conditional indirect effects on subsidiary power. (A) Regression coefficients, first-stage moderation model Variables

ax

az1

az2

axz1

axz2

Formal attention of the parent companya Subsidiary powerb

0.413⁎⁎ 0.033

−0.055

0.150⁎

−0.031⁎

−0.127⁎

am

R2

0.311⁎⁎

0.698 0.379

(B) Conditional indirect effects on subsidiary power Conditional indirect effect of business culture specificity on subsidiary power through formal attention of the parent company Variables Business culture specificity

Low High

Effect

s.e.

95%CIs

0.209 0.048

0.084 0.041

[0.043,0.370] [−0.006,0.171]

Conditional indirect effect of intrafirm competition intensity on subsidiary power through formal attention of the parent company

Intrafirm competition intensity

Low High

Effect

s.e.

95%CIs

0.148 0.048

0.070 0.041

[0.036, 0.316] [−0.006,0.171]

5000 bootstrap samples. †p < 0.1, *p < 0.05, **p < 0.01. s.e. = standard error. a Based on the regression equation for the first-stage moderation model (Edwards & Lambert, 2007), M = a + aXX + az1Z1 + axz1XZ1 + az2Z2 + axz2XZ2 + eM, where M is formal attention. X is reverse transfer of innovation, Z1 is business culture specificity, Z2 is intrafirm competition intensity. b Based on the regression equation for the first-stage moderation model (Edwards & Lambert, 2007), Y = a + axX + am M + ey, where Y is subsidiary power.

When the business culture is similar between the host country and home country, the innovation transferred from subsidiary may be recognized by the parent company more easily because it is easier to assimilate and adopt. Therefore, subsidiary managers should select innovation projects that are less culture-bounded to transfer back to the parent company, which can increase formal attention of the parent company. Moreover, potential competition between peer subsidiaries should be considered by subsidiary managers who attempt to direct parent company attention through reverse transfer of innovation.

6.2. Practical implications First, the study suggests that reverse transfer of innovation can increase subsidiary power only when the innovation is given formal attention by the parent company. Subsidiary managers must be clear that not all reverse transfer of innovation can bring power to subsidiary. Subsidiary managers must deliberately select the innovation projects to transfer to the parent company to acquire formal attention. From the perspective of issue selling arguments, when transferring innovation back to the parent company, subsidiaries must take some actions to direct the attention of the parent company, such as exploiting appropriate opportunities or by virtue of various personal relationships to demonstrate the potential value of the innovation for the whole corporation. Second, managers of subsidiaries and parent company should realize the potential impact of business culture specificity and intrafirm competition intensity on the process of reverse transfer of innovation. That is, according to issue selling perspectives, the content, characteristics and context of the issue should be considered (Dutton, 1986). Subsidiary innovation is inevitably featured with business culture specificity. During the reverse transfer of innovation, the parent company must cautiously evaluate the appropriation of subsidiary innovation.

6.3. Limitations and future research Our study has several limitations. First, when conceptualized as an issue selling activity, reverse transfer of innovation becomes more complex. Besides the extent of formal attention and innovation characteristics, other factors, such as subsidiary managers' issue selling moves, the belief and knowledge background of parent managers, should be considered to further explore the different mechanisms that lead to the success of reverse transfer of innovation. In particular, issue-selling actions include packaging moves, involvement moves and process moves (Dutton et al., 2001; Dutton & Ashford, 1993). However, based on existing research on issue selling in

Fig. 2. Interaction between reverse transfer of innovation and business culture specificity. 335

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Fig. 3. Interaction between reverse transfer of innovation and intrafirm competition intensity.

the IB area (Conroy & Collings, 2016; Najafi-Tavani et al., 2015), this study only regards reverse transfer of innovation as a general issueselling activity, which aims to redirect formal attention of the parent company to increase subsidiary power. Future research may examine the roles of different categories of issue-selling moves in subsidiary power and MNE knowledge transfer research, which may enrich our understanding of issue-selling-shaped subsidiary power. With respect for the data limitation, we utilize multiple informant survey data to mitigate the potential threat of common method variance. However, dyadic data should be collected from both the subsidiaries and parent companies to reveal a deeper understanding of reverse transfer of innovation.

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