MNE Subsidiaries’ Outsourcing and Insourcing of R&D: The Role of Local Institutions

The rules for business vary not only between countries, but within countries. Subsidiaries of multinational enterprises (MNEs), thus, have to consider both the national level and the local context when designing their business practices. To examine this impact, we study R&D outsourcing in four Eastern member states of the European Union and find that local R&D outsourcing is used more frequently where local institutions are strong. However, this local impact depends on the MNE's overall knowledge sourcing practice and is weaker when MNE subsidiaries’ knowledge management prioritizes external sources of knowledge.