External linkages and product innovation: Theory and empirical evidence from subsidiaries in Vietnam

Abstract

International business literature often states that the ability to exploit external knowledge and ideas is a crucial component of the innovative performance of firms. Adopting a business network theory, we hypothesize that subsidiaries are likely to reach high levels of innovation as they engage in the networks of external linkages (i.e. backward and forward linkages) with domestic business actors. To test the proposed hypotheses, we use survey data extracted from a data set from the General Statistics Office of Vietnam for 354 subsidiaries located in Vietnam. A noticeable difference in institution-foreign firm and foreign firm-local partner relationships still remains after the 30-year period of Vietnam's revolution due to political perspectives; and this has motivated us to investigate this unique transition economy. Probit regression reveals that our hypotheses are strongly supported, in regards to controlling the characteristics of a subsidiary, a parent firm or home country.