Informality advantage vs innovation advantage: Informal competition, subsidiary of foreign multinationals and innovation in emerging markets. With Alvaro Cuervo-Cazurra and Ajai Gaur.
Abstract: We study innovation in emerging economies, analyzing how informal competition affects the innovativeness of subsidiaries of foreign multinationals. We build on the capability-based view to proposing that informal competition induces foreign firms to innovate to be able to counter and differentiate their offer form the low-cost advantage of informal competitors. We also propose that this heightened innovativeness of foreign firms in the face of informal competition varies between minority and majority-owned foreign firms. Minority-owned firms innovate less than majority-owned firms in the face of informal competition and focus more on incremental than radical innovation because of the lower transfer of sources of innovativeness from the parent firm. We illustrate these ideas with the analysis of 12325 companies in 30 countries in Eastern Europe and Central Asia in 2012-2016.
 Does foreign research and development hollow out domestic capacity to innovate?
Abstract: Do firms’ innovative activities in foreign locations undermine knowledge creation at home? This question has been the center of the debate surrounding the trend of R&D internationalization by multinational companies. The opponents argue that R&D projects substitute for the domestic R&D, while the proponents argue for the complementary effects of foreign R&D. Based on cost-saving arguments from economic theories as well as the knowledge-augmenting argument from strategic management literature, I propose that the expansion of foreign R&D is associated with the growth of domestic R&D. However, such a positive association is contingent upon the abundance of high- and low-discretion slack resources. I argue that because they can provide flexibility for managers to expand innovative activities, high-discretion slack resources strengthen the positive association between foreign R&D and domestic R&D. On the contrary, the accumulation of low-discretion slack resources encourages the preference toward substituting foreign R&D. Therefore, low-discretion slack resources weaken the positive association between foreign and domestic R&D. I test my propositions using data or R&D projects by American pharmaceutical firms from 2000 to 2017. I find support for my hypotheses.
 The institutions-arbitraging research and development: A lesson from pharmaceutical industry
Abstract: Extant studies have established the two primary motives of international research and development (R&D) are the knowledge-creation and the knowledge-exploitation in foreign markets. Past studies, however, have overlooked the ethical standards and regulatory constraints that govern the R&D process. In some industries, such as pharmaceutical and medical equipment, the ethical regulations overseeing R&D activities have considerable costs implication. The associated regulatory costs can potentially explain the strategic drivers and the location choice of international R&D. In this study, I examine the R&D internationalization of pharmaceutical firms from the perspective of institutions arbitrage. I propose that the R&D internationalization of pharmaceutical companies is also driven by the institutions-arbitraging motives because R&D in foreign locations allow multinational companies to avoid or lower regulatory compliance costs by selecting locations with lax ethical standards or weaker regulatory enforcement. I further argue that the likelihood of pharmaceutical firms in selecting locations with lower ethical standards and weaker regulatory enforcement is heterogeneous, depending on the firm’s social aspirations. I find that firms performing below social aspirations are more likely to engage in institutions arbitraging R&D by selecting locations with low ethical standards or weaker regulatory enforcements than firms performing above social aspirations.