This document summarizes a research study on how multinational enterprise (MNE) subsidiaries manage knowledge creation and protection through local partnerships as clusters evolve over time. It discusses two perspectives from the literature - physical attraction and strategic deterrence - and how the study aims to provide a more comprehensive understanding by examining horizontal partnerships over time in an evolving medical technology cluster in Ireland. The study uses case studies of two leading MNE subsidiaries, Boston Scientific and Medtronic, analyzing their patent activity, relationships with the local university, and each other as the cluster and subsidiaries specialized and grew more competitive. The study finds the subsidiaries selectively manage partnerships based on knowledge opportunities and risks, using physical attraction early as the cluster formed but shifting

1. Subsidiary knowledge creation and
protection: The case of horizontal
partners in evolving high-tech clusters
Majella Giblin
Co-authors: Ulf Andersson, Alessandra Perri, Paul Ryan
Innovation & Structural Change Research Cluster,
Whitaker Institute, 19th Oct 2016

2. Research Question
“How do MNE subsidiaries manage –through local linkages
with horizontal partners – the trade-off between sourcing
and protecting knowledge as a cluster evolves?”

3. Literature Review
• Opportunities and risks: MNEs in knowledge-based
clusters
• Two contrasting views:
– Strategic deterrence view (Shaver & Flyer, 2000; Alcácer, 2006;
Alcácer & Chung, 2007)
• Spillover risks – interaction avoidance, ‘best in class’ leading
MNEs avoid co-locating in high industry concentrations
– Physical attraction view(Cantwell & Mudambi, 2011)
• Opportunities – ‘best in class’ leading MNEs attract
partners; become ‘insiders’; deep and wide-ranging
embeddedness

4. Literature Review - issues
• Snapshots of relationships between MNE and host-location
• MNEs and location (cluster) shape each other over time (Cano-Kollmann et al.
2016)
è Knowledge sourcing and spillover risks may change over time
• From HQ to subsidiaries:
• Trade-off of knowledge sourcing and risks does not just occur at the moment
of foreign location choice; it persists over time
è Managing knowledge sourcing and spillover risks is not an exclusive of
HQ; subsidiaries may have to manage linkages (Perri and Andersson 2014) – our
knowledge of what happens after the location choice is made is limited

5. Literature Review - issues
• Focus on vertical linkages
• Subsidiaries are found to adjust the ‘quality’ of linkages
(interdependence, mutual adaptation and breadth of interaction) to
vertical partners to balance knowledge spillover risk and sourcing
opportunity – depends on subsidiary’ competencies
• What about horizontal (non value-chain) partners? Differ in terms of
knowledge spillover risk and opportunity
è For a more comprehensive understanding of managing knowledge
sourcing and risks locally we need to also examine horizontal partners of
the MNE subsidiary

6. Contributions of this research
• More comprehensive understanding on how subsidiaries manage
the trade-offs between knowledge sourcing and protecting with
respect to local linkages:
• We account for temporal dimensions – evolution of the cluster, subsidiary
and linkages over time (how the trade-off between knowledge sourcing and
spillover changes over time)
• We investigate linkages with horizontal partners – moving beyond vertical
linkages
• We address Cantwell and Mudambi (2011): that the physical attraction and
strategic deterrence perspectives may best predict MNE behaviour when
used in combination
• We take the subsidiary perspective

7. Research Design
• Context: Medical Technology knowledge cluster in the
West of Ireland, Galway
• Inward FDI
• Supply an international marketplace (customers/users
are predominantly international)
• Local university – specialised research and teaching
activities
• Two market leading MNE subsidiaries: Boston
Scientific and Medtronic

8. Research Design – Case Studies
• Two subsidiary cases: CR Bard/Medtronic and Boston
Scientific
• Dominant positions held in the cluster (relevance of physical attraction)
• Direct competitors (relevance for investigating horizontal linkages)
• Supply an international marketplace and are embedded in own vertical
international production chains (relevance for investigating horizontal
linkages)
• Both are competence creators (relevance for their ability to adjust the
‘quantity’ and ‘quality’ of linkages locally for managing a trade-off)
• Both operate within the same product bandwidths in the cluster, both are
of US origin, both play a strategic role within respective corporations
(relevance as quasi-control – allowing for comparisons)

9. Data Collection
• 35 interviews in total:
– 15 interviews: current subsidiary R&D directors/CEOs across the
two cases (2005 and 2008)
– 2 interviews: one interview (2015) with ex-R&D Director of CR
Bard (1990-1996), one interview (2010) with ex- Managing
Director of Boston Scientific (1993 – 2001)
– 9 interviews: relevant research centres and offices at NUIG
– 9 interviews: cluster-relevant organisations
– Patent (US) analysis of subsidiaries – number, application year,
technological classes, backward citations

10. Technological Specialisation Technological Diversification (related)
Evolution of the cluster

11. Evolution of leading case subsidiaries in region
• Manufacturing to R&D with manufacturing
• Global Centres of Excellence/Innovation Centres
• Patent analysis:
– Medtronic (133), Boston Scientific (130); no other subsidiary in
cluster comes close
– Patent production soared for both after 2000
– Increase in technological scope over time
– Convergence between their respective knowledge bases
(technological proximity) – increasing competition between them
– Backward citations

12. Evolution of Relations with Academia
• As subsidiaries evolved into knowledge intensive
activities and cluster evolves:
– They became more attractive partners to university
– Quality of relations (interdependencies, level of
interaction and mutual adaptation) enhances over time
• Transition from arms-length contracts to joint research
activities
• Understanding develops on the need for secrecy and an
appreciation of the different environmnets in which they
operate

13. Evolution of Relations among Competitors
• As subsidiaries evolved into knowledge intensive activities and the
cluster evolves:
– Quality of linkages decreases over time
• Early stages of the cluster: evidence of leading subsidiaries
establishing temporary direct relations to facilitate mutually
beneficial resource inflows to the cluster
• Always avoid direct relations on technical development, irrespective
of stage of cluster development (e.g. backward citations)
• As cluster evolves: a communal state suspicion evolves and
subsidiaries more attentively avoid interaction to avoid knowledge
leakage

14. Discussion and Conclusion
• Leading subsidiaries selectively manage their local linkages for
knowledge creation and protection associated (in contrast with laggard
subsidiaries)
• Leading subsidiaries’ linkage behaviour varies over time to adapt to
changing conditions in the local cluster
• As the cluster begins to develop:
– A physical attraction logic dominates – university and competitors
• Once the cluster knowledge base evolves and the dominant nodes
stabilise:
– A strategic deterrence logic starts to prevail in relation to competitors
in particular

15. Discussion and Conclusion
• The two logics are not mutually exclusive:
– The prominence of one over the other shifts with the
evolution of the cluster and the partners involved
– Subsidiaries selectively manage linkages with local
partners based on a careful evaluation of knowledge
access opportunities and spillover threats associated
with each linkage at different stages of the cluster
evolution (resource acquisition versus technical
knowledge)

16. THANK YOU
Majella.giblin@nuigalway.ie
Innovation & Structural Change Research Cluster,
Whitaker Institute, 19th Oct 2016