ABSTRACT
This chapter analyzes the differences in innovation strategies between domestic firms and subsidiaries of foreign firms competing in the same country. It introduces a theoretical framework that explains how domestic firms and subsidiaries of foreign firms have access to different knowledge sources and manages their employees differently, resulting in their following different innovation paths. The chapter reviews studies on innovation in global competition. It discusses the advantage of foreignness in innovation, followed by an explanation of the advantage of localness in innovation. The chapter explains the conditions under which either subsidiaries of foreign multinational enterprises or domestic companies are likely to achieve an ultimate advantage over each other in the host country. The chapter discusses the dynamics of the advantages, and concludes with a review of the contributions of this theoretical framework.
