Does Distance Affect the Role of Nonlocal Subsidiaries on Cluster Firms’ Innovation? An Empirical Investigation on Chinese Biotechnology Cluster Firms

Abstract

As translocation strategy has been pursued by cluster firms, two types of nonlocal subsidiaries, nonlocal manufacturing subsidiaries (NMS) and nonlocal R&D subsidiaries (NRS) contribute to their holding firms’ innovation in different ways. Prior studies have not paid much attention to the role of NMS and NRS, and how their effects are contingent on distance. To address this gap, this paper assesses the contribution of NMS and NRS on cluster firms’ innovation performance respectively and ascertains the moderating effect of geographical distance and social distance. The empirical investigation is conducted using a sample of 79 Chinese cluster firms. Our results indicate that both NMS and NRS have positively influenced cluster firms’ innovative performance. Moreover, geographical distance negatively moderates both the role of NMS and NRS. On the other hand, social distance only increases the influence of NRS on their holding firms’ innovation. Thus, spatial distance may hamper knowledge acquisition through NMS and NRS while loosely connected NRS would contribute more to their parent companies in local clusters. Our research contributes to the literature on cluster firms’ relocation strategy by clarifying the distinct role of NMS and NRS and recognizing the contingent effect caused by geographical and social distance.