Enhancing subsidiary innovation capability through customer involvement in new product development: A contingent knowledge source perspective

In recent decades, multinational enterprises (MNEs) have increasingly harnessed local knowledge through various customer involvement practices implemented by their foreign subsidiaries. Our study, using a multi-informant survey of 230 MNE subsidiaries in China, explores how these subsidiaries manage customer involvement in new product development (NPD). We specifically focus on two practices: using customers as an information source (CIS) or as a co-developer (CIC). We posit that the two types of customer involvement have distinct effects on a subsidiary's innovation capability, which in turn impacts two critical NPD outcomes: innovativeness and speed to market. Moreover, we suggest that the roles that customers play in CIS and CIC, as well as their contribution to the subsidiary's innovation capability, depend on whether the specific knowledge is derived from the parent headquarters or local partners. Our findings reveal that technological knowledge transfer from the parent headquarters enhances CIS's effect on innovation capability, yet diminishes that of CIC. In contrast, knowledge sharing from local partners exerts the opposite effects. By elucidating the underlying mechanisms and contingencies, our study fosters a deeper understanding of customer involvement in NPD and provides insightful guidance for MNEs seeking to leverage local knowledge for successful innovations in foreign markets.