Abstract/Summary

The strategy literature has widely acknowledged the negative impact of cultural diversity between the partners of an alliance on their innovation performance. We argue that innovation is even more challenging in alliances involving subsidiaries of multinational companies (MNCs), as they embody a dual background that encompasses the cultures of their host country and their home country. We also propose that the effect of cultural diversity is contingent on the specific content of the alliance, and that it is positive in explorative alliances and negative in exploitative alliances. Our findings, which are obtained from an analysis of 161 strategic alliances established by 31 MNC subsidiaries in the biotech industry during the period 1987 to 2010, confirm that subsidiaries are generally less innovative in alliances involving partners from other cultures. However, the impact of such cultural diversity becomes positive when those alliances focus on exploration activities, as the challenges of cultural diversity are offset by the benefits of exposure to novel cognitive schemes.