Geopolitical tensions and foreign R&D subsidiaries’ innovation performance: Evidence from emerging economy MNEs

In an era of intensifying geopolitical rivalries, emerging economy multinational enterprises (EMNEs) face unprecedented challenges in sustaining cross-border innovation, particularly as technological competition becomes increasingly entangled with national security agendas. Integrating the literature on geopolitics in international relations with EMNE subsidiary innovation, this study investigates whether and to what extent inter-country geopolitical tensions influence the innovation performance of EMNEs’ R&D subsidiaries in advanced economies. Using a sample of Chinese listed firms’ foreign R&D subsidiaries, we find that escalating geopolitical tensions between home and host countries significantly reduce the innovation output of these subsidiaries. Furthermore, the number of host-national innovation partners of a foreign R&D subsidiary can help mitigate the negative effect of geopolitical tensions on its innovation pursuits, while its local same-parent sisters can exacerbate this adverse impact. Our study enhances the understanding of how international politics affect EMNE subsidiary innovation and advances the political risk literature by revealing the role of subsidiary-level networks in shaping firm vulnerability to geopolitical disruptions.