The impact of cultural diversity on innovation performance of MNC subsidiaries in strategic alliances

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 more challenging in alliances involving subsidiaries of multinational companies (MNCs), as they embody a dual background that encompasses the cultures of their host and home country. We also propose that the effect of cultural diversity is contingent on the content of the alliance, being positive in explorative and negative in exploitative alliances. Our findings, obtained from an analysis of 161 strategic alliances established by 31 MNC subsidiaries in the biotech industry from 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.