When does historical context matter? Explaining the emergence of competence-creating subsidiaries

Abstract Despite thorough attention to how context shapes subsidiary behavior, very little IB research has explored the dynamic impact of disruptive changes in historical context on organizational innovations in MNEs. Existing IB theory has robustly theorized the growth of competence-creating subsidiaries from the 1980s to the 2000s. However, our historical research demonstrates that this body of existing theory fails to explain an equally significant growth in subsidiaries with protean competence-creating characteristics from 1945 to 1970. We show that the introduction of the U.K. National Health Service in 1948 precipitated a major upgrade of research capabilities among a near majority of the population of subsidiaries in U.K. pharmaceuticals by 1970. Synthesizing from both IB and literature on historical methods, we analyze the impact of this disruptive transformation in context, identifying the specific mechanisms that produced the rapid growth in what we identify as proto-competence-creating subsidiaries. This occurred in response to a dramatically new context, in ways that differ from those predicted by current theoretical explanations, and led to an institutional innovation hitherto unknown to IB. The implications of this are significant in a contemporary moment of rapid institutional disruption, when existing conceptualizations of subsidiary behavior may increasingly fail to capture real-world dynamics.