How Buyer-Seller Relationship Quality Influences Adaptation and Innovation by Foreign MNCs’ Subsidiaries

Based on embeddedness theory and transaction cost theory, this study explores the influences of innovation and adaptation, which benefit from relationship quality between the subsidiaries of foreign MNC and their local suppliers, on the corporate performance of foreign subsidiaries. In order to examine the hypothetic relationships, 104 subsidiaries of foreign MNCs operating in Taiwan were surveyed. The results indicate that the relationship quality, including social capital, information exchange, and frequency of contact, have positive impacts on innovation and adaptation. Additionally, innovation and adaptation function as the mediating mechanism delivering the beneficial influences of relationship quality to the foreign subsidiary's performance. These results imply that the foreign subsidiaries not only devote their resources to innovation for their own interest, but also adjust themselves and invest in the relationships with local suppliers.

► Relationship quality includes the social capital, information exchange, and frequency of contact.
► As to social capital, trust rather than commitment has positive impact on innovation.
► Information exchange is beneficial to innovation instead of adaptation.
► Frequency of contact with the local supplier is beneficial to innovation and adaptation.
► Both innovation and adaptation function as the mediating mechanism delivering the benefits of relationship quality.