The green innovation advantage of multinational firms

Multinational corporations have a great potential to develop green innovation — and they should use this advantage to lead the way to a sustainable future.

Valentina De Marchi

As firms worldwide face mounting pressures to contribute to the fight against the climate crisis, research from Valentina De Marchi (Esade), Giulio Cainelli and Roberto Grandinetti (University of Padova) – that recently received the best paper award by International Business Review – suggests we should reshape how we view the role of multinational companies in green innovation (GI). 

Current literature presents contrasting views on the environmental performance of multinational subsidiaries. While much research argues that global corporations use their size and dominance to identify and exploit locations with lax regulations, the findings from De Marchi, Cainelli and Grandinetti, paint a different picture.

A key advantage of MNCs is their ability to combine global and local knowledge

One of the key differences between international and domestic firms identified in the research, is the ability of MNCs to combine global and local knowledge. This aspect is particularly related to an enhanced capacity to collaborate with subsidiaries, the researchers say.  

The conclusions provide an important new perspective on the potential role of MNCs in sustainable development and innovation in foreign countries. 

Clarifying the complexities of green innovation

The complexities of assessing green innovation (GI) — which the researchers define as new products, processes or business models that prevent or reduce environmental damage, pollution and other negative impacts caused by using natural resources — are particularly high as there are no widely accepted standards of either technological solutions or the measures used to evaluate performance.  

To provide clarity in this complicated area, the researchers posed two hypotheses. The first examined whether a multinational subsidiary is more likely than a domestic firm to introduce GI. The second, three-part, hypothesis looked at whether a subsidiary collaborating with external partners, or with other subsidiaries or the MNC headquarter is more likely to introduce GI than subsidiaries that do not. 

Setting the standards

The study, the first to examine whether subsidiaries outperform domestic firms in green innovation, analyzed a large European dataset on innovation in manufacturing firms drawn from the Community Innovation Survey (CIS), carried out by Eurostat every two years. The data was collected from more than 39,000 manufacturing firms across 14 European countries

Researchers established a set of nine variables to investigate the environmental benefits of new innovation: 

  • The reduction of material or water consumption per output unit 
  • The reduction of energy or carbon dioxide per output unit 
  • Reduced air, water, noise or soil pollution  
  • Replacing materials with less hazardous substitutes 
  • Replacing fossil energy with renewable sources 
  • Reducing the energy or C02 used by a product 
  • Reducing the air, water, noise or soil pollution used by a product 
  • Promoting consumer recycling 
  • Extending the life of the product 

Collaborate to innovate

The first analysis, comparing the outputs of domestic and subsidiary firms, confirmed that MNCs are significantly more likely to introduce green technology in accordance with the variables measured.

The more successful aspects of green innovation were related to knowledge flows in which subsidiaries are embedded given the global nature of MNCs

The main reason for this advantage, the researchers say, is the embedded knowledge and availability of global resources. These knowledge flows, scarcer for domestic firms, enable the development of GI.

The more detailed assessment of the types of subsidiaries allowed the researchers to shed a more detailed light on the aspects of the collaboration. And, while the international aspect did present a distinct advantage, it wasn’t typical of all types of subsidiaries.

The more successful aspects of GI were related to the organization of the MNC, and their willingness to provide the mandate and resources to facilitate the GI process to subsidiaries. A slight variation was observed depending on the innovation culture of the country in which the subsidiary was located: those seen as more innovative were 10.4 percent more likely to introduce GI, with less innovative countries having a six percent probability.

Leading the way

The results, overall, confirm that MNCs have a higher likelihood of becoming green innovators compared to domestic firms. The higher level of exposure to diverse environmental issues and greater access to resources gives them a competitive edge over national companies. 

The results move the conversation away from the willingness of firms to introduce GI towards their ability to do so

The researchers say that these results move the conversation away from the willingness of firms to introduce GI, towards their ability to do so. They suggest that further research could investigate the issues behind the relationships of MNCs and their subsidiaries and how they affect GI performance. Headquarter locations, innovation strategies and control mechanisms could all play a key role.

The researchers also stressed the importance of the relationships between MNCs, their foreign subsidiaries and local partners — all of which are particularly relevant in the creation and delivery of global innovation strategies.

Ultimately, they conclude, MNCs can lead the way in the achievement of the sustainable development goal agenda — where there’s a will, there’s a way.

All written content is licensed under a Creative Commons Attribution 4.0 International license.