Rationality vs ignorance: The role of MNE headquarters in subsidiaries’ innovation processes

Innovation processes in multinational enterprises (MNE) are largely context specific, and carried out at the subsidiary level. Therefore, corporate headquarters (HQ) involvement in these processes becomes a major issue. A typical assumption in international business (IB) theory is that HQ, based on its own knowledge, makes rational choices about its own involvement. However, according to some studies, HQ involvement can be assumed to be less rational, in the sense that it reflects not HQ knowledge but the normative expectations associated with the role of HQ as top manager. The purpose of this paper is to contrast these two perspectives by exploring their implications regarding the relationship between HQ knowledge about and HQ involvement in innovation processes at the subsidiary level, and regarding the impact of this potential involvement on innovation processes performance. The analysis results in six propositions and an illustrative case. Our contribution to IB research is primarily theoretical: we bring to the scene an alternative approach – the sheer ignorance perspective – with the potential to explain the behavior of key actors in the MNE. We argue, however, that the theoretical conflict between the two perspectives should be addressed by empirical research. We conclude with suggestions for the directions such research might take.