This study delves into multinational enterprises' (MNEs) strategic establishment of foreign subsidiaries to foster innovation expansion. Historically rooted in familiar areas, MNEs are venturing into diverse country settings over time. The resultant cultural disparities between parent companies and recently established and more mature subsidiaries prompt an exploration of potential differences in innovation engagement. At the same time, it necessitates differential treatment for optimal innovation outcomes and the role that subsidiary boards play in this process. Through a survey of 199 subsidiaries, this research scrutinizes the intricate linkages between cultural distance, foreign subsidiary board engagement, and innovation activities. Findings highlight the pivotal role of cultural divergence in shaping both explorative and exploitative innovation within subsidiaries, particularly in tandem with board involvement intensity. The study underscores nuanced strategies for culturally close subsidiaries: heightened board engagement, specifically in advisory, monitoring, and coordination roles, positively impacts explorative innovation. Similarly, to bolster exploitative innovation in such subsidiaries, intensive advising of both subsidiary and parent boards are crucial. Conversely, in culturally distant subsidiaries, a calibrated approach emerges. To avoid diluting desired innovation outcomes, boards should curtail involvement compared to close subsidiaries, striking a balance that aligns with achieving comparable innovation results. This research emphasizes the intricate relationship between cultural proximity, board participation, and innovation strategies in foreign subsidiaries, advocating a more tailored approaches to optimize subsidiary innovation outcomes.
