Drawing on the business network theory and the resource-based view, we investigate the moderating role of R&D intensity on the relationship between subsidiaries’ external embeddedness in a host country and the probability of subsidiary product innovation. Using data from 402 subsidiaries located in Vietnam, the Probit regression results revealed that the higher the subsidiary’s embeddedness with local sales and local input suppliers in a transition economy, the higher the probability that it will achieve product innovation. R&D intensity positively moderates such associations. Our finding extends the argument of the business network theory by stressing the need of MNEs to use their foreign subsidiaries in transition economies to gain local knowledge and other resources from local sales agents and local input suppliers; they can do so by embedding themselves into the environment and simultaneously using these sources and internal resources to strengthen their product innovation possibilities.