Knowledge sourcing: legitimacy deficits for MNC subsidiaries?

Tobias Schmidt and Wolfgang Sofka

No 2009,09, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: Multinational corporations (MNC) search increasingly for lead market knowledge and technological expertise around the globe. We investigate whether their subsidiaries gain access to these valuable sources of host country knowledge to the same degree as domestic rivals. We develop a theoretical framework for "why" and "how" a lack of embeddedness and legitimacy (liability of foreignness) may translate into additional obstacles for foreign subsidiaries. We test these hypotheses empirically using a broad dataset of more than 1,000 innovative firms in Germany. We find that MNCs can compete on an equal footing with host country competitors when it comes to generating impulses for innovations from universities. They are significantly challenged by liabilities of foreignness, though, when host country customers are involved. The disadvantages are especially pronounced when the host country industry is at the technological forefront. We suggest that the disadvantages arising from liability of foreignness in the host country are particularly relevant when promising lead customers have to be identified and their tacit and often unarticulated impulses have to be transferred, understood and prioritized.

Keywords: Liability of foreignness; knowledge spillover; globalization (search for similar items in EconPapers)
JEL-codes: D83 F23 O31 O32 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cse and nep-knm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:7578

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