International Knowledge Transfer: an integrated analysis of antecedents, consequences and time patterns of the FDI knowledge spillover effect

This thesis is concerned with the process of international knowledge transfer mediated by multinational corporations’ Foreign Direct Investment. Answering to International Business scholars’ recent call for a deeper analysis of the multinational firms’ strategic behaviour at the level of the subsidiary, it explores the theoretical drivers behind the active role foreign subsidiaries can play in influencing the process of knowledge dissemination within the host-location. Using two different datasets on foreign subsidiaries’ local innovative activity and business linkages with domestic suppliers and distributors, the empirical analysis lends support for established theorizing about multinational firms’ trade-off between the opportunity to learn from the host-environment and the risk to lose control over their proprietary knowledge assets, due to the local spillover effect. Moreover, shifting the focus of the analysis from the head-quarter to the foreign subunits, the results reveal that subsidiaries actively manage these knowledge flows within their host-locations, to the aim of fostering incoming information (in terms of both technology and knowledge of the local business network and market), while at the same time restricting outward spillovers. It is also shown that, in order to manage these knowledge flows, foreign subsidiaries adapt their investment in local interaction with domestic firms to both internal and external factors. More specifically, the results suggest that increasing competitive pressure fosters the importance of sourcing resources for innovation from the local context. However, when competition becomes too high, subsidiaries tend to lower the extent of close interaction with local counterparts, in order to protect their competitive assets from the increased risk of knowledge spillover in the external environment. Furthermore, this relationship is moderated by the extent to which the subsidiaries possess relevant competitive assets. In other words, especially capable subsidiaries in very competitive environments tend to shy away from strong interaction with local firms, since under such circumstances the risk of spillovers is larger than the potential benefits of learning. This thesis also makes a theoretical contribution by combining International Business literature with Open Innovation perspectives to develop a framework for the analysis of the time patterns of the knowledge flows between foreign and domestic firms. Specifically, it motivates the importance – for firms’ competitiveness - of evaluating the speed at which this phenomenon takes place.This thesis is concerned with the process of international knowledge transfer mediated by multinational corporations’ Foreign Direct Investment. Answering to International Business scholars’ recent call for a deeper analysis of the multinational firms’ strategic behaviour at the level of the subsidiary, it explores the theoretical drivers behind the active role foreign subsidiaries can play in influencing the process of knowledge dissemination within the host-location. Using two different datasets on foreign subsidiaries’ local innovative activity and business linkages with domestic suppliers and distributors, the empirical analysis lends support for established theorizing about multinational firms’ trade-off between the opportunity to learn from the host-environment and the risk to lose control over their proprietary knowledge assets, due to the local spillover effect. Moreover, shifting the focus of the analysis from the head-quarter to the foreign subunits, the results reveal that subsidiaries actively manage these knowledge flows within their host-locations, to the aim of fostering incoming information (in terms of both technology and knowledge of the local business network and market), while at the same time restricting outward spillovers. It is also shown that, in order to manage these knowledge flows, foreign subsidiaries adapt their investment in local interaction with domestic firms to both internal and external factors. More specifically, the results suggest that increasing competitive pressure fosters the importance of sourcing resources for innovation from the local context. However, when competition becomes too high, subsidiaries tend to lower the extent of close interaction with local counterparts, in order to protect their competitive assets from the increased risk of knowledge spillover in the external environment. Furthermore, this relationship is moderated by the extent to which the subsidiaries possess relevant competitive assets. In other words, especially capable subsidiaries in very competitive environments tend to shy away from strong interaction with local firms, since under such circumstances the risk of spillovers is larger than the potential benefits of learning. This thesis also makes a theoretical contribution by combining International Business literature with Open Innovation perspectives to develop a framework for the analysis of the time patterns of the knowledge flows between foreign and domestic firms. Specifically, it motivates the importance – for firms’ competitiveness - of evaluating the speed at which this phenomenon takes place.LUISS PhD Thesi