Local, global, and internal knowledge sourcing: the trilemma of foreign-based R&D subsidiaries

Abstract

Multinational Enterprises (MNEs) develop and sell their products and services in a global market, but also have the ability to source knowledge from local, global and intra-MNE networks. We argue that sourcing knowledge from each of the three networks is contingent upon factors, such as the strategic choice made by the headquarters about the role of the research and development (R&D) subsidiary, the scientific richness of the host location, and the institutional (i.e. IPR - Intellectual Property Rights) distance between the home and host locations. We test our hypotheses on a dataset of 89 foreign-based R&D subsidiaries of Fortune 500 MNEs. Our results indicate that R&D subsidiaries with support lab mandates are less likely to use host and internal (intra-MNE) sources of knowledge and more likely to use the home location’s sources of knowledge. Internationally independent labs are less likely to source knowledge from internal networks. Our findings show also that the scientific capability and availability of a technically skilled workforce in the host location is associated with the R&D subsidiary’s use of local, rather than internal knowledge sources. Finally, we find that weak IPR spurs the use of local knowledge sources, suggesting a role for technological spillovers.