Creation and Exploitation of Knowledge in Multinationals The Importance of Local and Global Spillovers for Domestic and Foreign Exporters

This paper examines the importance of localized and global knowledge for innovative exporters by observing their embeddedness in regional innovation systems and international knowledge flow by using trade data on the openness of regional industries. The study distinguishes between new competence creation as proxied by patent applications and new competence exploitation captured by the frequency of launching new products on the export market. We compare the new knowledge creation in 1,000 domestically and foreign owned Multinational Enterprises (MNEs) in Sweden over the period 1997-2008, and new knowledge exploiting in 1,500 MNEs. Kogut (1993) suggests that knowledge is not just a cornerstone of competitive advantage but the basis for sustainable advantage but the basis for sustainable advantage since it cannot be easily transferred or replicated. Firms that are adept at the development, transfer, and exploitation of knowledge are therefore must likely to succeed. An organization cannot, however, develop within its boundaries all the critical knowledge needed to prosper and grow (Coase, 1937; Dussague, Gerette and Mitchell, 1998). Technological dynamism, reflected in an environment punctuated by competence-destroying technologies, has forced firms to maintain a wide range of technology and skills (Tushman and Anderson, 1986). Very few firm can develop this wide range of knowledge internally (Lane, Lyles and Salk, 1998). Consequently managers need to tap into external knowledge sources. Creating a broader knowledge base through external learning increases the flexibility of the firm, critical in a dynamic environment (Grant, 1996). Firms also need to be active in creating conduits to external environment that permit knowledge flows to the firm and in building communication channels and routines within the firm that allow for intra-firm knowledge transfer. However, recognition of, and access to vital knowledge alone does not ensure firm competitiveness in innovation and knowledge development. Managers must also foster capabilities that enable the firm to effectively utilize and integrate knowledge gained from multiple sources. They must exploit internal knowledge in conjunction with external knowledge to compete successfully, gain profitability, and grow. Our study seeks to shed light on the innovation and knowledge flow process of multinational firm from a home-country (domestic MNEs) and a host-country perspective (Foreign MNEs). We build on prior research and on insights from different strands of the literature that consider innovation and knowledge. We focus on the exporting multinational manufacturing enterprises corporation since it allows us to explore information on their introduction of new products on the export market, as a proxy for new knowledge exploitation (NKE). We also consider the new knowledge generation (NKG) perspective for these firms, by using information on patent applications.