Lost in Translation: Empirical Evidence for Liability of Foreignness as a Barrier to Knowledge Spillovers
AbstractEntering host country networks of knowledge flows (new competencies, innovative technologies, and lead-market knowledge) is a major rationale of multinational firms for investing abroad. Foreign firms find it difficult to overcome cultural and social barriers which make their foreign engagements more strenuous and error prone (liability of foreignness). In our analysis we break down the complex mechanisms behind knowledge spillovers and identify conceptual links with liability of foreignness. We hypothesise that liability of foreignness acts as a filter for foreign firms, restricting their access to host country knowledge. We use a broad sample of roughly 1,000 firms in Germany to empirically test the existence of liabilities of foreignness in leveraging knowledge spillovers. Our particular setting allows us to distinguish between upstream (suppliers, academia) and downstream (customers) liabilities of foreignness. We find that multinational firms can compete on an equal footing with host country rivals when it comes to generating impulses for innovations from suppliers and academia. They are significantly challenged by liabilities of foreignness, though, where customers are involved. We suggest that the frictional losses from a lack of social and cultural embeddedness (liability of foreignness) in the host country are especially relevant when promising lead customers have to be identified and their tacit and often unarticulated impulses have to be transferred, understood and prioritised. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-01.
Date of creation: 2006
Date of revision:
Liability of foreignness; knowledge spillover; globalisation; trivariate probit;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-17 (All new papers)
- NEP-INO-2007-02-17 (Innovation)
- NEP-KNM-2007-02-17 (Knowledge Management & Knowledge Economy)
- NEP-NET-2007-02-17 (Network Economics)
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- Kaiser, Ulrich & Sofka, Wolfgang, 2006.
"The pulse of liability of foreignness: dynamic legitimacy and experiences effects in the German car market,"
ZEW Discussion Papers
06-70, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Ulrich Kaiser & Wolfgang Sofka, 2007. "The Pulse of Liability of Foreignness: Dynamic Legitimacy and Experience Effects in the German Car Market," CIE Discussion Papers 2007-01, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
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