Lost in Translation: Empirical Evidence for Liability of Foreignness as a Barrier to Knowledge Spillovers

Arbeitspapier

Entering 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 06-001

Classification and Topics

• Classification: Wirtschaft ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Multinational Firms; International Business ; Innovation and Invention: Processes and Incentives ; Management of Technological Innovation and R&D
• Subject: Liability of foreignness ; knowledge spillover ; globalisation ; trivariate probit ; Innovation ; Wissenstransfer ; Multinationales Unternehmen ; Deutsch ; Lieferanten-Kunden-Beziehung ; Globalisierung ; Multikulturell ; Schätzung ; EU-Staaten ; OECD-Staaten ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Sofka, Wolfgang ; Schmidt, Tobias
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/24193
• Last update: 10.03.2025, 11:44 AM CET