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


Schmidt, Tobias ; Sofka, Wolfgang


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URL: http://ub-madoc.bib.uni-mannheim.de/1216
URN: urn:nbn:de:bsz:180-madoc-12169
Document Type: Working paper
Year of publication: 2006
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: F23 O31 O32 D83 ,
Subject headings (SWD): Deutschland , Globalisierung , Spill-over-Effekt , Fremdkultur
Abstract: 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.
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Schmidt, Tobias ; Sofka, Wolfgang (2006) Lost in Translation : Empirical Evidence for Liability of Foreignness as a Barrier to Knowledge Spillovers. Open Access [Working paper]
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