The Effects of Global Knowledge Reservoirs on the Productivity of Multinational Enterprise: The Role of International Depth and Breadth

This study rests upon the premise that differences in the productivity performance of multinational enterprises (MNEs) stem from variations in their ability to access and combine globally distributed knowledge reservoirs within one organization. Its contribution lies in demonstrating that this important source of variation is determined by (a) the idiosyncratic manner in which the MNE’s network of subsidiaries is structured, (b) the international breadth and depth of this network and (c) its location choices in the global landscape. We find that when multinationals spread their operations across many geographical markets, they benefit from knowledge externalities more than when they concentrate their activities in few countries. We further show that the ability to exploit spatially distant knowledge depends not only on idiosyncrasies specific to the MNE, but also on exogenous forces associated with international variations in appropriability regimes and industry specific technological opportunities. As our study considers how the subsidiaries of the MNE collectively influence the productivity of the entire group, it captures complementarities and synergies within the group, and deepens understanding of how MNE-specific and location bound factors jointly shape performance outcomes.