Knowledge sourcing:legitimacy deficits for MNC subsidiaries?

Multinational corporations (MNC) search increasingly for lead market knowledge andtechnological expertise around the globe. We investigate whether their subsidiaries gainaccess to these valuable sources of host country knowledge to the same degree as domesticrivals. We develop a theoretical framework for “why” and “how” a lack of embeddedness andlegitimacy (liability of foreignness) may translate into additional obstacles for foreignsubsidiaries. We test these hypotheses empirically using a broad dataset of more than 1,000innovative firms in Germany. We find that MNCs can compete on an equal footing with hostcountry competitors when it comes to generating impulses for innovations from universities.They are significantly challenged by liabilities of foreignness, though, when host countrycustomers are involved. The disadvantages are especially pronounced when the host countryindustry is at the technological forefront. We suggest that the disadvantages arising fromliability of foreignness in the host country are particularly relevant when promising leadcustomers have to be identified and their tacit and often unarticulated impulses have to betransferred, understood and prioritized.[...] Tobias Schmidt, Wolfgang Sofka