Chapter 3: Market Contact and Knowledge Sourcing
3.1 INTRODUCTION This chapter addresses a particular stream in the international business literature that advances the argument that the sourcing of knowledge via foreign market participation helps to inform the innovation production function of the focal ﬁrm. While under certain circumstances ﬁrms acquire knowledge and technologies by investing abroad, we know less about whether ﬁrms can absorb knowledge outside their national borders without making such cross-border investments. I will argue that exporting ﬁrms stand to gain some of the same knowledge-based advantages associated with asset-seeking FDI, without having to make the capital investment. 3.2 ASSET-SEEKING AND FOREIGN DIRECT INVESTMENT A basic premise of research on multinational ﬁrms is that in order to succeed internationally, a ﬁrm must possess certain advantageous assets and capabilities (Hymer, 1970, 1976; Buckley and Casson, 1976). This advantage is initially developed in domestic operations. Once the ﬁrm develops a competitive advantage in the home country, it can then exploit these advantages in other countries. This has been referred to as an assetbased (or internalization) theory of international expansion; that is, ﬁrms with valuable intangible assets and capabilities are most likely to beneﬁt from international operations (Caves, 1996; Morck and Yeung, 1991, 1992). Recently, scholars have oﬀered an alternative inducement to engaging in foreign direct investment. Researchers have argued that since parent ﬁrms can access knowledge from various subsidiaries within a multinational corporation (MNC), a ﬁrm may expand in order to source knowledge residing in foreign countries by ﬁltering it through its subsidiaries (for example,...
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