Elsevier

Research Policy

Volume 39, Issue 7, September 2010, Pages 956-968
Research Policy

Knowledge protection strategies of multinational firms—A cross-country comparison

https://doi.org/10.1016/j.respol.2010.03.005Get rights and content

Abstract

International knowledge spillovers, especially through multinational companies (MNCs), have recently been a major topic of discussion among academics and practitioners. Most research in this field focuses on knowledge sharing activities of MNC subsidiaries. Relatively little is known about their capabilities for protecting valuable knowledge from spilling over to host country competitors. We extend this stream of research by investigating both formal protection strategies (e.g. patenting) as well as strategic ones (secrecy, lead time, complex design). We conceptualize the breadth of firm's knowledge protection strategies and relate it to the particular situation of MNC subsidiaries. Moreover, we argue that their approaches differ with regard to host country challenges and opportunities. We address these issues empirically, based on a harmonized survey of innovation activities of more than 1800 firms located in Portugal and Germany. We find evidence that MNCs prefer broader sets of knowledge protection strategies in a host country with fewer opportunities for knowledge sourcing (Portugal). In Germany, though, they opt for narrower sets of knowledge protection strategies if they invest in innovation activities themselves. We deduce that these results are due to a need for reciprocity in knowledge exchanges to benefit fully from promising host country knowledge flows.

Introduction

Global economic growth is spurred by international knowledge transfers (Romer, 1990). Multinational companies (MNCs) and their international subsidiaries have been identified as major channels for these knowledge flows (see for example Kogut and Zander, 1993). Against this background, innovation activities of MNCs abroad have been an important theme of discussion for both academics and practitioners. International business literature has primarily focused on MNCs knowledge acquisitions in host countries (e.g. Almeida and Phene, 2004) while international economics literature concentrates on spillovers from MNCs to host country firms (e.g. Keller, 2002). The topic has also caught the attention of policy makers, prompting many governments to provide substantial financial support for MNC investment in their country or region (e.g. Daimler AG investing in Alabama or Motorola in Scotland, Haskel et al., 2007).

However, as Alcácer and Chung (2007) point out, research has paid relatively little attention to MNCs strategies for preventing knowledge spillovers or has treated MNCs subsidiaries as rather passive actors in host country knowledge exchanges. One reason for this discrepancy may be that major studies in the field of international economics and business research use patenting, the most prominent form of knowledge protection, to trace knowledge spillovers, instead of inquiring about firms’ strategies to protect knowledge (e.g. Jaffe et al., 1993, Audretsch and Feldman, 1996). Our goal is to contribute to the analysis of MNC knowledge management by investigating the knowledge protection strategies of MNC subsidiary managers. More precisely, we focus on the protection methods that subsidiary managers put in place to shield firms’ knowledge from spilling over to competitors. If successful, these protection methods enable firms to appropriate the economic returns from their investments in knowledge production through R&D activities (Arrow, 1962). We go beyond formal forms of knowledge protection (patents, copyrights, trademarks), which rest upon legal protection, and include strategic ones (secrecy, lead time, complex design), which are built around organizational processes and procedures. These knowledge protection strategies vary widely with regard to how firms are able to apply them (e.g. firm size) and their effectiveness in protecting knowledge (e.g. Harabi, 1995). Hence, we consider the various forms of knowledge protection instruments an MNC subsidiary manager may use to generate breadth in its knowledge protection strategy. We connect this discussion to the specific needs and opportunities of MNCs. In addition, we argue that these arrangements reflect different host country threats and opportunities in knowledge exchanges. We address these issues empirically with data from the European Community Innovation Survey 2001 (CIS) for more than 1800 firms from Portugal and Germany. The harmonized survey provides us with the unique opportunity to compare MNC knowledge protection strategies in host country environments that differ significantly.

This setting enables us to derive important recommendations for both managers and policy makers. First, the presence of foreign MNCs in a host country has been considered a source of competitive advantage because of valuable knowledge that may spill over to domestic firms. Governments have gone to great length to attract MNC investments (e.g. Haskel et al., 2007). However, this perspective needs to be re-evaluated if MNC subsidiaries can effectively prevent the assumed knowledge flows. Secondly, the underlying knowledge exchange mechanisms have been found to differ significantly between low- and high-technology host countries (for a recent review see Meyer and Sinani, 2009). A comparison of Portugal and Germany based on a harmonized survey enables us to investigate and empirically validate how the differences in knowledge sourcing opportunities are reflected in MNC's protection strategies. Hence, recommendations can be derived that reflect the distinctive context of managers and policy makers in both high- and low-technology environments.

This paper is structured as follows. Section 2 presents our conceptual framework of international knowledge flows and knowledge protection methods. It concludes with the development of hypotheses based on this discussion. Section 3 presents the empirical study for testing these hypotheses; the results follow in Section 4. We discuss them in Section 5, draw conclusions and suggest some pathways for future research in Section 6.

Section snippets

Knowledge protection in MNC innovation activities

The advantages of multinational firms for transferring knowledge across borders have been conceptualized in several ways, such as the internalization of transaction costs (e.g. Buckley and Casson, 1981), differentiated networks that provide a fit with varying environmental and resource contingencies (e.g. Ghoshal and Nohria, 1989) or social communities spanning borders (e.g. Kogut and Zander, 1993). Research in international economics has focused on their potential to transfer knowledge to the

Data

The quantitative analysis of our hypotheses requires the comparison of at least two different host country environments with different characteristics. We test our hypotheses through a harmonized survey for Portugal and Germany. Both countries are part of the European Union and use the single European currency Euro. Hence, they are comparable countries with regard to basic economic infrastructure. However, important differences remain, making the comparison between both countries a good fit for

Results

Table 3 presents the marginal effects at the mean value of each continuous variable and the discrete change between 0 and 1 of each binary variable included in our multivariate estimations. These results allow the comparison of the determinants of knowledge protection in Portugal and Germany. We estimate separate, identical models for Portugal and Germany because legal restrictions and confidentiality agreements prevent merging both datasets. We estimate two models for each country sample.

Conclusions

Our study investigates the choices of MNC subsidiary managers with regard to knowledge protection strategies including not only formal methods (patents, copyrights, trademarks) but also strategic ones (secrecy, lead time, complex design). We conceptualize firm's breadth of knowledge protection strategies and its unique relevance for MNCs compared to domestic firms. Moreover, we argue that these approaches differ with regard to host country challenges and opportunities.

Our empirical findings are

Future research

Our study has certain limitations which may provide fruitful paths for future research projects. First, our measures for firms’ knowledge protection strategy may give a coarse reflection of the underlying construct. We conduct several consistency checks to test their robustness. Future studies may develop more fine-grained constructs. Secondly, we find relatively few Portuguese MNC subsidiaries in our existing German dataset and vice versa. A dedicated study may reveal important differences or

Acknowledgments

The authors would like to thank Francisco Lima, Christian Geisler Asmussen, Torben Pedersen, Christian Rammer, Peter Rodriguez, Thorsten Teichert, Rob van Tulder, Franco Malerba, Joana Mendonça, Wilfred Dolfsma, and two anonymous referees for their valuable comments. We also thank the participants and organizers of the JIBS paper development workshop as part of the Academy of International Business 2008 as well as the research seminar of the Center for Strategic Management and Globalization at

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