Sourcing by MNEs – a Complex Process of Local Interaction

In this paper, we seek to explain the key determinants of highly localized knowledge exchange between foreign-owned subsidiarie s and the host environment. By drawing upon the literature on the multinational enterprise (MNE) and the geographic dynamics of technological activity, we develop and test a set of hypotheses that account for the characteristics of highly localized (or regionally bounded) technology sourcing by these subsidiaries in Germany. The hypotheses are tested by analysing the locational and institutional origins of citations associated with over 12,000 patents granted by the USPTO to the foreign-owned subsidiaries of large firms for their research activity in Germany. We find that, amongst others, sourcing tends to be more localized for technologies that can be categorized as ‘sticky’, for those that are science-based, for those that have been more recently developed, and when drawing upon knowledge created by non-corporate institutions. Of these, the classification of technologies as sticky or as science-based implies the most strictly localized knowledge sourcing, in the sense of relying on sources within the same region, and not from other regions within Germany.