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Innovation Activities Abroad and the Effects of Liability of Foreignness: Where it Hurts

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  • Sofka, Wolfgang
Abstract
The innovation activities of foreign subsidiaries have been identified as an important source of competitive advantage for multinational corporations. The success of these engagements depends heavily on tapping host country pools of localized expertise. To achieve this foreign subsidiaries have to overcome cultural and social barriers (liability of foreignness). We derive potential stumbling blocks in the innovation process theoretically and argue that these materialize as neglected projects, cancellations or budget overruns. We test these hypotheses empirically for more than 1,000 firms with innovation activities in Germany from various sectors. We find that foreign-controlled firms are not challenged by liability of foreignness at the project mobilization stage. The lack of local embeddedness becomes more binding as projects have to be prioritized and managed which we identify as more frequent mistakes and delays. We argue that this is the result of shared practices within the multinational firm that do not readily fit into the local context. Finally, we derive management recommendations how foreign innovation engagements can achieve similar levels of effectiveness and efficiency as host country competitors.

Suggested Citation

  • Sofka, Wolfgang, 2006. "Innovation Activities Abroad and the Effects of Liability of Foreignness: Where it Hurts," ZEW Discussion Papers 06-029, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:4613
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    Citations

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    Cited by:

    1. Andrea Fernández-Ribas & Philip Shapira, 2009. "Technological diversity, scientific excellence and the location of inventive activities abroad: the case of nanotechnology," The Journal of Technology Transfer, Springer, vol. 34(3), pages 286-303, June.
    2. Sofka, Wolfgang & Zimmermann, Jörg, 2008. "Regional economic stress as moderator of liability of foreignness," Journal of International Management, Elsevier, vol. 14(2), pages 155-172, June.
    3. Wolfgang Sofka & Jörg Zimmermann, 2007. "Regional Dimensions of Liability of Foreignness: Between a Rock and a Hard Place?," Papers on Entrepreneurship, Growth and Public Policy 2007-12, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    4. Kaiser, Ulrich & Sofka, Wolfgang, 2006. "The pulse of liability of foreignness: dynamic legitimacy and experiences effects in the German car market," ZEW Discussion Papers 06-070, ZEW - Leibniz Centre for European Economic Research.
    5. Hsu, Chia-Wen & Lien, Yung-Chih & Chen, Homin, 2015. "R&D internationalization and innovation performance," International Business Review, Elsevier, vol. 24(2), pages 187-195.
    6. Jiang, Chuandi & Zhao, Xing, 2020. "The Role of Foreignness in the Relationship between Disruptive Innovation and MNE Performance," American Business Review, Pompea College of Business, University of New Haven, vol. 23(1), pages 18-34, May.
    7. Tiwari, Rajnish & Buse, Stephan & Herstatt, Cornelius, 2007. "Innovation via global route: Proposing a reference model for chances and challenges of global innovation processes," Working Papers 49, Hamburg University of Technology (TUHH), Institute for Technology and Innovation Management.
    8. Bernhard Dachs & Bernd Ebersberger, 2009. "Does foreign ownership matter for the innovative activities of enterprises?," International Economics and Economic Policy, Springer, vol. 6(1), pages 41-57, June.
    9. Stephan Buse & Rajnish Tiwari & Cornelius Herstatt, 2010. "Global Innovation: An Answer To Mitigate Barriers To Innovation In Small And Medium-Sized Enterprises?," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 215-227.
    10. Kerstin J. Schaefer & Ingo Liefner, 2017. "Offshore versus domestic: Can EM MNCs reach higher R&D quality abroad?," Scientometrics, Springer;Akadémiai Kiadó, vol. 113(3), pages 1349-1370, December.
    11. Tiwari, Rajnish & Buse, Stephan, 2007. "Barriers to innovation in SMEs: Can the internationalization of R&D mitigate their effects?," Working Papers 50, Hamburg University of Technology (TUHH), Institute for Technology and Innovation Management.

    More about this item

    Keywords

    Liability of foreignness; offshoring R&D; internationalization; innovation management;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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