Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation

Abstract

Abstract. Firms are social communities that specialize in the creation and internal transfer of knowledge. The multinational corporation arises not out of the failure of markets for the buying and selling of knowledge, but out of its superior efficiency as an organizational vehicle by which to transfer this knowledge across borders. We test the claim that firms specialize in the internal transfer of tacit knowledge by empirically examining the decision to transfer the capability to manufacture new products to wholly owned subsidiaries or to other parties. The empirical results show that the less codifiable and the harder to teach is the technology, the more likely the transfer will be to wholly owned operations. This result implies that the choice of transfer mode is determined by the efficiency of the multinational corporation in transferring knowledge relative to other firms, not relative to an abstract market transaction. The notion of the firm as specializing in the transfer and recombination of knowledge is the foundation to an evolutionary theory of the multinational corporation.The study of the multinational corporation has tended to be divided by perspectives ranging from economics, to organizational theory, and history and politics. These perspectives are complementary insofar that the multinationalcorporationis an economic organizationthatevolves from its national origins to spanning across borders. The cornerstone of this evolutionary

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