Striking the Right Balance: Sources of Knowledge in International Expansion

The present paper builds on the assumption that the key resources possessed by multinational firms are knowledge-related. We focus our analysis on the role of codified knowledge for the internationalization of firms making explicit recognition of the fact that not all knowledge is internally generated but that some is sourced from external partners. Using a panel of 1,165 observations from 292 European firms over four years (2008-2011) we first considers the relationship between a firm’s overall codified knowledge base and its international scope and then we investigate the relative roles of internal and external knowledge. We found that knowledge and the international scope of firms are mutually dependent, but they do not indicate any simple line of causality. Our results also show that internally generated knowledge has a different impact than externally sourced knowledge. Internal knowledge helps firms to absorb and leverage knowledge from external sources, but the benefits of doing so diminish and eventually become negative as the externally sourced proportion increases beyond a certain point.