Physical attraction and the geography of knowledge sourcing in multinational enterprises

Abstract

AbstractIn this article, we develop the concept of the degree of physical attraction exerted by the dominant firms in a local industry on other actors that increases the ease of local knowledge search for ‘insiders’ with stronger connections to others. Conversely, the physical attraction of dominant firms on other actors raises the difficulty of local knowledge search for ‘outsiders’ with weaker connections to others. Our theory has important implications for knowledge spillovers. As local industry concentration rises, the likelihood of local knowledge spillovers to outsiders falls, even with a high local knowledge stock. Further, in contrast to the strategic deterrence thesis which posits that technology leaders are deterred from entering clusters for fear of knowledge outflows, our theory implies that with high industrial concentration, it is technology laggards that are deterred, since they do not have the wherewithal to establish the local connections needed to access knowledge inflows. Using a large patent database associated with the U.K.‐based subsidiaries of non‐U.K. MNEs, we find strong support for our theory.