Local and Global Knowledge Complementarity: R&D Collaborations and Innovation of Foreign and Domestic Firms

We analyze how research and development (R&D) collaborations affect product innovation for subsidiaries of foreign multinational firms and domestic firms. We build on the knowledge-based view to propose that subsidiaries and domestic firms differ in their ability to benefit from alternative R&D partners as a result of the variation in their knowledge complementarities. Specifically, we propose that subsidiaries may benefit more from undertaking R&D collaborations with customers and competitors, whose deeper knowledge of local conditions better complements the more global knowledge base of subsidiaries. In contrast, we argue that domestic firms may benefit more from engaging in R&D collaborations with suppliers and universities, whose more global nature of knowledge better complement the deeper local knowledge base of domestic firms.