PERMEABILITY TO INTER- AND INTRAFIRM KNOWLEDGE FLOWS: THE ROLE OF COORDINATION AND HIERARCHY IN MNEs

Multinational enterprises (MNEs) actively participate in both inter-and intrafirm knowledge flows. But what distinguishes intrafirm knowledge flows from those across firms? Are they essentially the same with 'more of it' going on intrafirm, or is there a fundamental qualitative difference between the two? This research sheds light on this issue by empirically comparing the evolution of intra- and interfirm knowledge flows using patent citations. Specifically, I study the integration of greenfield and acquired subsidiaries in the external and internal contexts of the firm over time. Not only is the development of intrafirm knowledge flows affected by the greater coordination within the firm, the existence of hierarchy enables asymmetric knowledge flows within the firm. Consequently intrafirm knowledge flows in contrast to interfirm flows, can be one-sided and not conditioned by reciprocity. In terms of practical implications, these results reveal that acquired subsidiaries become less connected with external knowledge over time, indicating that they achieve greater internal integration at the expense of their external integration. The evolution of greenfield units does not reveal such an internal-external trade-off. This study suggests major differences between the mechanisms of intra-and interfirm knowledge flows, and highlights the role of coordination and hierarchy as key determinants of intrafirm knowledge flows, MNE strategies, and innovation. Copyright (C) 2011 Strategic Management Society.