Advances in Management and Applied Economics

Can Foreign Firms Inhibit Knowledge Spillover to Local Firms? The Role of Innovation Capabilities and Tacit Knowledge

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• Abstract

  To date, the literature on knowledge spillover has tended to focus on how the presence of foreign firms affects the productivity of local firms. While knowledge spillover is beneficial to local firms, it is generally harmful to foreign firms. Foreign firms thus should devote significant attention to the prevention of knowledge spillover. Incorporating research on knowledge spillover and the knowledge-based view, this study examines the question of whether foreign firms’ innovation capabilities and tacit knowledge can reduce the amount of knowledge spillover. Examining 102 Taiwanese manufacturing firms operating in China, this study finds that innovation capabilities have an inverted U-shaped relationship with knowledge spillover, while tacit knowledge has a negative relationship. Additionally, while locating within agglomerations can lead to access to valuable local resources, it may also serve to accelerate knowledge spillover to local firms. This study suggests that the positive relationship is stronger when innovation capabilities is intermediate; however, the positive relationship is likely to weaken when innovation capabilities is high. Finally, tacit knowledge leads to a lessening of the positive relationship between agglomeration and knowledge spillover.