Foreign affiliation

Differences in foreign affiliation between companies have been fairly under-investigated by extant literature addressing knowledge transfer through personnel mobility.

The presence of both MNCs subsidiaries and domestic firms within clusters have been largely acknowledged and observed (Nachum, Keeble 2003; Giuliani, Bell, 2005; Albu, Bell, 1999). The contribution of Singh (2007) based on patent data highlights the asymmetry of knowledge flows due to foreign affiliation and constitutes an important premise in trying to unfold the knowledge inflows and outflows between MNCs and domestic firms. Building on this and considering industrial clusters, Angeli, Grimaldi and Lipparini (2008a) captures the different types of knowledge flowing and the paths of knowledge flows between MNCs and

domestic firms through qualitative evidence. This suggests that, specifically addressing personnel mobility as the channel of knowledge flows, difference in foreign affiliation between firms needs to be accounted for. From a strategic point of view, the firm’s hiring policies in the local domain are likely to be different for MNCs subsidiaries and domestic firms.

MNCs’ perspective towards the local territory is radically different than the domestic firms’, for several reasons. MNCs decide to set up a subsidiary in a host country to look for new resources and new business opportunities, which can substantiate in new linkages towards local clients and suppliers. Considering the knowledge-seeking perspective, MNCs’

decision to locate a subsidiary within a high-tech cluster is driven by the proximity to key resources, such as excellence centres in cutting-edge technologies, academic institutions, easy availability of skilled talents, a general and widespread system of innovation which can be leveraged through proximity (Porter, 2000).

In this view, the social capital perspective adds in understanding the unfolding of MNCs’ hiring strategy in the local context, at two levels. Along the relational dimension, several contributions have observed the behaviour of MNCs’ subsidiaries in establishing relational embeddedness within the local domain. The study by Andersson, Forsgren and Holm (2002) interestingly proves the positive effects on performance of subsidiary’s relational embeddedness towards the host country. Relational embeddedness, as achieved through recurrent and strong linkages, favours the consolidation of trust and the transfer of increasingly tacit part of organizational knowledge. Following this line, personnel mobility and the subsequent firms’ hiring policy can be considered as the most micro-founded means to achieve local embeddedness. Indeed, employees’ inflows and outflows are able to affect the softer and more tacit sphere of organizational knowledge, the cognitive dimension, which is composed by high-order and low-order shared routines (Wezel et al., 2006), shared

language and code and common patterns of understanding (Madsen, Mosakowksy, Zaheer 2003).

To pursue local embeddedness both on the relational and on the cognitive level, it is of utmost importance for MNCs to apply measures to shape their social capital locally. The inflows of local personnel serve this purpose on a twofold basis. First, local employees can establish or enhance the proper cognitive framework for the subsidiary to better interact to the local domain. Second, local employees offer a thick bundle of both professional and personal individual ties to the local domain which provide the new employer with an incredibly reach relational resource to be leveraged. Thus, MNCs will try to attract as many people as possible from domestic firms in the local domain.

The perspective driving domestic firms’ hiring policies follows the same line of reasoning, producing a mirror imagine of the MNCs’ strategy, yet entailing a counter running force. Knowledge spillovers from MNCs to domestic firms are very well acknowledged for their capability to boost local learning and productivity. According to this perspective, the refined knowledge produced within MNCs at a global level and to a large scale can be sourced and internalized by domestic firms locally, adding to internal knowledge stock and organizational skills. Fosfuri et al. (2001) highlight three major channels leading to knowledge spillovers: alliances to local domain, demonstration effect and personnel mobility.

Thus, domestic firms have strong incentives in trying to attract personnel from MNCs.

Considering the two abovementioned and counter running arguments, we argue the first to be prevalent, thus conducing to an uneven distribution of knowledge flows between MNCs and domestic firms. Literature offers essentially two more reasons, now micro-founded, that help in understanding why MNCs are more likely to attract personnel than domestic firms locally. First, due to scale effect and to wage differentials especially when the host country is an emerging economy, MNCs are able to offer a substantial salary premium to

employers (Martins, 2008); second, MNCs benefit from a reputation effect due to international exposure. Both reasons add in smoothing the MNCs’ implementation of targeted recruitment policies aimed to attract local talents. In addition to that, MNCs are likely to enact incentive measures to prevent personnel holding key organizational knowledge to spill into the local domain.

Accordingly, we predict:

2a. Employees’ flows from domestic firms to MNCs are more likely than from MNCs to domestic firms.

Turning to the homogeneous knowledge flows in terms of foreign affiliation, different arguments can be expressed. MNCs, as we argued above, have strong incentives in trying to enhance their local embeddedness and to drain employees from domestic firms, in order to enhance their local social capital to leverage the local knowledge and skills (Singh, 2007). On the contrary, few incentives and high barriers can mitigate the efforts of MNCs to attract employees from other MNCs, which are thus more likely to devote their organizational efforts to implement effective hiring policies to attract local talents. The cognitive dimension of social capital further strengthens this argument: while domestic firms share a common geographical and cultural background, a shared language and shared cognitive schemes, MNCs carry very heterogeneous cultural roots, which can ultimately hinder the transfer of employees’ between one another. We thus argue:

2b. Employees’ flows between domestic firms is more likely than employees’

flows between MNCs.