Combinative Capabilities, Internal Global Sourcing and Technology Diversification in MNCs

Although MNCs are in the best theoretical position to tap into and combine diverse technology that exists across their operations, extant research offers very little to help us understand technology diversification within MNCs. This paper explores how increased manufacturing capabilities and specialization in foreign operations contributes to technological diversification in MNCs that can lead to innovations that combine new technology domains from the local host country market with existing MNC technology domains. A unique dataset that combines comprehensive data on the worldwide operations of US MNCs from the Bureau of Economic Analysis (BEA) with data on the worldwide patents of these firms from the Derwent Worldwide Patent Index (DWPI), confirms that those foreign operations that provide more inputs and final products to parent and third country operations are significantly more likely to generate innovations that combine new technology domains with existing MNC technology domains. Overall, this paper explores how internal global sourcing activities can allow foreign operations to achieve a balance across a strong parent influence and local host country knowledge, which not only increases the technology diversity for the MNC, but also enhances the prominence, visibility and combinative capabilities of the foreign operation.