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Multinational Corporations (MNC) search increasingly for lead market knowledge and technological expertise around the globe. The authors investigate whether their subsidiaries gain access to these valuable sources of host country knowledge to the same degree as domestic rivals. They develop a theoretical framework for "Why" and "How" a lack of embeddedness and legitimacy (liability of foreignness) may translate into additional obstacles for foreign subsidiaries. They test these hypotheses empirically using a broad dataset of more than 1,000 innovative firms in Germany. They find that MNCs can compete on an equal footing with host country competitors when it comes to generating impulses for innovations from universities. They are significantly challenged by liabilities of foreignness, though, when host country customers are involved.
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