Author Description

When building up competences, a subsidiary of a multinational corporation (MNC) may rely on external knowledge sources like customers, suppliers, competitors or local science centers. Internal sourcing is also available through knowledge offered by headquarters or other affiliates. The question is whether the two kinds of sources are mutual exclusive. A dilemma or organizational trade-off is foreseeable, since the more the subsidiary adapts its knowledge creation processes to host country institutions, the less it will be able to utilize internal knowledge sources due to the institutional distance between the external and internal networks. However, newer organizational forms, like the concept of the "differentiated MNC", imply a relatively smooth flow of knowledge inside the MNC, indicating that we should not expect an organizational trade-off between internal and external sources. The subsidiary's ability to build on two knowledge networks depends on its scale of resources, absorptive capacity and the role it plays in the corporation. The relationship between internal and external sourcing is tested using a unique dataset that covers more than 2,000 subsidiaries located in seven different European countries (the Centre of Excellence Project). In fact, the results show that, to a certain extent, there is no dilemma between a subsidiary's knowledge development based on both internal, and external knowledge sources. However, the results also show a bell-shaped relationship between the use of internal and external sources, where a heavily embedded use of internal sources excludes the use of external sources. Keywords: Internal sourcing, External sourcing, Institutional Isomorphism and Subsidiary knowledge.