The potential of cultural diversity on spillover effects from southern MNCs in Europe: Evidence from Switzerland
Exchange scientist
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Racha Khairallah, PhD student
Supervisor at Swiss institution
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HES-SO, Haute école de gestion ARC, Neuchâtel: Lamia Ben Hamida
Supervisor at MENA institution
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Ecole supérieure de commerce de Sfax, Tunisia: Feki Rochdi
Presentation of the projet
This study examines whether southern multinational corporations (MNCs) contribute to the economic development of Switzerland. It differs from previous ones with respect to three main points: first, it offers a first picture of foreign direct investment (FDI) intra-and inter-industry spillovers from southern MNCs by distinguishing these effects according to their FDI motivation. Second, it hypothesizes that the size and the extent of such spillovers depend upon the interaction between the FDI motivations and the absorptive capacity of local firms - expressed in terms of technological gaps “Gap” and the levels of their learning and investment efforts undertaken to absorb foreign knowledge “Invest”. Third, it assumes that intra-and inter-industry spillovers occur in culturally distant markets.
FDI motivation is defined using the importance of a four-point intensity scale of external innovation-relevant knowledge sources of foreign firms in the host country. Foreign firms could source local knowledge from their counterparts, their customers, their suppliers, the local universities, and patent disclosures. Firms revealing high intensities of local knowledge sources show high values that are larger than or equal to the average fourpoint scale. This demonstrates that foreign firms give high importance to the knowledge reservoir of the host country and are expected to invest in knowledge seeking and learning. However, low intensities (values smaller than the average four-point scale) indicate that foreign firms are not highly interested in local knowledge and that their FDI motive is knowledge exploiting activities. In this way, the full sample of local firms used for the estimations is divided into two sub-samples (knowledge exploiting and knowledge seeking mandates).
Gap is defined as the ratio of the average labor productivity of foreign firms in the relevant two-digit industry to local firm's own labor productivity. Various tests of spillovers shall be performed to examine whether the size and the extent of spillover effects vary according to the diverse levels of technological capacity of local firms. Values which are smaller than or equal to one are interpreted as signs of low gaps. However, values which are higher than one are interpreted as signs of high gaps. Invest is measured by the level of investment expenditure in new equipment and training activities for product/process innovation (Narula and Marin 2003). High invest Values that are equal or larger than the average four-point scale indicate that local firms are highly invested in absorptive capacity. Values that are lower than the average four-point scale are interpreted as signs of small invest.
We divide the sample of local firms with, respectively, southern FDI Knowledge exploiting and knowledge seeking units according to the level of the technological gap between foreign and local firms—and to the absorptive capacity of local firms with respect to learning and investment efforts. Cultural distance is calculated using the traditional index of cultural distance based on Kogut and Singh (1988), which includes the four cultural dimensions of power distance, individualism, masculinity/femininity and uncertainty avoidance, introduced by Hofstede (1980). Higher values of cultural distance index indicate larger differences between the home and the host country.
To the best of our knowledge, this study is the first to explore the Swiss case. Switzerland is a particularly interesting example for this study given that it experiences increasing flows of inward FDI over time. Swiss government is more and more active in attracting southern MNCs. Data used for regression are derived from innovation activity surveys of manufacturing and service/construction firms and Swiss input-output matrix, conducted at the Swiss institute for business cycle research “KOF”.
More on this project:
European International Business Academy conference “EIBA”
Article in International Journal of Business and Emerging Markets