Are firms superior to alliances and markets?

Are multinational corporations (MNCs) superior to strategic alliances and markets in facilitating the flow of knowledge across borders? If so, what are the sources of this superiority? Despite their central importance to the theory and practice of international management, these questions have not been directly tested. Our paper seeks to address this gap in empirical research. Drawing upon recent research on multinational corporations and the knowledge-based view of the firm, we develop hypotheses regarding the relative superiority of alternative institutional arrangements as regards cross-border knowledge building. Analysis of patent citations by semiconductor companies points to the superiority of multinational firms over both alliances and markets in cross-border knowledge building. Interviews with engineers and managers in MNCs point to the intertwining of codified and tacit knowledge and, therefore, the need for both formal and informal mechanisms for successful knowledge building. Our findings suggest that the superiority of MNCs stems from the firms' ability to use multiple mechanisms of knowledge transfer flexibly and simultaneously to move, integrate, and develop technical knowledge. Our research, therefore, suggests that the challenge of knowledge management for MNCs extends beyond the creation of international information systems, to the design of organizational structures, systems, and culture capable of supporting the flow of knowledge.