KNOWLEDGE OF THE FIRM AND THE EVOLUTIONARY-THEORY OF THE MULTINATIONAL-CORPORATION

Firms are social communities that specialize in the creation and inter nal transfer of knowledge. The multinational corporation arises not ou t of the failure of markets for the buying and selling of knowledge, b ut out of its superior efficiency as an organizational vehicle by whic h to transfer this knowledge across borders. We test the claim that fi rms specialize in the internal transfer of tacit knowledge by empirica lly examining the decision to transfer the capability to manufacture n ew products to wholly owned subsidiaries or to other parties. The empi rical results show that the less codifiable and the harder to teach is the technology, the more likely the transfer will be to wholly owned operations. This result implies that the choice of transfer mode is de termined by the efficiency of the multinational corporation in transfe rring knowledge relative to other firms, not relative to an abstract m arket transaction. The notion of the firm as specializing in the trans fer and recombination of knowledge is the foundation to an evolutionar y theory of the multinational corporation.