Capability flows and technological diversification within multi-locational firms in Europe

ABSTRACT

This paper examines the sources of capabilities influencing technological diversification in multi-locational firms in Europe. Using European patent records and firm ownership and geographical information, 686 firms with patenting activities across different locations are analysed. Three main capability sources are identified: individual establishments, their locations, and other units of the parent firm. Findings underscore the primary role of the establishment’s accumulated capabilities, with location-based capabilities and other units of the firm also having a positive and significant impact. However, the influence of each capability source varies with the technology’s novelty. Separating domestic from between-country intra-firm flows further reveals that domestic flows exert a stronger influence in shaping technological diversification. This paper overall enriches our understanding of capability sources in the development of new technologies in the particular case of multi-locational firms, further extending the existing body of work by looking at these dynamics within the European context.

KEYWORDS:

• Diversification
• capabilities
• multi-locational firms
• technology
• geography

JEL CLASSIFICATION:

• L25
• O31
• R11

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The matching process was preceded by a string harmonisation operation to correct for non-regular characters, spaces, etc. Multiple rounds of fuzzy matching were subsequently run, and the results were manually analysed for a subset of observations to verify validity.

² Nonetheless, it may potentially overlook cases where, for a given firm or geographical unit, a seemingly unrelated technological class in the measurement is, in fact, built upon existing capabilities within specific firms or geographical area. However, since the analysis centres on the introduction of new RTAs or new entries (implying the target classes are not a consistent part of the existing portfolio) this potential scenario is avoided. In other words, relatedness is used to track the introduction of new technological classes rather than the proximity between existing classes in the technological portfolio of establishments.