Return Migration and Geography of Innovation in MNEs: A Natural Experiment of On-the-Job Learning of Knowledge Production by Local Workers Reporting to Return Migrants

by Prithwiraj Choudhury

Overview — Since the mid-1990s, a large number of multinational enterprises (MNEs) have set up research and development centers in China, India, and other emerging markets. Such MNEs face constraints in expanding their "geography of innovation" —that of producing and transferring knowledge across borders—because for the MNE knowledge is likely to be localized within larger, more established centers of knowledge production. How do MNEs in emerging markets circumvent this constraint? In this paper, the author uses personnel data from a Fortune 50 technology firm and studies the role of return migrants in facilitating patenting at the emerging market R&D center. The author also studies on-the-job learning of knowledge production by local employees who report to return migrants at an emerging-market R&D setting. The findings generate insights into the functioning of 'internal labor markets' of multinationals. The results are also important for managers: Given the great many Fortune 500 MNE R&D centers in countries such as China and India, and the large fraction of these centers managed by return migrants, the findings may assist those who set up and manage current and future MNE R&D centers. Key concepts include:

This paper, one of the first empirical studies of skilled migration within a multinational enterprise, contributes to understanding return migration and the geography of innovation of MNEs.
Return migrants and their direct reports file more patents than other local employees. (The author leverages a natural experiment to test for the latter.)
Patents that have return migrants (or their direct reports) as inventors exhibit high patent citation rates, indicating that return migration is related to cross-border knowledge transfer.
Local workers who report to return-migrant managers tend to benefit from on-the-job learning that they might not receive otherwise. For example, return migrant managers connect their direct reports with ideas and resources in the US headquarters; they also help their direct reports understand the patenting process at US headquarters.

Author Abstract

I study whether return migrants and their direct reports facilitate knowledge production and transfer across borders for multinationals. Using unique personnel and patenting data for 1,315 inventors at an emerging market R&D center for a Fortune 50 technology firm, I exploit a natural experiment where the assignment of managers for newly hired college graduates is mandated by rigid HR rules and is uncorrelated to observable characteristics of the graduates. Given this assignment protocol, I find that local employees who report to return migrants file disproportionately more US patents. I also find evidence that return migration facilitates knowledge transfer across borders.