Chapter 12 Increasing the Diversification of Technological Knowledge Through R&D Partnerships and Foreign Subsidiaries

Purpose – Recent research suggests that the positive effect of knowledge diversification on the value of corporate knowledge is limited.

Design/methodology/approach – This study uses an information processing perspective to explore the highest value that firms can draw from knowledge diversification and to argue that R&D cooperation and foreign direct investment help develop this value.

Findings: Regressions on a sample of 21.434 patents of German manufacturing firms show that technologically diversified knowledge has an inverted U-shaped influence on the value of technological knowledge. The findings also suggest that R&D cooperation increases the value generated by technologically diversified knowledge. However, foreign direct investment does not seem to have a moderating influence on the relationship between technological diversification and value.

Research limitations – We use patent citations to measure knowledge transfers. However, not all inventions are patented.

Originality/value – The information processing theory, which we apply in this chapter, provides consistent explanations for both the inverted U-shape of diversification and the extension of the optimal diversification of knowledge by R&D cooperation.