Lateral knowledge transfer and foreign affiliate performance: the importance of affiliate strategic roles

This paper explores lateral knowledge transfer within the multinational enterprise, i.e. knowledge flow between an affiliate and its sibling affiliates, and we consider how the relationship between the affiliate and its siblings influences lateral knowledge transfer. Drawing on more than 6000 foreign affiliates in over 60 host countries, we evidence a positive and significant impact on affiliate performance from its siblings’ intangible assets. We group sibling affiliates’ roles into horizontal, upstream, downstream and unrelated categories accordingly to a sibling’s activities in relation to its respective affiliate’s value chain. Specifically, we find that the effect of lateral knowledge transfer on affiliate performance is bigger (1) when siblings are in related sectors, rather than unrelated sectors; (2) when the affiliate and siblings are in horizontal relationship, rather than vertical relationship; and (3) when siblings are upstream, rather than downstream, in the affiliate’s value chain.