Language Barriers in Multinationals and Knowledge Transfers

Abstract We study communication frictions within multinationals (MNCs), hypothesizing that language barriers reduce management knowledge transfers within the organization. A distinct feature of such MNCs is a three-tier hierarchy: foreign managers (FMs) supervise domestic managers (DMs) who supervise production workers. Tailored surveys from our setting – MNCs in Myanmar – reveal that language barriers impede interactions between FMs and DMs. A first experimental protocol offers DMs free English courses and confirms that lowering communications costs increases their interactions with FMs. A second experimental protocol that asks human-resource managers at domestic firms to rate hypothetical resumes reveals that multinational experience and, specifically, DM-FM interactions are valued in the domestic labor market. Together, these results suggest that reducing language barriers can improve transfers of management knowledge, an interpretation supported by improvements in soft skills among treatment DMs in the first experiment. A model in which communication within MNCs is non-contractible – a realistic feature of workplace life – reveals that the experimental results are consistent with underinvestment in language training and provide a rationale for policy intervention.