Cross‐National Knowledge Distance and Host Country Innovation—The Mediating Roles of Local Talents and Third‐Country Exporting

ABSTRACT Drawing on embeddedness and learning perspectives, we examine and extend the learning‐by‐hiring (LBH) and learning‐by‐exporting (LBE) logics to better understand the innovation activities of advanced economy multinational enterprises (AEMNEs) in a dissimilar knowledge context where cross‐national differences persist. We consider that the use of local talents manifests the LBH logic as a means of enhancing AEMNEs' local embeddedness. Likewise, third‐country exporting is underpinned by the LBE logic as a way for MNEs to leverage third‐country embeddedness. We propose that these two mechanisms act as mediators that shape and filter AEMNEs' access and integration of geographically distant knowledge for their emerging market innovation. Moreover, we predict a complementarity between employing local talents and third‐country exporting. Our findings from an analysis of AEMNEs operating in China provide support for these predictions. This study offers important implications for managing multiple embeddedness across AEMNEs' global networks in order for their innovation to flourish in emerging markets.