Communication Frictions and Knowledge Transfers: Evidence from FDI
Amit Khandelwal, Columbia Business School
This paper examines knowledge transfers from foreign managers to domestic managers within MNCs. Using a newly developed survey of domestic middle managers in Myanmar, we find evidence of large communication frictions between management layers: foreign managers cannot speak Myanmar, domestic managers cannot speak the company's language (e.g., Japanese, Korean or Chinese), and both groups are not well versed in English. These frictions impose costs on MNCs and impede knowledge spillovers to domestic managers. The study can help reconcile why spillovers from FDI are often limited, despite widespread claims, and why cross-border investment is very responsive to language barriers.