Capability flows and technological diversification within multi-locational firms in Europe

This paper examines the sources of capabilities influencing technological diversification in multi-locational firms in Europe. Using European patent records and firm ownership and geographical information, 686 firms with patenting activities across different locations are analysed. Three main capability sources are identified: individual establishments, their locations, and other units of the parent firm. Findings underscore the primary role of the establishment's accumulated capabilities, with location-based capabilities and other units of the firm also having a positive and significant impact. However, the influence of each capability source varies with the technology's novelty. Separating domestic from between-country intra-firm flows further reveals that domestic flows exert a stronger influence in shaping technological diversification. This paper overall enriches our understanding of capability sources in the development of new technologies in the particular case of multi-locational firms, further extending the existing body of work by looking at these dynamics within the European context.