In spite of advances in transportation and communications, clustering remains most critical, and is consequently prevalent, in knowledge-intensive fields. Multinational enterprises (MNEs) that increasingly base their value creation and competitive advantage on knowledge-intensive activities are key participants in clusters, affecting both the nature and evolution of local innovative activities. This research traces the origins of research on geographic clusters, identifies the seminal contributions focusing on the role of MNEs, discusses potential problems inherent to this area of inquiry and develops an organizing framework for new research. There is a two-dimensional role of MNEs in knowledge clusters. From the perspective of the cluster, MNEs as flagship firms stimulate the local business environment and enhance agglomeration economies. As knowledge pipelines MNEs contribute to (and sometimes even form the genesis of) the external linkages of the cluster. From the perspective of the MNE, these firms clearly recognize clusters as the peaks in the “spiky” knowledge landscape of the host economy (i.e. valuable knowledge is distributed across geography), whose internal networks create both opportunities for new value creation as well as challenges in terms of the leakage of intellectual property. The integration of knowledge from multiple such local contexts is the key source of MNE competitive advantage.
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