Abstract
International business scholars increasingly emphasize regional strategies based on an optimal location of downstream sales. There has been less scholarly attention, however, to the relationship between international strategy and upstream knowledge creation including R&D. Building on contemporary strategic management theory and the knowledge-based view we remedy this. The viability of home-regional or bi-regional strategies is based on common assumptions that imply negative consequences of distance and foreignness for downstream sales and marketing and benefits from agglomeration for upstream knowledge creation activities including R&D. In contrast, we propose that upstream knowledge creation, radical innovation in particular, rather gains from distance and foreignness and from being dispersed, suggesting the effectiveness of a global strategy. Based on the resource-based view and recent research on the economics of strategic opportunities and competitive advantage, we provide theoretical explanations for this. We demonstrate how a global multinational corporation is uniquely equipped with knowledge extensity including heterogeneous social-identity frames in multiple sub-units. Thanks to arbitrage advantages between the sub-units' separate and often locally embedded knowledge, a global multinational corporation can address complex interdependences and interactions between knowledge sets required for knowledge creation. This suggests that maximum exploration capabilities are made possible by a global rather than a home-regional or bi-regional strategy. © 2014 British Academy of Management.