Language Barriers in Multinationals and Knowledge Transfers
A distinct feature of MNCs is a three-tier organizational structure: foreign managers (FMs) supervise domestic managers (DMs) who supervise production workers. Language barriers between FMs and DMs could impede transfers of management knowledge. We develop a model in which DMs learn general management by communicating with FMs, but communication effort is non-contractible. These conditions generate sub-optimal communication within the MNC. If communication is complementary with language skills, the planner could raise welfare by subsidizing foreign language acquisition. We experimentally assess the validity of the general skills and the complementarity assumptions in Myanmar, a setting where FMs and DMs communicate in English. The first experiment examines the general skills assumption by asking prospective employers at domestic firms to rate hypothetical job candidates. They value candidates with both higher English proficiency and MNC experience, a premium driven, in part, by frequent interactions with FMs. The second experiment examines the complementarity assumption by providing English training to a random sample of DMs working at MNCs. At endline, treated DMs have higher English proficiency, communicate more frequently with their FMs, are more involved in firm management, and perform better in simulated management tasks. Organizational barriers within MNCs can thus hinder knowledge transfers and lead to an under-investment in English relative to the social optimum.
This project would not have been possible without the support and collaboration of U Set Aung, Thilawa SEZ Management Committee, participating factories, and Ian Porter. Our project managers, Paing Thu Htet, Mohak Mangal, Madhav Malhotra, Sangyung Park, have provided exceptional research support, as has the entire Yangon team: Aung Thet Paing, La Min Eain, Myat Mo Phu, Thura Aung, and Zimbo Htike. Pol Antràs, Charles Angelucci, David Atkin, Oriana Bandiera, Wouter Dessein, Ben Faber, Bob Gibbons, Isabela Manelici, Andrea Prat, Andrés Rodríguez-Clare, Rafael Sadun, Meredith Startz, John Van Reenen, Jose Vasquez provided helpful comments at various stages of the project. We also thank conference and seminar participants at Berkeley, CEU, Census, CEPR, Copenhagen, Dartmouth, 2020 Empirical Management Conference, EBRD, EIIT, HBS EM, HBS Strategy, IADB, IPA, LSE, MIT, 2020 NEUDC, PSE, PSU, Sussex, Tufts and Yale. The project is registered at the AEA RCT Registry 0004326. We obtained approval from the Columbia University IRB under protocols AAAR2302 and AAAS3817. Financial support from the International Growth Center, Jerome A. Chazen Institute for Global Business and Columbia’s Center on Japanese Economy and Business is gratefully acknowledged. All errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.