The theory of endogenous growth suggests that international trade is a driving force for the diffusion and creation of knowledge (Coe et al., 1997). Specifically, knowledge gained by firms from experiencing foreign markets through exports could be transferred to other local firms. This knowledge, in turn, may encourage local firms to export by, for example, reducing the cost of accessing foreign markets—a factor recognized in the international trade literature as crucial in determining firms’ export decisions (Wagner, 2007). In this context, multinational corporations (MNCs) are particularly well-positioned to initiate export operations and overcome fixed costs associated with these activities, benefiting from the international network of the entire company (Blomström & Kokko, 1998).

Contacts between local firms and export-oriented multinationals provide knowledge of product technologies, processes, and international market conditions, along with access to foreign marketing and distribution networks. For example, insights into foreign preferences in product design, packaging, and quality contribute to reducing the cost of accessing foreign markets (Blomström & Kokko, 1998). The export operations of multinationals can thus be a valuable source of knowledge for local firms, enhancing their export performances through export spillovers.

This paper investigates the existence of spillovers from local and foreign MNCs’ export activities to local firms1, enabling them to start exporting or intensify their export activities, and subsequently improve their local export performance. Blomström and Kokko (1998) define export spillovers as benefits resulting from the export operations of foreign MNCs, paving the way for local firms to export to the same destination.

Export spillover effects from foreign MNCs have been studied by a number of scholars (Aitken et al., 1997; Choquette & Meinen, 2015; Conti et al., 2014; Greenaway et al., 2004; Koenig et al., 2010; Ruane & Sutherland, 2005). However, the empirical results are rather mixed, and evidence on this kind of spillovers is not conclusive (Harasztosi, 2016; Kinuthia, 2017). For example, Greenaway et al. (2004) supported the finding of positive export spillovers from the foreign affiliates’ export operations on the export decision of local firms in the United Kingdom. They also tested export spillover effects on the local firms’ export volume but failed to find a significant effect. Ruane and Sutherland (2005) found that the decision by local firms in Ireland to enter the export market is positively associated with the presence of foreign affiliates in their sector, while their export intensity is negatively associated with the export sales ratios of foreign affiliates. Additionally, Barrios et al. (2003) and Park et al. (2003) failed to find evidence supporting the likelihood that local manufacturing firms in, respectively, Spain and Ukraine, will export following the export activities of MNCs’ affiliates in the same sectors. Only other foreign affiliates benefit from export spillovers. Barrios et al. (2003) also failed to find evidence on export spillovers from MNCs or from other local firms in Spain between 1990 and 1998.

The mixed results in existing studies can be attributed to the fact that the transfer of knowledge from MNCs' exporters to local firms is not an automatic process. The resulting learning and spillover benefits depend on a variety of key factors. First, it depends on the contact between the sender and the recipient of the knowledge (Choquette & Meinen, 2015). Local firms can enhance their exports by investing in learning activities, such as observing and imitating MNCs' counterparts and/or reinforcing vertical linkages with MNCs’ suppliers and customers. Export learning is more likely to be vertical than horizontal. When local products are exported, foreign customers can suggest improvements to the manufacturing process (Grossman & Helpman, 1993). By doing so, foreign customers transmit tacit knowledge and sometimes knowledge from other suppliers (Wei & Liu, 2004). They also tend to transmit prototypes of exported products, knowledge of foreign markets, and provide technical assistance to local users (Minska-Strusik, 2012). The knowledge received by local users would then spill over to other local forms (suppliers or customers) through vertical linkages.

Second, we believe that higher distances (in terms of culture, language, geography, etc.) for some destinations may hamper the path of local international expansion, since export costs increase with destination distances (Conti et al., 2014; Lawless, 2010). The local receiver needs to be located near the MNC sender to be able to observe and effectively absorb foreign knowledge to start exporting to the same distant destinations. Nearby local firms learn more efficiently than more distant ones (Aitken & Harrison, 1999) because the channels of knowledge diffusion are reinforced with proximity (Crespo et al., 2009).

This paper examines how local firms can leverage the export activities of MNCs, particularly in terms of spillovers. We test spillovers in local export propensity and intensity using Swiss manufacturing firm-level data. Switzerland is a compelling subject for our study for several reasons. Firstly, the nation has consistently increased its export volumes over time (BFS, 2023). Secondly, there is a notable absence of research into the potentially beneficial spillover effects of MNCs' exports in the Swiss context. Investigating these effects and understanding their key determinants for Swiss firms holds great promise, providing valuable insights for policymakers in Switzerland on how to foster these advantages and yielding broader conclusions for consideration. We therefore propose components for a research agenda on export spillover benefits from MNCs, underscoring aspects that merit heightened attention.

Following this introduction, Section 2 discusses theoretical and empirical frameworks of export spillovers and introduces our hypotheses. In Section 3, we present the model used to test spillovers from the export activities of foreign and Swiss MNCs to local firms. Section 4 analyzes Swiss data. Section 5 discusses the regression results, and Section 6 concludes the paper by presenting some policy prescriptions derived from our results.

In this section, we explain the role of international trade as a vehicle for disseminating knowledge and describe how the export operations of Swiss and foreign MNCs could encourage local firms to export or improve their export volume. To do so, we argue that knowledge transfer is not an automatic process, and the resultant spillover benefits from MNCs’ exports depend on different key factors. First, it hinges on the nature of linkages between the sender and the recipient of the knowledge. Second, knowledge is transmitted more efficiently when local receivers are located near the MNC sender, allowing them to absorb and effectively use the received knowledge, especially when the export destination is quite distant from the home market.

Following existing empirical studies (Aitken et al., 1997; Choquette & Meinen, 2015; Koenig et al., 2010; Nguyen, 2008), we model the effect of export spillover for the i^th local firm as follows:

Regarding the firm’s export decision:

Regarding the firm’s export volume:

where the subscripts i and j denote firm and industry, and α, β, and γ are the parameters to be estimated. Table 1 describes the variables and their measurements.

X_i denotes the vector of firm-level controls, including I, the gross investment of the local firm in equipment and structure; L, its employment; Age, its age2; Invest, the level of its investment in absorbing foreign knowledge (namely, employees’ training and/or recruitment, innovation process, technology); Comp, the degree of competition on its principal market as perceived by the firm3; and Gap, its existing technological capacities. Gap and Invest control for the absorptive capacity of local firms (Ben Hamida, 2013; Kokko et al., 1996). The coefficients of these controls, except Gap, are expected to be positive and significant. We expect the estimated coefficient of Gap to be negative and significant since local firms need to have sufficient technological capacities to absorb and use productively foreign market knowledge.

The inclusion of industry and regional dummies, Dummies, in equation (1) controls for industry- and regional-specific productivity differences; it corrects for the omission of unobservable variables that might undermine the relationship between export spillover variables and the export decision of local firms (Aitken & Harrison, 1999). Regional dummies also account for agglomeration effects that may result in an upward bias of a region-specific spillover coefficient, as some foreign firms could be attracted to regions benefiting from agglomeration economies (Aitken & Harrison, 1999). The Swiss regions considered here are: the Lemanic region, Mittelland, North West Switzerland, Zurich, Western Switzerland, Central Switzerland, and Ticino.

In equations (3) and (4), we incorporate the export spillover variables HorizIndExp (to assess horizontal effects from MNCs’ counterparts), BackIndExp (to assess spillovers from downstream customers), and ForwIndExp (to assess spillovers from upstream suppliers). Additionally, we include HorizRegExp, BackRegExp, and ForwRegExp to capture horizontal and vertical spillovers in the region from neighboring MNCs.

In equation (3), HorizIndExp for industry j is determined by calculating the share of foreign and local MNCs in the same industry as local firms. Conversely, in equation (4), HorizIndExp is quantified as the proportion of export volume attributed to foreign and local MNCs within the same industry.

The backward effects for industry j are computed as:

where µj,k is the proportion of sector k’s output supplied to industry j. This measure captures the extent of forward linkages between local firms in downstream customer sectors and foreign firms in upstream supplier sectors. The values of θ _j,k and µ_j,k are obtained from the Input-Output Table of the Swiss economy published by the Federal Statistical Office of Switzerland (BFS).

We examine export spillovers according to the destination market (Hypotheses 3a and 3b). For this purpose, we consider European Union markets, which share closer ties with Swiss firms in terms of culture, language, and geographical proximity, owing to their longstanding economic and cultural relations, as well as more distant markets such as the United States and Asia4. Our rationale is that export spillovers may impact local propensity and intensity differently based on the destination market. We anticipate stronger positive effects as the distance to the export destination increases, particularly when local firms are in close proximity to the MNC's exporter.

Switzerland serves as an intriguing case study, particularly due to the prominence of export activities in its economy (BFS, 2016). In 2015, over a third of the turnover for Swiss manufacturing firms (34.4%) was attributed to exports, establishing the manufacturing sector as the most export-oriented industry in the country.

The data used for the regression analysis is extracted from the 2015 Innovation Activity Survey of manufacturing firms, each employing at least five individuals. This survey was conducted by the Swiss Institute for Business Cycle Research (KOF)5. Table 2 provides the descriptive statistics for the regression variables.Individual information encompasses the technological behavior and export activities of both local and foreign firms (MNCs and local firms) in 2014 and 2012. Additionally, it includes data on the firm's export market, which we used to determine export destinations. Figures 1 to 3 and Table 3 provide a summary of the export trends for all foreign and local firms (MNCs and local firms) in Switzerland's manufacturing sector. All these calculations are derived from data collected in the KOF Innovation Survey 2015 and the Federal Customs Administration 2019.

Figure 1 illustrates the distribution of MNCs' total export sales across two-digit manufacturing industries in Switzerland in 2012, while Figure 2 presents the distribution of local firms' total export sales for the same industries in 2014. The data depicted in these figures reveal that both MNCs and local firms engage in exports across all industries. However, there are notable distinctions in the distribution of exports between MNCs and local firms. MNCs dominate in pharmaceuticals, electrical and optical products, and machinery and equipment, whereas local firms excel in watches, textiles, and chemicals. Combining MNCs and local firms, pharmaceuticals and chemicals, watches, precision instruments, and electronic products and machinery continue to be prominent in Swiss exports in 2018. Figure 3 provides an overview of total exports in Swiss regions for manufacturing industries, utilizing the regional classification of the KOF Institute. The data indicates an uneven distribution of exports across Swiss regions, with Northwest Switzerland leading at 23.7%, followed by the Lemanic and Mittelland regions. This aligns with the concentration of leading export industries in these regions, while Central Switzerland reports the lowest total export level at 6.4%.

Table 3 provides a breakdown of exports by destination for both MNCs and local firms. The aggregated data reveals that, on average, MNCs consistently hold higher export shares compared to local firms. Notably, the European Union stands out as the most significant export market for both MNCs and local firms in Switzerland. Furthermore, Swiss products from local exporters exhibit a robust presence in Asian markets, surpassing their presence in the US market. In contrast, MNCs export more to the USA than to Asian markets.

In summary, export is a prominent activity in Switzerland, with the European Union countries holding the largest share. However, Asian and American markets have gained significance, especially following the economic crisis of 2008 (Ben Hamida & Ischer, 2019). We anticipate that export spillovers vary by destination, with the effects differing across market destinations. In the next section, we empirically test these effects at both the national and regional levels, while also considering knowledge transfer linkages and export destinations as control variables.

This section presents the empirical results. Model (1) is estimated using the probit method, and the outcomes are reported in Table 4. To assess the magnitude of spillover effects on local export propensity, we present the estimated coefficients of marginal effects. Model (2) is estimated using the ordinary least squares method, and the results are reported in Table 5. All estimations in Tables 4 and 5 are robust. Additionally, the predicted probabilities of our models in Table 4 (Columns 1 to 8) are notably high, correctly predicting about 83% of the data.

In Tables 4 and 5, the first and second columns present estimation results when considering the export market as a whole. Column 1 reports horizontal and vertical export spillovers at the national level, while Column 2 reports these effects at the regional level. Subsequent columns in both tables provide spillover measurements specific to different destinations. Columns 3 to 5 detail horizontal and vertical spillovers concerning the European Union, the United States, and Asia, respectively, while Columns 6 to 8 report these effects at the regional level according to the same destinations.

The estimated coefficients of HorizIndExp, BackIndExp, and ForwIndExp are both positive and significant in Column 1 of Tables 4 and 5. This suggests that the export propensity and intensity of local firms are significantly and positively influenced by the presence of MNCs’ exporters, both in their industry and related industries from their upstream suppliers. Notably, the benefit from forward linkages is three times larger than that of horizontal effects. This finding aligns with Hypotheses 1a and 1b, indicating that export spillovers on the export decision and volume of local firms are more likely to be vertical than horizontal.

It appears that MNCs' upstream suppliers play a crucial role in transferring knowledge about export markets to their local customers, facilitating the initiation or enhancement of export activities. However, MNCs' downstream clients do not seem to contribute to the improvement of local export learning, as evidenced by the negative estimated coefficient of BackIndExp in Column 1 for both tables.

In Column 2 of Tables 4 and 5, only the estimated coefficient of forward linkages (ForwIndExp) retains a statistically significant positive value at the regional level. However, it does not appear to be markedly higher when compared to the national level in Column 1 of these tables. This result contradicts Hypotheses 2a and 2b, suggesting that export spillover effects do not seem to become larger when MNCs are located close to local firms.

Regarding the remaining columns in Tables 4 and 5, it is evident that the positive and significant export spillovers stemming from horizontal and vertical linkages are notably enhanced when specifically tailored to the destination. Local firms appear to exhibit a discerning approach, not uniformly applying the same linkage when exporting to diverse destinations, as the unique characteristics of each destination significantly influence their strategic choices.

For the European Union destination, the decision of local firms to enter this market is positively influenced by the export activities of their MNCs' counterparts and suppliers attending the same market, as evidenced in Column 3 of Table 4. However, it is noteworthy that only the export activities of their MNCs' suppliers contribute to an improvement in export volume to this market, as highlighted in Column 3 of Table 5.

In the context of the American market, local firms engaged in exporting to the USA appear to derive benefits from the export activities of their MNC counterparts, particularly evident in terms of enhanced export propensity, as indicated in Column 4 of Table 4. Additionally, these local firms strive to leverage their relationships with MNC customers, contributing to increased export volumes to the American market, as reflected in Column 4 of Table 5.

In relation to the Asian destination, local firms experience benefits in initiating exports through the activities of their upstream MNCs' suppliers exporting to the same Asian market, as illustrated in Column 5 of Table 4. Furthermore, these firms leverage horizontal effects to augment their export volumes, as demonstrated in Column 5 of Table 5.

Spillover benefits appear to be three times more significant when local firms choose to enter or enhance their presence in Asian markets, while the magnitude of spillover benefits from MNCs with experience in European Union and American markets exhibits a comparable level. These findings align with Hypotheses 3a and 3b, supporting the notion that export spillovers are more pronounced as the psychic distance to the export destination increases.

Columns 6 to 8 in Tables 4 and 5 provide insights into destination-specific export spillovers at the regional level, revealing a notable increase in magnitude, particularly in spillover intensity, when MNCs are located in close proximity to local firms. These findings, associated with export destinations, partially affirm Hypotheses 2a and 2b, suggesting an intensified effect of export spillovers at the regional level when specific to a destination.

Furthermore, we observe that the impact of certain linkages becomes significant when MNCs and local firms share the same geographical region. Specifically, (1) the presence of MNCs exporting to the Asian market in the same region appears to facilitate local customers in intensifying their export volumes to that market; (2) Similarly, the presence of MNCs exporting to the US market in the same region appears to support local customers in initiating exports to the same market.

This paper aims to contribute to the evolving body of knowledge on export spillovers from MNCs by comprehensively examining their presence and extent concerning local manufacturing firms in Switzerland. Existing empirical findings, while informative, present a somewhat inconclusive picture, contributing to a mixed understanding of these spillovers. Moreover, a notable research gap exists in investigating the potential beneficial spillover effects of MNCs' exports within the specific context of Switzerland.

We posit that investigating the influence of export spillovers from MNCs on the export performance of local firms constitutes a complex and intricate research undertaking. This complexity arises from the non-automatic nature of knowledge transfer between the sender and the receiver, where the resulting spillover benefits hinge on various critical factors. These factors encompass the intricate nature of linkages between local firms and MNCs, the geographical proximity between them, and the specific characteristics of the foreign market destination. Investigating these multifaceted elements is crucial for gaining a comprehensive understanding of the nuanced dynamics shaping export spillovers and their implications for local manufacturing firms in the Swiss context.

Our results reveal significant advantages for local firms in the Swiss manufacturing sector. The export activities of MNCs' suppliers and counterparts contribute significantly to the benefits experienced by local firms. This holds true for both the propensity and intensity of exports among Swiss manufacturing local firms. These findings underscore the noteworthy impact of horizontal and upstream linkages with MNCs on shaping the export dynamics of local firms in Switzerland. Additionally, export spillovers from both horizontal and vertical linkages exhibit an increase when they are destination-specific. Nonetheless, local firms demonstrate a nuanced approach, diverging in their linkage strategies when exporting to different destinations. This suggests that the distinct characteristics of each destination significantly influence and shape the strategic choices made by these local firms. For example, we found that the decision of local firms to enter the European market is positively shaped by the export activities of their MNC counterparts and suppliers operating within the same market. Conversely, entering the USA appears to predominantly benefit from the export activities of their MNC counterparts, while entry into the Asian market derives advantages primarily from the export activities of their upstream MNCs' suppliers engaged in the same Asian market.

The accumulation of spillover benefits becomes more evident when local firms strategically decide to either enter or strengthen their presence in both the American and Asian markets. The geographical proximity between MNCs' exporters and local firms impacts export spillovers when they are specific by destination, especially in terms of bolstering export volumes. This close proximity not only streamlines the exchange of information, fostering a dynamic knowledge flow but also serves to alleviate financial burdens, particularly when exporting to distant markets. The geographical closeness acts as a catalyst, not only enhancing the effectiveness of spillover effects but also promoting a more cost-efficient transmission of valuable knowledge between local firms and MNCs’ exporters.

Finally, the likelihood and magnitude of spillover exports exhibit an upward trajectory corresponding to the technological advancement of local firms. This implies that as local firms enhance their technological capabilities, they are more inclined to both initiate and intensify their engagement in exports. In addition, to intensify their export volumes, local firms should strategically allocate resources to learning activities when assimilating foreign knowledge, particularly when targeting distant markets such as Asia.

In terms of policy recommendations aimed at fostering exports based on these findings, it is crucial to acknowledge the pivotal role that MNCs play as key catalysts for the export performance of local firms. Emphasizing strategic horizontal and vertical linkages with MNCs becomes key, as these connections significantly influence the export intensity and propensity of local businesses. Horizontal linkages involve collaborative efforts within the same industry, while vertical linkages focus on vertical connections. By fostering these partnerships, local firms can access resources, technologies, and global markets, enhancing their export capabilities.

Policy measures should actively promote collaborations between local firms and MNCs to foster the exchange of knowledge and facilitate the assimilation and absorption processes. However, it is essential for these measures to account for the diversity among local firms, especially concerning the type of linkage they opt for when exporting to a particular destination. Recognizing the heterogeneity among local firms ensures that policy measures are adaptable and responsive to the diverse needs and capabilities of different businesses.

Additionally, local firms seeking to expand their market presence need to invest proactively in the absorption of foreign knowledge, especially when targeting destinations with significant psychic differences. Successfully intensifying export volumes to distant markets (in terms of cultural, language, geographical distance, etc.) necessitates a strategic commitment to learning and adapting to the unique challenges posed by such destinations. Policymakers should encourage and support initiatives that enhance the absorptive capacity of local firms, enabling them to effectively leverage export spillovers and thrive in diverse markets.