Amit Khandelwal from Columbia Business School will present "Language Barriers in MNCs and Knowledge Transfers", with L. Guillouet (Columbia), R. Macchiavello (LSE), M. Teachout (IGC).
A typical foreign affiliate is led by foreign managers (FMs) who supervise domestic middle managers (DMs) who supervise domestic production workers. In our setting–-MNCs operating in Myanmar–-communication between FMs and DMs occurs in English. However, the typical DM possesses low English proficiency, and motivating evidence suggests that this communication friction reduces their acquisition of management knowledge. We develop a model that clarifies whether or not a planner should intervene by reducing the language barrier between FMs and DMs. This occurs when: (i) DMs learn management from (costly) communication with FMs; (ii) communication is non-contractible; and, (iii) knowledge gained from FMs are valued by domestic firms. Two experiment protocols explore the validity of these three assumptions. The first provides English training to a random sample of DMs working at MNCs. At endline, the treatment DMs have higher English proficiency, communicate more frequently with their FMs, are more involved in firm management, and perform better in simulated management tasks. Treatment DMs also report higher WTP for additional meetings with FMs which supports the assumption that communication within firms is non-contractable. The second protocol recruits a sample of human-resource managers at domestic firms and asks them to rate hypothetical job applicants that randomly differ in their characteristics. Employers particularly value candidates with both higher English proficiency and MNC experience, and this is driven, in part, by a premium on candidates who interacted frequently with FMs. Overall, the evidence suggests an under-investment in language relative to the social optimum.