How Trade Secrets Fuel the International Auto Industry

©iStock/Nataliia Nesterenko

To expand their business to China, car manufacturers like Volkswagen and Toyota had to first establish a joint venture with a local Chinese company.

Kellogg’s Shengmao Cao and colleagues analyzed thousands of detailed surveys about these joint ventures between 2001 and 2014 and found that they resulted in knowledge spillovers, where domestic Chinese companies gained inside knowledge about car manufacturing from their foreign partners.

Knowledge spillovers, in turn, were responsible for 8.3 percent of the overall quality improvement observed in Chinese cars during that period. 

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