Beyond borders and barriers: A qualitative study of foreign direct investment and its effect on knowledge transfer in Rwanda

Abstract: Foreign direct investment has been considered to provide an avenue for knowledge transfer between investors and entrepreneurs. However, few studies have investigated what capacities influence the quality of cross-border knowledge transfer. Through a qualitative study and the use of absorptive capacity theory, with an emphasis on social integration mechanisms, this thesis aims to explain how different absorptive capacities affect cross-border knowledge transfer between foreign investors and local firms. To answer the research question, 18 semi-structured interviews were conducted during a field study in Kigali, Rwanda. The authors used an abductive approach in order to extract eight key capacities that affect the quality of cross-border knowledge transfer. These capacities and their interconnectedness is subsequently unfolded with the use of absorptive capacity theory and social integration mechanisms. To better analyze the findings, the authors made a theoretical contribution of a novel conceptualization of social integration mechanisms, using social capital theory as a proxy. The findings reveal that in order for cross-border knowledge transfer to take place, eight key capacities are needed. Furthermore, it was found that social integration mechanisms influence each absorptive capacity directly, as well as the relationship between potential and realized absorptive capacity. Last, the knowledge transfer parties need to align and complement their respective capacities in order to attain valuable knowledge transfer and ultimately gain competitive advantage.