Abstract Internationalization of research and development (R&D) is a double-edged sword: on the one hand, it is understood as a driving force of global innovation performance; on the other hand, from a national perspective it is often perceived as a threat to domestic efforts. Against this background, we compare the contribution of domestic and international knowledge sourcing to the productivity of Swiss firms. We find a positive productivity effect of knowledge-sourcing activities in geographically close countries (in the European Union EU). Domestic knowledge alone or from other world regions does not yield positive productivity effects. We provide evidence that companies that source international knowledge to generate innovative products benefit disproportionately from knowledge sourcing in the EU and that both knowledge- and market-seeking motives may be relevant to this result.