Knowledge creation capability in MNC subsidiaries: Examining the roles of global and local knowledge inflows and subsidiary knowledge stocks

Grounded in knowledge-based theories of the multinational corporation (MNC) and building on organizational learning literature, this paper develops and tests a model of MNC subsidiaries’ knowledge creation capability as a joint function of knowledge inflows to subsidiaries and their knowledge stocks (i.e., subsidiaries’ internal human, social, and organizational capital). Survey-based data from 106 subsidiaries located in the U.S. suggests that local (i.e., host country) knowledge inflows to a subsidiary are more effective in enhancing a subsidiary's knowledge creation capability compared to global knowledge inflows from other units of the same MNC. Furthermore, results point to a not-invented-here syndrome in the exploitation of knowledge sourced from the parent company; such that when a subsidiary's internal social capital is high, the relationship between global knowledge inflows and knowledge creation capability is negative and when it is low, the relationship becomes positive.     

How “space” and “place” influence subsidiary host country political embeddedness

As a part of multinational corporations (MNCs), subsidiaries operate in distinct host countries and have to deal with their external context. Host country political embeddedness, in particular, helps subsidiaries to obtain knowledge and understanding of the regulatory and political context, and to get access to local networks. Moreover, they get some guidance and support from their headquarters. Distance between MNC home and host countries, however, alienates subsidiaries from the MNC and influences the extent of subsidiary host country political embeddedness. We suggest that the host country political and regulatory context moderates the effect of distance on subsidiary host country political embeddedness by reducing the need and/or value of headquarters support. Using a sample of 124 European manufacturing subsidiaries, we find that distance (space) and context (place) matter jointly: the impact of distance is stronger for subsidiaries that operate in host countries with low governance quality and low political stability in place.     

Knowledge outflows from foreign subsidiaries and the tension between knowledge creation and knowledge protection: Evidence from the semiconductor industry

This paper analyzes the MNC subsidiaries’ trade-off between the need for knowledge creation and the need for knowledge protection, and relates it to the extent of knowledge outflows generated within the host location. Combining research in International Business with Social Theory, we build a conceptual framework suggesting that subsidiaries that extensively draw on external knowledge sources are also more likely to generate knowledge outflows to local firms. We argue that this may be explained by the subsidiaries’ willingness to build the trust that facilitates the establishment of reciprocal knowledge linkages. However, when the value of the subsidiary's knowledge stock is very high, the need for knowledge protection restrains reciprocity mechanisms in knowledge exchanges, thus reducing the extent of knowledge outflows to the host location. This study contributes to the literature on the firm-level antecedents of FDI-mediated local knowledge outflows, as well as to the broad IB literature on the relationship between subsidiaries and their host regions. The implications for managers and policy-makers are also discussed.     

Knowledge sharing and subsidiary R&D mandate development: A matter of dual embeddedness

Sharing knowledge across borders has proven to be especially relevant to multinational corporations (MNCs). Foreign subsidiaries have become active players in these knowledge flows. However, the network effects of interacting with multiple agents on the evolution of the R&D role played by subsidiaries are still undeveloped. The present study focuses on changes in subsidiary capabilities and on the dynamic mechanisms by which their R&D role might evolve, especially, as a consequence of their interaction with a variety of knowledge networks. We examine this issue by conducting four longitudinal case studies of subsidiaries operating in Spain. Using an inductive approach to theory building, we develop a general theoretical framework considering the subsidiary's embeddedness in the knowledge networks within the MNC (internal) and within the host country (external). We find that evolving towards a competence-creating mandate is characterised by the simultaneous growth of embeddedness in both internal and external networks; otherwise, a subsidiary may gravitate away from upgrading its R&D role. Thus, the contribution of this paper is to present a dynamic model that sheds light on how internal and external knowledge embeddedness interact in generating outcomes for subsidiary R&D roles.     

The effect of host country Internet infrastructure on foreign expansion of Korean MNCs

This study examines the effect of host country Internet infrastructure on a multinational corporation (MNC) foreign expansion. Using Heckman’s selection model on a sample of 2589 subsidiaries of 487 Korean MNCs between 1990 and 2011, we find that host country Internet infrastructure is important in MNC expansion decisions. In addition, we find that a well-developed Internet infrastructure within a host country leads to more investments from MNCs producing consumer over industrial goods and is more attractive to domestic market followers than market leaders. We find that the host country’s Internet infrastructure is important for an MNC foreign expansion decision, suggesting that efficient communication within an MNC is critical in coordinating globalized MNC subsidiary operations.     

Learning from foreign subsidiaries: An empirical investigation of headquarters' benefits from reverse knowledge transfers

Within MNCs, the traditional role of headquarters as prime source of knowledge and competencies is changing. Increasingly, headquarters act as a receiver of knowledge from their internationally dispersed subsidiaries. But what drives the benefits headquarters can gain from such reverse knowledge transfers? Drawing on an empirical sample of 294 intra-MNC knowledge transfers, we identify the key variables impacting on headquarters' ability to benefit from reverse knowledge transfer. Taken collectively, our findings indicate that the efficiency of the MNC as a knowledge integrating institution is being driven by changes in both, the subsidiary's context and its capabilities to process knowledge. We discuss the implications of our analysis on the emerging knowledge based theory of the firm, draw out inferences for the strategic agenda of MNCs and suggest avenues for future research.     

‘Inpatriation’ for knowledge-transfer within Japanese multinational corporations

This article uses knowledge management theory and the gravity model to analyse the determinants of ‘inpatriation’ for knowledge-transfer within multinational corporations (MNCs) and the differences in their effects based on the region of the subsidiary’s host country. The empirical analysis uses data collected through a survey of the overseas subsidiaries of Japanese MNCs and finds that factors related to both the countries and the individual MNCs affect inpatriation, with the former factors having a stronger influence than the latter. With regard to the country factors, a smaller geographic distance and a larger cultural distance between the home and host countries and a lower GDP per capita in the subsidiary’s host country increase inpatriation. Regarding the individual MNC factors, a larger subsidiary R&D budget, a larger parent firm and the execution of collaborative R&D projects between a subsidiary and its parent firm increase inpatriation. Additionally, this study finds that in Asia, geographic closeness and low GDP per capita facilitate inpatriation, whereas a relatively small R&D budget and rare collaborative R&D projects with Japan decrease inpatriation. More subsidiaries in Asia send inpatriates to Japan than do subsidiaries in other regions because these positive factors are much stronger than these negative factors.     

The performance effects of vertical and horizontal subsidiary knowledge outflows in multinational corporations

Horizontal and vertical subsidiary knowledge outflows in multinational corporations (MNCs) are argued to be central to effective MNC performance. Building on the knowledge-based view of the firm, we develop a conceptual model to investigate the performance consequences, determinants and interaction effects due to coordination and control mechanisms, of horizontal and vertical MNC subsidiary knowledge outflows. The hypotheses are empirically tested with a dataset comprised of survey and archival data from over 200 MNC subsidiaries. Results indicate that explicitness and communication positively influence vertical and horizontal subsidiary knowledge outflows and that national cultural distance, centralization, formalization, and specialized resources moderate these influences. We also find that knowledge outflows to headquarters and to peer subsidiaries enhance an MNC's financial performance (i.e., return on assets). The results provide substantive evidence as to how vertical and horizontal knowledge operate within MNCs.     

Balancing the trade-off between learning prospects and spillover risks: MNC subsidiaries’ vertical linkage patterns in developed countries

This paper investigates local vertical linkages of foreign subsidiaries and the dual role of such linkages as conduits for learning as well as potential channels for spillovers to competitors. On the basis of data from 97 subsidiaries, we analyze the quality of such linkages under varying levels of competition and subsidiary capabilities. Our theoretical development and the results from the analysis document a far more complex and dynamic relationship between levels of competition and MNCs’ local participation in knowledge intensive activities, i.e. learning and spillovers, than previous studies do. We find a curvilinear relationship between the extent of competitive pressure and the quality of local linkages confirming our argument of a trade-off between learning prospects and spillover risks. Furthermore, the level of subsidiary capabilities moderates this relationship.     

Reverse knowledge transfer from subsidiaries to multinational companies: Focusing on factors affecting market knowledge transfer

Despite increasing research on reverse knowledge transfer (RKT) from subsidiaries to headquarters (HQs), there is no academic consensus on the primary determinants influencing RKT. By incorporating four different facets (i.e., absorption, sharing, implanting, and application of market knowledge) of the phenomenon, we draw new insights into RKT. Through empirically testing the phenomenon in the Korean context, we reveal that market knowledge absorption by subsidiaries is a critical component that influences the knowledge integration mechanisms (KIMs) within MNC networks. Furthermore, KIMs within MNC networks are primary keys for absorptive capacity (AC) of HQs and knowledge relevance between HQs and subsidiaries. Our results extend our understanding of RKT, while also offering useful implications for MNCs that intend to establish subsidiaries in foreign markets. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

Organizing for knowledge flows within MNCs

This paper conceptualizes the multinational corporation (MNC) as a network of knowledge flows and argues that, within the same MNC, subsidiary strategic roles can be expected to differ in terms of the extent and directionality of knowledge flows between a focal subsidiary and the rest of the corporation. Building on this framework, the paper hypothesizes and empirically tests for systematic associations between a subsidiary's knowledge-flow based strategic role and the systems and processes linking the subsidiary to the rest of the corporation. The empirical data, collected from 359 subsidiaries of major US, Japanese, and European MNCs (i) provide strong support to the notion of differentiated knowledge flow roles as well as differentiated systems and processes within MNCs, and (ii) suggest that innovation by foreign subsidiaries is more typically the result of autonomous initiative by the subsidiaries rather than strategic directives issued from corporate headquarters.     

New Competence Creation in Multinational Company Subunits: The Role of International Knowledge

It has been demonstrated that more creative innovative activities of subunits of multinational companies (MNCs) rely upon the munificence of local knowledge in the host country. Here, we argue that the strength of international business network connections of a host location influences the potential accessibility of international knowledge and hence tends to widen the domain of new knowledge search that can be successfully undertaken by an MNC subunit. This in turn increases the likelihood of an MNC subunit building new areas of competencies, that is, in fields of competencies which are relatively new to the MNC. Specifically, we suggest that the relevant international business network connections are those involving local actors in the MNC subunit's relevant industry. Moreover, geographical proximity between MNC subunits and their parent company has an inverse U‐shaped relationship with new competence creation by subunits. Using a balanced panel data set on innovative activities conducted abroad by 194 of the world's largest industrial firms from 1975 to 1995, we find support for our expectations.     

How have Japanese multinational companies changed? Competitiveness,management and subsidiaries

Evidence on the strategies and capabilities of Japanese multinational companies (MNCs) and their subsidiaries points to aspects of established management practices (typically home-grown) that complicate or inhibit adaptation to the demands of global competition since the 1990s. Japanese MNCs have had to respond, amongst other trends, to the switch from production to buyer-driven global value chains, cross-border vertical specialization, global factory strategies and strategic alliances and cooperative relationships. Amongst the factors that might affect the ability of Japanese MNCs to make competitive and organizational transitions are: parental MNC intent and capability in the cross-border transfer of management practices; the impact of host country risk on investment, ownership and entry strategies; measures of institutional difference and the gap in economic development between home and host nations; parent firm–subsidiary and subsidiary–subsidiary power relations and knowledge boundaries; and the evolution of insider networks that might overcome institutional and cultural distances within an MNC.     

Local Heroes,Regional Champions or Global Mandates? Empirical Evidence on the Dynamics of German MNC Subsidiary Roles in Central Europe

SUMMARY

In this paper we analyze the influence of a subsidiary's external environment, of its task and of its mode of ownership and its mode of market entry on the development of its role for the case of German subsidiaries in Central Europe. We define a subsidiary's role as a three-dimensional construct, consisting of a subsidiary's tasks, its value chain activities and its respective geographical scope. Drawing on a sample of 99 subsidiaries from the Czech Republic, Hungary, and Poland, we find that a subsidiary's host country, its tasks and its mode of market entry influence the development of its role. We find no evidence for the influence of subsidiary's mode of ownership. Especially, “geographical market proximity seeking”-subsidiaries seem to follow a different path of development than subsidiaries where this task is of minor importance as they tend to perform a smaller number of value chain activities and tend to expand these value chain activities with regard to their geographical scope more incrementally.     

How subsidiaries gain power in multinational corporations

This study focuses on how power is gained within large organizations, such as the intra-organizational network of MNCs. Drawing on resource dependence literature, this study develops and empirically tests a set of hypotheses aimed at explaining the multifaceted nature of power and decision making in multinational firms. Data collected from 2107 foreign-owned subsidiaries in seven European countries is used to test the hypotheses. The results indicate that mutual dependence and dependence imbalance provide strong explanations for subsidiary power. Furthermore, subsidiary power over strategic decisions in the MNC is gained through functional power, notably the possession of technological, rather than business-related, power or by the possession of both as they reinforce each other in strengthening the subsidiary's strategic power in the MNC network.     

Legal distance and entrepreneurial orientation of foreign subsidiaries: Evidence from Southeast Asia

How will variation in legal distance influence a foreign subsidiary's propensity to engage in entrepreneurially orientated initiatives within the context of an emerging market environment? We answer this question by combining elements of institutional theory to suggest that legal distance between a foreign subsidiary's parent home and host country, as well as managerial perceptions of deficiencies in the host country legal service sector, will influence EO initiatives. By analyzing 352 multinational enterprise foreign subsidiaries operating in the Philippines and Thailand our results indicate the complexity of these relationships in that there is a curvilinear (U-shaped) relationship concerning the legal distance between a foreign subsidiary's parent home and host country and its propensity to engage in EO initiatives. Our findings also suggest that this curvilinear relationship will strengthen as managerial perceptions of host country legal deficiencies increase, particularly when the parent possess an in-house legal affairs department. Following these insights, we discuss theoretical implications and future research opportunities.     

Embeddedness of innovation receivers in the multinational corporation: Effects on business performance

This paper investigates how relationship embeddedness in MNC subsidiaries’ corporate and external networks influences the contribution of innovation transfer to the recipient subsidiary's business performance. OLS regressions using data on the intra-MNC transfer of 224 innovations indicate that the embeddedness of a subsidiary's relationships in the corporate and external network positively affects the received innovation's contribution to business performance. More detailed analysis demonstrates that the positive link between a subsidiary's embeddedness in the external network and the contribution to business performance of receiving an innovation is negatively affected when the innovation is unique compared with other innovations on the market.     

The Impact of Origins of Reverse Technology Transfer on MNC Home‐Country Product Development

Reverse technology transfer (the transferring of multinational corporation [MNC] subsidiaries’ technological knowledge to their home country) deserves more executive attention since the source of competitive advantage of MNCs resides in their capabilities to leverage knowledge from different units across borders. This article examines three salient “origins” of reverse technology transfer—headquarters, local constituents, and subsidiary research and development (R&D) activity—and their impact on MNCs’ home‐country product development. We argue that reverse technology transfer from subsidiary R&D activity is more likely to have a positive impact on MNC home‐country product development than the other two origins because reverse transfer from local constituents requires high integration cost, and transfer from headquarters adds little technological novelty. We also develop two contingency hypotheses for the latter two origins to increase their likelihood of positive impacts on home‐country product development. Using a data set of 1,331 Taiwanese MNCs, our empirical evidence provides two important messages to managers: (1) a subsidiary whose technology mainly relies on its R&D would be an ideal target for reverse transfer; and (2) reverse transfer from local constituents and headquarters can be effective when they fit with an appropriate organizational mechanism, such as governance mode and absorptive capacity. © 2016 Wiley Periodicals, Inc.     

Composing the top management team in the international subsidiary: Qualitative evidence on international staffing in U.S. MNCs in the Republic of Ireland

International staffing is a central plank of enquiry in MNC research. In this context, much of the research effort has been dedicated to providing an understanding of expatriation from a headquarter perspective and on unearthing explanatory factors and situational issues associated with the expatriation of parent country nationals. Comparatively less is known about the utilisation of host country nationals (HCNs) and third country nationals (TCNs) in staffing key positions in MNC subsidiary operations. Drawing on the results of a qualitative study in the Irish context, the current paper presents a nuanced perspective on the staffing of MNC subsidiaries from a subsidiary perspective. We find that HCN and TCN employees play a key role in managing the U.S.-owned Irish subsidiaries investigated, most of which display a strong centralised control over their Irish subsidiaries. Our findings also point to a pattern of temporal evolution in the staffing policies pursued within the MNCs. Furthermore, our research lends support to the proposition that the use of HCNs and TCNs to staff senior positions in new expansions within the host country is higher where the expansion follows a wave of earlier investment in that location. We explicate our findings in the context of the enfolding literature and highlight the implications of the research for international staffing theory and practice.     

An exploratory examination into the challenges to technology transfer in the transitional economy of Croatia

In this study, the transfer of technology between foreign multinational corporations (MNCs) and Croatian subsidiaries is explored under a dynamic capabilities perspective. Insights from 80 managers of Croatian subsidiaries are used to explore the issues facilitating and inhibiting technology transfer. The findings suggest that while technology transfer is desired by MNCs, home and host governments, and Croatian subsidiaries, limitations in MNC capabilities to transfer technology, limited governmental assistance, and the inability of Croatian subsidiary managers to apply new technology may hinder effective technology transfer. Implications for academics and practitioners are addressed. © 2005 Wiley Periodicals, Inc.