ArticlePDF Available

Knowledge Flows Within Multinational Corporations

April 2000
Strategic Management Journal 21(4)

April 2000
21(4)

DOI:10.1002/(SICI)1097-0266(200004)21:43.0.CO;2-I

Authors:

University of Maryland, College Park

This paper advandes and tests an overarching theorical framework pertaining to incorporate knowledge transfers within multinational corporations. Knowledge outflows from a subsidiary would be positively associated with value of the subsidiary's knowledge stok, its motivational disposition to share knowledge, and the richness of transmission chanels. And knowledge inflowing is related to the richness of transmission chanels, motivational disposition to acquire knowledge and the capacity to absorb the incoming information.

Determinants of knowledge outflows to peer subsidiaries dependent variable = Knowledge outflows to peer subsidiaries (KO-S)

…

Determinants of knowledge outflows to the parent corporation Dependent variable = Knowledge outflows to the parent corporation (KO-P)

…

Determinants of knowledge inflows from peer subsidiaries dependent variable = Knowledge inflows from peer subsidiaries (KI-S)

…

Determinants of knowledge inflows from the parent corporation dependent variable = Knowledge inflows from the parent corporation (KI-P)

…

Figures - uploaded by Anil Gupta

Content may be subject to copyright.

Content uploaded by Anil Gupta

Content may be subject to copyright.

Strategic Management Journal

Strat. Mgmt. J., 21: 473–496 (2000)

KNOWLEDGE FLOWS WITHIN MULTINATIONAL

CORPORATIONS

ANIL K. GUPTA

* and VIJAY GOVINDARAJAN

The Robert H. Smith School of Business, The University of Maryland, College

Park, Maryland, U.S.A.

The Amos Tuck School of Business, Dartmouth College, Hanover, New

Hampshire, U.S.A.

Pursuing a nodal (i.e., subsidiary) level of analysis, this paper advances and tests an overarching

theoretical framework pertaining to intracorporate knowledge transfers within multinational

corporations (MNCs). We predicted that (i) knowledge outﬂows from a subsidiary would be

positively associated with value of the subsidiary’s knowledge stock, its motivational disposition

to share knowledge, and the richness of transmission channels; and (ii) knowledge inﬂows into

a subsidiary would be positively associated with richness of transmission channels, motivational

disposition to acquire knowledge, and the capacity to absorb the incoming knowledge. These

predictions were tested empirically with data from 374 subsidiaries within 75 MNCs headquar-

tered in the U.S., Europe, and Japan. Except for our predictions regarding the impact of

source unit’s motivational disposition on knowledge outﬂows, the data provide either full or

partial support to all of the other elements of our theoretical framework. Copyright 2000

John Wiley & Sons, Ltd.

In recent years, researchers in organization theory

(Levitt and March, 1988), economics (Nelson and

Winter, 1982), as well as strategic management

(Prahalad and Hamel, 1994; Schendel, 1996) have

identiﬁed organizational learning as one of the

most important subjects for scholarly inquiry.

Aimed at further deepening our understanding of

a key topic within this broad area viz., intra-

ﬁrm ﬂows of organizational knowledge, this paper

reports the results of a theoretical and empirical

investigation into the determinants of internal

knowledge transfers within multinational corpo-

rations. The following four observations underlie

the motivations for this study.

First, every ﬁrm constitutes a bundle of knowl-

edge. As a corollary of the “resource-based view

of the ﬁrm” (Barney, 1991; Penrose, 1959; Wer-

Key words: knowledge ﬂows, multinational corpo-

rations, subsidiaries

*Correspondence to: Anil K. Gupta, The Robert H. Smith

School of Business, The University of Maryland, College

Park, MD 20742, U.S.A.

Received 27 August 1997

nerfelt, 1984), this observation is now so widely

accepted as to have become almost axiomatic

(Grant, 1996; Huber, 1991; Kogut and Zander,

1992; Nelson and Winter, 1982; Nonaka, 1994).

In the context of this paper, it is particularly

important to note that, of all possible resources

that a ﬁrm might possess, its knowledge base has

perhaps the greatest ability to serve as a source of

sustainable differentiation and hence competitive

advantage (Dierickx and Cool, 1989; Lippman

and Rumelt, 1982).

Second, the primary reason why MNCs exist

is because of their ability to transfer and exploit

knowledge more effectively and efﬁciently in the

intra-corporate context than through external mar-

ket mechanisms. This “internalization of intan-

gible assets” argument, originally advanced by

Hymer (1960), has been subjected to numerous

conﬁrmatory empirical tests and is now widely

accepted as the “received theory” on why MNCs

exist (Buckley and Casson, 1976; Caves, 1971,

1982; Ghoshal, 1987; Kindleberger, 1969; Porter,

1986; Teece, 1981). Of course, external markets

474 A. K. Gupta and V. Govindarajan

continue to become more open, efﬁcient, and

global on an ongoing basis. Notwithstanding the

increasing sophistication of external markets, they

remain relatively ineffective mechanisms for

knowledge transfer on at least two grounds: one,

bulk of the specialized knowledge of any ﬁrm

exists in a tacit and thereby non-tradeable form;

two, market-based transfers of knowledge are

often associated with negative externalities such

as involuntary expropriation and the risk of cre-

ating a new competitor.

Third, the notion that MNCs exist primarily

because of their superior ability (vis-a-vis

markets) to engage in internal knowledge transfer

does not in any way imply that such knowledge

transfers actually take place effectively and

efﬁciently on a routine basis. In perhaps the only

study to date on the actual costs of cross-border

knowledge transfers, Teece (1981: 84) examined

a sample of 26 technology transfer cases and

reported that “[T]he resource cost of international

transfer is nontrivial. Transfer costs ranged from

2.25 percent to 59 percent of total project costs

with a mean of 19.16 percent.” The “tacitness”

or “causal ambiguity” of knowledge is one of the

most widely recognized barriers to its transfer and

replication (Lippman and Rumelt, 1982; Polanyi,

1966; Zander and Kogut, 1995). Levinthal and

March (1993), Simon (1991), Szulanski (1996)

and others have suggested additional barriers to

knowledge transfer e.g., barriers rooted in moti-

vational dispositions and absorptive capacity.

Finally, notwithstanding the criticality of inter-

nal knowledge transfers within MNCs, with some

notable exceptions (e.g., Ghoshal and Bartlett,

1988 and Zander and Kogut, 1995), very little

systematic empirical investigation into the deter-

minants of intra-MNC knowledge transfers has

so far been attempted. As Ghoshal, Korine, and

Szulanski (1994: 97) have observed, “A number

of publications emphasize the importance of inter-

unit communication for effective MNC man-

agement%but in none of them is the construct

operationalized or measured, nor are the factors

that inﬂuence such communication empirically

explored.”

Building on these observations, the primary

objective of this paper is to advance the state of

our theoretical as well as empirical understanding

of the determinants of intra-MNC knowledge

transfers. Data for this study were collected

directly from the presidents of 374 subsidiaries

belonging to 75 major MNCs headquartered in

the U.S., Japan, and Europe. In order to ensure

reliability, data on the most critical variables

(pertaining to knowledge transfers) were collected

also from the immediate HQ-level superiors of

the presidents of a large subset of the sampled

subsidiaries; further, the tests for the hypotheses

were conducted after controlling for the possible

effects of the parent corporation’s country-of-

origin, the resource characteristics of the parent

corporation’s industry, and the nature of the sub-

sidiary’s operations.

THE PHENOMENON OF INTEREST

Because MNCs are complex multi-dimensional

entities, knowledge ﬂows within such enterprises

occur not only along multiple directions but also

across multiple dimensions, e.g., the ﬂow of

information pertaining to the Brazilian subsidi-

ary’s ﬁnancial performance over the last quarter

to corporate headquarters, the transfer of packag-

ing technology from a Swedish factory to one in

India, or the transfer of customer service skills

from a Japanese subsidiary to one in the U.S. In

this study, we focus on the transfer of largely

procedural types of knowledge (e.g., product

designs, distribution know-how, etc.) but not on

the transfer of largely declarative types of knowl-

edge (e.g., monthly ﬁnancial data). In other

words, this study focuses on the transfer of knowl-

edge that exists in the form of “know-how” rather

than on the transfer of knowledge that exists in

the form of “operational information.”

As Ghoshal and Bartlett (1990), Gupta and

Govindarajan (1991), and Hedlund (1994) have

suggested, knowledge transfers within the MNC

take place within the context of an interorgani-

zational “network” of differentiated units. Thus,

ﬂows of knowledge through the network can be

studied from at least three different levels of

analysis: nodal (i.e., a focus on the behavior of

individual units), dyadic (i.e., a focus on the joint

behavior of unit pairs), and systemic (i.e., a focus

on the behavior of the entire network). Given the

highly complex nature of the phenomenon under

investigation and the relative dearth of previous

empirical work on it, in this study, we have

chosen to limit our investigation to the “nodal”

level. More speciﬁcally, we focus on individual

subsidiaries only and examine the determinants

of knowledge ﬂows in each of the following

Knowledge Flows within Multinational Corporations 475

four domains: (i) knowledge outﬂows to peer

subsidiaries, (ii) knowledge outﬂows to the parent

corporation, (iii) knowledge inﬂows from peer

subsidiaries, and (iv) knowledge inﬂows from the

parent corporation.

THEORY

An overarching theoretical framework

As Krone, Jablin, and Putnam (1987) have

observed in their review of communication

theory, even though different communication

scholars have focused more (or less) heavily on

different elements of the communication process,

virtually all of them recognize the following as

the basic elements of any two-person communi-

cation: a message, a sender, a coding scheme,

a channel, transmission through the channel, a

decoding scheme, a receiver, and the assignment

of meaning to the decoded message. Consistent

with these ideas from communication theory, we

conceptualize knowledge ﬂows (into or out of a

subsidiary) to be a function of the following ﬁve

factors: (i) value of the source unit’s knowledge

stock, (ii) motivational disposition of the source

unit, (iii) existence and richness of transmission

channels, (iv) motivational disposition of the tar-

get unit, and (v) absorptive capacity of the target

unit. Barriers or facilitators to the transfer of

knowledge can manifest themselves in any or all

of these ﬁve factors:

(a) Value of source unit’s knowledge stock.

Knowledge ﬂows across units are not cost

free (Teece, 1981). We also know that

different resources have different levels of

value (Barney, 1991). Thus, the greater

the value of a subsidiary’s knowledge

stock for the rest of the MNC, the greater

would be its attractiveness for other units.

This idea is broadly consistent with the

concept of “relative advantage” in the

literature dealing with diffusion of inno-

vations which has argued that the adoption

rate of an innovation is positively related

to its relative advantage (Rogers, 1995).

This idea has not yet been applied to the

examination of interunit knowledge trans-

fers within multinational corporations.

Within such corporations, we visualize the

knowledge stock of any subsidiary as com-

posed of both duplicative as well as non-

duplicative knowledge. The presence of

non-duplicative knowledge is a necessary,

although not sufﬁcient, condition for such

knowledge to be of value to other units.

Thus, we would anticipate that knowledge

outﬂows from a subsidiary are likely to

be high when the subsidiary’s knowledge

stock is non-duplicative as well as relevant

for the rest of the global network.

(b) Motivational disposition of the source unit.

As Cyert (1995) has suggested, an organi-

zational unit with uniquely valuable know-

how is likely to enjoy an “information

monopoly” within the corporation. This

reality coupled with the fact that power

struggles are a ubiquitous phenomenon in

any organization (Pfeffer, 1981) implies

that at least some units will view uniquely

valuable know-how as the currency

through which they acquire and retain rela-

tive power within the corporation. Levitt

and March (1988: 331) have observed

similarly that “In many (but not all) situ-

ations%diffusion of experience has nega-

tive consequences for organizations that

are copied.” Therefore, we anticipate that

factors which would enhance the moti-

vational disposition of the source unit to

share its knowledge with other units within

the MNC are likely to counterbalance any

“hoarding” tendencies and thereby to have

a positive impact on the magnitude of

knowledge outﬂows.

channels. As would be expected, and as

demonstrated empirically by Ghoshal and

Bartlett (1988) in the domain of MNCs,

knowledge ﬂows cannot occur without the

existence of transmission channels. Beyond

mere existence, we would expect other

properties of transmission channels to also

affect the extent of knowledge ﬂows – the

most notable such property would be the

richness/bandwidth of communication

links, as captured in aspects such as infor-

mality, openness, and density of communi-

cations (Daft and Lengel, 1986; Gupta and

Govindarajan, 1991; Jablin, 1979; Tush-

man, 1977).

(d) Motivational disposition of the target unit.

The “Not-Invented-Here” (NIH) syndrome

476 A. K. Gupta and V. Govindarajan

is well-known and also has been the sub-

ject of scholarly inquiry (Katz and Allen,

1982). There are at least two drivers of

the NIH syndrome: (i) ego-defense mecha-

nisms (Allport, 1937; Sherif and Cantrill,

1947) which can lead some managers to

block any information that might suggest

that others are more competent than they

are, and (ii) power struggles within organi-

zations (Pfeffer, 1981) which can lead

some managers to try to downgrade the

potential power of peer units by pretending

that the knowledge stock possessed by

these peer units is not unique and valuable.

In short, unless counterveiling forces are

present, the NIH syndrome can act as a

major barrier to the inﬂows of knowledge

into any focal unit. These counterveiling

forces can manifest themselves in several

forms: the relative paucity of the focal

unit’s knowledge stock, incentives that

increase subsidiary managers’ eagerness to

learn from peer units, or coercive pressures

from corporate headquarters.

(e) Absorptive capacity of the target unit.

Even when exposed to the same environ-

ment and even when there are insigniﬁcant

differences in the desire to acquire new

knowledge, individuals and organizations

may differ in their “absorptive capacity”

i.e., in their “ability to recognize the value

of new information, assimilate it, and

apply it to commercial ends” (Cohen and

Levinthal, 1990: 128). There are at least

two reasons why absorptive capacity may

differ across organizations: (i) the extent

of prior related knowledge, and (ii) the

extent of inter-unit homophily of the

receiving unit vis-a

`-vis the sending unit.

Prior related knowledge is important

because it shapes the ﬁlters through which

the organization differentiates between

more vs. less relevant signals and also

because it determines the organization’s

ability to internalize and assimilate the

more valued signals (Cohen and Levinthal,

1990). On the other hand, homophily –

i.e., “the degree to which two or more

individuals who interact are similar in cer-

tain attributes, such as beliefs, education,

social status, and the like” (Rogers, 1995:

18–19) – is important because when the

interacting individuals “share common

meanings, a mutual subcultural language,

and are alike in personal and social charac-

teristics, the communication of new ideas

is likely to have greater effects in terms

of knowledge gain, attitude formation, and

overt behavior change” (Rogers, 1995: 19;

see also Lazarsfeld and Merton, 1964).

Figure 1 presents a schematic diagram of the

overarching framework developed in this section.

From the perspective of the “nodal” level of

analysis being pursued in this study, this frame-

work can be translated into the following six

propositions:

Proposition 1: Ceteris paribus, the value of a

subsidiary’s knowledge stock will be positively

associated with outﬂows of knowledge from

that subsidiary.

Proposition 2: Ceteris paribus, the moti-

vational disposition of a subsidiary to share

its knowledge with other units will be positively

associated with outﬂows of knowledge from

that subsidiary.

Proposition 3: Ceteris paribus, the existence

and richness of transmission channels linking

a subsidiary to other units within the MNC

will be positively associated with outﬂows of

knowledge from that subsidiary.

Proposition 4: Ceteris paribus, the existence

and richness of transmission channels linking

a subsidiary to other units within the MNC

will be positively associated with inﬂows of

knowledge into that subsidiary.

Proposition 5: Ceteris paribus, the moti-

vational disposition of a subsidiary to

seek/accept knowledge from other units will

be positively associated with inﬂows of knowl-

edge into that subsidiary.

Proposition 6: Ceteris paribus, the capacity

of a subsidiary to absorb incoming knowledge

from other units will be positively associated

with inﬂows of knowledge into that subsidiary.

In the rest of this section, we operationalize

the constructs underlying these propositions and

Knowledge Flows within Multinational Corporations 477

Figure 1. Determinants of intra-corporate knowledge outﬂows from and inﬂows to foreign subsidiaries: An

overarching theoretical framework

develop more concrete and empirically testable

hypotheses.

Value of source unit’s knowledge stock

We argued earlier that, in order for a source

unit’s knowledge to be of value to other units,

the source unit must (i) create non-duplicative

knowledge on its own, and (ii) this non-

duplicative knowledge must be of relevance for

the rest of the global network. Based on this

reasoning, we operationalize the construct of

value of knowledge stock in terms of the follow-

ing three variables: mode of entry, subsidiary

size, and the economic level of the host country

relative to that of the home country.

Mode of entry. As Caves (1982), Root (1987)

and others have pointed out, an MNC may enter

a foreign country through one of several modes

– greenﬁeld operations, strategic alliances, or

acquisitions. Since our study focuses only on

fully- or majority-owned subsidiaries, we examine

here the impact of greenﬁeld vs. acquisition

modes only. At a general level, we can visualize

every subsidiary to consist of three bundles of

knowledge: duplicative knowledge, non-

duplicative knowledge that is relevant only in the

local environment, and non-duplicative knowledge

that is relevant also for other units within the

global network.

As the literature on foreign direct investment

has argued and demonstrated (Hennart and Park,

1993), the less the overlap between existing

corporate know-how and the know-how required

to succeed in a host market, the greater the

probability of acquisition as the mode of entry.

Thus, relative to greenﬁeld subsidiaries, acquired

subsidiaries on average can be expected to have

a knowledge stock that is less duplicative vis-a

vis the knowledge stock of the rest of the corpo-

ration. It is true that only a subset of the non-

duplicative knowledge would be of relevance for

the global network. However, since the pool of

non-duplicative knowledge would be higher for

acquired subsidiaries as compared to greenﬁeld

subsidiaries, it is likely that acquired subsidiaries

should have a larger pool of relevant knowledge

to offer to the global network than greenﬁeld

subsidiaries. Based on these arguments, Proposi-

tion 1 can be operationalized in the form of

the following two empirically testable hypotheses:

ceteris paribus, relative to greenﬁeld operations,

acquired subsidiaries will engage in greater

knowledge outﬂows to peer subsidiaries (H1a)

and to the parent corporation (H1a′).

Subsidiary size. We anticipate that the typical

MNC would discourage investment of a subsidi-

ary’s resources in the reinvention of knowledge

that exists elsewhere in the global network. Thus,

we would expect that a subsidiary’s own

resources would generally be directed at the cre-

ation of non-duplicative knowledge. Since larger

478 A. K. Gupta and V. Govindarajan

subsidiaries will have a greater pool of resources

dedicated to the creation of new knowledge, it

follows that subsidiary size should have a positive

impact on the ability of the subsidiary to offer

non-duplicative knowledge to the rest of the

corporation. Clearly, not all of the non-duplicative

knowledge generated by a subsidiary would have

global relevance; however, a subset of such

knowledge will. These arguments yield the fol-

lowing additional operationalizations of Proposi-

tion 1: ceteris paribus, the larger the size of a

subsidiary, the greater will be the knowledge

outﬂows from that subsidiary to peer subsidiaries

(H1b) and to the parent corporation (H1b′).

Relative economic level. Countries differ in

their levels of economic advancement. If we make

the straightforward assumption that most, perhaps

all, societies around the world strive to increase

(rather than merely maintain or decrease) their

levels of economic advancement, then it follows

that, on average, more advanced countries are

likely to serve as trend-setters and the sources of

technological, marketing, as well as managerial

know-how to a greater extent than less advanced

countries. In other words, in the intracorporate

context, on average, a focal unit is likely to view

the knowledge stock of another unit located in

an economically more advanced country relative

to itself as more valuable than that of a unit

located in a relatively less advanced country.

These arguments also yield the following oper-

ationalization of Proposition 1: ceteris paribus,

the higher the level of the host country’s eco-

nomic development relative to the home country,

the greater will be the knowledge outﬂows from

that subsidiary to the parent corporation (H1c′).

Since our empirical study was conducted at the

nodal level of analysis, we did not collect any

data regarding knowledge ﬂows between speciﬁc

inter-subsidiary dyads. Accordingly, in the above

hypothesis, we have focused only on the relative

economic level of the focal subsidiary vis-a-vis

the parent corporation and not on that vis-a-

vis other speciﬁc subsidiaries. Thus, we neither

advance nor test any inter-subsidiary hypotheses

pertaining to relative economic level.

Motivational disposition of the source unit

We posit that the extent to which the subsidiary

president is rewarded for improvements in the

performance of a network of subsidiaries (rather

than just the focal subsidiary) would be a major

determinant of motivation to share knowledge

with other subsidiaries. Based on this reasoning,

we operationalized the construct of motivational

disposition in terms of the subsidiary vs. corpo-

rate focus (i.e., nodal vs. network optimization

focus) of the incentive system for the subsidi-

ary president.

Incentive focus. As Salter (1973) suggested

and as Gupta and Govindarajan (1986) and Pitts

(1974) demonstrated, the incentive bonus for a

division/subsidiary general manager may be

linked solely to the performance of the focal unit,

solely to the performance of several units, or to

some combination of the two. As these authors

have argued, the greater the need to motivate a

unit general manager to focus on system-wide

optimization as distinct from local optimization,

the better it is to link the incentives to the

performance of a cluster of units. These argu-

ments result in the following operationalizations

of Proposition 2: ceteris paribus, the greater the

extent to which a subsidiary president’s bonus is

network-focused rather than subsidiary-focused,

the greater will be the knowledge outﬂows from

that subsidiary to peer subsidiaries (H2a) and to

the parent corporation (H2a′).

Existence and richness of transmission

channels

As communications theory informs us (Daft and

Lengel, 1986; Krone et al., 1987), transmission

channels can be both formal and informal.

Accordingly, we operationalize the construct of

transmission channels in terms of two mecha-

nisms: one formal (viz., formal integrative

mechanisms) and one informal (viz., corporate

socialization mechanisms).

Formal integrative mechanisms. Galbraith

(1973) and Nadler and Tushman (1987) identiﬁed

liaison positions, task forces, and permanent com-

mittees as some of the key formal structural

mechanisms for integrating multiple units of an

organization. It is easy to see that the greater the

extent to which a subsidiary is linked to the rest

of the global network through such integrative

mechanisms, the greater would be the density of

communication interface between the subsidiary

and other units, thereby contributing positively to

media richness (Daft and Lengel, 1986). Thus,

focusing on knowledge outﬂows from the subsidi-

Knowledge Flows within Multinational Corporations 479

ary, we can now operationalize Proposition 3 in

terms of the following concrete hypotheses: cet-

eris paribus, the greater the reliance on formal

mechanisms (liaison personnel, task forces, per-

manent committees) to integrate a subsidiary with

the rest of the MNC, the greater will be the

knowledge outﬂows from that subsidiary to peer

subsidiaries (H3a) and to the parent corporation

(H3a′). Similarly, focusing on knowledge inﬂows

into the subsidiary, we can also operationalize

Proposition 4 in terms of the following testable

hypotheses: ceteris paribus, the greater the

reliance on formal mechanisms (liaison person-

nel, task forces, permanent committees) to inte-

grate a subsidiary with the rest of the MNC, the

greater will be the knowledge inﬂows into that

subsidiary from peer subsidiaries (H4a) and from

the parent corporation (H4a′).

Corporate socialization mechanisms. Corpor-

ate socialization mechanisms refer to those

organizational mechanisms which build inter-

personal familiarity, personal afﬁnity, and conver-

gence in cognitive maps among personnel from

different subsidiaries (Edstrom and Galbraith,

1977; Van Maanen and Schein, 1979). Greater

interpersonal familiarity and personal afﬁnity can

be expected to increase the openness of communi-

cation between the interacting parties. Further, as

Daft and Lengel (1986) have suggested, personal

and more open communication increases the rich-

ness of communication channels. Thus, we would

argue that greater participation in corporate

socialization mechanisms would have a positive

impact on the richness of transmission channels

between the focal subsidiary and other units.

In this study, we separate “lateral” from “verti-

cal” socialization mechanisms. Examples of the

former would be: job transfers to peer subsidiaries

and participation in multi-subsidiary executive

programs; similarly, examples of the latter would

be: job transfers to corporate headquarters and

participation in corporate mentoring programs

(Ghoshal and Bartlett, 1988). Focusing now on

knowledge outﬂows from the focal subsidiary, we

can advance the following additional oper-

ationalizations of Proposition 3: ceteris paribus,

the greater the lateral socialization of a subsidi-

ary president, the greater will be the knowledge

outﬂows from that subsidiary to peer subsidiaries

(H3b); further, ceteris paribus, the greater the

vertical socialization of a subsidiary president,

the greater will be the knowledge outﬂows from

that subsidiary to the parent corporation (H3b′).

Similarly, focusing now on knowledge inﬂows

into the focal subsidiary, we can advance the

following additional operationalizations of Propo-

sition 4: ceteris paribus, the greater the lateral

socialization of a subsidiary president, the greater

will be the knowledge inﬂows into that subsidiary

from peer subsidiaries (H4b); further, ceteris

paribus, the greater the vertical socialization of

a subsidiary president, the greater will be the

knowledge inﬂows into that subsidiary from the

parent corporation (H4b′).

Motivational disposition of the target unit

We argued earlier that a subsidiary’s motivational

disposition to acquire/accept knowledge from

other units within the enterprise would be a func-

tion of (i) incentives that increase subsidiary

managers’ eagerness to learn, (ii) the relative

paucity of the subsidiary’s knowledge stock,

and/or (iii) coercive pressures from corporate

headquarters. Based on this reasoning, we oper-

ationalized the construct of motivational disposi-

tion of the target unit in terms of three variables:

subsidiary vs. corporate focus of the incentives

for the subsidiary president (a determinant of

eagerness to learn), relative economic level (a

determinant of the paucity of local knowledge

stock), and HQ-subsidiary decentralization (a

determinant of coercive pressures).

Incentive focus. Unlike the case of knowledge

outﬂows where the required motivational disposi-

tion can be characterized as “eagerness to help

others,” in the case of knowledge inﬂows, the

required motivation would be characterized as

“eagerness to learn and to help oneself.” We

would argue that, other things being equal, sub-

sidiary personnel would be more eager to learn

in those contexts where the linkage between

incentives and the subsidiary’s own capabilities

is tighter rather than weaker i.e., in contexts

where incentives are linked more tightly to the

focal subsidiary’s own performance than to the

performance of a cluster of subsidiaries. This is

so because, unlike cluster-based incentives, which

can create free-rider problems, subsidiary-based

incentives would create a stronger disposition to

learn from any and all sources. These arguments

yield the following operationalizations of Proposi-

tion 5: ceteris paribus, the greater the extent to

which a subsidiary president’s bonus is subsidi-

480 A. K. Gupta and V. Govindarajan

ary-focused rather than network-focused, the

greater will be the knowledge inﬂows into that

subsidiary from peer subsidiaries (H5a) and from

the parent corporation (H5a′).

Relative economic level. Paralleling our dis-

cussion on this variable in the context of knowl-

edge outﬂows, we expect that, other things being

equal, the lower the level of economic advance-

ment of the “host” country (i.e., where the sub-

sidiary is located) vis-a-vis the “home” country

(i.e., where the parent is located), the more eager

subsidiary personnel would be to learn from the

parent corporation. They are likely to perceive

the knowledge stock of the parent as relatively

more valuable and, thus, are likely to regard

knowledge inﬂows as a potential source of com-

petitive advantage against other players in the

local market. Knowledge inﬂows into such sub-

sidiaries may also be facilitated by explicit public

policy regimes that mandate technology inﬂows

as the condition for allowing MNCs access to

the local market; as an example, this is illustrated

well by the recent decisions of the Chinese

government (Smith and Hamilton, 1995: 2).

These arguments suggest the following additional

operationalization of Proposition 5: ceteris par-

ibus, the lower the level of the host country’s

economic development relative to the home coun-

try, the greater will be the knowledge inﬂows

into the subsidiary from the parent corporation

(H5b′). As discussed in the context of knowledge

outﬂows, given our nodal level of analysis, we

neither advance nor test any hypotheses pertaining

to the relative economic levels of subsidiary pairs.

Headquarters-subsidiary decentralization.

The concept of decentralization (or its obverse

i.e., centralization) has had a long history of

research in organization theory (see Ford and

Slocum, 1977 for an extensive review). Even in

the domain of research on MNCs, scholars have

argued that centralization is “one of the funda-

mental dimensions of organization design”

(Egelhoff, 1988: 129). Our expectations of a

linkage between decentralization and knowledge

inﬂows into a subsidiary parallel the broader

arguments of DiMaggio and Powell (1983),

echoed also by Levitt and March (1988), that

coercion is one of the major (but not the sole)

drivers of inter-organizational isomorphism. In

the MNC context also, similar arguments have

been advanced by many scholars (e.g., Gates and

Egelhoff, 1986; Ghoshal and Bartlett, 1988).

These arguments yield the following additional

operationalization of Proposition 5: ceteris par-

ibus, the lower the decentralization of decision-

making authority to a subsidiary, the greater will

be the knowledge inﬂows into that subsidiary

from the parent corporation (H5c′). Since the con-

struct of decentralization pertains to parent-

subsidiary relationships only, we advance no

hypotheses pertaining to the impact of decentrali-

zation on knowledge inﬂows from peer subsidiaries.

Absorptive capacity of the target unit

We argued earlier that the absorptive capacity of

a subsidiary would be a function of (i) its fa-

miliarity with the incoming knowledge, and (ii)

interunit homophily. Based on this reasoning, we

operationalized the construct of absorptive

capacity in terms of the following two variables:

mode of entry (a determinant of the subsidiary’s

ex-ante familiarity with the corporate-wide

knowledge base) and the proportion of local

nationals vs. expatriates within the subsidiary’s

top management team (a measure of the inter-

unit homophily of subsidiary managers).

Mode of entry. Literature on foreign direct

investment (see e.g., Hennart and Park, 1993) has

argued theoretically and demonstrated empirically

that the less the overlap between existing corpo-

rate know-how and the know-how required to

succeed in a host market, the greater the prob-

ability of acquisition as the mode of entry. Thus,

as we discussed earlier, relative to greenﬁeld

operations, acquired subsidiaries are more likely

to have a non-duplicative knowledge base vis-a-

vis the parent corporation. Building on Cohen

and Levinthal’s (1990) arguments regarding the

determinants of absorptive capacity, it follows

that, on average, the novelty of acquired subsidia-

ries’ knowledge base should also imply a lower

absorptive capacity for intra-corporate knowledge

relative to the case with greenﬁeld subsidiaries.

Based on these arguments, we can now oper-

ationalize Proposition 6 in terms of the following

concrete hypotheses: ceteris paribus, relative to

greenﬁeld operations, acquired subsidiaries will

engage in less knowledge inﬂows from peer sub-

sidiaries (H6a) and from the parent corporation

(H6a′).

An anonymous reviewer has pointed out that, at ﬁrst glance,

the two hypotheses under H6 might appear inconsistent with

Knowledge Flows within Multinational Corporations 481

Proportion of local nationals in the subsidi-

ary’s top management team. Several studies

have indicated that national background accounts

for signiﬁcant differences in managerial perspec-

tives (e.g., Tung, 1982; Zeira, 1986). Accord-

ingly, the greater the proportion of local nationals

(i.e., the lower the proportion of expatriates)

within the subsidiary’s top management team

(TMT), the lower would be the homophily

between the subsidiary and the rest of the corpo-

ration. Building on Rogers’ arguments (1995),

we would expect that inter-unit homophily is

likely to be positively associated with absorptive

capacity. This is so because greater homophily

implies a greater commonality in language sys-

tems as well as in the meanings assigned to the

artifacts of communication. Thus, on average,

subsidiaries with a greater proportion of local

nationals within the TMT can be expected to

have lower absorptive capacity for incoming

knowledge from the rest of the corporate network.

These arguments yield the following oper-

ationalization of Proposition 6: ceteris paribus,

the greater the proportion of local nationals

within the subsidiary’s top management team,

the less will be the knowledge inﬂows into that

subsidiary from peer subsidiaries (H6b) and from

the parent corporation (H6b′).

the two hypotheses under H1. In H1, we predicted that,

because of their large non-duplicative knowledge base,

acquired subsidiaries would exhibit high knowledge outﬂows;

an implicit assumption underlying this prediction was that

such knowledge would be absorbed by the receiving units.

However, H6 argues that unfamiliarity with incoming knowl-

edge would reduce absorptive capacity among the receiving

units. Thus, H1 could not be true unless mode of entry has

a different effect on ﬂows from the subsidiary to the MNC

than it does on ﬂows from the MNC to the subsidiary. We

believe this to be the case. The roots of this differing effect lie

in the following two observations: One, the typical acquisition

represents a voluntary event for the acquiring MNC but an

involuntary event for the acquired subsidiary; thus, the willing-

ness of the acquiring MNC to integrate the new knowledge

of the acquired unit should, on average, be greater than the

willingness of the acquired unit to integrate the new knowl-

edge of the acquiring MNC. Two, the typical MNC would

have much greater experience at acquiring and integrating

new units than the typical unit would have in being acquired

and integrated; accordingly, on average, the acquirer’s ability

to digest new knowledge should be greater than that of the

acquired unit.

We should note that nationality structure of a subsidiary’s

TMT has the potential to affect knowledge inﬂows not only

through its impact on absorptive capacity but also through its

impact on richness of transmission channels between the local

subsidiary and the rest of the global network. It does appear

likely that, on average, relative to local nationals, expatriates

should have stronger and longer-tenured social ties with man-

Control variables

Country of origin. There already exists a large

body of both theoretical and empirical literature

dealing with the fact that country of origin has

a major impact on the propensities of MNCs vis-

a-vis the choice of global strategies, organi-

zational structures and control systems, as well

as internal corporate cultures (e.g., Bartlett and

Ghoshal, 1989; Egelhoff, 1984; Franko, 1976;

Porter, 1994; Yip, Roos and Johansson, 1994).

Accordingly, all of our hypotheses were tested

after controlling for the effect of country-of-origin

of the MNC.

Industry resource characteristics. As dis-

cussed earlier, economic theory posits that MNCs

come to be primarily because external markets

are less effective and efﬁcient at knowledge trans-

fer than intracorporate mechanisms (Caves, 1982;

Hymer, 1960; Kindleberger, 1969). Empirical

tests of this theory have consistently shown that

industries characterized by greater degrees of

knowledge intensities (industries with higher R&D

-to-sales-ratios and/or higher advertising-to-sales

ratios) tend to be more global than other indus-

tries (e.g., Goedde, 1978; Grueber, Mehta, and

Vernon, 1967; Horst, 1972). Accordingly, we

deemed it important that, in testing our hypoth-

eses, we control also for the potential effects of

three resource characteristics of the MNC’s indus-

try: R&D intensity, ﬁxed asset intensity, and

advertising intensity (Collis and Ghemawat,

1994).

Nature of subsidiary’s operations. It is well

accepted that foreign subsidiaries will often vary

in the scope of value chain activities included

within their operations (Porter, 1986). The pres-

agers at corporate HQ and in other subsidiaries. In fact, as

the correlations in Table 1 indicate, there does exist a strong

negative correlation (−0.59, p ⬍0.001) between proportion of

local nationals in the subsidiary’s TMT and vertical corporate

socialization. Thus, as pointed out by an anonymous reviewer

and the consulting editor, the question arises as to whether,

in the context of our study, TMT nationality might be a

better proxy for another factor (such as richness of trans-

mission channels) rather than absorptive capacity. We believe

that this would indeed be a serious concern if we did not

have any direct measures of socialization mechanisms as

one of the hypothesized antecedents of knowledge inﬂows.

However, as captured in H3b, H3b⬘, H4b, and H4b⬘,wedo

test for the direct effect of socialization mechanisms on

knowledge inﬂows. Thus, in a multivariate regression context,

any remaining impact of TMT nationality on knowledge

inﬂows is likely to be due primarily to absorptive capacity

rather than transmission channel considerations.

482 A. K. Gupta and V. Govindarajan

ence or absence of any particular activity within

the subsidiary’s operations can be expected to

shape the nature of the subsidiary’s interactions

with the rest of the corporation and, thus, the

nature of knowledge inﬂows into and outﬂows

from the subsidiary. Accordingly, all of our

hypotheses were tested after controlling also for

the potential effects of two dummy variables:

presence of a primary upstream activity (i.e., R&D

and/or manufacturing) and presence of a primary

downstream activity (i.e., marketing and sales).

METHOD

Sample

Data for this study were collected through a

combination of questionnaire surveys and second-

ary sources. The following steps guided the devel-

opment of the questionnaire instrument: (i) inter-

views with subsidiary presidents and corporate-

level executives in six MNCs to understand and

clarify the phenomenon of interest, (ii) a review

of previous research to locate, wherever possible,

measures that would appropriately capture the

constructs under study, and (iii) a pretesting of

the questionnaire for clarity and relevance through

face-to-face interviews with four subsidiary presi-

dents (two American and two non-American).

The pre-tested questionnaires were mailed to

the heads (variously titled as presidents, manag-

ing directors, or general managers) of 987 foreign

subsidiaries of major MNCs headquartered in the

U.S. (407 subsidiaries of 19 MNCs), Japan (270

subsidiaries of 41 MNCs), and Europe (310 sub-

sidiaries of 15 MNCs). Subsidiary presidents

within Japanese MNCs received both an English

and a Japanese language questionnaire; initial

interviews with the European companies indicated

that only the English-language questionnaire

would sufﬁce. The U.S. sample was drawn from

the list of the largest U.S.-based MNCs contained

in the International Directory of Corporate Afﬁli-

ations (National Register, 1991); this was also

the approach used for developing a list of subsidi-

aries for 9 out of the 15 European MNCs. In the

case of the other 6 European MNCs, the list of

subsidiaries was drawn up in cooperation with

the senior-most corporate executive in charge of

strategic planning, an approach also used in the

case of all of the Japanese MNCs. Given the

constraints of time and funding and given the

need to obtain access, it was not possible to use

a random sample either from the entire universe

of MNCs or from the entire subset of MNCs

headquartered in the U.S., Europe, and Japan.

Nonetheless, given the diversity of industries in

which the sampled ﬁrms operate (food products,

industrial machinery, computers, telecommuni-

cations, pharmaceuticals, automobiles, chemical

production, electronics, consumer durables, con-

sumer nondurables, etc.), there is no prima facie

reason to expect any systematic bias in the ﬁnd-

ings from subsidiaries within these ﬁrms.

A personalized cover letter accompanying each

questionnaire explained the purpose of the study

and provided assurances regarding the conﬁden-

tiality of collected data. In order to minimize

response bias, the participants were also provided

with pre-addressed envelopes to enable them to

return the completed questionnaires directly to

the researchers without any risk of perusal by

others in their ﬁrms. A total of 374 questionnaires

(38 percent) were returned—a response rate that

compares very favorably with past survey-based

research studies in the strategic management area.

The number of respondents for U.S., Japan, and

European MNCs were 117 (28 percent), 112 (41

percent), and 145 (46 percent), respectively. To

test for inter-rater reliability on the most critical

variables in the study (knowledge outﬂows and

inﬂows), we were also able to get responses on

these knowledge ﬂow variables from the immedi-

ate corporate-level direct-report superiors of 89

of the responding subsidiary presidents.

For the sample, median worldwide revenues

and median number of total employees for the

parent ﬁrms were $5.8 billion and 32,100 respec-

tively; at the subsidiary level, the median number

of employees per subsidiary was 350. These ﬁg-

ures pertain to 1991, the year in which the survey

data were collected.

Measures

A summary of how the independent variables as

well as the control variables were measured is

contained in the Appendix. Wherever possible,

we used standard well-established research instru-

ments with minor changes in wording to adapt

the instrument to the multinational context. Given

below are details pertaining to how the four

variables central to this study – knowledge out-

ﬂows to peer subsidiaries (KO-S), knowledge

Knowledge Flows within Multinational Corporations 483

outﬂows to the parent corporation (KO-P),

knowledge inﬂows from peer subsidiaries (KI-S),

and knowledge inﬂows from the parent corpo-

ration (KI-P) – were measured.

As stated earlier, in this study, we focus on

the transfer of largely procedural types of knowl-

edge (e.g., product designs, distribution know-

how, etc.) but not on the transfer of largely

declarative types of knowledge (e.g., monthly

ﬁnancial results). Knowledge ﬂow data were col-

lected on the following seven items: (1) market-

ing know-how, (2) distribution know-how, (3)

packaging design/technology, (4) product

designs, (5) process designs, (6) purchasing

know-how, and (7) management systems and

practices. For each of these seven items, the

subsidiary president was asked to indicate on a

7-point scale (ranging from “not at all” to “a

very great deal”) the extent to which the subsidi-

ary engaged in transfers of “knowledge and

skills” in each of the following four directions:

(1) “provides knowledge and skills to sister sub-

sidiaries,” (2) “provides knowledge and skills to

parent corporation,” (3) “receives knowledge and

skills from sister subsidiaries,” and (4) “receives

knowledge and skills from the parent corpo-

ration.” For each of these knowledge ﬂow direc-

tions, responses across the seven items were aver-

aged to yield composite measures of KO-S, KO-

P, KI-S, and KI-P. For these four variables, the

means, the standard deviations, and Chronbach

alpha values respectively were as follows: KO-S

(2.36, 1.25, 0.89), KO-P (2.39, 1.20, 0.87), KI-S

(2.21, 1.27, 0.92), and KI-P (3.75, 1.59, 0.89).

Given the 1-to-7 range of the 7-point scale

used to measure knowledge ﬂows, the mean

values of the four types of knowledge ﬂows in

our sample (2.36, 2.39, 2.21, and 3.75) may at

ﬁrst glance appear low. However, as clariﬁed

above, it should be noted that this study has

focused on the transfers of largely procedural

knowledge (i.e., know-how) rather than on the

transfers of largely declarative knowledge (e.g.,

operational data). Given the tacit rather than

codiﬁed nature of much procedural knowledge,

we would expect the mean levels of knowledge

transfers in this arena to be on the lower rather

than higher side. It also should be noted that,

as would be expected in the case of hierarchical

organizations, pairwise t-tests revealed that

knowledge inﬂows from the parent to focal sub-

sidiaries (KI-P) were signiﬁcantly greater (at

p⬍0.001) than each of the other three types

of knowledge ﬂows.

Given the perceptual nature of these knowl-

edge ﬂow measures and given their centrality

for our study, we deemed it critical that they

be tested also for inter-rater reliability. Towards

thisgoal,wewereabletogetresponseson

the same knowledge ﬂow variables from the

immediate corporate-level direct report superiors

of 89 of the subsidiary presidents. Each superior

completed a separate questionnaire containing

the subsidiary’s name for each of the sampled

subsidiaries reporting to him/her. This question-

naire used exactly the same seven dimensions

of knowledge. For each of these seven items,

the superior was asked to indicate on a 7-point

scale (ranging from “not at all” to “a very great

deal”) the extent to which he/she expected the

named subsidiary to engage in transfers of

“knowledge and skills” in each of the following

two directions: (1) “provides knowledge and

skills to the rest of the corporation,” and (2)

“receives knowledge and skills from the rest of

the corporation.” For each of these two knowl-

edge ﬂow directions, responses across the seven

items were averaged to yield composite meas-

ures of expected “knowledge outﬂows from the

subsidiary” (Chronbach alpha =0.82) and

expected “knowledge inﬂows into the subsidi-

ary” (Chronbach alpha =0.81) respectively. For

these 89 subsidiaries, this corporate-level meas-

ure of expected knowledge outﬂows from the

subsidiary correlates at 0.23 (p ⬍0.05) with

the average of KO-S and KO-P; similarly, the

corporate-level measure of expected knowledge

inﬂows into the subsidiary correlates at 0.38

(p ⬍0.001) with the average of KI-S and

KI-P. Given these positive correlations in the

data from subsidiary presidents and their

immediate superiors, in a context where they

are typically separated by a geographic distance

of thousands of miles, we believe that our meas-

ures of KO-S, KO-P, KI-S, and KI-P can be

deemed as reliable.

Table 1 contains the matrix of zero-order corre-

lations among these and all other variables uti-

lized in this study. As this table indicates, the

average correlation among the four knowledge

ﬂow variables is 0.32 implying that the four types

of knowledge ﬂows are distinct, albeit related,

variables not only conceptually (Gupta and Gov-

indarajan, 1991) but also empirically.

484 A. K. Gupta and V. Govindarajan

Table 1 Zero-order correlation coefﬁcients among all variables under study

KO-S

KO-P ***

0.54

KI-S *** ***

0.58 0.33

KI-P *** ***

0.00 0.19 0.25

R&D Intensity * ** **

−0.12 −0.07 −0.15 0.15

Fixed Asset Intensity ** ***

−0.04 −0.03 0.02 −0.15 −0.28

Advertising Intensity *** ** *** ***

0.20 0.14 0.07 −0.02 −0.21 −0.39

Upstream Activities

** ***

0.14 0.08 0.05 −0.08 −0.16 0.06 0.08

Downstream Activities

*** *** ** ***

0.25 0.22 0.13 −0.06 −0.05 0.03 0.06 0.27

Mode of Entry

*** * ***

0.09 −0.03 0.01 −0.32 −0.12 0.02 0.04 0.16 0.04

Subsidiary Size *** ** *** *** *

0.22 0.14 0.01 0.06 −0.20 −0.00 −0.00 0.37 0.09 0.03

Relative Economic ** *** *** * ***

Level 0.08 0.15 −0.05 −0.36 −0.22 0.10 0.13 0.04 0.03 0.35 0.06

Incentive Focus

* * * ***

0.08 0.02 0.12 0.06 0.13 −0.05 −0.04 −0.01 0.01 −0.13 −0.02 −0.18

Formal Integ *** *** *** *** * **

Mechanisms 0.29 0.24 0.22 0.21 −0.06 −0.03 −0.01 0.01 −0.01 −0.12 0.09 −0.02 0.15

Lateral Socializn Mech. *** ** *** ** * * ** *** *** * ** ***

0.25 0.15 0.21 0.14 −0.12 −0.08 0.11 0.13 0.20 −0.08 0.22 −0.11 0.15 0.21

Vertical Socializn *** ** *** *** *** *** *** * *** ***

Mech. −0.22 −0.14 −0.25 0.25 0.21 −0.19 −0.20 −0.09 −0.08 −0.21 0.06 −0.18 0.08 0.00 0.03

HQ-Sub * *** * *** * ** *

Decentralization 0.06 −0.06 −0.04 −0.13 −0.17 0.06 0.13 0.25 0.04 0.11 0.16 0.03 −0.13 −0.05 0.08 −0.06

Local Nationals in *** ** *** ** ** *** *** *** *** ** * *** **

TMT 0.19 0.14 0.22 −0.14 −0.14 0.18 0.23 0.22 0.22 0.08 0.02 0.12 0.10 0.01 0.06 −0.59 0.12

1=Subsidiary has an upstream activity (R&D and/or manufacturing); 0 =Subsidiary has no upstream activity.

1=Subsidiary has a downstream activity (marketing and sales); 0 =Subsidiary has no downstream activity.

Mode of entry: 1 =Acquisition; 0 =Greenﬁeld.

Higher values signify that the incentive system is more network, rather than subsidiary, focused.

*one-tail p ⬍0.05; **one-tail p ⬍0.01; ***one-tail p ⬍0.001

Knowledge Flows within Multinational Corporations 485

RESULTS

We have four dependent variables (KO-S, KO-P,

KI-S, or KI-P) and a set of hypotheses pertaining

to each of these variables. Each set of these

hypotheses was tested through a series of multi-

variate OLS regressions: ﬁrst, we entered the four

control variables pertaining to country-of-origin;

second, we entered the three control variables

pertaining to industry resource characteristics;

third, we entered the two control variables per-

taining to nature of subsidiary operations; ﬁnally,

we entered the independent variables hypothe-

sized as the determinants of that particular type

of knowledge ﬂows. Tables 2 through 5 contain

the results of these regression analyses.

Table 2. Determinants of knowledge outﬂows to peer subsidiaries

dependent variable =Knowledge outﬂows to peer subsidiaries (KO-S)

Independent Variables Hypothesized Standardized Beta Coefﬁcients

Relationship Equation 1 Equation 2 Equation 3 Equation 4

Japan −0.233*** −0.244*** −0.184** −0.153**

U.K. 0.041 0.003 −0.003 −0.061

Sweden −0.046 −0.031 −0.043 −0.080

Finland 0.065 −0.058 −0.045 −0.019

R&D Intensity −0.069 −0.046 0.032

Fixed Asset Intensity −0.086 −0.078 0.001

Advertising Intensity 0.128* 0.130* 0.155*

Upstream Activities

0.070 0.005

Downstream Activities

0.195*** 0.187***

P1: Value of Knowledge Stock

Mode of Entry

H1a (+) 0.127**

Subsidiary Size H1b (+) 0.169**

P2: Motivational Disposition

Incentive Focus

H2a (+)−0.003

P3: Transmission Channels

Formal Integrative Mechanisms H3a (+) 0.256***

Lateral Socialization Mechanisms H3b (+) 0.100*

0.072 0.095 0.139 0.256

d.f. 4,335 7,332 9,330 14,325

F 6.50*** 4.99*** 5.91*** 8.00***

⌬R

0.072 0.023 0.043 0.117

d.f. 4,335 3,332 2,330 5,325

F 6.50*** 2.84* 8.33*** 10.27***

1=Subsidiary has an upstream activity (R&D and/or manufacturing); 0 =Subsidiary has no upstream activity.

1=Subsidiary has a downstream activity (marketing and sales); 0 =Subsidiary has no downstream activity.

Mode of entry: 1 =Acquisition; 0 =Greenﬁeld.

Higher values signify that the incentive system is more network, rather than subsidiary, focused.

*p ⬍0.05

**p ⬍0.01

***p ⬍0.001 For t-tests, these are one-tail values.

Knowledge outﬂows to peer subsidiaries

Table 2 presents the results of regression analyses

to test our predictions regarding the impact of

value of knowledge stock (P1), motivational

disposition (P2), and transmission channels (P3)

on knowledge outﬂows to peer subsidiaries.

Value of knowledge stock. In the context

of knowledge outﬂows to peer subsidiaries, we

operationalized this construct in terms of mode of

entry and subsidiary size. The results in Table 2

(equation 4) support both of the resulting hypoth-

eses. More speciﬁcally, knowledge outﬂows to

peer subsidiaries are higher in the case of (i)

subsidiaries that were acquired rather than set

up as greenﬁeld operations (beta for “mode of

486 A. K. Gupta and V. Govindarajan

Table 3. Determinants of knowledge outﬂows to the parent corporation

Dependent variable =Knowledge outﬂows to the parent corporation (KO-P)

Independent Variables Hypothesized Standardized Beta Coefﬁcients

Relationship Equation 5 Equation 6 Equation 7 Equation 8

Japan −0.127* −0.141* −0.095 −0.088

U.K. 0.089 0.062 0.063 −0.038

Sweden 0.018 0.035 0.030 −0.021

Finland 0.020 −0.092 −0.079 −0.135

R&D Intensity −0.043 −0.031 −0.002

Fixed Asset Intensity −0.089 −0.081 −0.063

Advertising Intensity 0.120 0.120 0.129*

Upstream Activities

−0.002 −0.033

Downstream Activities

0.181*** 0.174***

P1: Value of Knowledge Stock

Mode of Entry

H1a′(+)−0.063

Subsidiary Size H1b′(+) 0.121*

Relative Economic Level H1c′(+) 0.169**

P2: Motivational Disposition

Incentive Focus

H2a′(+)−0.018

P3: Transmission Channels

Formal Integrative Mechanisms H3a′(+) 0.208***

Lateral Socialization Mechanisms H3b′(+)−0.073

0.033 0.054 0.084 0.162

d.f. 4,322 7,319 9,317 15,311

F 2.75* 2.58** 3.23*** 4.02***

⌬R

0.033 0.020 0.030 0.078

d.f. 4,322 3,319 2,317 6,311

F 2.75* 2.30 5.28** 4.84***

1=Subsidiary has an upstream activity (R&D and/or manufacturing); 0 =Subsidiary has no upstream activity.

1=Subsidiary has a downstream activity (marketing and sales); 0 =Subsidiary has no downstream activity.

Mode of entry: 1 =Acquisition; 0 =Greenﬁeld.

Higher values signify that the incentive system is more network, rather than subsidiary, focused.

*p ⬍0.05

**p ⬍0.01

***p ⬍0.001 For t-tests, these are one-tail values.

entry” =0.127, p ⬍0.01; thus, H1a is supported),

and (ii) subsidiaries that are larger in size (beta

for “subsidiary size” =0.169, p ⬍0.01; thus, H1b

is supported).

Motivational disposition. In the context of

knowledge outﬂows to peer subsidiaries, we oper-

ationalized this construct in terms of the network

vs. subsidiary focus of the incentive system for

the subsidiary president. The results in Table 2

(Equation 4) do not support the resulting hypoth-

esis (H2a).

Transmission channels. In the context of

knowledge outﬂows to peer subsidiaries, we oper-

ationalized this construct in terms of formal inte-

grative mechanisms and lateral socialization

mechanisms. The results in Table 2 (Equation 4)

support both of the resulting hypotheses. More

speciﬁcally, knowledge outﬂows to peer subsidi-

aries are higher in the case of (i) subsidiaries

that are integrated more tightly with the rest of

the corporation through formal mechanisms (beta

for “formal integrative mechanisms” =0.256,

p⬍0.001; thus, H3a is supported), and (ii) sub-

sidiaries whose presidents have been involved in

lateral socialization mechanisms with peer sub-

sidiaries to a greater extent (beta for “lateral

socialization mechanisms” =0.100, p ⬍0.05;

thus, H3b is supported).

Knowledge outﬂows to the parent

corporation

Table 3 presents the results of regression analyses

to test our predictions regarding the impact of

Knowledge Flows within Multinational Corporations 487

Table 4. Determinants of knowledge inﬂows from peer subsidiaries

dependent variable =Knowledge inﬂows from peer subsidiaries (KI-S)

Independent Variables Hypothesized Standardized Beta Coefﬁcients

Relationship Equation 9 Equation 10 Equation 11 Equation 12

Japan −0.333*** −0.362*** −0.349*** −0.231**

U.K. −0.087 −0.166** −0.164** −0.169**

Sweden −0.064 −0.084 −0.084 −0.087

Finland −0.088 −0.216** −0.212** −0.195**

R&D Intensity −0.202*** −0.200*** −0.164**

Fixed Asset Intensity −0.098 −0.095 −0.062

Advertising Intensity 0.029 0.030 0.032

Upstream Activities

−0.017 −0.026

Downstream Activities

0.063 0.055

P4: Transmission Channels

Formal Integrative Mechanisms H4a (+) 0.167***

Lateral Socialization Mechanisms H4b (+) 0.110*

P5: Motivational Disposition

Incentive Focus

H5a (−) 0.015

P6: Absorptive Capacity

Mode of Entry

H6a (−) 0.071

Local Nationals in TMT H6b (−) 0.101

0.085 0.115 0.119 0.167

d.f. 4,341 7,338 9,336 14,331

F 7.90*** 6.29*** 5.04*** 4.73***

⌬R

0.085 0.030 0.004 0.048

d.f. 4,341 3,338 2,336 5,331

F 7.90*** 3.88** 0.69 3.80**

1=Subsidiary has an upstream activity (R&D and/or manufacturing); 0 =Subsidiary has no upstream activity.

1=Subsidiary has a downstream activity (marketing and sales); 0 =Subsidiary has no downstream activity.

Higher values signify that the incentive system is more network, rather than subsidiary, focused.

Mode of entry: 1 =Acquisition; 0 =Greenﬁeld.

*p ⬍0.05

**p ⬍0.01

***p ⬍0.001 For t-tests, these are one-tail values.

value of knowledge stock (P1), motivational

disposition (P2), and transmission channels (P3)

on knowledge outﬂows to the parent corporation.

Value of knowledge stock. In the context of

knowledge outﬂows to the parent corporation, we

operationalized this construct in terms of mode

of entry, subsidiary size, and relative economic

level. The results in Table 3 (Equation 8) support

two of the resulting three hypotheses. More speci-

ﬁcally, knowledge outﬂows to the parent corpo-

ration are higher in the case of (i) subsidiaries

that are larger in size (beta for “subsidiary

size” =0.121, p ⬍0.05; thus, H1b′is supported),

and (ii) subsidiaries that are located in countries

with a higher level of economic advancement

relative to the country of the parent corporation

(beta for “relative economic level” =0.169,

p⬍0.01; thus, H1c′is supported). There was no

support for our prediction regarding the impact

of mode of entry on KO-P (H1a′).

Motivational disposition. In the context of

knowledge outﬂows to the parent corporation

also, we operationalized this construct in terms

of the network vs. subsidiary focus of the incen-

tive system for the subsidiary president. The

results in Table 3 (Equation 8) do not support

the resulting hypothesis (H2a′).

Transmission channels. In the context of

knowledge outﬂows to the parent corporation, we

operationalized this construct in terms of formal

integrative mechanisms and vertical socialization

mechanisms. The results in Table 3 (Equation 8)

support one of the two resulting hypotheses. More

speciﬁcally, knowledge outﬂows to the parent

corporation are higher in the case of subsidiaries

that are integrated more tightly with the rest of

488 A. K. Gupta and V. Govindarajan

Table 5. Determinants of knowledge inﬂows from the parent corporation

dependent variable =Knowledge inﬂows from the parent corporation (KI-P)

Independent Variables Hypothesized Standardized Beta Coefﬁcients

Relationship Equation 13 Equation 14 Equation 15 Equation 16

Japan −0.020 −0.042 −0.062 −0.073

U.K. −0.245*** −0.278*** −0.276*** −0.086

Sweden −0.077 −0.044 −0.040 0.011

Finland −0.319*** −0.501*** −0.506*** −0.256***

R&D Intensity −0.052 −0.063 0.014

Fixed Asset Intensity −0.151** −0.153** −0.095

Advertising Intensity 0.205** 0.206** 0.168**

Upstream Activities

−0.046 −0.009

Downstream Activities

−0.039 −0.033

P4: Transmission Channels

Formal Integrative Mechanisms H4a′(+) 0.182***

Vertical Socialization Mechanisms H4b′(+) 0.119*

P5: Motivational Disposition

Incentive Focus

H5a′(−)−0.097*

Relative Economic Level H5b′(−)−0.209***

HQ-Subsidiary Decentralization H5c′(−)−0.086*

P6: Absorptive Capacity

Mode of Entry

H6a′(−)−0.165***

Local Nationals in TMT H6b′(−)−0.009

0.120 0.180 0.184 0.298

d.f. 4,325 7,322 9,320 16,313

F 11.11*** 10.10*** 8.01*** 8.31***

⌬R

0.120 0.060 0.004 0.114

d.f. 4,325 3,322 2,320 7,313

F 11.11*** 7.83*** 0.74 7.28***

1=Subsidiary has an upstream activity (R&D and/or manufacturing); 0 =Subsidiary has no upstream activity.

1=Subsidiary has a downstream activity (marketing and sales); 0 =Subsidiary has no downstream activity.

Higher values signify that the incentive system is more network, rather than subsidiary, focused.

Mode of entry: 1 =Acquisition; 0 =Greenﬁeld.

*p ⬍0.05

**p ⬍0.01

***p ⬍0.001 For t-tests, these are one-tail values.

the corporation through formal mechanisms (beta

for “formal integrative mechanisms” =0.208,

p⬍0.001; thus, H3a′is supported). There was

no support for our prediction regarding the impact

of vertical socialization mechanisms on KO-P

(H3b′).

Knowledge inﬂows from peer subsidiaries

Table 4 presents the results of regression analyses

to test our predictions regarding the impact of

transmission channels (P4), motivational disposi-

tion (P5), and absorptive capacity (P6) on knowl-

edge inﬂows from peer subsidiaries.

Transmission channels. In the context of

knowledge inﬂows from peer subsidiaries, we

operationalized this construct in terms of formal

integrative mechanisms and lateral socialization

mechanisms. The results in Table 4 (Equation 12)

support both of the resulting hypotheses. More

speciﬁcally, knowledge inﬂows from peer subsidi-

aries are higher in the case of (i) subsidiaries

that are integrated more tightly with the rest of

the corporation through formal mechanisms (beta

for “formal integrative mechanisms” =0.167,

p⬍0.001; thus, H4a is supported), and (ii) sub-

sidiaries whose presidents have been involved in

lateral socialization mechanisms with peer sub-

sidiaries to a greater extent (beta for “lateral

socialization mechanisms” =0.110, p ⬍0.05;

thus, H4b is supported).

Motivational disposition. In the context of

knowledge inﬂows from peer subsidiaries, we

operationalized this construct in terms of the net-

Knowledge Flows within Multinational Corporations 489

work vs. subsidiary focus of the incentive system

for the subsidiary president. The results in Table 4

(Equation 12) do not support the resulting

hypothesis (H5a).

Absorptive capacity. In the context of knowl-

edge inﬂows from peer subsidiaries, we oper-

ationalized this construct in terms of mode of

entry and proportion of local nationals in the

subsidiary’s top management team. The results in

Table 4 (Equation 12) do not support the resulting

hypotheses (H6a and H6b).

Knowledge inﬂows from the parent

corporation

Table 5 presents the results of regression analyses

to test our predictions regarding the impact of

transmission channels (P4), motivational disposi-

tion (P5), and absorptive capacity (P6) on knowl-

edge inﬂows from the parent corporation.

Transmission channels. In the context of

knowledge inﬂows from the parent corporation,

we operationalized this construct in terms of for-

mal integrative mechanisms and vertical sociali-

zation mechanisms. The results in Table 5

(Equation 16) support both of the resulting

hypotheses. More speciﬁcally, knowledge inﬂows

from the parent corporation are higher in the case

of (i) subsidiaries that are integrated more tightly

with the rest of the corporation through formal

mechanisms (beta for “formal integrative

mechanisms” =0.182, p ⬍0.001; thus, H4a′is

supported), and (ii) subsidiaries whose presidents

have been involved in vertical socialization

mechanisms with corporate HQ to a greater extent

(beta for “vertical socialization mechanisms” =

0.119, p ⬍0.05; thus, H4b′is supported).

Motivational disposition. In the context of

knowledge inﬂows from the parent corporation,

we operationalized this construct in terms of the

network vs. subsidiary focus of the incentive

system for the subsidiary president, relative eco-

nomic level, and HQ-subsidiary decentralization.

The results in Table 5 (Equation 16) support all

three of the resulting hypotheses. More speci-

ﬁcally, knowledge inﬂows from the parent corpo-

ration are higher in the case of (i) subsidiaries

whose presidents operate under more subsidiary-

focused, rather than network-focused, incentives

(beta for “incentive focus” =−0.097, p ⬍0.05;

thus, H5a′is supported), (ii) subsidiaries that are

located in countries with a lower level of eco-

nomic advancement relative to the country of the

parent corporation (beta for “relative economic

level” =−0.209, p ⬍0.001; thus, H5b′is

supported), and (iii) subsidiaries that are given

less decision-making autonomy by corporate

headquarters (beta for “HQ-subsidiary

decentralization” =−0.086, p ⬍0.05; thus, H5c′

is supported).

Absorptive capacity. In the context of knowl-

edge inﬂows from the parent corporation, we

operationalized this construct in terms of mode

of entry and proportion of local nationals in the

subsidiary’s top management team. The results in

Table 5 (Equation 16) support only the ﬁrst of

the two resulting hypotheses. More speciﬁcally,

knowledge inﬂows from the parent corporation

are higher in the case of subsidiaries that were

set up as greenﬁeld operations rather than

acquired (beta for “mode of entry” =−0.165,

p⬍0.001; thus, H6a′is supported).

DISCUSSION

Pursuing a nodal level of analysis, this study has

investigated both theoretically and empirically the

determinants of intra-MNC knowledge ﬂow pat-

terns. While previous studies have focused more

narrowly on selected facets of intra-MNC knowl-

edge transfer e.g., tacitness of know-how (Teece,

1977; Zander and Kogut, 1995), and normative

integration and inter-subsidiary communication

(Ghoshal and Bartlett, 1988), this study has

advanced and adopted a more comprehensive

theoretical approach. Building on communication

theory, we have argued that a complete mapping

of the knowledge transfer process requires atten-

tion to all of the following ﬁve major elements:

(i) value of the knowledge possessed by the

source unit, (ii) motivational disposition of the

source unit regarding the sharing of its knowl-

edge, (iii) the existence, quality, and cost of

transmission channels, (iv) motivational disposi-

tion of the target unit regarding acceptance of

incoming knowledge, and (v) the target unit’s

absorptive capacity for the incoming knowledge.

Further, unlike previous studies on intra-MNC

knowledge transfers, we have conducted separate

examinations of knowledge ﬂows that occur lat-

erally among peer subsidiaries and those which

occur hierarchically between a subsidiary and the

parent corporation. Given the ongoing devolution

490 A. K. Gupta and V. Govindarajan

of authority and responsibility from the center to

the subsidiaries and the ability of information

technology to enable direct communication among

subsidiaries, we would agree with Bartlett and

Ghoshal (1989), Hedlund (1994), Martinez and

Jarillo (1989), and others that direct inter-

subsidiary interactions are becoming increas-

ingly important.

Utilizing the overarching theoretical framework

and the broad propositions depicted in Figure 1,

we advanced a set of hypotheses for each of

the following four types of knowledge transfer

contexts: (i) knowledge outﬂows to peer subsidi-

aries, (ii) knowledge outﬂows to the parent corpo-

ration, (iii) knowledge inﬂows from peer subsidi-

aries, and (iv) knowledge inﬂows from the parent

corporation. These hypotheses were tested with

data collected from the presidents of 374 subsidi-

aries of 75 MNCs headquartered in the U.S.,

Europe, and Japan. All hypotheses were tested

after controlling for the effects of country-of-

origin, the resource characteristics of the MNC’s

industry, and the nature of the subsidiary’s oper-

ations.

Commentary on the results

As can be seen from Tables 2–5 (across-table

comparions of R

and ⌬R

values as well as the

number of signiﬁcant beta coefﬁcients), our data

had the greatest success in uncovering the deter-

minants of KI-P i.e., knowledge inﬂows to focal

subsidiaries from the parent corporation. In this

context, it may be useful to recall our earlier

observation that, for the sample as a whole, of

the four types of knowledge ﬂows, the magnitude

of KI-P was signiﬁcantly greater than that of

each of the other three types of ﬂows. These

two empirical observations lead us to draw the

following conjectures: (i) Of the four types of

knowledge ﬂows examined in this study, the typi-

cal MNC has perhaps had the longest experience

in undertaking knowledge outﬂows from the

center to the units; (ii) Notwithstanding the fact

that MNCs are indeed becoming “heterarchies”

(Hedlund, 1994) i.e., integrated complex networks

with signiﬁcant devolution of authority and

responsibility to the subsidiaries, the parent

corporation continues to serve as the most active

creator and diffuser of knowledge within the

corporation; and (iii) MNCs’ greater experience

in managing knowledge outﬂows from the parent

to the subsidiaries has also made them more

“systematic” (as distinct from “stochastic” or

“experimental”) in managing these particular

types of knowledge ﬂows.

Focusing now on the empirical validity of our

overarching theoretical framework, we also note

from Tables 2–5 that the results support our

expectations regarding the importance of four of

the ﬁve main constructs underlying this frame-

work. More speciﬁcally, the results provide either

complete or partial support to our predictions

regarding the impact of value of knowledge stock

and transmission channels on knowledge out-

ﬂows; similarly, they also provide either complete

or partial support to our predictions regarding

the impact of transmission channels, motivational

disposition to acquire knowledge, and absorptive

capacity on knowledge inﬂows. However, they

do not provide any support to our predictions

regarding the impact of motivational disposition

to share knowledge with other units on knowledge

outﬂows. There are at least two possible expla-

nations for this lack of support: (i) a subsidiary’s

motivational disposition to share knowledge may

depend not only on the incentive system but also

on other variables not examined in this study,

and/or (ii) in the knowledge transfer process, the

motivation of the target unit to acquire knowledge

may be far more important than the motivation

of the source unit to share its knowledge. An

examination of the validity of any of these or

other possible explanations must await future

research.

At a more micro-level, a closer examination of

the 8 hypotheses (out of the total of 23

hypotheses) that were not supported reveals that

3 pertained to “incentive focus,” 2 to “mode of

entry,” 2 to “proportion of local nationals in

subsidiary’s TMT,” and 1 to “vertical sociali-

zation mechanisms.” Alternatively stated, results

failed to support 3 out of the 4 hypotheses dealing

with incentive focus, 2 out of the 4 dealing with

mode of entry, 2 out of the 2 dealing with

proportion of local nationals in subsidiary’s TMT,

and 1 out of the 2 dealing with vertical sociali-

zation mechanisms. There are at least three pos-

sible explanations for this lack of support: (i)

logical errors in developing the hypotheses,

and/or (ii) substitution effects among the inde-

pendent variables, and/or (iii) irreducible noise

in the data. Our conjecture at this stage would

be that the last two explanations represent the

Knowledge Flows within Multinational Corporations 491

more likely scenario. Nonetheless, any deﬁnitive

explanations for the lack of support also must

await future research.

Limitations of the study

We can identify three major limitations of this

study. First, since every MNC is a network

(Ghoshal and Bartlett, 1990), all intra-MNC

knowledge transfers take place in the context

of the network. As contrasted with “dyadic” or

“systemic” approaches to the examination of net-

work-related phenomena, we conducted our

examination at the “nodal” level of analysis –

the simplest level feasible. In the next subsection

focusing on directions for future research, we

identify some of the important questions that were

not explored by us but which can be examined

through future work that looks at knowledge

transfers from a dyadic or a systemic perspective.

Second, despite the fact that, in this study, we

focused on largely procedural types of knowledge

which, on average, tends to be more tacit than

declarative knowledge, we neither measured nor

explored the impact of degrees of tacitness. Not-

withstanding the pioneering studies of Teece

(1977), Zander and Kogut (1995), and others,

empirical research into how degrees of tacitness

affect the knowledge transfer process is still in

its infancy.

Finally, the third major limitation of this study

has to do with the use of perceptual instruments

to measure the extent of knowledge outﬂows and

inﬂows. Barring the case of certain types of

codiﬁable technology transfers (as in the case

of technology licenses), this is a methodological

challenge that researchers have yet to overcome.

In our view, researchers face at least two hurdles

in measuring the extent of knowledge transfers

through objective data: (i) Unlike transfers of

codiﬁed knowledge, the transfers of tacit knowl-

edge leave at best partial objective traces that

could be measured by an external researcher; and

(ii) Because transfers of tacit knowledge tend

to be slow, any real-time investigation of this

phenomenon would often require the researcher

to undertake a multi-year study of each transfer;

by way of example, note that Zander and Kogut

(1995) reported that, in their sample, the median

time to transfer was ﬁve years and, without cor-

recting for censored observations, the average was

eight years. It is also instructive to note that,

notwithstanding their excellent access to the

MNCs being studied, even Ghoshal and Bartlett

(1988: 382) felt compelled to observe: “Col-

lecting objective level measures for the relatively

large number of variables for meaningful sta-

tistical analysis represented enormous and, for us,

insurmountable practical problems.”

Directions for future research

As we observed at the beginning of the paper,

the creation, diffusion, and absorption of knowl-

edge by organizations in general and, by MNCs in

particular, constitutes one of the most important

subjects for research in the ﬁelds of organization

theory (Levitt and March, 1988: Huber, 1991),

strategic management (Prahalad and Hamel,

1994), evolutionary economics (Nelson and

Winter, 1982), and international business

(Buckley and Casson, 1976; Ghoshal and Bartlett,

1988; Kogut and Zander, 1993; Teece, 1977).

Conceptual work in this area is still in the early

stages and empirical work is almost literally at

the stage of infancy. Thus, although we view the

contributions of this study as important, in light

of future possibilities, we view them as at best

modest. There are several promising directions

for future research.

First, we believe that the payoffs from future

investigations at the dyadic and/or systemic levels

are likely to be high. At the dyadic level of

analysis, at least two of the important issues to

investigate would be: (i) the impact of bilateral

homophily (Lazarsfeld and Merton, 1964) on

dispositions to engage in outﬂows and inﬂows,

and (ii) the importance of reciprocity i.e., is

A’s disposition to share its knowledge with B

dependent on B’s disposition to share its knowl-

edge with A? At the systemic level of analysis,

some of the important issues would be: (i) the

impact of a unit’s network centrality on the extent

of knowledge outﬂows as well as knowledge

inﬂows, (ii) the impact of network density on

the overall magnitude of knowledge ﬂows through

the network, and (iii) the impact of global com-

petitive intensity faced by the MNC on the mag-

nitude and the directionality of knowledge ﬂows.

A second line of productive inquiry would be

to compare and contrast what we would term

as “complementary” vs. “substitutive” knowledge

transfer contexts. By complementary contexts, we

refer to the transfer of knowledge along different

492 A. K. Gupta and V. Govindarajan

stages in the company’s value chain e.g., the

transfer of technical knowledge from the develop-

ment laboratories to the factories and the market-

ing units and the transfer of market knowledge

from the ﬁeld back to the facories and the labora-

tories; in these instances, knowledge transfers

occur in contexts where the source and the target

units possess complementary knowledge stocks.

In contrast, substitutive knowledge transfer con-

texts can be said to exist when the source and

the target units engage in identical or similar

activities (e.g., two laboratories, or two factories,

or two sales units) and the transfer involves the

imposition of the source unit’s superior knowhow

over that of the target’s allegedly inferior

knowhow. We would expect that the motivational

dispositions of both the source and the target

units are likely to be radically different in the

case of complementary vs. substitutive knowl-

edge transfers.

A third line of productive inquiry would be a

deeper application and examination of the over-

arching framework advanced in this paper. There

are many other possible determinants of the value

of a source unit’s knowledge stock e.g., the

resource base of the unit, the internal organization

of the unit, and the competitive environment in

the host country. Similarly, there are many other

possible determinants of motivational dispositions

to engage in inﬂows or outﬂows e.g., personal

characteristics of subsidiary managers such as age

or locus of control, their organizational commit-

ment, and so forth. This is also true for the other

elements in our model viz., transmission channels

and absorptive capacity. In the case of trans-

mission channels, the impact of communication

mechanisms including the use of electronic media

is an obvious topic for future research. Similarly,

future investigations into how absorptive capacity

of a receiving unit is affected not merely by its

existing knowledge stock but also by its internal

organization are likely to yield valuable insights.

For example, building on Cohen and Levinthal

(1990), it should be useful to examine the impact

of intra-subsidiary communication as well as a

subsidiary’s activism at knowledge creation on

its capacity to absorb incoming knowledge.

A fourth line of productive inquiry would be

to go deeper into the question of tacitness. It

seems to us that, while the conceptual literature

on how the tacitness of knowledge affects its

transfer is notable for its abundance, systematic

empirical investigations into how tacit knowledge

gets tranferred and the extent to which its transfer

does or does not require ex ante codiﬁcation is

all too rare. Thus, our advocacy would be to

urge greater efforts towards empirical rather than

conceptual studies on the topic of tacitness.

Finally, a productive line of inquiry would also

be to examine the joint (i.e., interactive) effects

of capability, motivation, and transmission chan-

nels on knowledge ﬂow patterns. Given that

research on knowledge ﬂows within MNCs is

still in its infancy, in this study, we focused

exclusively on the main effects of these con-

structs. Nonetheless, since the results of this study

lend support to the validity of our framework, a

logical next step would be to develop and test

more complex theoretical models.

ACKNOWLEDGEMENTS

Paritial funding support for this study was pro-

vided by the Center for International Business

Education and Research (The University of Mary-

land at College Park), The Amos Tuck School

of Business Administration (Dartmouth College),

and The International Management Research

Institute (Tokyo). The authors have beneﬁted

from comments on earlier versions of this paper

from Robert Burgelman, Ranjay Gulati, Lee Pres-

ton, M. Susan Taylor, as well as participants at

the 1997 Strategy Conference at Stanford Univer-

sity.

REFERENCES

Allport, G. W. (1937). Personality: A Psychological

Interpretation. Holt, New York.

Barney, J. (1991). ‘Firm resources and sustained com-

petitive advantage’, Journal of Management,17,

pp. 99–120.

Bartlett, C. A. and S. Ghoshal (1989). Managing across

Borders: The Transnational Solution. Harvard Busi-

ness School Press, Boston, MA.

Buckley, P. J. and M. Casson (1976). The Future of

the Multinational Enterprise: Holmes & Meier, New

York, pp. 66–84.

Caves, R. E. (1971). ‘International corporations: The

industrial economics of foreign investment’, Eco-

nomica,38, pp. 1–27.

Caves, R. E. (1982). ‘Multinational Enterprise and

Economic Analysis. Cambridge University Press,

Cambridge, U.K.

Cohen, W. M. and D. A. Levinthal (1990). ‘Absorptive

Knowledge Flows within Multinational Corporations 493

capacity: A new perspective on learning and inno-

vation’, Administrative Science Quarterly,35,

pp. 128–152.

Collis, D. and P. Ghemawat (1994). ‘Industry analysis:

Understanding industry structure and dynamics’. In

L. Fahey and R. M. Randall (eds.), The Portable

MBA in Strategy. John Wiley, New York,

pp. 171–194.

Cyert, R. M. (1995). ‘Management of knowledge’.

Keynote address at the Carnegie Bosch Institute’s

1995 International Conference on High Performance

Global Corporations. Excerpted in Global View,

Newsletter of the Carnegie Bosch Institute for

Applied Studies in Management, The Carnegie-

Mellon University.

Daft, R. L. and R. H. Lengel (1986). ‘Organizational

information requirements, media richness, and struc-

tural design’, Management Science,32, pp. 554–571.

Dierickx, I. and K. Cool (1989). ‘Asset stock accumu-

lation and sustainability of competitive advantage’,

Management Science,35, pp. 1504–1514.

DiMaggio, P. J. and W. W. Powell (1983). ‘The iron

cage revisited: Institutional isomorphism and collec-

tive rationality in organizational ﬁelds’, American

Sociological Review,48, pp. 147–160.

Edstrom, A. and J. R. Galbraith (1977). ‘Transfer of

managers as a coordination and control strategy in

multinational organizations’, Administrative Science

Quarterly,22, pp. 248–263.

Egelhoff, W. G. (1984). ‘Patterns of control in U.S.,

U.K., and European multinational corporations’,

Journal of International Business Studies,15(3),

pp. 73–83.

Egelhoff, W. G. (1988). Organizing the Multinational

Enterprise: An Information-processing Perspective.

Ballinger, Cambridge, MA.

Ford, J. D. and J. W. Slocum (1977). ‘Size, technology,

environment, and the structure of organizations’,

Academy of Management Review,2, pp. 561–575.

Franko, L. G. (1976). The European Multinationals: A

Renewed Challenge to American and British Big

Business. Greylock, Stamford, CT.

Galbraith, J. R. (1973). Designing Complex Organiza-

tions. Addison-Wesley, Reading, MA.

Gates, S. R. and W. G. Egelhoff (1986). ‘Centralization

in headquarters-subsidiary relationships’, Journal of

International Business Studies,17(2), pp. 71–92.

Ghoshal, S. (1987). ‘Global strategy: An organizing

framework’, Strategic Management Journal,8(5),

pp. 425–440.

Ghoshal, S. and C. A. Bartlett (1988). ‘Creation, adop-

tion, and diffusion of innovation by subsidiaries of

multinational corporations’, Journal of International

Business Studies,19, pp. 365–388.

Ghoshal, S. and C. A. Bartlett (1990). ‘The multi-

national corporation as an interorganizational net-

work’, Academy of Management Review,15,

pp. 603–625.

Ghoshal, S., H. Korine and G. Szulanski (1994).

‘Interunit communication in multinational corpo-

rations’, Management Science,40(1), pp. 96–110.

Goedde, A. G. (1978). ‘U.S. multinational manufactur-

ing ﬁrms: The determinants and effects of foreign

investment’, Ph.D. dissertation, Duke University.

Grant, R. M. (1996). ‘Toward a knowledge-based

theory of the ﬁrm’, Strategic Management Journal,

Winter Special Issue, 17, pp. 109–122.

Grueber, W., D. Mehta and R. Vernon (1967). ‘The

R&D factor in international trade and international

investment of U.S. industries’, Journal of Political

Economy,75, pp. 20–37.

Gupta, A. K. and V. Govindarajan (1986). ‘Resource

sharing among SBUs: Strategic antecedents and

administrative implications’, Academy of Manage-

ment Journal,29, pp. 695–714.

Gupta, A. K. and V. Govindarajan (1991). ‘Knowledge

ﬂows and the structure of control within multi-

national corporations’, Academy of Management

Review,16(4), pp. 768–792.

Hedlund, G. (1994). ‘A model of knowledge man-

agement and the N-form corporation’, Strategic

Management Journal, Summer Special Issue, 15,

pp. 73–90.

Hennart, J.-F. and Y.-R. Park (1993). ‘Greenﬁeld vs.

acquisitions: The strategy of Japanese investors in

the United States’, Management Science,39,

pp. 1054–1070.

Hofstede, G. H. (1967). The Game of Budget Control.

van Gorcum, London.

Horst, T. (1972). ‘Firm and industry determinants of the

decision to invest abroad: An empirical study’, Review

of Economics and Statistics,54, pp. 258–266.

Huber, G. (1991). ‘Organizational learning: The con-

tributing processes and the literatures’, Organization

Science,2(1), pp. 88–115.

Hymer, S. H. (1960). ‘The international operations of

national ﬁrms: A study of direct foreign investment’,

Ph.D. dissertation, Massachusetts Institute of Tech-

nology.

Jablin, F. M. (1979). ‘Superior-subordinate communi-

cation: The state of the art’, Psychological Bulletin,

5, pp. 1201–1222.

Katz, R. and T. J. Allen (1982). ‘Investigating the Not

Invented Here (NIH) syndrome: A look at the perform-

ance, tenure and communication patterns of 50 R&D

project groups’, R&D Management,12, pp. 7–19.

Kindleberger, C. P. (1969). American Business Abroad:

Six Lectures on Direct Investment. Yale University

Press, New Haven, CT.

Kogut, B. and U. Zander (1992). ‘Knowledge of the

ﬁrm, combinative capabilities, and the replication of

technology’, Organization Science,3(2). pp. 383–397.

Kogut, B. and U. Zander (1993). ‘Knowledge of the

ﬁrm and the evolutionary theory of the multinational

corporation’, Journal of International Business Stud-

ies,24, pp. 625–645.

Krone, K. J., F. M. Jablin and L. L. Putnam (1987).

‘Communication theory and organizational com-

munication’. In K. J. Krone, L. L. Putnam, K. H.

Roberts, and L. M. Porter (eds.), Handbook of

Organizational Communication: An Interdisciplinary

Perspective. Sage, Newbury Park, CA, pp. 18–40.

Lazarsfeld, P. F. and R. K. Merton (1964). ‘Friendship

as social process: A substantive and methodological

494 A. K. Gupta and V. Govindarajan

analysis’. In M. Berger et al. (eds.) Freedom and

Control in Modern Society. Octagon, New York,

pp. 23–63.

Levinthal, D. A. and J. G. March (1993). ‘The myopia

of learning’, Strategic Management Journal, Winter

Special Issue, 14, pp. 95–112.

Levitt, B. and J. G. March (1988). ‘Organizational

learning’, Annual Review of Sociology,14,

pp. 319–340.

Lippman, S. A. and R. P. Rumelt (1982). ‘Uncertain

imitability: An analysis of interﬁrm differences in

efﬁciency under competition’, Bell Journal of Eco-

nomics,13, pp. 418–438.

Martinez, J. I. and J. C. Jarillo (1989). ‘The evolution

of research on coordination mechanisms in multi-

national corporations’, Journal of International Busi-

ness Studies,20, pp. 489–514.

Miller, D., M. F. R. Kets de Vries and J. M. Toulouse

(1982). ‘Top executive locus of control and its

relationship to strategy-making, structure, and

environment’, Academy of Management Journal,25,

pp. 237–253.

Nadler, D. A. and M. L. Tushman (1987). Strategic

Organization Design. Scott, Foresman, New York.

National Register (1991). International Directory of

Corporate Afﬁliations: 1990–1991. Wilmette, IL.

Nelson, R. R. and S. G. Winter (1982). An Evolutionary

Theory of Economic Change. Belknap Press, Cam-

bridge, MA.

Nonaka, I. (1994). ‘A dynamic theory of organizational

knowledge creation’, Organization Science,5(1),

pp. 14–37.

Penrose, E. T. (1959). The Theory of the Growth of

the Firm. Basil Blackwell, Oxford.

Pfeffer, J. (1981). Power in Organizations. Pitman,

Marshﬁeld, MA.

Pitts, R. A. (1974). ‘Incentive compensation and organi-

zation design’, Personnel Journal,53, pp. 338–344.

Polanyi, M. (1966). The Tacit Dimension. Routledge &

Kegan Paul, London.

Porter, M. E. (1986). ‘Competition in global industries:

A conceptual framework’. In M. E. Porter (ed.),

Competition in Global Industries. Harvard Business

School Press, Boston, MA, pp. 15–60.

Porter, M. E. (1994). ‘Global strategy: Winning in the

world-wide marketplace’. In L. Fahey and R. M.

Randall (eds.), The Portable MBA in Strategy. John

Wiley, New York, pp. 108–141.

Prahalad, C. K. and G. Hamel (1994). ‘Strategy as a

ﬁeld of study: Why search for a new paradigm?’,

Strategic Management Journal, Summer Special

Issue, 15, pp. 5–16.

Rogers, E. M. (1995). Diffusion of Innovations. Free

Press, New York.

Root, F. R. (1987). Entry Strategies for International

Markets. Lexington Books, Lexington, MA.

Salter, M. S. (1973). ‘Tailor incentive compensation to

strategy’, Harvard Business Review,49(2), pp. 94–102.

Schendel, D. (1996). ‘Editor’s introduction to the 1996

Winter Special Issue: Knowledge and the ﬁrm’,

Strategic Management Journal, Winter Special

Issue, 17, pp. 1–4.

Sherif, M and H. Cantrill (1947). The Psychology of

Ego Involvements, Social Attitudes and Identiﬁ-

cations. Wiley, New York.

Simon, H. A. (1991). ‘Bounded rationality and organi-

zational learning’, Organization Science,2(1),

pp. 125–134.

Smith, C. S. and D. P. Hamilton (18 December 1995).

‘China’s demands for technology sharing trouble

American ofﬁcials, executives’, The Asian Wall

Street Journal,p.2.

Szulanski, G. (1996). Exploring internal stickiness:

Impediments to the transfer of best practice within

the ﬁrm, Strategic Management Journal, Winter

Special Issue, 17, pp. 27–44.

Teece, D. J. (1977). ‘Technology transfer by multi-

national ﬁrms: The resource cost of transferring

technological know-how’, The Economic Journal,

87, pp. 242–261.

Teece, D. J. (1981). ‘The market for know-how and

the efﬁcient international transfer of technology’,

Annals, AAPSS, 458, pp. 81–96.

Tung, R. L. (1982). ‘Selection and training procedures

of U.S., European, and Japanese multinationals’,

California Management Review,25(1), pp. 57–71.

Tushman, M. L. (1977). ‘Communications across

organizational boundaries: Special boundary roles

in the innovation process’, Administrative Science

Quarterly,22, pp. 587–605.

Van Maanen, J. and E. H. Schein (1979). ‘Toward a

theory of organizational socialization’. In B. M.

Staw (ed.), Research in Organizational Behavior,

Vol. 1. JAI Press, Greenwich, CT, pp. 209–264.

Vancil, R. F. (1980). Decentralization: Managerial

Ambiguity by Design. Financial Executives Research

Foundation, New York.

Wernerfelt, B. (1984). ‘A resource-based view of the

ﬁrm’, Strategic Management Journal,5(2),

pp. 171–180.

World Bank (1995). World Development Report.

Oxford University Press, Oxford, UK.

Yip, G. S., J. Roos and J. K. Johansson (1994). ‘Effects

of nationality on global strategy in major American,

European, and Japanese MNCs’, CIBER working

paper No. 94–02, Anderson Graduate School of

Management, University of California at Los Ange-

les.

Zander, U. and B. Kogut (1995). ‘Knowledge and the

speed of the transfer and imitation of organizational

capabilities’, Organization Science,6(1), pp. 76–92.

Zeira, Y. (1986). ‘Management development in ethno-

centric multinational corporations’, California Man-

agement Review,18(5), pp. 34–42.

APPENDIX

Measurement of variables

Independent variables

Mode of entry. Subsidiary presidents were asked

to indicate whether their subsidiary became a part

Knowledge Flows within Multinational Corporations 495

of this corporation as a result of an

acquisition/merger (coded as 1) or whether the

subsidiary was created as a greenﬁeld operation

(coded as 0). Summary statistics on this variable

are: mean =0.42, s.d. =0.49).

Subsidiary size. This variable was measured

in terms of the number of employees in the

subsidiary (mean =908, s.d. =1552). In order to

dampen the high variability in size and achieve

a more normal distribution, the natural logarithm

of the number of employees was used to indicate

subsidiary size in our analyses.

Relative economic level. This variable was

computed by dividing the per capita income for

the “host” country (where the subsidiary is

located) by that for the “home” country (the

country-of-origin of the parent corporation). For

each country, data on per capita income (i.e,

gross national product per capita adjusted for

purchasing power parity) were obtained from the

World Development Report (World Bank, 1995).

Summary statistics on this variable are:

mean =0.81, s.d. =0.39.

Incentive focus. Based on Gupta and Govin-

darajan (1986) and Salter (1973), the following

question was posed to the subsidiary presidents:

“Your annual incentive bonus may depend solely

on your subsidiary’s performance or solely on

the performance of a group of subsidiaries or

some combination of both. Please indicate below

how your incentive bonus was actually deter-

mined for the most recent year. Your answers

should total 100%: (1) percentage of your incen-

tive bonus that was based on your subsidiary’s

performance; (2) percentage of your incentive

bonus that was based on the performance of a

cluster of subsidiaries.” Responses to the second

item were used as a measure of the extent to

which the incentive system was network-focused

rather than subsidiary-focused (mean =17.55,

s.d. =30.67).

Formal integrative mechanisms. Based on

Galbraith (1973), Nadler and Tushman (1987),

and Miller, Kets de Vries, and Toulouse (1982),

this variable was measured through a 3-item

Likert-type 7-point scale (ranging from “used

rarely” to “used very frequently”) that asked

respondents to indicate the extent to which their

subsidiary used liaison personnel, temporary task

forces, and permanent teams to coordinate

decisions and actions with sister subsidiaries. The

ﬁnal measure was a weighted average of

responses to the three items where the most

complex mechanism (permanent teams) was

given a weight of 3, the intermediately complex

mechanism (temporary task forces) was given a

weight of 2, and the least complex mechanism

(liaison personnel) was given a weight of 1.

Summary statistics on this variable are:

mean =2.92, s.d. =1.53.

Lateral socialization mechanisms. This meas-

ure was adapted from Ghoshal and Bartlett

(1988). Respondents were asked to provide “yes”

or “no” answers to the following two questions:

(1) “Have you worked for one or more years in

other subsidiaries of this corporation?” and (2)

“Have you participated in executive development

programs involving participants from several sub-

sidiaries?” For each respondent, the total count

of “yes” responses was treated as a measure

of participation in lateral socialization (mean =

1.08, s.d. =0.77).

Vertical socialization mechanisms. This mea-

sure also was adapted from Ghoshal and Bartlett

(1988). Respondents were asked to provide “yes”

or “no” answers to the following two questions:

(1) “Have you worked for one or more years at

corporate headquarters in this corporation?” (2)

“Do you have a mentor at corporate head-

quarters?” For each respondent, the total count

of “yes” responses was treated as a measure of

participation in vertical socialization mechanisms

(mean =0.95, s.d. =0.84).

Headquarters-subsidiary decentralization.

Following Vancil (1980), each respondent was

provided with the following list of nine strategi-

cally relevant decisions: (i) formulation of your

subsidiary’s annual budget; (ii) discontinuing a

major existing product or product line; (iii)

investing in major plant and equipment to expand

capacity for existing products; (iv) developing a

major new product line; (v) increasing (beyond

budget) the level of expenditure for advertising

and promotion; (vi) changing the selling price on

a major product or product line; (vii) increasing

(beyond budget) the level of expenditure for

research and development; (viii) buying from an

outside vendor when the items required could be

supplied by another unit of the country; and

(ix) increasing (beyond budget) the number of

personnel employed by your subsidiary. Using an

approach similar to Hofstede (1967), for each of

these decisions, each respondent was asked to

indicate, on the following 5-point Likert scale,

496 A. K. Gupta and V. Govindarajan

the typical inﬂuence that they had in affecting

the outcome of the decision: (1) your opinion not

asked but decision is explained to you; (2) proposal

by superior, your opinion is asked and it carries

little weight; (3) proposal by superior, your opinion

is asked and it carries a lot of weight; (4) proposal

by you, decision made jointly by you and your

superior; and (5) proposal by you, followed by

consultation with superior, with your opinion pre-

vailing. Responses on the 9 questions were averaged

to create an index of headquarters-subsidiary decen-

tralization (Chronbach alpha =0.86). Higher values

on this measure indicate higher decentralization

(mean =4.04, s.d. =0.74).

Proportion of local nationals in the subsidi-

ary’s top management team. For managers

heading each of seven positions, the subsidiary

presidents were asked to indicate the nationality

of each particular person on a four-point scale:

“local national,” “home country expatriate,” “third

country expatriate,” and “not applicable” implying

that there was nobody heading such a position.

The instrument also explained the precise mean-

ings of these terms. The seven positions were:

“subsidiary president,” “head of marketing,”

“head of manufacturing,” “head of R&D,” “head

of ﬁnance,” “controller,” and “head of human

resources.” The percentage of applicable positions

that were headed by local nationals was regarded

as a measure of the extent to which the subsidiary

top management team was localized (range =0

to 100; mean =63.87; s.d. =38.48).

Control variables

Country-of-origin. Each MNC in this sample

was headquartered in one of the following ﬁve

countries: U.S., Japan, U.K., Sweden, and Finland.

Treating the U.S. as the base case, dummy variables

were created for each of the other four countries

of origin. For example, in the case of Japanese

MNCs, the variable “Japan” was given a value of

1; in the case of non-Japanese MNCs, this variable

was given a value of 0. A similar approach was

followed for U.K., Sweden, and Finland.

Industry resource characteristics. For each

subsidiary, measures of industry resource charac-

teristics were computed at the level of the parent

corporation’s dominant industry group along three

dimensions: R&D intensity (i.e., R&D expenses

to sales ratio), ﬁxed asset intensity (i.e., net

physical plant and equipment to sales ratio), and

advertising intensity (i.e., advertising expenses to

sales ratio). All raw data were obtained from

Standard & Poor’s Compustat PC+Database and

were averaged for two years: 1990 and 1991.

Utilizing these raw data, the three measures of

industry resource characteristics were computed

as follows. First, we identiﬁed the dominant

industry group at the 2-digit SIC code level for

the parent corporation. Second, utilizing industry-

level data, for each 2-digit industry group, we

computed the proportion of revenue contributed by

each 4-digit industry segment within that industry

group. Third, for each of these 4-digit industry

segments, we computed measures of R&D inten-

sity, ﬁxed asset intensity, and advertising

intensity. Finally, using the proportion of rev-

enues contributed by each 4-digit industry seg-

ment to its 2-digit industry group as weights, we

then computed weighted average measures of

these three resource characteristics at the 2-digit

industry group level. These measures, computed

at the level of the parent MNC’s dominant indus-

try group, were then applied to all of the subsidi-

aries in our sample belonging to that particular

MNC. For the sample, summary statistics on

these three industry resource characteristics are:

R&D intensity (mean =0.03, s.d. =0.02), ﬁxed

asset intensity (mean =0.36, s.d. =0.21), and

advertising intensity (mean =0.03, s.d. =0.02).

Nature of subsidiary operations. We meas-

ured subsidiary operations through two dummy

variables: “upstream activities” and “downstream

activities.” The variable “upstream activities” was

coded as “1” if the subsidiary performed a pri-

mary upstream operation (R&D and/or

manufacturing); otherwise, this variable was

coded as “0.” Similarly, the variable “downstream

activities” was coded as “1” if the subsidiary

performed a primary downstream operation

(marketing and sales); otherwise this variable was

coded as “0.” The raw data for these two vari-

ables were obtained by asking each subsidiary

president to provide “yes” or “no” answers to

the following three questions: (i) “Does your

subsidiary have one or more research and devel-

opment facilities?”, (ii) “Does your subsidiary

have one or more manufacturing facilities?” and

(iii) “Does your subsidiary have one or more

marketing and sales facilities?” Summary sta-

tistics on the two dummy variables are: upstream

activities (mean =0.75, s.d. =0.43) and down-

stream activities (mean =0.84, s.d. =0.37).

ABSORBING INTEGRATION: EMPIRICAL EVIDENCE ON THE MEDIATING ROLE OF ABSORPTIVE CAPACITY BETWEEN FUNCTIONAL-/CROSS-FUNCTIONAL INTEGRATION AND INNOVATION PERFORMANCE

Article

Full-text available

Nov 2018
Int J Innovat Manag

Integration of organisational units has been extensively researched in various streams of management and organization sciences. It is very important whenever knowledge differences have to be overcome due to functional departmentalisation and the ensuing knowledge specialisation. However, extant literature does not yet appreciate the mediating role of absorptive capacity (AC) in this context. We argue that departments use integration mechanisms in order to develop and maintain such an organisational capability to absorb knowledge from other departments, so that integration can succeed to increase innovation performance. Our unique dataset of Italian manufacturing firms from various industries allows us to study this in the context of the integration of research and development (R&D) and marketing and sales (M&S) departments. Thereby, we provide empirical evidence on the mediating role of AC. We find evidence that R&D departments build AC via formal cross-functional integration, while M&S departments do so through informal integration. Moreover, we provide evidence of AC’s mediating role for the relationship between cross-functional integration mechanisms and innovation performance. Our findings also reveal significant differences between R&D and M&S functions in terms of effect sizes and significance levels. AC of R&D departments has a significant and substantial effect on innovation performance and thus effectively acts as a mediating variable, while in case of M&S departments we observe a significant direct effect between formal cross-functional integration and innovation performance without any mediation by AC.

Relationships between knowledge management practices, absorptive capacity and organisational performance: Evidence of southern Brazil

Thesis

Full-text available

Jul 2016

Guillermo Antonio Davila

In the current economic context, which is dynamic, with a high flow of capital, products, and information, knowledge has become a key resource for organisational competitiveness. Thus, Knowledge Management (KM) needs to be performed by organisations which aim to achieving sustainable competitive advantages. Organisational competitiveness is reached through innovation, an intrinsic characteristic in organizations that survive in the current context. Considering the challenges that organizations face when they try to innovate, external knowledge becomes crucial, and consequently, knowledge absorptive capacity (AC), the ability to create value from external knowledge, becomes important. On the other hand, KM practices are intentional routines performed to maximise the value of knowledge involved in the organisations processes. The relationship between KM Practices and AC has not been properly explored by scientists, although the literature points to a close relationship between these concepts. Therefore, this study aimed to analyse the relationship between KM Practices, AC, and organizational performance. The study used a quantitative approach with the following hypotheses tested using 147 companies located in southern Brazil: a) KM practices influence positively organisational AC; b) Organizations with better Potential AC have a better Realized AC; c) Organisational AC has a positive influence on their performance; and d) KM Practices influences positively the organisational performance. The results showed elements that contribute to close the existing gap in research about AC within GC discipline, as well as provide practical recommendations that will enable organizations to made concrete decisions about the use of KM practices, oriented to improve AC and performance. The main contribution of this study is the developed model which was statistically tested for answering the research hypotheses. It was found that KM Practices related to strategic management of knowledge, organizational culture and organizational structure influence Potential AC; while KM Practices about strategic management and Information and Communication Technologies influence Realized AC. The study also provides evidence that AC influences performance through Realized AC, which is influenced by Potential AC and KM Practices. In addition, the study shows that KM Practices about strategic management of knowledge are the most relevant because they have a significant influence on both AC dimensions and performance. Finally, is discussed a group of KM practices with the highest positive impact on AC and organisational results. Keywords: Absorptive Capacity. KM Practices. Knowledge. Dynamic Capabilities. Sustainability.

Convergence of global and traditional managers’ characteristics: a case of senior management of cooperatives in Malaysia

Article

Full-text available

Jan 2010

Senior management plays a very significant role to enhance the profitability of cooperatives. Unlike traditional companies, which are regulated by the Commission of Companies Malaysia, cooperatives are regulated by the Cooperative Commission of Malaysia. Malaysian cooperative managers may need to adjust to changing global business environment to remain competitive in the economy. This paper attempts to investigate the perceptions of cooperatives' senior management towards managerial roles and global skills, and aggregate the two sets of dimensions into broader categories. Factor analysis of the responses from 133 cooperative managers surveyed suggests that Malaysian cooperative managers are expected to have three composite skills labelled as cultural adaptability, public relations, and human development.

Une Analyse théorique sur le concept de la capacité d'absorption et le transfert de connaissance inter-organisationnel dans les PME : Le secteur des énergies renouvelables au Maroc

Conference Paper

Full-text available

Oct 2018

La connaissance représente aujourd'hui un atout incontournable pour les entreprises compétitives. En effet, l'économie actuelle est fondée sur la connaissance et stipule que la connaissance est la ressource la plus stratégiquement significative d'une organisation. Par conséquent, les entreprises sont dans l'obligation d'acquérir et d'exploiter les connaissances externes tout en améliorant leur capacité d'absorption. Pour acquérir des connaissances externes, les grandes entreprises ont souvent recours à des activités R&D, contrairement aux PME qui ne peuvent pas mettre en oeuvre ces activités à cause de leur taille et du manque des ressources internes. Plusieurs études ont démontré que la connaissance est de première importance pour les PME et que le transfert inter-organisationnel de connaissances est un moyen pour ces dernières d'apprendre de leurs partenaires externes en termes de connaissances, d'expériences et de compétences. En effet, ce processus de transfert permet à l'entreprise non seulement d'être compétitive, performante et innovante, mais aussi de développer la capacité d'absorption globale de l'organisation. Par ailleurs, nous mettant en exergue l'importance du capital humain quant à la réussite du transfert de connaissance et de la dissémination de la nouvelle connaissance à travers l'organisation.

Exploring the Relationship between Conflict Management Style and Organizational Performance: An Empirical Study in the Organizations of Bangladesh

Conference Paper

Full-text available

Aug 2018

Conflict originally meant to strike at another, to fight with an enemy or to do battle with an opposing force. Today, it also means to be antagonistic towards others or to be in sharp disagreement with others. Within organizations conflicts are inevitable, and arise in case of disagreements over workloads, problems in communication, individual differences in needs, wants, goals, values, opinions, preferences or behavior. It can be intense, and it is usually unpleasant. The issues themselves can be cultural, social, political or economic. They can be at individual, community, national or international level. The main goal of the studies is to examine the relationships between conflict management and organizational performance (OP). One potential clarification for the conflicting findings is that earlier studies did not investigate the factors that may have a positive effect on the relationships between Conflict Management Style (CMS) and Organizational Performance (OP). To analyze the conflict management from wider perspective, the present study model includes four antecedents' factors (management facilitation, creativity and innovation, decent environment and intrinsic rewards) which are hypothesized to lead to the practices of CMS and OP as a dependent factor. Finally, the study will explore the positive relationship among the antecedents' factors, CMS and OP. This study results bring insight into the conflict of different opinions as valuable sources of cross-fertilization for developing new idea in handling conflict. The findings of the study support that management facilitation, creativity and innovation, decent environment and intrinsic rewards ultimately help to develop effective mechanism for managing conflict and also to establish healthier OP at workplace.

Análisis de la capacidad de absorción en la empresa: Una revisión de literatura

Article

Full-text available

Jun 2017

La capacidad de absorción permite a las empresas mejorar las condiciones de adquisición, asimilación y explotación de conocimientos. En este artículo se revisan los fundamentos, antecedentes y tendencias relevantes de la capacidad de absorción. Para lograr este propósito se llevó a cabo un proceso sistemático de revisión de literatura, iniciando con el rastreo de publicaciones internacionales de corte teórico y empírico e identificando los trabajos más influyentes desde el punto de vista de su difusión y aplicabilidad. Luego se procedió a identificar los puntos de divergencia y las limitaciones que enfrenta la creación de nuevo conocimiento en este campo. La revisión pone en evidencia el valor estratégico que la capacidad de absorción puede tener para el avance significativo de la competitividad y la creación de valor en las empresas.

Global Innovation in Foreign Subsidiaries: The Impact of Entrepreneurial Orientation and Corporate Networks

Article

Full-text available

Jul 2017

The article aims to show the differentiated moderating role of integration between the headquarters and subsidiary companies to explain the potential of local innovations becoming global innovations. Throughout the framework and hypotheses, we propose two global innovation development processes. In order to test them, we analyzed a sample of 172 subsidiaries from the structural equations technique to test the hypotheses and multiple-groups comparison in order to evaluate the moderating effect of subsidiaries embeddedness. The results confirm the adherence of a presented process: entrepreneurial orientation is associated with local innovation when moderated by embeddedness. In turn, this local innovation has great potential to become a global innovation. Another result diverged from the one presented in the hypotheses, but it has an important contribution. The result shows that the entrepreneurial orientation is associated with the inclusion of the subsidiary in the network, which has the potential of developing global innovation, but to do so it would have to be a radical or disruptive innovation.

Terveysjärjestelmän johtamisen tietovirrat

Thesis

Full-text available

Aug 2009

Harri Laihonen

Reaksi Pelajar Terhadap Program Pendidikan Luar dan Hubungannya dengan Pengetahuan, Sikap dan Kemahiran

Article

Full-text available

Dec 2016

ABSTRAK Kajian ini dijalankan untuk menentukan hubungan di antara reaksi pelajar terhadap program Pendidikan Luar dengan pengetahuan, sikap dan kemahiran diperoleh selepas program. Kajian ini juga untuk menentukan perbezaan pengetahuan, sikap dan kemahiran pelajar sebelum dan selepas program. Reka bentuk kajian kuantitatif ini melibatkan 182 responden (L=96, P=86) yang mengikuti Program Pensiswazahan Guru Sekolah Rendah. Kajian ini menggunakan Model Penilaian Kirkpatrick 1994, sebagai model penilaian. Borang soal selidik sebagai instrumen kajian dengan menggunakan format likert-scale. Data dianalisis menggunakan statistik diskriptif, ujian-t berpasangan dan korelasi. Dapatan kajian menunjukkan tahap reaksi pelajar terhadap program Pendidikan Luar yang dijalankan adalah pada tahap yang tinggi (M=4.00, SP=0.34). Bagi penganalisaan pengetahuan, sikap dan kemahiran sebelum dan selepas program menunjukkan terdapat peningkatan selepas mereka mengikuti program; Nilai min bagi peningkatan ialah 3.67 (SP=0.41) sebelum program dan nilai min meningkat kepada 4.05 (SP=0.34) selepas program; Nilai min bagi sikap 3.66 (SP=0.27) sebelum program dan min 4.06 (SP=0.28) selepas program; Nilai min bagi kemahiran ialah 3.78 (SP=0.22) sebelum program dan min 4.03 (SP=0.28) selepas program. Terdapat perbezaan yang signifikan terhadap pengetahuan (t =-9.94, p = 0.01), sikap (t =-12.9, p = 0.01) dan kemahiran (t =-9.12, p = 0.01) sebelum dan selepas program dijalankan. Manakala terdapat hubungan signifikan di antara reaksi pelajar terhadap program Pendidikan Luar dengan pengetahuan (r=0.20, p=0.01), sikap (r=0.21, p=0.01) dan kemahiran (r=0.20, p=0.02). Pelajar cenderung untuk mempelajari dan berubah kepada sesuatu yang lebih baik dari segi pengetahuan, sikap dan kemahiran selepas mengikuti program. Peningkatan terhadap pengetahuan, sikap dan kemahiran pula berkait dengan keberkesanan perancangan dan pengolahan sesuatu program itu. Kata Kunci: Pendidikan luar, penilaian reaksi, penilaian pembelajaran Abstract This study was conducted to determine the relationship between students' reaction to the external education program with the knowledge, attitudes and skills acquired after the program. This study is also to determine differences in knowledge, attitudes and skills of students before and after the program. Quantitative research design involved the 182 respondents (L = 96, P = 86) who attended Pensiswazahan primary school Teachers. This study uses the Kirkpatrick Evaluation Model of 1994, as a model evaluation. The questionnaire as an instrument by using likert-scale format. Data was analyzed using descriptive statistics, paired t-test and correlation. The findings showed the level of students ' reaction to the external education programmes carried out at a high level (M = 4.00, SP = 0.34). For analysis of knowledge, attitude and skills before and after the program showed an increase after their programme; The mean value of is 3.67 (SP = 0.41) prior to the program and the value of the mean increased to 4.05 (SP = 0.34) after the program; The mean value for the attitude of 3.66 (SP = 0.27) before the program and min 4.06 (SP = 0.28) after the program; The value of the mean of skills was 3.78 (SP = 0.22) before program and mean 4.03 (SP = 0.28) after the program. There is a significant difference of knowledge (t =-9.94, p = 0.01), attitude (t =-12.9, p = 0.01) and skills (t =-9.12, p = 0.01) before

Measuring the Effects of Relationship Quality and Mutual Trust on Degree of Inter-Firm Technology Transfer in International Joint Venture

Article

Full-text available

Jun 2011

Communication theory and organizational communication: Multiple perspectives. In

Article

Full-text available

Jan 1987

Knowledge of the firm, combinative capabilities, and the replication of technology

Article

Feb 2009

- How should we understand why firms exist? A prevailing view has been that they serve to keep in check the transaction costs arising from the self-interested motivations of individuals. We develop in this article the argument that whal firms do better than markets is the sharing and transfer of the knowledge of individtials and groups within an organization. This knowledge consists of information (e.g., who knows what) and of know-how (e.g., how to organize a research team). What is central to our argument is that knowledge is held by individuals, but is also expressed in regularities by which members cooperate in a social community (i.e.. group, organization, or network). If knowledge is only held at Ihe individual level, then firms could change simply by employee turnover. Because we know that hiring new workers is not equivalent to changing the skills of a firm, an analysis of what firms can do must understand knowledge as embedded in the organizing principles by which people cooperate within organizations. Based on this discussion, a paradox is identified: efforts by a firm to grow by the replication of its technology enhances the potential for imitation. By considering how firms can deter imitation by innovation, we develop a more dynamic view of how firms create new knowledge. We build up this dynamic perspective by suggesting that firms learn new skills by recombining their curreni capabilities. Because new ways of cooperating cannot be easily acquired, growth occurs by building on the social relationships that currently exist in a firm. What a firm has done before tends to predict what it can do in the future. In this sense, the cumulative knowledge of the firm provides options to expand in new but uncertain markets in the future. We discuss at length the example of the make/buy decision and propose several testable hypotheses regarding the boundaries of the firm, without appealing to the notion of opportunism.

The International Operations of National Firms: A Study of Direct Foreign Investment

Chapter