Innovation knowledge exchange within Chaebols and the ownership structure of their foreign subsidiaries

Abstract

PurposeThis study examines how the characteristics of innovation knowledge exchanged among affiliate firms affect the ownership strategies adopted for their foreign subsidiaries.Design/methodology/approachThis study employs a cross-classified multilevel model to examine a sample of 185 Korean manufacturing affiliates derived from 49 Chaebols engaged in international diversification, along with their 1,110 foreign manufacturing subsidiaries.FindingsWhile exploratory innovation knowledge exchange lowers the affiliate's level of ownership in its foreign subsidiary, exploitative innovation knowledge exchange rather increases the affiliate's level of ownership in its foreign subsidiary.Research limitations/implicationsThis study advances the literature on intrafirm knowledge exchange by highlighting it as a determinant of ownership strategies. The study further shows that the characteristics of knowledge exchanged at the affiliate level not only determine the ownership structure but also have the potential to shape the direction in which the subsidiary develops its competencies.Practical implicationsThis study has practical implications for the managers of business group affiliates. The results suggest that managers should adapt their ownership strategies according to the type of knowledge exchanged at the affiliate level to achieve a balanced and synergistic effect on intraorganizational knowledge exchange.Originality/valuePrevious studies have extensively explored the performance implications related to knowledge exchange. However, there is a notable gap in understanding the mechanisms through which the value of knowledge transferred within an affiliate is realized. To address this gap, this study focuses on ownership strategy as a crucial factor and empirically examines how the characteristics of innovation knowledge exchanged among affiliate firms influence the ownership strategies adopted for their foreign subsidiaries. By investigating this relationship, this study provides valuable insights into the complex dynamics of knowledge exchange and its effect on ownership decisions within business group affiliates.