Knowledge Integration within Multinational Corporations and Organizational Performance

Abstract

Previous research has highlighted that multinational corporations (MNCs) can improve their competitive advantages by effectively integrating knowledge which are acquired from their headquarters and subsidiaries. Knowledge integration can be facilitated when headquarters and subsidiaries are well coordinated to continuously exchange useful knowledge and frequently update the information of markets, processes, and other business practices. Despite of its significance, there have been few empirical studies which investigate how MNCs can effectively coordinate their headquarters and subsidiaries to facilitate the greater knowledge integration. Furthermore, few studies have empirically investigated whether the knowledge integration will help enhance MNCs’ organizational performance. To fulfil the research gap, this study empirically examined the role of the coordination mechanisms of MNCs in promoting knowledge integration between headquarters and subsidiaries, and the influence of knowledge integration on the innovative and strategic performance of MNCs. This study considers the following two coordination mechanisms for MNCs: structural and formal mechanism, and informal mechanism. The structural and formal mechanism of a MNC includes the following two indicators: network density and centralization. As the indicator of the informal mechanism, the strength of the informal relations of employees is considered. This paper developed a conceptual framework which shows the positive relationship between the coordination mechanisms, knowledge integration and organizational performance of MNCs (i.e. innovative capability and organizational competitiveness in this paper), and established relevant hypotheses. A survey method was employed to test the hypotheses. A mediated regression analysis was conducted for hypothesis testing. The results showed that the MNCs in Korea can integrate useful knowledge globally among headquarters and foreign subsidiaries if they establish a dense network and have strong relationships with each other, and the degree of centralization in the decision-making of multinational corporations is positively associated with knowledge integration between the headquarters and subsidiaries. The finding also showed that MNCs in Korea can improve the organizational competitiveness and innovative capability by effectively integrating knowledge between headquarters and foreign subsidiaries. This paper may provide the managers of international firms with significant strategic insights into how international firms can effectively integrate useful knowledge, and how this knowledge integration can help them to reinforce their organizational competitiveness.