The impact of knowledge transfer on MNC subsidiary performance: does cultural distance matter?

Abstract

Despite research on how multinational corporations (MNCs) manage knowledge transfer across national borders, little is known about the implications of such transfer on subsidiary performance and the intervening influence of cultural distance. This is an important topic because effective knowledge management in terms of performance outcome is crucial for MNCs to build competitive advantage. This paper tackles the topic by developing hypotheses to examine the interactive effects of cultural distance and knowledge transfer within MNCs on subsidiary performance. Our empirical study with China-based MNC subsidiaries in the IT industry shows that knowledge transfer is significantly and positively related to subsidiary performance, while cultural distance is significantly and negatively associated with subsidiary performance. In addition, we found that cultural distance moderates the knowledge transfer-subsidiary performance relationship. Specifically, cultural distance weakens the positive relationship in knowledge inflows, but enhances the positive relationship in knowledge outflows, and different directions of knowledge transfer, interacting with cultural distance, have varying effects on subsidiary performance. These findings have important implications for cross-culture knowledge management research and practice.