Subsidiary Absorptive Capacity Research Articles

Role of context in knowledge flows: Host country versus headquarters as sources of MNC subsidiary knowledge inheritance

AbstractResearch SummaryWe respond to calls in the strategy and international business literature for elucidating how multinational subsidiaries develop contextual intelligence in host countries and how they use the local context as a source of valuable opportunities for learning. Applying the theoretical lens of subsidiary absorptive capacity and building on a gravity model, we propose an approach that can distinguish and compare the influences of the host country context and headquarters over the subsidiary knowledge production. Some subsidiaries may become global second headquarters and innovation hubs, as evidenced qualitatively in the paper with the case of Cisco. Essentially, subsidiaries, characterized by higher stocks of knowledge and greater number of locally hired employees are likely to absorb relatively more knowledge from the local host country context.Managerial SummaryManagers at multinational companies have to carefully balance acquiring knowledge from the headquarters, vis‐a‐vis acquiring knowledge from the local context of countries where the firm has subsidiaries. In contrast to a “headquarter‐centric” approach where most of the knowledge management activities are centered around the MNC headquarters, we argue that larger subsidiaries, often characterized by a large presence of local R&D workers, might disproportionately draw knowledge from the local context, rather than from the headquarters. In addition to developing theoretical propositions along these lines, we provide an illustrative example of how Cisco opened a “second headquarters” in India, to learn from the rich local context.

The role of subsidiary dual embeddedness and absorptive capacity in a transition economy

PurposeThis study aims to focus on dual embeddedness as an important channel through which foreign subsidiaries access and share valuable and idiosyncratic knowledge within the multinational corporation (MNC). The authors examine the dual embeddedness challenges of foreign subsidiaries based in the context of Iran as a transitional market.Design/methodology/approachThe final sample includes 144 active foreign subsidiaries in Iran from across a broad range of industries. A structured questionnaire was distributed to firms and structural equation modeling was adopted to analyze the results.FindingsThe findings reveal how building external embeddedness in an environment with potentially poor access to valuable knowledge, and risk of knowledge leakage impacts the subsidiary’s ability to subsequently transfer this knowledge within the MNC. The authors identify the significance of absorptive capacity as a way for the subsidiary to access knowledge from and share knowledge with firms in the local market.Originality/valueDeparting from existing work on subsidiary embeddedness in developed markets, the authors reveal how competence creating subsidiaries manage dual embeddedness and knowledge transfer in transition economies that are low in knowledge stocks. The authors unpack how subsidiary absorptive capacity enables access to local knowledge in a transitional market and increases reverse knowledge transfer in the MNC. In doing so, the authors answer calls for work on the dynamic and complementary relationships that exists between subsidiary dual embeddedness, absorptive capacity and knowledge sourcing in less open markets. Focusing on Iran as a transitional economy, this study provides greater contextual nuance to the extant literature on subsidiary dual embeddedness.

An Empirical Analysis on the Determinants of Foreign Subsidiary’s Local Embeddedness: Focusing on Korean MNCs in China

The purpose of this paper is to empirically analyze the determinants of foreign subsidiary's local embeddedness because it is critically important for the subsidiary to build a variegated local network. This paper suggests that a MNC's global capability, the degree of autonomy granted by the headquarters of the multinational corporation to its foreign subsidiary, the foreign subsidiary's absorptive capacity based on local environment, and its level of localization will affect the subsidiary's local network embeddedness. The empirical analysis confirmed that when the headquarters gives the foreign subsidiary more autonomy, this has a positive effect on the local embeddedness of the foreign subsidiary and when the foreign subsidiary has a strong absorptive capacity, this has a positive correlation with the local embeddedness of the foreign subsidiary. And this paper found that when the foreign subsidiary has achieved a high level of staff localization, this foreign subsidiary will have a higher level of local embeddedness. This study identified the preceding conditions necessary for a foreign subsidiary of a multinational corporation to effectively embed itself in the local network by analyzing factors related to the multinational corporation's headquarters and subsidiaries, and thus contributes significantly to continued research on the local embeddedness of subsidiaries.

Processes Underlying MNE Subsidiary Absorptive Capacity: Evidence from Emerging Markets

We explore the determinants of absorptive capacity by examining how managers of MNE subsidiaries operating in emerging markets recognize, assimilate and apply external knowledge. From analysis of the subsidiaries of 12 MNEs with data from a total of 62 informants from China, India, Brazil and Kenya, six constructs emerged: prior knowledge significance, unlearning, explorative scanning, transformative learning, exploitative application and organization context. Through the iteration of data and theory, we develop a model, which presents a process framework that suggests the dynamic relationships among the emergent concepts underlying absorptive capacity. By identifying and explicating key actions and practices that have previously been largely treated as implicit in the absorptive capacity literature, the study enriches understanding of the micro-processes of absorptive capacity.

The Building of Country Manager's Competence and Its Use to Orchestra Subsidiary's Resources: Empirical Study of Indonesian Subsidiaries in Nigeria

This study employs resource orchestration model to investigate the influence of country manager’s competence on subsidiary performance in host country. Structural equation model with multisteps approach is operated using Lisrel to analyze 41 data from Indonesian business unit operating in Nigeria. This study found that country managers uses subsidiary absorptive capacity, which is formed by the combination of headquarter and local partner resources, as the dominant source of learning to develop their competence overtime. This competence does not directly influence subsidiary performance, but it is notably used to accumulate the critical assets for their subordinate business units. These assets then become valuable inputs for business units to develop or modify their operational capabilities, which directly influence the performance. One contribution of this study is providing more detail explanation of how headquarter resources invested abroad are transformed into subsidiary performance.

The role of subsidiary learning behavior and absorptive capacity in foreign subsidiary expansion

We examine how subsidiaries can implement business expansion successfully to capitalize on growth potentials. Building on our baseline hypothesis, which examines the effect of the extent of business expansion on subsidiary divestment, we identify the boundary condition of the tendency of subsidiary’s learning behavior in foreign expansion. Specifically, we argue that subsidiaries that expand multiple businesses through competence-creating learning behaviors are more likely to be divested due to increasing complexity. We further suggest a remedial condition to offer a viable approach to implement business expansion through competence-creating learning successfully. Based on a sample of 6040 foreign subsidiaries operating over 14 years, we show that affiliates are more likely to expand into unfamiliar business domains successfully if they have a higher level of absorptive capacity.

Reverse knowledge transfer in emerging market multinationals: The Indian context

This study examines knowledge acquisitions of Indian multinationals via overseas mergers and acquisitions. Specifically, the paper examines the effects of the perceived subsidiary capability, parent absorptive capacity, and the relevance of the target knowledge on reverse knowledge transfer. Using firm level data from a survey of Indian multinationals (with overseas acquisitions), we find that perceived subsidiary capability, knowledge relevance, and absorptive capacity positively influence reverse knowledge transfer. The results also highlight the moderating role of knowledge relevance and the mediating effects of absorptive capacity.

MNC knowledge transfer, subsidiary absorptive capacity and HRM

Based on a sample of 169 subsidiaries of MNCs operating in USA, Russia, and China, this paper investigates the relationship between MNC subsidiary HRM practices, absorptive capacity and knowledge transfer. The paper makes two key contributions. First, the paper examines the relationship between the application of specific HRM practices and the level of the absorptive capacity. Second, the paper suggests that absorptive capacity should be conceptualized as being comprised of two dimensions—ability and motivation. Further, results indicate that the interaction of ability and motivation (absorptive capacity) significantly facilitate transfer of knowledge from other parts of the MNC.

Subsidiary absorptive capacity and knowledge transfer within multinational corporations

The paper reviews extant literature on subsidiary absorptive capacity and knowledge transfer within multinational corporations (MNCs), and proposes an agenda for future research on the relationship between these two constructs. It suggests that motivation should be viewed as a moderating factor between subsidiary absorptive capacity and MNC knowledge transfer, and that future research should make a clear distinction between the choices of MNC headquarters and those of subsidiaries regarding knowledge transfer. The paper proposes that a more comprehensive, multi-level framework and dynamic model of the determinants of subsidiary absorptive capacity and MNC knowledge transfer be developed in future studies.

A Framework for Research and Practice: Relationship between Expatriate Knowledge Transfer, Subsidiary Absorptive Capacity, and Subsidiary Performance

It plays an important role in establishing and maintaining competitive advantages in multinational corporations (MNCs). MNCs transfer knowledge among parent corporations and foreign subsidiaries. While multinational firms tend to send outstanding expatriates to foreign subsidiaries to transfer knowledge. In this study, we theoretically indentify three dimensions during the knowledge transfer among expatriates and local staff: ability, motivation and seeking for the opportunities to transfer knowledge. Then we integrate the ability-motivation-opportunity with the absorptive capacity of corporations. The result shows that knowledge transfer from expatriates has indirect impact on performances of foreign subsidiaries, which will be stronger as the absorptive capacity of corporation becomes stronger.

The effects of MNC parent effort and social structure on subsidiary absorptive capacity

Although the literature provides ample evidence that the global transfer and local implementation of knowledge represents a key advantage for multinational corporations (MNCs), we lack comparable understanding as to whether knowledge-creating MNC parents can actively expand the absorptive capacity of their subsidiaries. Using a teacher–student lens, this study examines the combined impact of specific structural mechanisms and motivational processes by MNC parents on the ability of 216 subsidiaries to absorb parent-initiated marketing strategies. The findings reveal that MNC parents can indeed cultivate subsidiaries’ ability to appropriate marketing knowledge through a combination of adopting specific social structures and investing in particular efforts. However, the effect of social structure on subsidiary absorptive capacity is indirect, and accounted for by the parents’ intensity of effort. A number of theoretical implications emerge from the findings for research on absorptive capacity in relation to the role of the knowledge source, the need to examine organizational influences in relation to one another, and validating the original absorptive capacity dimensions. For managers in the global marketplace, the findings lead to the suggestion that MNCs devote attention to nurturing the absorptive capacities at different organizational levels in order to optimize the global transfer of knowledge.

A retrospective on: MNC knowledge transfer, subsidiary absorptive capacity, and HRM

In this retrospective, we revisit the goals of the original paper, and we review the studies that have used our paper to discuss the “concept” and the “development” of absorptive capacity. We also propose directions for future research, stressing the need to develop thorough theoretical and empirical models of absorptive capacity as a multi-level and dynamic construct that is contingent on the context in which it is embedded.

The Driving Forces of Subsidiary Absorptive Capacity

AbstractThe study investigates how a multinational corporation (MNC) can promote the absorptive capacity of its subsidiaries. The focus is on what drives the MNC subsidiary's ability to absorb marketing strategies that are initiated by the MNC parent, as well as how the subsidiary enacts on this absorptive capacity in order to compete in its focal market. The dual embeddedness of MNC subsidiaries plays a key role in this investigation, as subsidiaries belong to the MNC network and are simultaneously embedded in their host country environment. We argue that subsidiary absorptive capacity is formed as a purposeful response to this dual embeddedness. An analysis of marketing strategy absorptions undertaken by 213 subsidiaries reveals that MNCs can assist their subsidiaries to compete in competitive and dynamic focal markets by forming specific organizational mechanisms that are conducive to the development of subsidiary absorptive capacity. The findings hold important theoretical and practical implications.

Expatriate Knowledge Transfer, Subsidiary Absorptive Capacity, and Subsidiary Performance

In this study, we theoretically identify three dimensions of expatriate competenciesability, motivation, and opportunity seeking—for knowledge transfer. Integrating the ability-motivation-opportunity framework and the absorptive capacity perspective, we propose that expatriate competencies in knowledge transfer influence a subsidiary's performance through the knowledge received by the subsidiary, but tbat this indirect enect is stronger when subsidiary absorptive capacity is greater. We collected multisource, time-lagged data from 162 British subsidiaries of Taiwanese multinational nrms. The results support our hypotheses. Overall, we contribute to expatriation theory and research by revealing specinc expatriate competencies as well as identifying boundary conditions for successful expatriate knowledge transfer.

Knowledge transfer in product development: an analysis of Brazilian subsidiaries of multinational corporations

Several studies about knowledge transfer in multinational corporations have found that the process is influenced by factors such as absorptive capacity, tacit knowledge and power relations, all of which impact knowledge sharing strategies between corporate headquarters and foreign subsidiaries. A multiple case study of Brazilian subsidiaries of three multinational corporations using in-depth interviews, based on a conceptual model consisting of four propositions, was conducted to identify factors linked to the knowledge transfer process and to assess their influence on that transfer. The first proposition tries to assess explicit knowledge, primarily through the use of IT tools; the second analyzes the role of the subsidiary within the corporate network and how it influences the degree of knowledge sharing. The third assesses the influence of subsidiary absorptive capacity and the fourth analyzes the impact of worker exchange programs on knowledge sharing between headquarters and foreign subsidiaries. Study results confirm the four propositions and enable the identification of relationships between factors, especially explicit knowledge and worker expatriation as complementary factors in knowledge transfer strategies.

Enriching Absorptive Capacity through Social Interaction

Absorptive capacity is frequently highlighted as a key determinant of knowledge transfer within multinational enterprises. But how individual behaviour translates into absorptive capacity at the subsidiary level, and how this is contingent on subsidiaries' social context, remains under‐addressed. This not only limits our understanding of the relationship between individual‐ and organizational‐level absorptive capacity, but also hampers further research on potentially relevant managerial and organizational antecedents, and limits the implications we can draw for practitioners who seek to increase their organization's capacity to put new knowledge to use. To address this shortcoming we conduct an in‐depth comparative case study of a headquarters‐initiated knowledge transfer at two subsidiaries of the same multinational enterprise. The findings demonstrate that social interaction is a prerequisite for subsidiary absorptive capacity as it enables employees to participate in the transformation of new knowledge to the local context and the development of local applications. The findings also illustrate how organizational conditions at the subsidiary level can impact subsidiary absorptive capacity by enabling or constraining local interaction patterns. These insights contribute to the absorptive capacity literature by demonstrating the scale and scope of social interaction as a key link between individual‐ and organizational‐level absorptive capacity.

Effective autonomy, organisational relationships and skilled jobs in subsidiaries

PurposeThe purpose of this paper is to explore how the proportion of skilled jobs in subsidiaries is influenced by resource gaps created by subsidiary development.Design/methodology/approachThis paper develops a range of propositions that connect the constructs of effective autonomy and organisational relationships with subsidiary employment. Propositions are built on an extensive literature review based on such approaches as the resource‐based view, transaction cost economics, network approach, and institutional theory.FindingsThe framework developed in the paper suggests that a higher proportion of employment in skilled jobs in subsidiaries is most likely in cases where subsidiary entrepreneurship, role specialization, and absorptive capacity are higher. Conversely, the proportion is likely to be lower in cases of increased institutional distance from the parent company.Practical implicationsThe conceptual model can help parent company managers assess the likely effects of developments in effective autonomy and organisational relationships in their subsidiaries. Subsidiary managers can assess the possible impact of such factors as development of entrepreneurial activities, specialization within the multinational corporation supply chain and enhancement of absorptive capacity on the proportion of skilled jobs.Originality/valueThis paper is the first to describe subsidiary development from a skilled job perspective. It further develops the concept of autonomy and introduces the term “effective autonomy”.

MNC knowledge transfer, subsidiary absorptive capacity, and HRM

Based on a sample of 169 subsidiaries of multinational corporations (MNCs) operating in the USA, Russia, and Finland, this paper investigates the relationship between MNC subsidiary HRM practices, absorptive capacity and knowledge transfer. First, we examine the relationship between the application of specific HRM practices and the level of the absorptive capacity. Second, we suggest that absorptive capacity should be conceptualized as being comprised of both employees’ ability and motivation. Further, results indicate that both ability and motivation (absorptive capacity) are needed to facilitate the transfer of knowledge from other parts of the MNC.

MNC KNOWLEDGE TRANSFER, SUBSIDIARY ABSORPTIVE CAPACITY AND HRM.

Based on a sample of 169 subsidiaries of MNCs operating in USA, Russia, and Finland, this paper investigates the relationship between MNC subsidiary HRM practices, absorptive capacity and knowledge transfer. The paper makes two key contributions. First, the paper examines the relationship between the application of specific HRM practices and the level of the absorptive capacity. Second, the paper suggests that absorptive capacity should be conceptualized as being comprised of two dimensions--ability and motivation. Further, results indicate that the interaction of ability and motivation (absorptive capacity) significantly facilitate transfer of knowledge from other parts of the MNC.