Subsidiary Evolution, External Embeddedness and Knowledge Transfers in MNEs

Transcription

1 Subsidiary Evolution, External Embeddedness and Knowledge Transfers in MNEs FIGSIB PhD course Turku

2 The Structure of this day Who s Ulf? Subsidiary Evolution, External Embeddedness, Influence on MNE Strategy Group work I, Presentations and Discussion Antecedents & Contingencies to External Embeddedness Knowledge Transfer in MNEs & Not just Team players Group work II, Presentations and Discussion Coffee breaks when suitable, Lunch aiming for

3 Who s Prof. Andersson? Prof. at MDH & at BI Norwegian Business School and Editor of Journal of International Business Studies In the past Prof. in International Business, Uppsala University ( ); Prof. in Strategy & International Management, Copenhagen Business School ( ) Research: strategic management of MNEs, HQ Sub. relation; knowledge governance and transfer in MNEs, subsidiary development, and subsidiary influence. Likes football and fly-fishing, good food and wine, and to have fun 3

4 Head-office assignment Subsidiary choice Subsidiary s role Local environment determinism 4

5 Change in capabilities Depletion Sharpening, strengthening Enhancement Change in charter Loss No change Gain 2.SDE 4.PDD 3.SDR 1.PDI 5.ASN PDI= Parent driven investment; SDE= Subsidiary-driven charter extension; SDR= Subsidiary-driven charter reinforcement; PDD= Parent driven divestment; ASN= Atrophy through subsidiary neglect 5

6 Managing the International Firm -- the Network View MNC HQ Sub Sub Subsidiary external network SUB Sub 6

7 Subsidiary Network Embeddedness A strategic resource Develops over time from arm s-length relations to relationships based on adaptation & trust Has a relational as well as a structural dimension 7

8 Two different types of embeddedness Relational Embeddedness Structural Embeddedness 8

9 Subsidiary Network Embeddedness The greater the interdependence between the subsidiary and its business partners, the higher the subsidiary s relational embeddedness Relational embeddedness can take different forms depending on which traits that are focused, e.g., Business Embeddedness and Technical Embeddedness In the context of the MNC two other, obvious, types of embeddedness are; External Embeddedness and Corporate (internal) Embeddedness 9

10 Why is Subsidiary Network Embeddedness important? Subsidiary s market performance and role in the local network Subsidiary s influence, importance and position within the multinational corporation Headquarters possibilities to manage and control the subsidiary 10

11 Subsidiary s market performance and role in the local network An organizations performance is contingent on its ability to obtain resources from its environment, some have related it directly to its ability to absorb new knowledge. Lower uncertainty better inventory control & lower inventory costs. More expensive to obtain new customers than serving existing customers. 11

12 Subsidiary s market performance and role in the local network Actors in long-term relationships have better knowledge about the counterparts resource heterogeneity Increasing the possibilities of value creation through combining resources and activities between the partners A units level of innovation is positively associated with the extent of information exchange with other units Embeddedness increases information exchange and thereby the level of innovation and consequently market performance 12

13 Findings Subsidiary External Technical Embeddedness has a direct positive relation on Subsidiary Market Performance Subsidiary External Business Embeddedness has an indirect positive relation on Subsidiary Market Performance, via External Technical Embeddedness 13

14 Andersson, Forsgren & Holm, 2002 (SMJ) Business Embeddedness.83 (6.55) Technical Embeddedness.46 (2.98).27 (2.34) Importance for Competence Development n.s. Market Performance 14

15 Subsidiary Influence, Importance and Position in the MNE Absorption of new knowledge, development of technology etc. due to external embeddedness increases subsidiary competence and gives the subsidiary possibilities to share this competence with sister units; leading to changes in importance, influence and position within the MNE 15

16 Subsidiary Role within the MNE A subsidiary s role within an MNE can be linked to three different factors The characteristics of the subsidiary s internal resources The relationship between these resources and the rest of the MNC The characteristics of the business context in which the subsidiary is located 16

17 Subsidiary Role ctd. To understand why a subsidiary can have a specific position in an MNE we have to combine the three factors into a more coherent theory We need a theory that deals with how a subsidiary s resource-base is dependent on the subsidiary s business context as well as with the resource-interdependencies between the subsidiary and the rest of the MNE 17

18 Findings External embeddedness can significantly help explain Subsidiary s role in the MNE A subsidiary highly embedded in its external network, concerning product and production process development is also considered important within the MNE concerning such matters Such a subsidiary is also influential in the MNE s strategic decision-making process concerning product- and production strategies 18

19 Findings ctd. A subsidiary s influence on MNE strategic behavior is dependent on its role as giver and receiver of knowledge A subsidiary s giver- role is positively associated with its influence on strategic behavior A subsidiary s receiver- role is negatively associated with its influence on strategic behavior 19

20 HQ s possibilities to Manage & Control the Subsidiary Subsidiary embeddedness decreases the possibilities for an outsider to have comprehensive knowledge about activities and quality of content in the subsidiary s business relationships In turn, this decreases the HQ possibilities to compete with external network actors in influencing subsidiary operations and activities 20

21 HQ s balancing of Subsidiary Influence In a JIBS paper (2007) we focus subsidiary influence in the MNE, particularly the importance of the subsidiary s external business network as a source for such influence, but also to what extent HQs knowledge about this network can counteract subsidiary influence. 21

22 Subsidiary influence in the federative MNE Analyses of power-bases in MNEs have for the most part applied rather broad and general concepts of the sub s environment, e.g. links to business systems, importance of the country, level of competitiveness, sub s institutional context, etc. More precisely how the local environment can constitute a power-base is analyzed to a more limited extent. The sub s linkages can be more or less efficient as a power source depending on their characteristics Sub-unit power in the MNE has often been treated as the ability to avoid control imposed by the HQ. 22

23 Headquarters influence in the federative MNE HQ in the federative MNE is seen as a player among others. Most studies have considered HQ influence/power as linked to its formal position. An inclusion of bargaining though, means that we must focus not only the sub s power-base but also its counterpart s power-base, i.e. HQs power-base cannot be limited to aspects of authority. Ghoshal and Bartlett (-90) touches upon this when they say that it is easier for HQs to counteract the power of subs when there is a low within density of the sub s network, as it is easier to have knowledge of the network in such a situation. 23

24 The power concept applied A sub-units access to critical resources of importance for others is the primary power base, i.e. resource (power) dependence (Pfeffer & Salancik 78, Astley & Sachdewa 84) As power in the federative MNE has to do with the ability to win political fights we very much lean on the definition by Dahl -57 & Emerson 62, i.e. the ability of actors to overcome resistance from other actors in the organization to achieve some end. 24

25 The final model Headquarters Network Knowledge -.24 (-2.03) Subsidiary External Embeddedness.37 (3.03) Subsidiary Influence.41 (3.26) Subsidiary Importance.72 (3.54) Model Chi-square with 16 degrees of freedom, p-value RMSEA< 0.01; NFI=0.92; NNFI=0.99; CFI=0.99; GFI=

26 Group work I What would happen if a subsidiary s mandate for a specific activity (e.g. R&D) was offshored to another subsidiary in light of its evolution, embeddedness, etc.? Think about the consequences from both the gaining and losing subsidiary s perspective 26

27 BALANCING THE TRADE-OFF BETWEEN LEARNING PROSPECTS AND SPILLOVER RISKS: MNC SUBSIDIARIES VERTICAL LINKAGE PATTERNS IN DEVELOPED COUNTRIES Alessandra Perri, Carlos III University Ulf Andersson, Mälardalen University & BI Norwegian Business School Phillip C. Nell, WU Wien Grazia D. Santangelo, University of Catania 27

28 Hypothesis 1 There is an inverted U-shaped relationship between the local competitive pressure and the quality of local linkages. 28

29 Hypothesis 2 Subsidiary capabilities negatively moderate the inverted U-shaped relationship between the local competitive pressure and the quality of local linkages. 29

30 Relationship between Competitive pressure and Quality of local linkages for different levels of subsidiary capabilities Quality Vertical Linkages Mean Subsidiary Capabilities Low Subsidiary Capabilities High Subsidiary Capabilities Local Competitive Pressure (standardized) 30

31 Understanding transfer Knowledge transfer (KT) in the MNE is essential to create organizational capabilities and is a basis for MNE success. Existing lit. on KT is characterized by two tenets: 1) Views KT as an aggregate flow between sub-units (Gupta & Govindarajan, 2000). 2) Focus on subunits abilities to transfer and absorb knowledge, nuanced by the differential in knowledge stocks at source & receiving subunits (Lane & Lubatkin, 1998). Equally important but much less researched is willingness to transfer (Mudambi, Piscitello & Rabbiosi, 2014) 31

32 Contributions 1) We disaggregate dyadic knowledge flows, using the individual KT project as the unit of analysis. 2) We incorporate both the ability and the willingness of the sender-receiver dyad to undertake KT The disaggregation of knowledge flows into distinct KT projects allows us to meaningfully measure and study KT performance along two dimensions Knowledge adoption (Kostova & Roth, 2002) Cost efficiency of KT (Teece, 1977) We study how organizational structure and governance mechanisms affect knowledge transfer success along these two dimensions. 32

33 Theory Inter-organizational network, active subunits, affecting roles, capabilities & responsibilities, initially from HQ Complex interdependencies between different organizational subunits Distribution of activities amongst various subunits The configuration is not neutral, a significant determinant of the motivation to subunit cooperation Implies subunit relations include elements of both cooperation & competition depending on the relation between the activities that subunits undertake. 33

34 Theory ctd. Goal incongruence particularly salient in KT Subunits in competitive/ substitutive relations may compete for resources and view each other as rivals Subunits in collaborative/ complementary relations have more shared interests Subunits in substitutive configurations may be less motivated to share knowledge with each other than those in complementary ones KT can only be fully understood by studying the complete dyadic context, i.e. incorporating the activity relation between the source and receiving units 34

35 Theory ctd. KT process is also subject to oversight by HQ Formal control by HQ have complex influence on KT stemming from the agency relation between HQ and subunit Successful alignment of the goal congruence through monitoring and incentives will effect the success of KT 35

36 The multidimensional nature of KT success We conceptualize KT performance by disaggregating KT success along two dimensions knowledge adoption and cost efficiency Knowledge adoption is measured as the extent to which the transferred knowledge is adopted in the receiving unit. KT cost efficiency 36

37 Defining the cost efficiency of knowledge Cost per unit of output transfer for a single project P Efficiency Frontiers X 3 X 1 Y 1 X 2 Y 2 E 2 E 1 Levels of Effectiveness for Project P 37

38 A Two-dimensional framework of knowledge transfer performance Efficiency Project success # A 1 more cost efficient Than A 2, B & C D A 1 # A 1 also has a higher level of knowledge adoption than C & D # We can only say with certainty that A 1 is More successful than transfer projects A 2 & C C A 2 B Effectiveness 38

39 MNC sub-unit organization We view the MNC as a network organization, with complex interdependencies between sub-units, and where these have and develop their own interests. # Activity Structure - Distribution of activities - Collaboration and Competition Prod. R&D Prod. # Formal Structure - Differentiated HQ Subunit relationships - Centralization a fundamental feature Subunit HQ Subunit 39

40 Activity Structure Type of activity structure affect transfer incentive! Complementary activity relation Source/target units perform complementary activities E.g. R&D to production, production to sales Substitutive activity relation Source/target units perform similar activities E.g. both source/target unit produce, sell the same product 40

41 Activity Structure Substitutive lower effectiveness than complementary H1: The knowledge adoption between subunits in a substitutive relationship is lower than that between units in a complementary relationship In a complementary relation: Common interests in enhancing each-others performance. Naturally collaborative context. In a substitutive relation: Evaluated along a common metric. Competition for responsibilities and resource allocation. Naturally competitive context. 41

42 HQ Governance (Incentives) H2a: The higher the level of HQ incentives for knowledge transfer, the higher the adoption of transferred knowledge H2b: The higher the level of HQ incentives for knowledge transfer, the lower the transfer cost efficiency 42

43 HQ Governance (Monitoring) H3a: The higher the level of HQ monitoring of knowledge transfer activities the higher the adoption of transferred knowledge H3b: The higher the level of HQ monitoring of knowledge transfer activities the higher the transfer cost efficiency 43

44 Methods Knowledge represented by technological innovations Sample size (n): 141 transfer projects originating from 49 subunits Empirical context: 25 international divisions/business areas in 14 MNCs Standardized questionnaire administered face-toface Least Squares Seemingly Unrelated Regression (SUR) 44

45 Seemingly unrelated regression (SUR) estimates with firm fixed effects Explanatory Variables DV: Knowledge Adoption DV: Transfer Cost Efficiency Model 1 Model 2 Model 3 Model 4 Constant (0.06) (0.86) (0.50) (1.65) Innovation Type (process) (1.02) (1.10) (0.14) (0.51) Innovation Type (product/process)-complexity (1.79)* (1.05) (2.19)** (1.86)* Size: Ln(employment) (0.18) (0.64) (1.66) (2.24)** Intra-divisional transfers (2.81)*** (2.23)** (0.23) (0.48) Cross-border transfers (0.73) (0.67) (1.42) (1.84)* Knowledge tacitness (1.08) (0.82) (0.16) (1.05) Experience: Ln(Age of subunit) (0.62) (0.22) (1.95)* (1.51) Experience: General (1.38) (0.86) (1.72)* (2.08)** Experience: Collaborative (0.71) (1.03) (1.23) (1.06) Firm fixed effects Included Included Included Included HQ incentives for financial performance (0.35) (2.46)** HQ control over subsidiaries (0.33) (0.55) Subunit activities: Substitutive (2.51)** (0.46) HQ incentives for knowledge transfer (1.99)** (2.04)** HQ monitoring of knowledge transfer (2.69)*** (2.45)*** Adj.R F stat. (d.f.); ( p value) (15, 117) (21, 110) (16, 120) (21, 115) Akaike I.C Log-L

46 Conclusions Disaggregation of flows Conceptualization of transfer performance in two dimensions seem relevant Activity structure represents core organizational determinant to knowledge transfer adoption Transfer context should include activity relation Fundamental determinant to motivation to transfer Agency theoretic controls appear to be effective in facilitating both the adoption and cost efficiency dimensions of knowledge transfer. 46

47 Chose 3-4 constructs Group work II Create theoretically based links between the constructs They may be positive and/or negative State the main theoretical references and consider why/how a construct is affected by another construct (the mechanism between them) Present your model and consider how it can be tested Example Birkinshaw & Hood ???? + Andersson et al

48 Mandate Gain External Embeddedness Trust Subsidiary Attention Knowledge Transfer Subsidiary Influence Own Constructs Subsidiary Importance Interdependence HQ Attention Performance Internal Embeddedness Mandate Loss 48

49 49