Explaining MNC s Knowledge Transfer Using Two Gaps Model

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1 , pp Explaining MNC s Knowledge Transfer Using Two Gaps Model Wang-Fang Ph. D. Candidate, School of Business, Pusan National University Geumjung-gu, Busan, , Korea wf47@163.com Ho-Yeol Bang 1 Professor, School of Business, Pusan National University Geumjung-gu, Busan, , Korea Corrisponding Author: hybang@pusan.ac.kr Abstract. We explore the relevant key factors in the process of knowledge transfer within MNCs, and suggest a new model that is based on the two gaps model of knowledge transfer within them. Our finding can help managers of MNCs effectively control foreign subsidiaries and successfully achieve knowledge transfer. Keywords: knowledge transfer, gap model, foreign subsidiary, absorptive capacity 1 Introduction Prior research on knowledge transfer has attempted to identify similar factors that inhibit or facilitate knowledge transfer between MNC units. These are the absorptive capacity of the receiving unit and the motivation to acquire knowledge, where absorptive capacity has been treated mainly as a cognitive barrier distinct from motivational factors (Szulanski, 1996, 2000; Gupta and Govindarajan, 2000). Motivational factors have most often been considered separately from absorptive capacity - for example, lack of motivation of the source and the recipient of knowledge in Szulanski (1996) and motivational disposition of the source and the target units in Gupta and Govindarajan (2000). Two factors of particular importance to determining the transfer outcome stand out in the review of previous studies on knowledge transfer. Subsidiaries with motivated employees will be more interesting as exchange partners for MNC s HQ and they will also be better equipped to acquire and use the knowledge that they receive. ISSN: ASTL Copyright 2015 SERSC

2 2 Literature Review The literature focusing on knowledge flows seldom addresses the question of whether or not such flows actually benefit the organization (Haas and Hansen 2005). In other words, it is often implicitly assumed that the more knowledge that flows inside the organization, the better (Gupta and Govindarajan, 2000; Björkman et al., 2004).This disregards the possibility that transfer efforts may harm the organization if they are too costly and fail to achieve what they aimed for. In general, the research on knowledge transfer has two perspectives: one focuses on the characteristics of the knowledge that is transferred (Kogut and Zander, 1993; Nonaka and Takeuchi, 1995), and another focuses on the processes and interactions involved in knowledge transfer (Simonin, 1999). Our research orientation of this paper belongs to the latter. Knowledge transfer can occur among entities spanning multiple levels, among individuals, groups, and organizations, and it has been argued that with the increase in globalization. The latest profound changes in the world s competitive environment provide a unique opportunity to examine how organizational globalization affects knowledge transfer. Firms can access and absorb knowledge embedded in other organizations or in foreign countries through foreign direct investment (Shan and Song, 1997). Firms do their best to obtain knowledge from external sources when there is a significant knowledge gap between source units and recipient units. The effective sourcing, sharing and use of external knowledge have fundamental competitive implications. The primary reason why MNCs exist is because of their ability to transfer and exploit knowledge more effectively and efficiently in the intracorporate context than through external market mechanisms (Gupta and. Govindarajan, 2000). MNC knowledge flows may occur in multiple directions, vertically between the HQ and a subsidiary, and horizontally between different subsidiaries (Yang et al., 2008). We reviewed some conceptual frameworks of knowledge transfer in MNC. Most of them clear that at the initiate state of knowledge transfer within MNCs, the movement of knowledge is from HQ to overseas subsidiaries and the role of each subsidiary as an implementer. As time passes, overseas subsidiaries evolve over time in terms of their responsibilities, and this evolution enables the foreign subsidiaries to act as knowledge senders to HQ or other overseas subsidiaries. In conclusion, the process of knowledge transfer within MNC is a two-way communication, the common intention is reducing knowledge gap between 3 A Conceptual Framework and Hypotheses This paper mainly discusses knowledge transfer in the MNC, especially between HQ and overseas subsidiaries. We designed a model called the two gaps model (see Figure 1). We focus on the knowledge transfer outcomes (called knowledge gap) between sender (HQ) and receiver (overseas subsidiaries). In the process of knowledge transfer, we thought there are two potential problems, or gaps. Copyright 2015 SERSC 117

3 One is called communication gap, also referred to as geographical gap, and the other one is culture gap, which can be called psychological gap. We discuss knowledge transfer that is confined by these two gaps, sender and receiver, and look forward to find the positive relations among them in order to achieve the goal of knowledge transfer. Fig. 1. A Conceptual Framework of Knowledge Gap On the basis of the two gaps model in Figure 1, the following hypotheses are developed. Hypothesis 1: Sender s motivation will positively reduce the knowledge gap between Hypothesis 2: Knowledge stock will positively reduce the knowledge gap between Hypothesis 3: Expatriates will positively reduce the knowledge gap between HQ and overseas subsidiaries. Hypothesis 4: Receiver s willingness will positively reduce the knowledge gap between Hypothesis 5: Absorptive capacity will positively reduce the knowledge gap between Hypothesis 6: Inpatriates will positively reduce the knowledge gap between HQ and overseas subsidiaries. Hypothesis 7: cultural distance will negatively reduce the knowledge gap between Hypothesis 8: Trust will positively reduce the knowledge gap between HQ and overseas subsidiaries. 118 Copyright 2015 SERSC

4 Hypothesis 9: Teamwork will positively reduce the knowledge gap between HQ and overseas subsidiaries. Hypothesis 10: language barrier will negatively reduce the knowledge gap between Hypothesis 11: Shared vision will positively reduce the knowledge gap between Hypothesis 12: Information technology will positively reduce the knowledge gap between 4 Data Collection and Empirical Analysis 4.1 Reliability and validity test Table 1. Reliability analysis Variables Cronbach s α Changes of item number HQ Sender s motivation Independent Variable Dependent Variable Overseas Subsidiaries Communication Gap Culture Gap Knowledge stock Expatriates Receivers willingness Absorptive capacity Inpatriates Language barrier Shared vision Information technology Culture distance Trust Teamwork Knowledge Gap Correlations analysis Pearson correlation analysis was conducted to test the correlations between knowledge gap (KG) and the sample firm s characteristics, such as international business experience (EXPE), the parent company s country (COUN), industry type (TYPE), and entry mode (MODE) because the measurement scales for these items were interval and ratio scales. The measurement scale for knowledge gap (KG) was an interval scale. Copyright 2015 SERSC 119

5 Table 2. Correlation analysis Pearson SM KS EXP RW AC INP SV LB IT CD TW TR KG SM KS EXP RW AC INP SV LB IT CD TW TR KG Note: sample size N=80, p< 0.05, p< Copyright 2015 SERSC

6 4.3 Results of Hierarchical Regression Analysis Table 3. Regression analysis Independent variable Model 1 Model 2 Model 3 Beta t-value Bet a t-value Beta t- value Sender s motivation Transfer Knowledge actors (HQ and stock Expatriates overseas subsidiaries ) Receiver s willingness Absorptive capacity Inpatriates Transfer media (communication gap ) Transfer context (culture gap) Shared vision Language barrier Information technology Cultural distance Trust Teamwork F-value R² Note: sample size N=80, p< 0.05, p< Conclusion To develop the two gaps model of knowledge transfer within MNC, we summary some core outcomes of knowledge in top management and international business journal. Based on these theoretical background, we design the conceptual framework called two gap model and suppose that the most important factors in the process of two-way communication. We focus on MNC s knowledge transfer overcomes and define the knowledge gap (between HQ and overseas subsidiaries), take it as dependent variable factor. How to reduce knowledge gap in order to achieve Copyright 2015 SERSC 121

7 knowledge transfer between HQ and overseas subsidiaries, it become the aim of this paper. References 1. Björkman, A., Rosén, B., & Lundborg, G. (2004). Acute improvement of hand sensibility after selective ipsilateral cutaneous forearm anesthesia. European Journal of Neuroscience, 20(10), Gupta, A. K., & Govindarajan, V. (2000). Knowledge flows within multinational corporations. Strategic Management Journal, 21(4), Haas, M. R., & Hansen, M. T. (2005). When using knowledge can hurt performance: The value of organizational capabilities in a management consulting company. Strategic Management Journal, 26(1), Kogut, B., & Zander, U. (1993). Knowledge of the firm and the evolutionary theory of the multinational corporation. Journal of International Business Studies, Nonaka, I., & Takeuchi, H. (1995). The Knowledge Creation Company: How Japanese Companies Create the Dynamics of Innovation. 6. Shan, W., & Song, J. (1997). Foreign direct investment and the sourcing of technological advantage: Evidence from the biotechnology industry. Journal of International Business Studies, Simonin, B. L. (1999). Ambiguity and the process of knowledge transfer in strategic alliances. Strategic Management Journal, 20(7), Szulanski, G. (1996). Exploring internal stickiness: Impediments to the transfer of best practice within the firm. Strategic Management Journal, 17(S2), Szulanski, G. (2000). The process of knowledge transfer: A diachronic analysis of stickiness. Organizational Behavior and Human Decision Processes, 82(1), Yang, Q., Mudambi, R., & Meyer, K. E. (2008). Conventional and reverse knowledge flows in multinational corporations. Journal of Management, 34(5), Copyright 2015 SERSC