How Do Multinational Companies Identify The Knowledge Of Their

What mechanisms can serve for applying this knowledge?

What factors may obstruct theses processes?

The goal of a multinational company is to achieve global scale efficiency, national level responsiveness and flexibility and cross-market capacity to leverage knowledge. Therefore multinational companies face a duality between being global and local (Bartlett & Ghoshal 2000)[1]. A multinational firm's ability to leverage global and local knowledge leads to a competitive advantage. Indeed the multinational can be conceptualized as a knowledge-sharing network whose existence can be understood it terms of its capabilities to transfer, create, integrate and deploy certain kinds of knowledge more efficiently than the market is capable of (Kogut & Zander 1993). Though it maybe be more efficient than the market the multinational firm still can face obstacles in identifying and applying knowledge.

This paper begins by outlining the concept of knowledge for the multinational firm and explores mechanisms in which it can leverage and apply knowledge. The strategy and mechanisms for harnessing and leveraging knowledge can be on two levels: an organisational or structural level and an individual or micro-operational level. The constraints of these mechanisms at both levels will be analysed, as well as the obstructions to knowledge leveraging as a whole.

Polanyi (1958) divided knowledge into two kinds, explicit and tacit. Explicit knowledge can expressed in words and numbers and easily communicated and shared. It is typically facts, data, analysis, rules, guidance and reports (Nonaka & Takeuchi 1995). On the other hand tacit knowledge cannot be articulated or put into print, it is interwoven with experiences and situation contexts. It consists of insights and intuition that are harder to explain and transfer (Adenfelt & Lagerstrom 2006). To the firm there is internal and external knowledge. Internal knowledge includes the structures and culture of the organisation, and how they function in practice. External knowledge is knowledge of the external environment that the firm faces (Mead & Andrews 2009). Knowledge can also be regarded as general or context-specific. The multinational firms seeks to generalise and transfer context-specific knowledge through the firm and capitalise on its economic value (Zanfei 2000)

As individuals interact, organisational knowledge develops (Nonaka & Takeuchi 1995). Knowledge transfer is not a linear process of replication, it involves interaction and communication between those sharing and receiving (Adenfelt & Lagerstrom 2006). Nonaka and Takeuchi (1995) saw knowledge development as a multi-level process between individuals, groups and the organisation. They developed the concept of a spiral of knowledge creation, beginning at the individual level, through the group and finally to the organisational level. As knowledge spirals upward in the organisation, individuals interact with one another and with the organisation.

Consequently multinational firms devise and implement mechanisms to transfer knowledge from the individual to the group and to the organisation as a whole.

On an organisational level the key to knowledge leveraging is the relationships in the “double network” of intra-firm network and inter-firm cooperation (Zanfei 2000). The traditional organisational model, whereby knowledge transfer was transferred vertically from the headquarters to the subsidiary units, has been superseded by a model where subsidiary units can not only absorb knowledge generated from elsewhere in the firm but are also able to generate and circulate new information (Zanfei 2000). Subsidiaries can create and develop knowledge through their linkages with local partnerships and external networks. These networks can provide context-specific knowledge that can provide economic value to the organisation as a whole. Moreover as subsidiaries are closer and more responsive to the local market they can be sensors of opportunity. For example ICI's Canadian subsidiary became a leading centre for expertise in explosives due in part to the usage of requirements in the Canadian mining industry (Frost et al 2002). By tapping into and sharing this knowledge the multinational firm creates or extends a competitive advantage.

An extension on this model is by nominating a centre of excellence. A centre of excellence is a subsidiary or part of a subsidiary that has developed expert knowledge in its interactions with counterparts in the local environment or as a result of the entrepreneurial drive of its management. The headquarters then explicitly recognises its excellence and designates the role of sharing this knowledge with other units in the intra-firm network to the knowledge leading subsidiary. The centre of excellence can also act as hub for knowledge in its field of expertise. For example at Hewlett Packard, the Singaporean subsidiary has built a range of specialist capabilities in thermal-ink technology, through intra-network learning and through local technical partnerships and subcontractors. This lead to the Singaporean subsidiary leading innovation efforts in this area for the firm as a whole (Rugman & Collison 2009).

However, effective transfer of knowledge is not guaranteed in the network. For the centre of excellence there is a trade-off in the allocation of resources between developing knowledge and sharing it with other intra-firm units (Adenfelt & Lagerstrom 2006). Similarly there is conflict of interest for the centre of excellence. Its role is to share knowledge with other subsidiaries, yet it is also competing with them to maintain its position as a centre of excellence. Another factor that could hinder the centre of excellence's effectiveness is changes by external factors in the local environment, for example a legislation change could adversely impact the centre of excellence's competitive advantage. Kogut & Zander (2003) see successful knowledge sharing from a centre of excellence as being dependent on the pre-existing relationships between the centre of excellence and the subsidiaries and on understanding contextual factors. A wide gap in the general knowledge of the receiving subsidiary is a barrier to the transfer of context-specific knowledge from the centre of excellence to the receiving subsidiary. A lack of a prior relationship requires trust and understanding to be developed. Therefore centres of excellence have to adapt their processes and interactions with receiving subsidiaries on a case-by-case basis.

From the perspective of the receiving subsidiaries, if they have a large degree of autonomy they may be resistant to utilising the knowledge available within the multinational firm. This could be because of cultural resistance such as a lack of trust or “not invented here” syndrome. An other resistance could be that the knowledge is incompatible with previous choices autonomously made by the receiving subsidiary. A reluctant subsidiary that does not contribute to knowledge sharing at the network level, reduces the incentives for other parties to also participate and could lead to retaliation (Zanfei 2000).

An alternative, though occasionally complementary, mechanism is the use of transnational teams. A transnational team consists of individuals from subsidiaries specialised in certain fields working together towards a common goal in a pre-specified time. Teams can be organised across subsidiaries, geographical boundaries and hierarchical levels. In this situation specific knowledge may overlap, giving rise to combined knowledge. At 3M they have European management action teams (EMATs), mainly consisting of marketing personnel. These teams create action plans that balance global strategy with local differences for the European subsidiaries. After the meetings, the members return to implement the plan in the subsidiary (Rugman and Collinson 2009).

The main hindrance to transnational teams is space and time demarcation. They are temporary in their nature with limited opportunities to meet face to face (Adenfelt & Lagerstrom 2006). Again the relationship of the members is key. No prior relationships or structure could initially hamper the team and its ability to share knowledge. Furthermore there maybe a gap in pre-existing knowledge between participating members. These factors coupled with an impatient management in the headquarters could deem the transnational team a failure as clear results do not come to fruition quick enough.

For multinational firms seeking to expand and concerned with the risks involved in a setting up a subsidiary in a region where they lack knowledge, a strategic alliance is an option. As an aside it should be noted that the desire to expand could derive from attempts to exploit competitive advantage or to seek more knowledge. From interaction in the strategic alliance tacit knowledge can be developed. For example the New United Motor Manufacturing joint venture between GM and Toyota enabled Toyota managers to learn how to deal with U.S. workers and U.S. labour unions. They then harnessed that knowledge learning and applied it to a wholly-owned plant in Georgetown, Kentucky.

Within an international joint venture Inkpen & Beamish (1997) note the instability in the relationship between the multinational firm and the local partner. Instability surfaces from the a change in the dynamic of bargaining power associated with the acquisition of knowledge. The typical expectation would be that the multinational corporation acquires local knowledge to an extent that its dependency on the local partner is eliminated. The multinational then would feel able to move from a joint venture to a wholly-owned subsidiary. However it could also be the case that the local partner outlearns the multinational firm. Multinational firms would be wary of such a threat, possibly walling-off their technology to protect it. Such interactions could damage the trust between the two partners, providing a disincentive to knowledge transfer.

Li & Scullion (2006) studied difficulties in the context of China subsidiaries or strategic partners and multinational firms. They found that distance in 3 dimensions were a barrier to cross-border knowledge sharing. These dimensions were physical distance, institutional distance and cultural distance. Physical distance contains of the geographical distance, a country's communication structures and scale of the multinational firm. Institutional distance consists of legal block, ambiguity and lack of transparency as regulations change. Also local knowledge holders have a limited understanding of the wider business world, affecting their absorptive capability. For cultural distance Li & Scullion noted the Chinese strategic process as being short-term with step-by-step improvement and relational decision-making. This clashes with the typically Western style of long-term decisions and rational decision making.

A fundamental obstruction to leveraging knowledge is the nature of knowledge itself.

The type of knowledge is important. Hamel (1997 cited in Inkpen & Beamish 1997) found that market intelligence was transferred between strategic alliance partners more easily than knowledge of cutting-edge manufacturing skills.

In high-tech companies individual are less willing to share tacit knowledge, because in such companies in can be source of power and job-security (Collins & Smith).

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  1. Barlett & Ghosal differentiate firms in “global”, “international”, “multinational” and “transnational” firms. In their analysis transnational firms seek to the achieve the three goals stated. For simplicity in the essay this model will be referred to as a multinational firm.

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