Environmental Turbulence and Complexity and the Optimal Degree of Internal Open Innovation for MNCs

Abstract

In today’s knowledge economy, it is vital for Multi-National Corporations (MNCs) to leverage all their globally dispersed knowledge resources. Extant literature argues that MNCs can be viewed as knowledge sharing networks and that knowledge exchange within the group enhances performance. This exploration of new knowledge through search among peer subsidiaries of the parent MNC can be regarded as Internal Open Innovation (IOI). However, literature on Open Innovation is largely focused on the external boundary of the firm, so that little can be said on whether openness towards corporate group internal knowledge sources is either or both, beneficial and/or detrimental, and how this depends on the difference of national industries and on the correct communication of these before the final transfer of knowledge. The principal research question thus is: To what degree should MNC subsidiaries be open to their intra-MNC peers given a common, evolving technological environment but different local market contexts? In this paper, the authors contribute with new propositions regarding this issue developed based on results from an agent-based model that is analyzed through computer simulation. The authors explore the degree of openness of MNC subsidiaries together with their communication competence in different organizational structures and environments, based on previous developments in theory of knowledge transfer and complexity as well as international business.