Reverse Knowledge Transfer in MNEs: Subsidiary Innovativeness and Entry Modes

Abstract

It is now well recognized that multinational enterprises (MNEs) are differentiated networks wherein subsidiaries vary in terms of their ability to create new knowledge and competencies for their parent groups. In much of this theory, it is taken for granted that subsidiary innovativeness has a positive correlation with the extent of reverse knowledge transfers to the parent MNE. Relying on the headquarterssubsidiary view of the MNE, we argue that, beyond a point, increasing subsidiary innovativeness will be associated with lower reverse knowledge transfers. Further, we argue that this relationship is sensitive to the subsidiary entry mode. Using data from a sample of 293 Italian subsidiaries, we find strong support for our hypotheses. In particular, our results confirm that the effect of subsidiary innovativeness on reverse knowledge transfers displays an inverted-U shape, and that the curvilinearity is greater for greenfield entries relative to acquisition entries. The U-shaped relationship between subsidiary innovativeness and reverse knowledge transfers, as well as the sensitivity of this result to entry mode are important new findings in the literature on the role of subsidiaries in competence creation.

Reverse international knowledge transfer in the MNE: (Where) does affiliate performance boost parent performance?

“…Among the early analyses here was Yang et al's (2008) exploration of the links between the strategic position of the affiliate and knowledge flows, and the finding that conventional parent-affiliate knowledge transfers are larger in the case of subsidiaries acquired with competence-creating motives. Competence-creating subsidiaries create and develop new knowledge assets both for other subsidiaries and for the MNE as a whole (Cantwell and Mudambi 2005;Mudambi et al 2014), a role in which effective reverse knowledge transfer is crucial. The degree to which this occurs is determined by a variety of factors, including the extent to which the subsidiary is embedded into both the MNEs internal networks and the external networks to be found in its host location (Meyer et al 2011), as well as the subsidiary's willingness and ability to play such a competence creation role (Mudambi et al 2014).…”

“…Competence-creating subsidiaries create and develop new knowledge assets both for other subsidiaries and for the MNE as a whole (Cantwell and Mudambi 2005;Mudambi et al 2014), a role in which effective reverse knowledge transfer is crucial. The degree to which this occurs is determined by a variety of factors, including the extent to which the subsidiary is embedded into both the MNEs internal networks and the external networks to be found in its host location (Meyer et al 2011), as well as the subsidiary's willingness and ability to play such a competence creation role (Mudambi et al 2014). This in turn has led to a recognition that the generation and transfer of knowledge -or the withholding of such transfercan itself become a bargaining game between headquarters and subsidiary, revolving around the willingness of a subsidiary to play such a role versus its ability to do so within the mandate prescribed by the MNE headquarters (Mudambi et al 2014, Mudambi andNavarra 2004).…”

“…The degree to which this occurs is determined by a variety of factors, including the extent to which the subsidiary is embedded into both the MNEs internal networks and the external networks to be found in its host location (Meyer et al 2011), as well as the subsidiary's willingness and ability to play such a competence creation role (Mudambi et al 2014). This in turn has led to a recognition that the generation and transfer of knowledge -or the withholding of such transfercan itself become a bargaining game between headquarters and subsidiary, revolving around the willingness of a subsidiary to play such a role versus its ability to do so within the mandate prescribed by the MNE headquarters (Mudambi et al 2014, Mudambi andNavarra 2004). This is a more specific interpretation of the arguments made by Foss and Foss (2005): their essential argument is that if a firm (parent) seeks to too closely control or limit flows of technology outside the organisation , the cost of doing this may outweigh any gains from the knowledge retention.…”

“…At the same time, the subsidiary is faced with the issue of being sufficiently deeply embedded within the internal MNE network to have its competences recognised, valued, and accepted by other parts of the enterprise (Mudambi and Navarra 2004;Mudambi et al 2014). This 'dual embeddedness' -accessing and using both internal and external networks -becomes 'multiple embeddedness' when it is recognised that subsidiaries can demonstrate not only different types, but also different degrees of embeddedness within the MNE network (Meyer et al 2011).…”

“…Finally, we explore the importance of affiliate location in the scale of the identified effects. We extend the work on multiple embeddedness and competence-creating subsidiaries (Meyer et al 2011;Mudambi et al 2014) by examining the importance of location and distance within the context of affiliate-parent linkages, considering both strategic and physical location in the empirical analysis.…”