Abstract

Purpose – This research focuses on knowledge transfer between the headquarters and a

subsidiary of a MNC. A framework with type of knowledge, absorptive capacity,

disseminative capacity, and tie strength is proposed. The framework is verified

qualitatively, and then further developed by adding another capacity needed by the

headquarters: heeding capacity.

Design/methodology/approach – In order to check the validity of the proposed conceptual

framework empirically, interview-based qualitative studies were conducted for two partner

programs implemented in the Japanese subsidiary of a U.S.-based IT company. Interviews

were undertaken with seventeen respondents in the headquarters, the Japanese subsidiary,

and two alliance partners in Japan.

Findings – It is confirmed that type of knowledge and absorptive capacity clearly affect the

effectiveness of knowledge transfer. Also it is found that the knowledge sender’s

disseminative capacity matters. Additionally, a case is found in which network ties mitigate

the ineffectiveness caused by low disseminative/absorptive capacity.

Practical implications – It is suggested that the headquarters of a MNC needs to have a

‘heeding capacity’ in cases where the target subsidiary’s disseminative capacity is low and

tie strength between the subsidiary and the headquarters is weak. It is a capacity for the

headquarters to heed what a subsidiary would like to transmit but cannot do well, and this is

achieved by listening carefully and not letting language barriers or cultural differences

obfuscate the meaning.

Originality/value – By focusing on a dyad between the headquarters and the Japanese

subsidiary, the importance of disseminative capacity of a subsidiary is highlighted, which is

not often the case in the extant literature. Also headquarters’ heeding capacity is proposed.

[1]

Keywords Knowledge transfer, MNC, Absorptive capacity, Disseminative capacity,

Network ties, Heeding capacity

Paper type Research paper

1. Introduction

Many multinational corporations (MNCs) constantly have to confront the difficulty of drafting their

global strategies in the face of fierce competition from around the world. Ever since Levitt (1983)

introduced the notion of a global standard marketing strategy on the assumption that the people’s

preferences in the world would be homogenized through globalization, there has been controversy

regarding the benefits of adopting either a global standardization strategy or a local adaptation

strategy (Schmid and Kotulla, 2011).

When considering how a MNC should devise its global marketing strategy, one of the key factors is

its ability to gather information regarding the market situation from all over the world, particularly,

the headquarters’ ability to gather organizational knowledge regarding the market and some others

from its subsidiaries in the world (Brockmann and Anthony, 1998, Buckley and Carter, 1999).

Gupta and Govindarajan (1991) point out, a MNC can be regarded as a network of capital, product,

and knowledge transactions among units located in different countries, so it is vital to pay attention

to the mechanisms for transferring organizational knowledge effectively in a MNC.

A number of frameworks have been proposed to explore effectiveness of knowledge transfer in

MNCs (Kogut and Zander, 1993, Gupta and Govindarajan, 1994, Schlegelmilch and Chini, 2003,

Yamin and Otto, 2004, Inkpen and Tsang, 2005, Ambos et al., 2006, van Wijk et al., 2008), and one

of the main trends for the research in this area is to use absorptive capacity (Cohen and Levinthal,

1990) to elucidate the knowledge transfer mechanism. However, taking Gupta and Govindarajan’s

(1991) network perspective suggests that the disseminative capacity of knowledge providers is also

a critical factor. The network perspective also points to the need to consider how relational and

network characteristics impact on knowledge transfer (Inkpen and Tsang, 2005, Reagans and

McEvily, 2003).

[2]

Clearly this is a complex problem, but all too often aspects of knowledge transfer are explored in

isolation and the lack of a holistic interpretation results in limited managerial insight and depth of

understanding. Indeed, poor knowledge transfer can result in project and/or corporate failure

(Hedlund, 1980), thus supporting the need for more research in this area. Hence the objective of this

research is to explore the effectiveness of knowledge transfer in a MNC, especially between the

headquarters and a subsidiary, using a model containing absorptive capacity, disseminative

capacity, and a network/relational perspective. Eventually, through interpretation from qualitative

research, a new model including heeding capacity is proposed. The need for heeding capacity has

implications for managers in global contexts and points to the need to explicitly rather than

implicitly consider cross-cultural interaction.

The remainder of this paper is structured as follows: First we review the extant literature and use

this to develop an initial conceptual framework. Then our methodology is explained: qualitative

study based upon interviews in a U.S.-based global IT company and focusing on the knowledge

transfer mechanism between its headquarters in the U.S. and a subsidiary in Japan. The findings

from the qualitative studies are presented and a discussion provided of how they related to and

expand the conceptual framework to include the need for a heeding capacity. Finally, our

conclusions are presented.

2. Theoretical framework

From a strategic viewpoint, organizational knowledge is important. Davenport and Prusak (1998:5)

define organizational knowledge as ‘a fluid mix of framed experience, important values, contextual

information, and expert insight that provides a framework for evaluating and incorporating new

experiences and information’, so it can be regarded as an intangible asset for firms. Also

organizational knowledge should not be locked up in one person or one unit in a firm, but it should

be delivered to right place (or right person) at the right time. At this point, organizational

knowledge needs to be transferred effectively. In reality, however, it is true that a certain degree of

ineffectiveness exists in the current knowledge transfer mechanism in many firms (Jensen and

Szulanski, 2004). Even, in case of a headquarters and subsidiary dyad in a MNC, it is not

necessarily easy to build up an effective mechanism to transfer organizational knowledge beyond

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borders, considering differences in language or culture in different countries (Hedlund, 1980,

Jensen and Szulanski, 2004).

From such a background, many researchers attempt to elucidate the causes which hinder effective

transfer of organizational knowledge. A number of conceptual frameworks to explain effectiveness

of organizational knowledge transfer in MNCs have been proposed, in which a number of

antecedents are defined. The following sections summarize key antecedents that have been

identified; they include type of knowledge , absorptive capacity, disseminative capacity, , and tie

strength as a network characteristic (van Wijk et al., 2008). They are then integrated into a model

for knowledge transfer between the headquarters and a subsidiary using the relational view of the

firm (Dyer and Singh, 1998).

2.1. Type of knowledge

It is clear that type of knowledge affects the effectiveness of knowledge transfer, and researchers

have identifies a numbers of ways to categorize organizational knowledge. Among them, Kogut and

Zander (1992) classify knowledge into two groups; information and know-how. Information is

knowledge which can be transmitted without loss of integrity once the syntactical rules are known

(Kogut and Zander, 1992). Know-how is the accumulated practical skill or expertise that allows

other people to do something smoothly and efficiently (von Hippel, 1988). In comparison with

information, know-how is tacit, sticky, complex, and difficult to codify (Kogut and Zander, 1992).

These characteristics make know-how difficult to imitate and transfer (Kogut and Zander, 1992,

Szulanski, 1996). So, while know-how has a positive side in that it is difficult for rival firms to

imitate it, it also has a negative side in that it can be difficult to transfer it within a firm or a group

of firms.

2.2. Absorptive and disseminative capacity

When considering knowledge transfer between the headquarters and a subsidiary in a MNC,

absorptive capacity, proposed by Cohen and Levinthal (1990), plays an important role for both

cases of knowledge transfer from the headquarters to a subsidiary (forward transfer) and from a

subsidiary to the headquarters (reverse transfer).

[4]

Cohen and Levinthal (1990:128) define absorptive capacity as “the ability of a firm to recognize the

value of new, external information, assimilate it, and apply it to commercial ends”, and it has been

incorporated in the theoretical frameworks for knowledge transfer in MNCs by many researchers

(for example, Szulanski, 1996, or Schlegelmilch and Chini, 2003). According to Cohen and

Levinthal (1990), absorptive capacity is a function only of prior related knowledge, so if a

knowledge recipient has similar prior related knowledge to the knowledge sender’s, then the

knowledge recipient’s absorptive capacity is high; therefore, knowledge is transferred effectively.

In the case of knowledge transfer between the headquarters and a subsidiary in a MNC, subsidiaries

generally tend to have a lot of knowledge about the headquarters because they need the

headquarters’ advanced technology or marketing know-how in order to survive in their fiercely

competitive local market. Meanwhile, the headquarters tend to have less common knowledge of

their subsidiaries, because many headquarters have decentralized their decision-making to

subsidiaries so the headquarters do not have to capture the detailed situation of each subsidiary

(Paterson and Brock, 2002).

In this study, disseminative capacity is also considered because it is also central in knowledge

transfer. Disseminative capacity is defined as the ability to contextualize, format, adapt, translate

and diffuse knowledge through a social and/or technological network (Parent et al., 2007). Mu, et

al., (2010) note that, if knowledge senders lack the appropriate ability such as specific skills or

language efficiency, then knowledge is not transferred effectively. Although the importance of

disseminative capacity in relation to knowledge transfer has been recognized by researchers,

substantial empirical support is largely absent (Minbaeva and Michailova, 2004). Therefore, further

exploration of disseminative capacity is needed in the context of knowledge transfer in MNCs.

2.3. Tie strength

Kogut and Zander (1996) propose that a firm can be seen as a social community specializing in

speed and efficiency in the creation and transfer of knowledge. Therefore, the informal

interpersonal network is regarded to play a critical role in the knowledge transfer process (Paruchuri

and Awate, 2016, Harryson et al., 2008). According to Granovetter (1985), strong interpersonal

connections (‘network ties’) have stronger motivation to be of assistance in knowledge transfer, so

basically a strong tie is expected to positively effect on the ease of knowledge transfer (Reagans and

McEvily, 2003). Hansen (1999) argues that strong ties promote transfer of more complex

knowledge, while weak ties promote the transfer of simple knowledge. According to the meta-

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analysis results by van Wijk et al. (2008), ‘tie strength’ shows such a significant relevance to

knowledge transfer that they regard it as one of the most important network-level drivers of

knowledge transfer. Thus, in this study, tie strength is brought into the proposed model.

2.4. The relational view of the firm

In this research, the antecedents discussed above are integrated into a model by applying the

relational view (RV) of the firm (Dyer and Singh, 1998), one of theories of the firm. In general,

each theory of the firm tries to explain which resources in a firm contribute to generating

supernormal profits. Assuming that knowledge is one of critical resources of a firm, an approach to

capture the knowledge transfer process using such a theory of the firm is meaningful.

Under the RV theory, one of determinants of supernormal profits for a dyad is ‘knowledge sharing

routines’, which can be defined as a regular pattern of interactions that permit transfer,

recombination, or creation of specialized knowledge (Grant, 1996, Dyer and Singh, 1998). Another

determinant is ‘effective governance’, which controls other determinants such as knowledge sharing

routines in the dyad (Dyer and Singh, 1998). It also influences the willingness of each entity to

engage in value-creation initiatives. In this research, these two determinants are the main factors in

the proposed model for the headquarters-subsidiary knowledge transfer.

2.5. Conceptual framework

Absorptive capacity and disseminative capacity for both headquarters and a subsidiary (Cohen and

Levinthal, 1990, Minbaeva and Michailova, 2004), which correspond to ‘dyad-specific absorptive

capacity’ as a sub-process of knowledge sharing routines in the RV theory, can be regarded as

critical driving factors for knowledge sharing routines in the proposed framework. Meanwhile, tie

strength can be regarded as a critical driving factor for effective governance (Dyer and Singh,

1998). In RV theory, informal self-enforcement governance mechanisms based on informal social

control are assumed to have a positive impact on effective governance (Dyer and Singh, 1998). In

the case of knowledge transfer between the headquarters and a subsidiary, social capital (Nahapiet

and Ghoshal, 1998) corresponds to informal self-enforcement governance, which is driven by tie

strength. Also knowledge type is regarded as relating to absorptive/disseminative capacity and tie

strength. Thus, a proposed model for the headquarters-subsidiary knowledge transfer is expressed

schematically in Figure-1.

[6]

Research into knowledge transfer in MNCs mainly focuses on absorptive capacity as an antecedent

and research focusing on disseminative capacity is rare (Minbaeva and Michailova, 2004). This

research, however, focuses on cases in which a subsidiary’s disseminative capacity is low, and

explores how other constructs such as the headquarters’ absorptive capacity or tie strength between

the headquarters and the subsidiary can or cannot improve the disseminative capacity of the

subsidiary.

Therefore, using the above model as an initial conceptual framework, the following research

questions can be empirically explored:

What happens in the knowledge transfer process between the headquarters and a subsidiary

of a MNC, if the subsidiary’s disseminative capacity is low?

If a subsidiary’s disseminative capacity is low, how can absorptive capacity or tie strength

improve the situation?

[7]

Figure 1 Proposed framework for knowledge transfer between the headquarters and a subsidiary

3. Methodology

In this study, an interview-based qualitative method is used to explore the mechanisms of

knowledge transfer between the headquarters and a subsidiary in a MNC dynamically and

practically in real settings. Crouch and McKenzie argue that qualitative research based on

interviews often “seeks to penetrate social life beyond appearance and manifest” (Crouch and

McKenzie, 2006, p.483). They also mention that a small number of interviews, for example less

than 20, can facilitate the researcher’s attention with the respondents, and enhance the validity of

fine-grained, in-depth inquiry in real settings, and that through such in-depth interviews new

knowledge can be generated (Crouch and McKenzie, 2006).

This qualitative study is focusing on two different partner programs which were deployed in a

subsidiary in Japan of a multinational company, Global Computer (GC), a U.S.-based global IT

company. GC was founded in 1939 in the U.S., and presently its major product lines include

personal computing devices, enterprise and industry standard servers, storage devices, networking

products, software, and printers. It also has services and consulting business around its products.

GC has its headquarters in California, U.S., and its subsidiaries all over the world including Japan.

In this qualitative study, how knowledge is transferred between the headquarters in the U.S. and the

subsidiary in Japan is explored, focusing on the Japanese subsidiary’s disseminative capacity, the

headquarters’ absorptive capacity and tie strength between the headquarters and the Japanese

subsidiary.

Interviews were undertaken with not only the key people in both the GC headquarters (GC-US) and

the subsidiary in Japan (GC-Japan) but also some important personnel from some of the alliance

partners in Japan, in total seventeen interviews were carried out (Table-1). The interviewees were

purposely selected (Reybold et al., 2013), paying attention to the degree to which he or she was

involved in each of partner programs. The interviews were semi-structured, and each of them was

between 30 and 90 minutes in duration. While most of the interviews were face-to-face, a couple of

them were conducted over the phone.

Table 1 Interviewees List

Case Name of Belongs to Title Role in the project Date of

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respondent interview

Case-1 Sato (Mr) GC-Japan Senior manager Sponsor 15-Nov-2011

Tanaka (Mr) GC-Japan Section manager PM for new partner program deployment project 24-Jul-2014

Suzuki (Mr) GC-Japan Section manager Project member from business development team 16-Nov-2011

Yoshida (Ms) GC-Japan Supervisor Project member from service delivery team 4-Aug2014

Case-2 Smith (Mr) GC-US Quality Mgmt Sponsor 13-Dec-2013

Johnson (Mr) GC-US Quality Mgmt Program Mgmt Office/Liaison (Global Team) 06-Dec-2013

Williams (Mr) GC-US Global OEM Sales Ex Program Mgmt Office/Liaison 06-Feb-2014

Garcia (Ms) GC-US Manufacturing Representative from WW Manufacturing 13-Dec-2013

Brown (Mr) GC-US Spare Parts Mgmt Representative from WW Spare Parts 09-Apr-2014

Mori (Mr) GC-US Technical Solution

(Expatriate)

Representative from WW Hardware Design 05-Dec-2013

Takahashi (Mr) GC-Japan Alliance Partner Sales Program Mgmt Office/Liaison (Japan Team) 17-Jan-2014

Kobayashi (Ms) GC-Japan Manufacturing Ex-Representative from Japan Manufacturing 23-Jan-2014

Yamamoto (Mr) GC-Japan Technical Support/TSD Representative from Japan After-Sales Support 18-Feb-2014

Nakamura (Mr) GC-Japan Technical Support/TSD Representative from Japan After-Sales Support 17-Feb-2014

Sasaki (Mr) Aqua Business Development Representative from J-VAR Partner (Aqua) 05-Feb-2014

Kato (Mr) Breeze Business Development Representative from J-VAR Partner (Breeze) 12-Feb-2014

Yamada (Mr) Breeze Business Development Representative from J-VAR Partner (Breeze) 26-Mar-2014

The interviews with Japanese people were in Japanese, and the interviews with American people

were performed in English. All the interviews were recorded with a digital voice recorder, and then

were transcribed. While the interviews with English speakers were transcribed into the English text

straightforwardly, the interviews with Japanese speakers were transcribed into the English text

through a back translation technique (Brislin, 1970) by the researcher and his bilingual co-operator.

All the data collected through the interviews were analysed using Microsoft Access database

software based on King’s template analysis method (1998).

[9]

4. Qualitative study (1) – Deployment of a new channel partner program in the

Japanese subsidiary

4.1. Background

In late 2006 and early 2007, the headquarters of Global Computer changed its strategy regarding

after-sales support services for its channel partners in the world so as to urge them to buy more of

GC’s packaged maintenance contract, ‘Support-Pack’. The purpose of this change was to prevent

expansion of the channel partners’ own brand support services. So in 2008 the headquarters

released a new channel partner program, GC Support Partner (GCSP), with the purpose of

expanding the sales of Support-Pack, but at the same time it required the partners to undertake a

radical operational change in terms of spare parts delivery. This newly released partner program

included cost reduction for GC, but it had a negative impact for the existing partners. This partner

program was also a globally-standardized program in which local adaptation was extremely limited.

At the beginning of 2008, in order to deploy the new partner program (GCSP) in Japan, a project

team was formed within GC-Japan. As the project went on, various kinds of organizational

knowledge were exchanged between the headquarters of GC and its subsidiary in Japan. The

deployment of this project is described below, in line with the initial conceptual framework (Figure-

1).

4.2. Knowledge type

At the beginning of 2008, communications regarding the new partner program GCSP between the

headquarters of GC and each of subsidiaries in the world began. Several documents about the detail

of the new partner program (GCSP) were sent from the headquarters to GC-Japan in a top-down

style, and then some brief conference calls were held to follow up on those documents. After the

project team of GC-Japan received these documents, they translated the contents of the program

into Japanese and let the partners in Japan know about how the terms and conditions would change

in the new program. In the documents released by the headquarters, the changes from the previous

program were described clearly, so knowledge incorporated in the documents for the new partner

program was information-type knowledge which was explicit, simple, and codifiable.

However, there is a category of organizational knowledge which was not transferred effectively

from GC-Japan to GC-US; that is the market situation in Japan. The market situation in Japan

surrounding GC-Japan’s channel partners is different from those in the U.S. or Europe. One

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particular difference is that, while the channel partners in the U.S. are generally much smaller in

their size than GC, some channel partners in the Japan are almost equal to or even larger in their

size than GC-Japan.

“My point is that the situation for the partner business in Japan has been too different from

that in other countries. In other countries, all the partners are much smaller in their size

than GC, so those partners tend to be more obedient to GC’s directions, such as GC’s

sudden policy changes of a partner program. However, in Japan, some of the channel

partners are larger than GC-Japan, so such partners aren’t obedient to GC at all. They are

stronger than GC-Japan in terms of the power balance, so they simply reject GC’s

proposals regarding a certain policy change if that change is unfavourable for them.

Therefore, tough negotiations are often necessary.” (Interview, Yoshida, project manager,

translated by the researcher)

Also in Japan, there are many domestic competitors in the IT industry sector, so the channel

partners can easily switch their partnership to another domestic IT vendor; therefore, some of GC-

Japan’s channel partners are in such an advantageous position over GC-Japan that they are even

able to control GC-Japan’s marketing strategy.

Under such circumstances, as soon as GC-Japan announced some major changes in the new partner

program in 2008, most of those large partners were unanimous in voicing their protest. Their main

point of the protest was degradation of conditions regarding spare parts delivery. Upon receiving

such protests from the partners, GC-Japan tried to persuade them to adopt the changes, but such

negotiations did not go well. Finally, GC-Japan was obliged to modify its service delivery process

locally by introducing some manual processes, which led to a significant cost increase for GC-

Japan.

In this way, the knowledge regarding the market situation in Japan was not transferred to GC-US

effectively from GC-Japan. This type of knowledge was know-how, which was tacit and complex.

4.3. Absorptive and disseminative capacity

When the knowledge needed for the new partner program was transferred to GC-Japan through

documents or some training sessions, the absorptive capacity of the project team of GC-Japan was

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high enough to understand the contents of the new partner program, because most of the project

members in charge of the new partner program deployment were very experienced in the field of

channel partner business. Therefore, knowledge was transferred effectively, not only because

knowledge was information type, but also because both the knowledge sender (GC-US) and the

knowledge recipient (GC-Japan) had the common prior related knowledge, so GC-Japan’s

absorptive capacity was high.

On the other hand, in terms of knowledge transfer about the market situation in Japan, it is not the

absorptive capacity of GC-US but the disseminative capacity of GC-Japan that matters, especially if

the knowledge holder (GC-Japan) does not try to transfer this knowledge. When the headquarters

investigated the specifications for the new partner program around 2007, they did not collect any

recent information from the subsidiaries across the world. They simply used their old knowledge

regarding the market situation in each of the subsidiaries. GC-Japan should have let the

headquarters in the US know in advance about the market situation in Japan regarding the channel

partner business, but actually they did not, so any specific requirements for Japan was not adopted

in the new program.

“Perhaps, to some extent, such things have been told to the headquarters until now, but I

don’t think that the degree of their understanding has reached to the level for them to do

some corrective actions.” (Interview, Yoshida, project member, translated by the

researcher)

In this way, GC-Japan has been unsuccessful in transferring the knowledge regarding their market

situation in Japan to the headquarters. From this fact, it seems that GC-Japan’s disseminative

capacity was low. One reason behind this is regarded to be that the English language skill of the

members of GC-Japan project team was not enough to explain such a complex situation as the

market around the channel partners in Japan.

“The other thing is that, when I was assigned to the current role, I noticed that the people in

the partner delivery group couldn’t speak English very well, so it is not surprizing that it

was difficult for them to tell what was happening in Japan. I mean, a certain level of

communication skill is necessary to communicate with the foreign people.” (Interview,

Tanaka, project manager, translated by the researcher)

[12]

As Tang et al. (2010) mention, knowledge senders cannot transfer their knowledge to others

effectively if they lack competency, skills, and language proficiency.

4.4. Tie strength

Another reason why GC-Japan did not explain its situation to GC-US is regarded to be the fact that

there was not a social network around the teams in charge of the channel partner business.

Therefore, the people in charge of the partner program did not feel any necessity to share the market

status in Japan, nor did they try to share it voluntarily.

“We didn’t have to let them know at all until then… In the early days, Japan was deploying

the partner program in our own way as an independent country without any control by the

region, so we didn’t have an intention to let the headquarters know such a situation.”

(Interview, Tanaka, project manager, translated by the researcher)

According to Minbaeva and Michailova (2004), a feeling of obligation to share knowledge is

positively related to the knowledge-sharing behaviour of individuals, and norms that encourage

open exchanges of knowledge among members lead to a greater degree of knowledge sharing.

However, in this case, there was no such an environment or atmosphere related to sharing

knowledge with their counterpart in the headquarters or other subsidiaries. This means that tie

strength between GC-US and GC-Japan was weak.

An overview of knowledge type, absorptive capacity, disseminative capacity, tie strength, and the

results of knowledge transfer is shown in Table-2, and the relationship between these antecedents is

illustrated in Figure-2.

Table 2 Summary of knowledge transfer between the HQ and a subsidiary in case of GCSP program

Knowledge category Knowledge typeTransferdirection

Sender’s disseminative

capacity

Recipient’s absorptive capacity

Tie strength Results

Contents of new

partner program Information HQ Sub - HighWeak

Effective

Local market situation Know-how Sub HQ Low - Ineffective

[13]

5. Qualitative study (2) – Japan Value Added Partner (J-VAR) program

5.1. Background

In 1990 the Japan Value-Added Reseller (J-VAR) business model was introduced in GC-Japan with

collaboration from GC-US. Under this business model, J-VAR partners purchase GC’s high-end

servers (GC-UX servers), re-sell them under their own brand to their end-users, and provide them

with the partners’ own maintenance services. One of particular features of this business model is a

forum in which representatives from all the five partners and GC gather in one place to mainly

discuss quality issues, which is called the ‘Victory Group’ forum, or the VG forum for short.

Representatives from both GC-Japan and GC-US attend the VG meetings sometimes face-to-face

and sometimes over the phone. In this way, the J-VAR partners are able to discuss quality issues

directly with the engineers in GC-US.

[14]

Figure 2 Relationship between antecedents in case of GCSP program

Not only in the VG meetings but also in the day-to-day operations for the J-VAR business, various

kinds of knowledge have been transferred between GC-US, GC-Japan, and the J-VAR partners.

How such organizational knowledge is transferred between them is described below.

5.2. Knowledge type

The purpose of the VG forum is to improve the total quality of the GC-UX servers, so in the VG

meetings various quality issues have been discussed from viewpoints such as design,

manufacturing, spare parts, and after-sales service delivery. Simple quality issues are resolved in

day-to-day operations, but highly complex quality issues are brought into this forum and

sometimes they are tacit; therefore, it is possible to regard them as know-how-type knowledge

based on Kogut and Zander (1992)’s definition.

5.3. Absorptive and disseminative capacity

In the case of knowledge transfer in the VG forum, mainly knowledge is transferred from GC-Japan

to GC-US, so here GC-Japan’s disseminative capacity and GC-US’s absorptive capacity are the

focus of the section below.

In terms of the knowledge transfer process regarding the quality issues based on design, the

engineers of Technical Support of GC-Japan receive the quality issues raised by the J-VAR partners

on a daily basis, and they often communicate with the engineers in GC-US about some of these

quality issues. When the engineers of Technical Support of GC-Japan communicate with the

engineers in GC-US via email in English, they sometimes feel that what they wanted to explain to

the engineers in GC-US has not been understood well or has been misunderstood. For example, an

expatriate dispatched from GC-Japan to GC-US notes:

“Before I was dispatched to the U.S., I used to feel like that what I tried to express was not

understood very well by engineers in the U.S. At that time I thought that my language skill

level was not enough yet.” (Interview, Mori, Expatriate, translated by the researcher)

Other interviewees have also pointed out the impact of the language barrier. One reason for such a

miscommunication between GC-US and GC-Japan is regarded to be lack of the language skills

needed to explain highly complex phenomena or the technical background of some quality issues.

[15]

So the disseminative capacity of Technical Support of GC-Japan is low mainly due to their lower

language skills.

When seeing this miscommunication from the viewpoint of the Support Engineering team in GC-

US, it is also observed that most of the engineers in GC-US have low absorptive capacity regarding

the quality issues raised by the J-VAR partners due to their lack of knowledge about Total Quality

Control (TQC). When discussing quality issues whether based on manufacturing or design, the J-

VAR partners’ theoretical basis is in the TQC concept which is widespread among manufacturing

companies (Mak, 1999). However, many of engineers in the Support Engineering team in GC-US

were not aware of the TQC concept. Because of this, sometimes conflicts happened both in daily

communications via emails but also in the face-to-face VG forum meetings. For example, the

program manager of the VG forum (Johnson) recollects the following:

“I was an engineering manager at that time, and I had to deal with problem reports from

Japan. They were reporting problems – defects; it was a software project, and I would get

very frustrated, because the support manager in Japan would always send me e-mail

messages wanting more details, ‘What’s the root cause of this, how are you going to fix

this, when are you going to fix this.’ I kept complaining. I said, ‘Why does he ask me so

many questions. He doesn’t need to know this. He reported the problem, I’ll fix it and he’ll

get it then.’” (Interview, Johnson, Program Office)

These questions about ‘root cause of root cause’ were related to the TQC concept. Viewing such an

issue from the J-VAR partners’ side, a representative from a J-VAR partner mentioned:

“I mean, we have kind of a habit of thinking in that way (* based on the TQC concept).

Therefore, when we see a report which says, ‘Trouble happened, and we removed it. That’s

all’, we feel a little uncomfortable. At this point, I feel there is a big gap.” (Interview, Kato,

a representative from a J-VAR partner, translated by the researcher)

These demonstrate that the engineers in GC-US did not have ‘prior related knowledge’, so their

absorptive capacity was low. In such a case, knowledge from GC-Japan was not transferred

effectively.

However, in the Engineering Support team in GC-US, there are engineers who are familiar with the

concept of TQC. When quality issues are taken up by such engineers, knowledge is transferred

[16]

almost perfectly from GC-Japan to GC-US. For example, at the VG forum meetings, Garcia, an

engineer in GC-US gave a presentation several times about resolution plans for some serious quality

issues, and those presentations were acclaimed by the attendees from the J-VAR partners because

her presentations were exactly what the J-VAR partners wanted to hear. It means that she knew

very precisely what the partners’ requests were, and demonstrated that she had knowledge regarding

TQC.

“When I was doing my master’s, mine was in manufacturing engineering and I did a lot of

statistical process control, a lot of quality, and my thesis was on ISO 9000 (*the

fundamental concept for ISO9000 is similar to the one for TQC). I designed an ISO 9000

program for the automotive industry, that was my project.” (Interview, Garcia, Engineering

team in GC-US)

Therefore, it is clear that, if knowledge receiver has prior related knowledge, absorptive capacity of

GC-US is high. In such a case, knowledge from GC-Japan can be transferred effectively.

5.4. Tie strength

Since the VG forum was launched in 1993, the pattern of the VG meetings (frequency, venue,

period, etc.) has changed as time has gone by. However, one principle, unchanged throughout the

history of the VG forum is to hold face-to-face meetings attended by the headquarters people once a

year at least, because having a direct discussion with the headquarters people was an original

request from the J-VAR partners.

Through such a series of face-to-face meetings, relationships have developed over time not only

between the J-VAR partners and GC-Japan but also between the J-VAR partners and GC-US.

Whenever such formal VG meetings were held, social gatherings have been held so far. Through

such informal events as well as the formal meetings, relationships have developed further, and

‘social capital’, between the J-VAR partners, GC-Japan, and GC-US has been formed.

Almost all the members of the VG forum either from the partner side or from GC side think that

formation of such a friendly social network plays an important role for knowledge transfer within

such a network.

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“The social activities, I think, are one item that improved the relationship, and therefore

improved the communication and the trust, and I think they were very effective. I got a

great deal of feedback not only from internal GC but also from the partners that the ability

to engage in a non-work environment was very valuable to them. I mean, of course,

everybody likes to drink and eat and socialize, but it helped with the bonding process.”

(Interview, Williams, Ex-Program Manager)

“Yeah, that’s right. We may tell each other things we like to do. We may find out, ‘Oh, you

like wine. Oh, I like wine too. Oh, what’s your favourite?’, so you kind of start having

conversations about all these topics, not just related to work, so you have a linkage to that

person at a different level.” (Interview, Garcia, Engineering in GC-US)

In this way, it is obvious that ‘network ties’ have been strengthened over time and these

strengthened ties have accelerated knowledge transfer between the J-VAR partners, GC-Japan, and

GC-US.

As discussed in the previous section, sometimes knowledge regarding the quality issues has not

been transferred effectively because of the sender’s low disseminative capacity and the recipient’s

low absorptive capacity. But such ineffectiveness of knowledge transfer can be mitigated through

the formal/informal direct interactions between all the related people, particularly through informal

interactions which have formed social capital between GC-US, GC-Japan, and the J-VAR partners.

As a result, judging from the results of customer satisfaction questionnaire about the VG forum,

overall satisfaction level of the J-VAR partners with the VG forum has been high, even though

sometimes miscommunications happen.

In this way, network ties, which have been strengthened over time, can mitigate the impact coming

from low absorptive capacity and low disseminative capacity.

An overview of knowledge type, absorptive capacity, disseminative capacity, tie strength, and the

results for the case of the J-VAR program is shown in Table-3, and the relationships between these

antecedents are illustrated in Figure-3.

[18]

Table 3 Summary of knowledge transfer between the HQ and a subsidiary in case of J-VAR Program

Knowledge category Knowledge typeTransferdirection

Sender’s disseminative

capacity

Recipient’s absorptive capacity

Tie strength Results

Quality issues Know-how Sub HQ Low High/Low Strong Moderate ~Effective

[19]

Figure 3 Relationship between antecedents in case of J-VAR program

[20]

7. Discussion

When considering the GCSP program, the reasons for the ineffectiveness of knowledge transfer

from the Japanese subsidiary to the headquarters in the U.S. relate to 1) know-how-type knowledge,

2) the subsidiary’s low disseminative capacity, 3) the headquarters’ low absorptive capacity, and 4)

weak network ties between the subsidiary and the headquarters. As a result, the Japanese subsidiary

incurred higher costs because of the ineffectiveness in knowledge transfer.

Now that some MNCs have given up their decentralization strategy but centralized their decision-

making process in order to accelerate their decision-making processes in the current fiercely

competitive global market, it is expected that the cases in which the headquarters impose their

strategy on subsidiaries will increase. In such a case, if the target subsidiary’s disseminative is low

and the headquarters do not have prior knowledge regarding the target local market, then the

knowledge transfer process from the subsidiary to the headquarters may not work effectively, which

could have serious consequences.

Where a subsidiary’s disseminative capacity is low, the headquarters’ absorptive capacity does not

matter. If a transmitter’s signal is very weak, even a high-performance receiver cannot catch the

signal. Hence, another capacity is needed to enable the headquarters to grasp what a subsidiary

cannot disseminate well; that is ‘heeding capacity’. Heeding capacity is defined as capacity for the

headquarters to heed what a subsidiary would like to transmit but cannot do well, which is achieved

by listening carefully and not letting language barriers or cultural differences obfuscate the

meaning. Marcus and Nichols (1999) argue that “when people pay inadequate attention to unusual

events and neglect warnings, the possibility of breaching a performance barrier increases” (1999:

496). From such a viewpoint, they emphasise that such unusual events must be heeded (Marcus and

Nichols, 1999). Similarly, MNCs should avoid the worst case by enhancing the headquarters’

absorptive capacity.

One way to enhance the headquarters’ absorptive capacity is to establish strong social capital

(strong ties) between the headquarters and subsidiaries, as shown in the above qualitative studies. A

critical aspect of heeding capacity is the headquarters’ positive attitude towards viewing the

subsidiary’s current situation with their own eyes, as Johnson in charge of the VG forum in

qualitative study (2) notes about his experience;

[21]

“So that was a very enlightening process to me. I was here, I was able to see how

committed their customers were, how important that the products that they bought from us

worked well and were supported well. So, it was an educational experience to me and I

quickly learned how to culturally translate.”

Thus, a direct experience like “to see is to believe” is important, and it is a part of heeding capacity.

By taking in this capacity, the proposed model for knowledge transfer between the headquarters and

a subsidiary using the RV theory is modified as shown in Figure 4.

As shown in the qualitative studies, a subsidiary’s disseminative capacity matters in knowledge

transfer from the subsidiary to the headquarters, especially in cases where the language barrier

between the two countries is significantly high, for example, between English and Japanese. So far

in the research area about knowledge transfer in MNCs, disseminative capacity has received limited

attention (Minbaeva and Michailova, 2004). This is, in part, because research about knowledge

transfer in MNCs has been conducted only focusing on subsidiaries located in countries whose

language or culture does not have a significant difference from the ones of the mother country. But

in reality, there are cases in which the language barrier is high. In such a case, even though

employees in the subsidiary would like to let the headquarters know something, they cannot fully

transfer their knowledge, which is complex and tacit, due to their lack of language skills.

Because disseminative capacity has received limited attention, the possibility that the headquarters

cannot acquire subsidiary’s knowledge sufficiently has not been considered. In this research, from

the stand point that such a case really exits, heeding capacity for the headquarters has been

proposed for the purpose of compensating the headquarters’ absorptive capacity. Through

enhancing the headquarters’ heeding capacity, the MNC can eliminate ‘blind spots’ which the

headquarters might overlook for each subsidiary. In the RV-based model, in addition to absorptive

capacity and disseminative capacity, heeding capacity can be positioned as a factor that drives

knowledge-sharing routines.

[22]

Another interesting finding was that the tie strength between the headquarters and a subsidiary can

mitigate the influence of low disseminative capacity and low absorptive capacity. In a close

relationship between the headquarters and a subsidiary, even tacit and highly complex knowledge

can be transferred, mainly because personal relationships and/or the social network have a function

in lowering the barrier between the people from different countries and, consequently, lead to better

communication. From the perspective of RV theory, such a strong tie is a driver of informal self-

enforcement governance mechanisms. As Dyer and Singh insist (1998), informal self-enforcement

governance mechanisms can directly affect other constructs, in this case, knowledge-sharing routine

(Figure-4).

As shown Figure-4, while tie strength affects effective governance, it also affects the headquarters’

heeding capacity. The stronger the tie between the headquarters and a subsidiary is, the higher the

headquarters’ heeding capacity becomes and the smaller the blind spot for the subsidiary becomes.

8. Conclusions

Nowadays under the heavy pressure of fierce competition in the global market, some MNCs are

centralizing their decision making to the headquarters, and imposing their standardized strategy on

subsidiaries across the world. Under such circumstances, the knowledge transfer process between

[23]

Knowledge-sharing Routines

Effective Governance

HQ’s Absorptive Capacity

HQ’s Disseminative Capacity

Subsidiary’s Absorptive Capacity

Subsidiary’s Disseminative Capacity

(Informal self-enforcement governance mechanisms)

Tie strength between HQ and Subsidiary

SupernormalProfit of MNC

Knowledge type

HQ’s Heeding Capacity

Figure 4 Revised Conceptual Framework

the headquarters and subsidiaries is a key success factor, because, if the headquarters try to impose

their standardized strategy on a subsidiary without enough knowledge about the local market of that

subsidiary’s host country, such a strategy might not fit the local market and the results might be

problematic.

In this research, an initial conceptual framework was developed using absorptive capacity ,

disseminative capacity (Minbaeva and Michailova, 2004), and tie strength (Hansen, 1999) as

antecedents affecting the effectiveness of knowledge transfer, on the basis of the relational view

(Dyer and Singh, 1998) (Figure-1). Through two interview-based qualitative studies about the

headquarters of a U.S.-based IT company and its subsidiary in Japan, it was found that not only

absorptive capacity of the headquarters but also disseminative capacity are important in case of

knowledge transfer from the Japanese subsidiary to the headquarters in the U.S., especially if know-

how needs to be transferred. If the headquarters and the subsidiary have established a strong tie

through social activities, such ineffectiveness of knowledge transfer can be mitigated. But without

such a strong tie, know-how cannot be transferred effectively to the headquarters from a subsidiary

whose disseminative capacity is low.

Through interpretation of such findings derived from the qualitative studies, necessity of ‘heeding

capacity’ for the headquarters comes to light. This is capacity for the headquarters to heed what a

subsidiary would like to transmit but cannot do well, and this is achieved by listening carefully and

not letting language barriers or cultural differences obfuscate the meaning. The initial framework

was modified by bringing in this heeding capacity (Figure-4). Of course, forming a strong tie

between the headquarters and a subsidiary is the most effective countermeasure against the

ineffectiveness of knowledge transfer, but it might take a long period of time. Meanwhile,

equipping the headquarters with a heeding capacity might be the second best countermeasure and

this can be implemented over a shorter period of time. In order to avoid a misfit of globally

standardized strategies in a particular local market situation, it is recommended for the headquarters

to equip itself with a heeding capacity.

The first limitation of this research is that it did not consider impact of cultural distance on

knowledge transfer. Cultural distance is regarded to be an important construct when exploring the

knowledge transfer process across borders (Bhagat et al., 2002, Björkman et al., 2007). However,

[24]

there are several different frameworks proposed, in each of which different fundamental theories for

cultural analysis are adopted (Hofstede, 1984, Schwartz, 1994, Trompenaars and Hampden-Turner,

1997). This means that cultural impacts in the business practice are so obscure, sensitive,

complicated and difficult to analyse properly because a standard theory has not been established and

agreed by the majority of researchers. It is recommended that further research is undertaken in order

to more deeply analyse the cultural influences on knowledge transfer.

A second limitation is that this research has just focused on the intra-organizational knowledge

transfer between the headquarters and a subsidiary without paying attention to inter-organizational

knowledge transfer, in order to simplify the discussion. This also provides potential for further

research which could explore this complexity in more depth.

[25]

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