Knowledge in MNCs

a search for tipping points

The next issue of the Journal of Management (Vol. 38, Forthcoming), showcases a new research study by three SMG faculty members, Associate Professor Christian Geisler Asmussen and Professors Nicolai J. Foss and Torben Pedersen. In their paper titled “Knowledge Transfer and Accommodation Effects in Multinational Corporations: Evidence from European Subsidiaries”, the authors explore how knowledge possessed by foreign subsidiaries in Multinational Corporations (MNCs) have different sources, and what the implications are for the subsequent transfer to other MNC units.

Torben PedersenThe article builds on two key ideas. The first one is that there is a meaningful distinction between knowledge in MNC subsidiaries that mainly stems from internal sources and knowledge that mainly stems from external sources, and that these two kinds of knowledge may interact. The second key idea is the distinction between “assimilation” (where recipients incorporate the learned knowledge into their existing knowledge stocks, leaving these largely intact) and “accommodation” (where the acquisition of new knowledge makes the recipients alter some of their existing knowledge structures) effects from cognitive psychology. Christian Geisler Asmussen explains: “Until now it has largely been assumed in the management literature that organizational knowledge is cumulative, implying that more knowledge is always better. We argue that knowledge interacts in a more complex way, and that more knowledge may therefore actually be detrimental, if it makes the composite knowledge stocks of the subsidiary diverge too much from that those of the parent firm.”

Nicolai FossUsing a unique data set on European subsidiaries of MNCs, including information on stocks and flows of technological knowledge, the findings of the study suggest that subsidiary knowledge stocks that are balanced in terms of their origins tend to be more valuable, congruous, and fungible, and therefore more likely to be transferred to other MNC units. It is shown that a sufficiently high level of internal knowledge increases the likelihood that the marginal benefits of external knowledge will be positive and also the likelihood that they will outweigh the marginal costs of that knowledge. This also implies the existence of a tipping point, that is, a level of internal knowledge in a subsidiary that must be exceeded if the (rest of the) MNC is to benefit from knowledge that originates from that subsidiary’s external environment.

“In the paper we present an empirical estimate of such a tipping point,” elaborates Asmussen. “Surprisingly, the majority of the subsidiaries in our sample have levels of internal knowledge below this tipping point, implying that for these subsidiaries, more external knowledge actually leads to less transfer of knowledge to other MNC units. This suggests that obtaining the right balance in subsidiary knowledge development is a difficult and, perhaps, underestimated task faced by internationalizing firms.”

Asmussen, Christian Geisler, Foss, Nicolai J. & Pedersen, Torben (2011) Knowledge Transfer and Accommodation Effects in Multinational Corporations: Evidence from European Subsidiaries. Journal of Management. Vol.38 (Forthcoming)