Brendan Boyle

2007

International Business Strategy

Lecture 7 : Knowledge Management, Learning and Innovation in Multinational Companies

Brendan Boyle

2007

Principle Learning Objectives

• Develop an understanding of the importance of knowledge generation and dissemination to our understanding of multinational enterprises.

• Develop an understanding of the term knowledge management and how it relates to a multinational enterprise.

• Develop an understanding of the link between multinational strategies and structures and knowledge management.

• Develop an understanding of the importance of worldwide learning, innovation, and knowledge management in MNCs.

• Develop an understanding of the implications of all of the above for

international business strategy and practice.

Brendan Boyle

2007

Knowledge Management in MNEs

• Knowledge management is considered by some writers as a defining feature of MNEs.

• Two central components of contemporary thinking in international business strategy are;

1. That knowledge is one of the most strategically significant resources of the multinational enterprise (MNE)

» Remember the VIRO framework from lecture 3..

2. That the ability to mobilize and deploy this knowledge is a fundamental strategic imperative

(Conner & Prahalad, 1996, Doz, Santos, & Williamson, 2001, Grant, 1996, Kogut & Zander, 1992, Spender, 1996)

Brendan Boyle

2007

Knowledge Management in MNEs

• To capitalize on any kind of knowledge, the MNE requires a variety of mechanisms to coordinate knowledge resources and ensure their appropriate deployment and dissemination.

• Bartlett and Ghoshal (1989) go as far as to suggest that operating conditions are such in a MNE that the ability to link and leverage knowledge is a principle factor that differentiates losers and survivors.

As a form of organization the MNEs difficulties in knowledge management are intensified by time, distance, culture, language etc..

Brendan Boyle

2007

Knowledge Management: Basic Definitions

• Knowledge

– A fluid mix of skills, experiences, and insights that provides a framework for evaluating and incorporating information.

• Data

– raw facts; numbers

• Information

– data in context; readily captured in documents and databases

• Knowledge Management

– The structures, processes, and systems which actively develop, leverage, and transfer knowledge.

Brendan Boyle

2007

The Role of Information Technology

• Databases, intranets and other formal repositories and electronic networks can be used for the purposes of sharing codified knowledge.

but there are limitations…. *

• MNEs require IT to coordinate complex international supply chains which are geographically dispersed

(both within the MNE itself and with external supply chain partners)

– Access to information and the integration of information are a necessity to capitalize on the “globalization of production”

Or even the “Regionalization” of production

E.g. Ford Fiesta production in Europe

Brendan Boyle

2007

Belfast Carburetors and

distributors

Treforest Spark plug insulators

Leamington Foundry production

of engine components

Dagenham Final assembly

Bordeaux Transmissions

Enfield Instruments, fuel and water gauges,

plugs

Basildon Radiators, water pump assembly,

engine components

Genk Body panels, road wheels

Wülfrath Transmission parts, engine components

Saarlouis Final assembly

Cologne Die-cast transaxle casings, gear and

engine components

Valencia Final assembly

Map 16.1 in Text 16-10

Example - Ford Fiesta in Europe

Brendan Boyle

2007

Information = Knowledge

But there are limitations of IT… * Remember our definitions….

Some knowledge may be explicit in the form of information…

Brendan Boyle

2007

Types of Knowledge: Tacit Versus Explicit Knowledge

• Tacit – knowing more than we can express (Polanyi, 1966)

Transforms “know that” into “know how”

– Technical - e.g. expertise gained through experience

– Cognitive - e.g. ways of approaching problems.

• Explicit – codified knowledge

objective facts, data and information

The distinction is not always clear in academia or in practice!

When defined a continuum degrees of tacitness can be attributed to knowledge lying between extremes

– Tacit knowledge is sometimes required for the application of explicit codified knowledge.

– Can tacit knowledge ever become explicit?

Stewart (1997) “expressing the inexpressible”

Explicit Tacit

Brendan Boyle

2007

Implications for international business management?

How knowledge is transferred and generated in the MNE.

• Strategy researchers who acknowledge the importance of knowledge in firm advantage must place a greater emphasis on the management of people (Wright, Dunford & Snells, 2001)

• Why? - The individual is at the root of all learning

– social knowledge and organizational processes, are ultimately the outcome of individual learning in the firm

When knowledge is tacit or firm-specific this knowledge may be difficult or impossible to transfer, absent the transfer of people.

• Managers sent on expatriate assignments, utilizing various types of knowledge, contribute to knowledge flow and the integration of the MNE*

The degree of integration required is dependent on strategic and structural choices. Can you provide an illustrative example from last weeks lecture on Organization and Control of Global Operations?

Brendan Boyle

2007

A Knowledge-based View of Strategic Management

• Strategy and the Resource Based View of the Firm

– Importance of heterogeneous firm-specific resources in gaining competitive advantage rather than product positioning or the ability to out-manoeuvre competitors (industry-based view of strategy)

• “Sticky” nature of these resource endowments –

– Their development is time consuming, complex and context specific, and their trade ineffectual

(VIRO framework from lecture three and chapter three in your text) O - e.g. if your advantage comes from how you organise resources {such as human resources} can this be sold?

May have implications for a number of IB strategic decisions e.g. entry mode.

Brendan Boyle

2007

Implications for international business management?

Example - Knowledge and Entry Mode

• Knowledge as a component of Market Imperfections / Internalization Theory).

– Impediments to the sale of know-how.

Licensing is how ‘know- how’ is sold

FDI is preferable with valuable know how that can’t be protected by a licensing contract

»(Market imperfections) Or - When the firms know-how are not amenable to licensing

they need to choose a different mode of entry {“Sticky” nature of these resource endowments}

Brendan Boyle

2007

Example:– Knowledge and Entry Mode

Impediments to the sale of know

how

Risk giving away know-

how to competitors

Licensing implies low control over

foreign entityKnow-how not amenable to

licensing

Brendan Boyle

2007

Pathologies in Knowledge Management

Table 10.3Source: Adapted from A. Gupta & V. Govindarajan, 2004, Global Strategy and Organization (p. 109), New York: Wiley.

Knowledge management initiatives must overcome a variety of challenges…

Brendan Boyle

2007

Pathologies and Solutions in Knowledge Management

• Facilitation of Knowledge Management

– Best facilitated by the use of informal social capital

The informal benefits individuals and organizations derive from their social structures and networks.

What are these social benefits and how do they impact knowledge flows in the MNE?

– From a resource-based perspective, explicit knowledge is strategically less important.

– Capabilities to manage the hard-to-codify and -transfer tacit knowledge — often embodied in informal social relationships — are more important.

Brendan Boyle

2007

Pathologies and Solutions in Knowledge Management

– The micro, informal interpersonal relationships among unit managers can greatly facilitate macro, inter-subsidiary cooperation among units—in short, a micro-macro link.

–Managers of the China subsidiary are more likely to help their friends at the Chile subsidiary, but are less likely to offer a helping hand to strangers at the Cameroon subsidiary, with whom there is no social relationship

Don’t underestimate the power of people!

Brendan Boyle

2007

Solutions in Knowledge Management: Building Networks

Brendan Boyle

2007

Knowledge and the Integration–Responsiveness Framework

Figure 10.1

Brendan Boyle

2007

Knowledge Management in Four Types of MNE Strategy

Table 10.2

Sources: Adapted from (1) C. Bartlett & S. Ghoshal, 1989, Managing Across Borders: The Transnational Solution (p. 65), Boston: Harvard Business School Press; (2) T. Kostova & K. Roth, 2003, Social capital in multinational corporations and a micro-macro model of its formation (p. 299), Academy of Management Review, 28 (2): 297–317.

Brendan Boyle

2007

MNE Learning - Globalizing Research and Development

• A crucial arena for knowledge management.

– Driven by the intensification of competition for innovation.

– Provides a vehicle for access to, or extract benefits from, a foreign country’s local talents and expertise.

SIA 10.2: Shiseido smells at innovations in France

– The resource-based view: A fundamental source for competitive advantage is being different (the assumption of heterogeneity).

Decentralized R&D work performed by different locations and teams around the world means that there will be persistent heterogeneity (differences) in the solutions generated.

Brendan Boyle

2007

Worldwide Learning & Innovation: The New Competitive Battleground

•Competitors achieving parity in scale and responsiveness

–Competitive battles shifting to innovation area

•Three key capabilities:

–Sensing

–Responding

–Implementing

Brendan Boyle

2007

Central, Local & Transnational Innovation

• Two classic processes

– Center-for-global: new opportunity sensed in home country, centralized resources brought to bear, implemented globally

– Local-for-local: subsidiary-based knowledge development, used primarily in local market

• Two emerging processes

– Locally leveraged: Local opportunity sensed by subsidiary then leveraged on a worldwide basis

HP in Singapore

– Globally linked: Resources and capabilities of many operations pooled to jointly create and manage new activity

Volkswagen’s New Beetle involved US, Germany and Mexico operations

Brendan Boyle

2007

Central Innovation in Centralized Hub

I

I

I I

I

I

S-R-I

• Headquarters senses world-wide opportunities

• Centralized assets and resources favour unitary global responses

• Implementing strategy decided centrally and executed locally

Brendan Boyle

2007

Local Innovation in Decentralized Federation

S-R-IS-R-I

S-R-I S-R-I

S-R-I

S-R-IS-R-I

• National units sense local needs

• Distributed assets and resources allow local response

• Local-for-local implementation

Brendan Boyle

2007

New Cross-Unit Interdependencies: Globally Linked

Multiple cross-unit flows... (SRI happening throughout?)

…Need multiple coordinative mechanisms

Brendan Boyle

2007

Problems Associated with Each Model

• Centre-for-global innovation

– Risk of market insensitivity, imperialism

• Local-for-local innovation

– Risk of duplication, reinventing wheel

• Locally leveraged innovation

– Threatened by not-invented-here

• Globally linked innovation

– Very high coordination costs

Brendan Boyle

2007

• What determines a firms international success?

– A multinational enterprise (MNE) it presumed to be able to leverage its knowledge recourses in global markets to some degree irrespective of the chosen strategy of the firm.

– The characteristics of some types of knowledge create great difficulties and challenges to knowledge dissemination in MNEs

– A strong knowledge management capability —centered on global learning and innovation, involving worldwide R&D emerging as a new competitive battle ground.

Implications for Strategists: Fundamental Questions in Strategy

Brendan Boyle

2007

Principle Learning Objectives revisited..

• Have you developed an understanding of the importance of knowledge generation and dissemination to our understanding of multinational enterprises.

• Have you developed an understanding of the term knowledge management and how it relates to a multinational enterprise.

• Have you developed an understanding of the link between multinational strategies and structures and knowledge management.

• Have you developed an understanding of the importance of worldwide learning, innovation, and knowledge management in MNCs.

• Have you developed an understanding of the implications of all of the above for international business strategy and practice.