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" Academy of Management Journal 2012, Vol, 55, No, 4, 927-948, http://dx.doi,oig/10,5465/am¡,2010,0985 EXPATRIATE KNOWLEDGE TRANSFER, SUBSIDIARY ABSORPTIVE CAPACITY, AND SUBSIDIARY PERFORMANCE YI-YING CHANG National Taiwan University of Science and Technology YAPEMG GONG Hong Kong University of Science and Technology MIKE W. PENG University of Texas at Dallas In this study, we theoretically identify three dimensions of expatriate competencies- ability, motivation, and opportunity seeking—for knowledge transfer. Integrating the ability-motivation-opportunity framework and the absorptive capacity perspective, we propose that expatriate competencies in knowledge transfer influence a subsidiary's performance through the knowledge received by the subsidiary, but tbat this indirect eñect is stronger when subsidiary absorptive capacity is greater. We collected multi- source, time-lagged data from 162 British subsidiaries of Taiwanese multinational ñrms. The results support our hypotheses. Overall, we contribute to expatriation theory and research by revealing speciñc expatriate competencies as well as identify- ing boundary conditions for successful expatriate knowledge transfer. How can the performance of subsidiaries of mul- tinational corporations (MNCs) be enhanced? An important competitive advantage of MNCs lies in their ability to create and transfer knowledge from headquarters to subsidiaries and vice versa (Bartlett & Ghoshal, 1989; Kogut & Zander, 1993). MNCs often use expatriates to transfer knowledge from headquarters to subsidiaries (Edström & Galbraith, 1977; Harzing, 2001; Hocking, Brown, & Harzing, 2004), and such knowledge transfer is believed to be vital to subsidiary performance (Delios & Beamish, 2001; Gong, 2003a; Tan & Mahoney, 2006). Using expatriation as a proxy for knowledge transfer, researchers have examined the relation- ship between the number (proportion) of expatri- ates and subsidiary performance (Colakoglu & Cali- giuri, 2008; Gaur, Delios, & Singh, 2007; Gong, 2003a). But the findings have been mixed. The The first two authors are listed alphabetically. Yaping Gong mainly contributed to the theoretical aspects of this work, and Yi-Ying Chang mainly contributed to the em- pirical aspects. We thank Jason Shaw (associate editor) and three reviewers for constructive feedback. We ac- knowledge thefinancialsupport from the Carnegie Tmst in Scotland awarded to Professor Chang, from the Re- search Grants Gouncil of Hong Kong awarded to Profes- sor Gong (project no. 640709), and from the Jindal Chair and the Provost's Distinguished Professorship at UT Dal- las that supported Professor Peng's work. relationship has been positive in some studies (Gong, 2003a) but not significant, or even negative, in others (Gaur et al., 2007). Moreover, knowledge transfer has rarely been examined directly as the link between expatriation and subsidiary perfor- mance. In some MNCs, expatriates are selected on the basis of their technical skills (Tung, 1987) and thus may not have the "soft skills" required to transfer knowledge effectively (Peng, 2011). Going forward, it is important to identify the specific ex- patriate competencies critical for successful knowl- edge transfer. Although expatriate competencies are important, subsidiary absorptive capacity—the ability to recognize the value of external knowl- edge, assimilate it, and apply it to subsidiary oper- ations (Cohen & Levinthal, 1990)—may also matter (Gupta & Govindarajan, 2000). The role of recipient absorptive capacity has been recognized in knowl- edge management research (Szulanski, 1996), but it has not been integrated into expatriation research. Thus, no previous research has examined this cru- cial question: How do expatriate competencies and subsidiary absorptive capacity jointly impact the knowledge transfer process? The theory of knowledge management suggests that successful knowledge transfer depends on the characteristics of hoth the source and the recipient of knowledge (Easterby-Smith, Lyles, & Tsang, 2008; Szulanski, 1996). Theorists have identified ability, motivation, and opportunity as important for explaining the creation and transfer of knowl- 927 Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder's expn written permission. Users may print, download, or email articles for individual use only.

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Page 1: EXPATRIATE KNOWLEDGE TRANSFER, SUBSIDIARY …mikepeng/documents/...expatriate ability, motivation, and opportunity to perform the transfer. Theorists have also identified recipient

" Academy of Management Journal2012, Vol, 55, No, 4, 927-948,http://dx.doi,oig/10,5465/am¡,2010,0985

EXPATRIATE KNOWLEDGE TRANSFER, SUBSIDIARYABSORPTIVE CAPACITY, AND SUBSIDIARY PERFORMANCE

YI-YING CHANGNational Taiwan University of Science and Technology

YAPEMG GONGHong Kong University of Science and Technology

MIKE W. PENGUniversity of Texas at Dallas

In this study, we theoretically identify three dimensions of expatriate competencies-ability, motivation, and opportunity seeking—for knowledge transfer. Integrating theability-motivation-opportunity framework and the absorptive capacity perspective, wepropose that expatriate competencies in knowledge transfer influence a subsidiary'sperformance through the knowledge received by the subsidiary, but tbat this indirecteñect is stronger when subsidiary absorptive capacity is greater. We collected multi-source, time-lagged data from 162 British subsidiaries of Taiwanese multinationalñrms. The results support our hypotheses. Overall, we contribute to expatriationtheory and research by revealing speciñc expatriate competencies as well as identify-ing boundary conditions for successful expatriate knowledge transfer.

How can the performance of subsidiaries of mul-tinational corporations (MNCs) be enhanced? Animportant competitive advantage of MNCs lies intheir ability to create and transfer knowledge fromheadquarters to subsidiaries and vice versa(Bartlett & Ghoshal, 1989; Kogut & Zander, 1993).MNCs often use expatriates to transfer knowledgefrom headquarters to subsidiaries (Edström &Galbraith, 1977; Harzing, 2001; Hocking, Brown,& Harzing, 2004), and such knowledge transfer isbelieved to be vital to subsidiary performance(Delios & Beamish, 2001; Gong, 2003a; Tan &Mahoney, 2006).

Using expatriation as a proxy for knowledgetransfer, researchers have examined the relation-ship between the number (proportion) of expatri-ates and subsidiary performance (Colakoglu & Cali-giuri, 2008; Gaur, Delios, & Singh, 2007; Gong,2003a). But the findings have been mixed. The

The first two authors are listed alphabetically. YapingGong mainly contributed to the theoretical aspects of thiswork, and Yi-Ying Chang mainly contributed to the em-pirical aspects. We thank Jason Shaw (associate editor)and three reviewers for constructive feedback. We ac-knowledge the financial support from the Carnegie Tmstin Scotland awarded to Professor Chang, from the Re-search Grants Gouncil of Hong Kong awarded to Profes-sor Gong (project no. 640709), and from the Jindal Chairand the Provost's Distinguished Professorship at UT Dal-las that supported Professor Peng's work.

relationship has been positive in some studies(Gong, 2003a) but not significant, or even negative,in others (Gaur et al., 2007). Moreover, knowledgetransfer has rarely been examined directly as thelink between expatriation and subsidiary perfor-mance. In some MNCs, expatriates are selected onthe basis of their technical skills (Tung, 1987) andthus may not have the "soft skills" required totransfer knowledge effectively (Peng, 2011). Goingforward, it is important to identify the specific ex-patriate competencies critical for successful knowl-edge transfer. Although expatriate competenciesare important, subsidiary absorptive capacity—theability to recognize the value of external knowl-edge, assimilate it, and apply it to subsidiary oper-ations (Cohen & Levinthal, 1990)—may also matter(Gupta & Govindarajan, 2000). The role of recipientabsorptive capacity has been recognized in knowl-edge management research (Szulanski, 1996), but ithas not been integrated into expatriation research.Thus, no previous research has examined this cru-cial question: How do expatriate competencies andsubsidiary absorptive capacity jointly impact theknowledge transfer process?

The theory of knowledge management suggeststhat successful knowledge transfer depends on thecharacteristics of hoth the source and the recipientof knowledge (Easterby-Smith, Lyles, & Tsang,2008; Szulanski, 1996). Theorists have identifiedability, motivation, and opportunity as importantfor explaining the creation and transfer of knowl-

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Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder's expnwritten permission. Users may print, download, or email articles for individual use only.

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928 Academy of Management Journal August

edge (Argote, McEvily, & Reagans, 2003). Just as thesuccessful performance of any task depends on theability, motivation, and opportunity to perform thetask, knowledge transfer to a subsidiary depends onexpatriate ability, motivation, and opportunity toperform the transfer. Theorists have also identifiedrecipient absorptive capacity as a critical factor inthe successful transfer of knowledge (Szulanski,1996). In the context of expatriate knowledge trans-fer, knowledge, once received by asubsidiary, mustbe better absorbed and utilized to contribute moreto subsidiary performance.

In this study, we draw upon the ability-motiva-tion-opportunity framework (Blumberg & Pringle,1982; Boxall & Purcell, 2003) to identify three di-mensions of expatriate competencies—ability, mo-tivation, and opportunity seeking—for knowledgetransfer, and examine their effects on subsidiaryperformance through the amount of knowledge re-ceived (hereafter, knowledge received) by the sub-sidiary. Integrating the ability-motivation-opportu-nity framework and the absorptive capacityperspectives, we propose that the mediation effectis moderated by subsidiary absorptive capacity: ex-patriate competencies in knowledge transfer have astronger indirect effect on subsidiary performancewhen subsidiary absorptive capacity is greater. Wechose subsidiary absorptive capacity because of itsprominent role in knowledge management theoryand research (Szulanski, 1996; Van Wijk, Jansen, &Lyles, 2008). Although the two perspectives share afocus on knowledge transfer, they concern thesource side and the recipient side, respectively.Complementing each other, these two perspectivesjointly provide a more complete explanation forknowledge transfer success.

We endeavor to make three theoretical contribu-tions. First, we go beyond the focus on number ofexpatriates by identifying three dimensions of ex-patriate competencies in knowledge transfer,thereby addressing previous calls for understand-ing the expatriate characteristics that facilitateknowledge transfer and subsidiary performance(Hébert, Very, & Beamish, 2005; Tan & Mahoney,2006). Second, our focus on subsidiary absorptivecapacity adds a missing piece to research on expa-triation and subsidiary performance. We not onlytest the idea that absorptive capacity enhancesknowledge received by a subsidiary, but also ex-tend it by showing that the effect may depend onexpatriate competencies in knowledge transfer.Third, we test the idea that knowledge received bythe subsidiary mediates the relationship betweenexpatriation and subsidiary performance. More-over, we extend it by showing that subsidiary ab-sorptive capacity moderates the indirect effects of

expatriate competencies in knowledge transfer onsubsidiary performance. Overall, we contribute tothe broader literature on knowledge transfer, inwhich a fundamental issue is to identify "the con-ditions under which moving people will result inknowledge transfer" (Argote & Ingram, 2000: 164).We identify specific personnel characteristics andrecipient absorptive capacity as conditions contrib-uting to successful knowledge transfer via person-nel movement (Argote & Ingram, 2000; Song,Almeida, & Wu, 2003). We make these contribu-tions by using a multisource, time-lagged researchdesign and a sample of Taiwanese MNCs operatingin the U.K. This study is among the first to empir-ically examine expatriation and knowledge transferin MNCs from an emerging economy operating in adeveloped economy and thereby expands the liter-ature that hitherto has focused predominantly onMNCs from developed economies.

THEORY AND HYPOTHESES

Theoretical Background

The ability-motivation-opportunity frameworksuggests that ability, motivation, and opportunityare the primary building blocks of successful taskperformance (Blumberg & Pringle, 1982; Boxall &Purcell, 2003; Campbell, McCloy, Oppler, & Sager,1993). Ability refers to the knowledge, skills, andexperience needed to perform a task. Motivationrefers to the willingness (or the degree to which aperson is inclined) to perform it. Opportunity con-sists of resources in a workplace that enable taskperformance (Blumberg & Pringle, 1982). Motiva-tion involves the choices of direction (where todirect the effort), intensity (the amount of effort toexert), and persistence of effort (Campbell et al.,1993; Kanfer, 1990; Mitchell, 1997). "Motivation isa combination of psychological processes that cul-minates in the wanting and intending to behave ina particular way.. .. Actual effort or persistence arethe behavioral outcomes of motivation, not motiva-tion itself" (Mitchell, 1997: 63-64). Ability, moti-vation, and opportunity are often specified in rela-tion to specific tasks. For example, motivation tolearn is defined as "a desire on tbe part of traineesto learn the content of the training program"(Colquitt & Simmering, 1998: 654).

In this study, the task in question is knowledgetransfer to subsidiaries. The knowledge transferperspective on expatriation suggests that expatri-ates represent a means of transferring knowledge tosubsidiaries (Bonache & Brewster, 2000; Edström &Galbraith, 1977; Harzing, 2001; Hocking et al.,2004). Expatriates act as agents to transfer corporate

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2012 Ghang, Gong, and Peng 929

culture to subsidiaries and to develop subsidiaryemployees' perceptions about and attitudes towardheadquarters (Kostova & Roth, 2002; Peng, 2011).More important to the subsidiaries, expatriates un-derstand and have experience in utilizing their par-ent firm's knowledge base (especially technology),which, if transferred successfully, is expected toenhance subsidiary performance (Gong, 2003a;Hébert et al., 2005). Although researchers have ex-amined the relationship between expatriate staffingand subsidiary performance, the focus has been oneither the nationality of a subsidiary's general man-ager or the number/proportion of expatriates in thesubsidiary (Colakoglu & Caligiuri, 2008; Fang, Ji-ang, Makino, & Beamish, 2010; Gaur et al., 2007;Gong, 2003a). Although this line of research isvaluable in revealing the potential impact of expa-triate staffing on subsidiary performance, it offerslimited insights into the specific expatriate charac-teristics that facilitate knowledge transfer and sub-sidiary performance. Furthermore, although it hasbeen routinely assumed that expatriates represent aconduit for knowledge transfer, the actual knowl-edge transfer mechanism linking expatriation andsubsidiary performance has rarely been examineddirectly.

It has been recognized that MNCs often experi-ence internal "stickiness," defined as the difficultyof transferring knowledge within an organization(Szulanski, 1996). Expatriates, as a source ofknowledge, are potential causes of internal sticki-ness. This is because the tacit nature of knowledgecreates difficulties in transfer (Kogut & Zander,1993; Simonin, 1999). Tacit knowledge is not codi-fiable and is often built from the experiences ofindividuals, making it rather personal in nature(Hébert et al., 2005; Song et al., 2003). Tacit knowl-edge is deeply rooted in action and in an individ-ual's commitment to a specific context (e.g., a par-ticular technology or the activities of a specificunit) (Nonaka & Takeuchi, 1995). Tacit knowledgeis difficult to articulate, and its transfer requiresextensive interactions and focused efforts. Differ-ences in culture and language may further hindersuch transfer. Tacit knowledge, therefore, does notdiffuse easily unless the expatriates with theknowledge have the ability, motivation, and oppor-tunity to transfer it (Argote et al., 2003; Szulan-ski, 1996).

Applying the ability-motivation-opportunityframework, we identify three dimensions of expa-triate competencies—ability, motivation, and op-portunity seeking—that may help overcome inter-nal stickiness in knowledge transfer. In this study,expatriate ability refers to the knowledge, skills,and experience needed to solve difficulties in

transferring knowledge. Expatriate motivation re-fers to the willingness to devote time and to persistin solving difficulties in transferring knowledge.The transfer of knowledge occurs in a social con-text, and resources and opportunities for transfer-ring it often reside in social relationships (Reagans& McEvily, 2003; Reiche, Harzing, & Kraimer,2009). In this study, expatriate opportunity seekingrefers to the search and utilization of resources andopportunities through social relationships to solvedifficulties in transferring knowledge.

Mediating Role of Knowledge Received bySubsidiary

The knowledge transfer process includes bothtransmission (by expatriates, in this study) and re-ceipt (by subsidiaries) of knowledge (Grant, 1996).One indicator of knowledge transfer success is theamount of knowledge received by a subsidiary fromexpatriates, which, as we argue, is influenced byexpatriate competencies in transferring knowledge.Overall, we propose that the three dimensions ofexpatriate competencies will increase the knowl-edge received by the subsidiary, which in turn willenhance subsidiary performance.

Expatriates, as Üie carriers of knowledge, mustcope with the potential difficulties in transferringknowledge (Szulanski, 1996). Given the interna-tional context of MNCs and their subsidiaries, theability to manage and function in new culturalsettings is important in the knowledge transfer pro-cess (Earley & Ang, 2003; Peng, 2011). This mayinclude people skills such as communication andconflict resolution (Zoogah & Peng, 2011). But ex-patriates are often selected on the basis of technicalskills for performing their own jobs and their expe-rience in their home country (Tung, 1987). Someexpatriates may not have the ability to overcomesurface-level (e.g., language) and deep-level (e.g.,values and learning styles) cultural differences(Van Vianen, De Pater, Kristof-Brown, & Johnson,2004). Others may not have the skills to teach localemployees effectively despite their superior tech-nical skills. This is particularly true when theknowledge being transferred is tacit and embeddedin personal experience (Hébert et al., 2005), or thepurpose of the transfer is to transform the mind-setsof the recipients at the subsidiary (Tsang, 2001).When expatriates have the ability to solve difficul-ties in the transfer process, the knowledge receivedby the subsidiary fi'om expatriates should increase(Peng, 2011).

Motivation has been recognized as an importantfactor contributing to expatriate effectiveness(Chen, Kirkman, Kim, Farh, & Tangirala, 2010; Ear-

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930 Academy of Management Journal August

ley & Ang, 2003). Expatriate motivation to pursuethe goal of knowledge transfer and to solve difficul-ties in the process may play a critical role in thesuccessful transfer of knowledge. But cultural dif-ferences increase the difficulties in transferringintraorganizational knowledge (Van Wijk et al.,2008). Failing to adjust well to a new culture willtend to reduce motivation if, for example, expatri-ates become homesick or even clinically depressed.Indeed, some expatriates return home prematurelywithout completing their assignments because ofadjustment difficulties abroad (Black & Gre-gersen, 1999).

In particular, expatriates may be ill motivated totransfer tacit knowledge (Nonaka & Takeuchi,1995). The transfer of tacit knowledge is difficultand requires significant effort (e.g., extensive inter-actions with local employees). Also, tacit knowl-edge is built through years of experience in an MNCand gives expatriates certain advantages (e.g., a po-sition of privilege, power, and superiority). Someexpatriates may fear the loss of such advantagesupon successfully transferring knowledge (Szulan-ski, 1996; Wong & Law, 1999). In reality the rewardsystem may not provide sufficient incentive forexpatriates to share their knowledge (Fey & Furu,2008). They may become "out of mind" in the homeoffice (because they are "out of sight"), and bepassed over for promotions and recognitions thatthey deserve (Black & Gregersen, 1999). Prior re-search suggests that a shared identity (Kane, Ar-gote, & Levin, 2005) and vision (Fey & Furu, 2008)increase knowledge sharing, suggesting that moti-vation is a potentially important factor underlyingknowledge transfer. Overall, we expect that expa-triates with stronger motivation will exercise theirdiscretion in solving problems and persist in thetransfer process, leading to more knowledge re-ceived by the subsidiary from expatriates.

Finally, expatriates' search for and utilization ofresources and opportunities through social ties canbe critical to tbe success of knowledge transfer (Ar-gote et al., 2003; Nahapiet & Ghoshal, 1998; Tsai,2001). Successful knowledge transfer occurs whensocial ties are established between the source andthe recipient that provide a basis for joint problemsolving (Dhanaraj, Lyles, Steensma, & Tihanyi,2004; Reagans & McEvily, 2003). Individuals canease transfer difficulties by setting up communica-tion channels, providing opportunities for dia-logue, improving situations for team learning, andbuilding informal ties (Argote et al., 2003; Uzzi &Lancaster, 2003; Zoogah, Vora, Richard, & Peng,2011). Research has shown that social ties betweenknowledge sources and recipients facilitate knowl-

edge transfer (Hansen, Mors, & L0vâs, 2005; Tsai &Ghoshal, 1998).

Transfer of tacit knowledge, in particular, re-quires extensive interaction (Damanpour, Devece,Chen, & Pothukuchi, 2012; Noorderhaven & Har-zing, 2009; Su, Li, Yang, & Li, 2011), the success ofwhich depends on social relationships between thesource and the recipient. Social relationships pro-vide expatriates with valuable resom-ces (e.g., trustand cooperation) for solving difficulties and oppor-tunities for tacit knowledge transfer. But expatri-ates may socialize mainly with fellow expatriatesbecause of the greater ease of interaction (based onshared cultural identity and language). As a result,they may be unable to tap into the resources andopportunities embedded in relationships with localemployees. Expatriates also need to build ties withtheir MNC home office and connect home countryties with host country ties so as to expand within-MNC contacts and opportunities for knowledgetransfer (Kostova & Roth, 2003; Reiche et al., 2009).When expatriates seek out and utilize resourcesand opportunities through social ties to solve diffi-culties, they may increase the knowledge receivedby a subsidiary.

So far we have suggested that expatriate ability,motivation, and opportunity seeking to solve diffi-culties in transferring knowledge increase theknowledge received by a subsidiary. As the knowl-edge-based view suggests, resources that generatesuperior value for an organization are those devel-oped within it (Argote & Ingram, 2000). For re-sources acquired through the competitive market,value to the organization is already reflected inprice. Per the knowledge-based view, therefore, in-ternally created and shared organizational knowl-edge are the primary source of value creation fororganizations (Argote & Ingrain, 2000; Grant, 1996;Kogut & Zander, 1993).

Subsidiaries can upgrade their knowledge stockthrough knowledge received from their parent. Be-cause such internal knowledge is often tacit and istransferred through extensive interactions betweenexpatriates and local employees in the subsidiaries,it is more difficult to diffuse to competitors. Suchtransfer of proprietary technology, repair know-how, and production processes thus may enhancesubsidiary performance. For instance, repair know-how increases the productivity of equipment andfacilities and therefore enhances return on thoseinvestments. The transmission of corporate cultureto subsidiaries enhances coordination betweenheadquarters and subsidiaries, which also benefitssubsidiary performance (Gong, 2003b). To summa-rize, we hypothesize:

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2012 Ghang, Gong, and Peng 931

Hypothesis la. Expatriate ability to transferknowledge to a subsidiary (i.e., the ability tosolve difficulties in the transfer process) has anindirect, positive relationship, via the knowl-edge received by the subsidiary, with the sub-sidiary's performance.

Hypothesis lb. Expatriate motivation to trans-fer knowledge to a subsidiary (i.e., the motiva-tion to solve difficulties in the transfer process)has an indirect, positive relationship, viaknowledge received by the subsidiary, withsubsidiary performance.

Hypothesis lc. Expatriate opportunity seekingto transfer knowledge to a subsidiary (i.e., theseeking and utilization of resources and oppor-tunities through social ties to solve difficultiesin the transfer process) has an indirect, posi-tive relationship, via knowledge received bythe subsidiary, with subsidiary performance.

Moderating Role of Subsidiary AbsorptiveCapacify

We expect that the mediation relationships inHypotheses l a - lc are further moderated by subsid-iary absorptive capacity. Absorptive capacity in-cludes four components: (1) identifying and recog-nizing external knowledge, (2) processing andunderstanding it, (3) combining it with existingknowledge, and (4) applying the new knowledge tocommercial ends (Cohen & Levinthal, 1990; Zahra& George, 2002). Absorptive capacity has been con-ceptualized and measured as a single construct bymany researchers (Cohen & Levinthal, 1990; Gupta& Govindarajan, 2000; Szulanski, 1996). A recentmeta-analysis treated absorptive capacity as a sin-gle variable in relation to knowledge transfer (ob-taining a reliability-corrected mean correlation of.19 [Van Wijk et al., 2008]). In keeping with Cohenand Levinthal (1990), we conceptualize absorptivecapacity as one construct, since all components arenecessary, and together they influence the extent towhich knowledge received by a subsidiary benefitsits performance.

Extending the perspective of absorptive capacity,we suggest tbat knowledge transfer success is facil-itated in two ways. First, knowledge transmitted byexpatriates is successfully received by the subsid-iary to which they have come. Second, knowledgereceived by the subsidiary from expatriates is inte-grated with existing routines and applied in sub-sidiary operations. Subsidiary absorptive capacityrepresents a potential that can be brought to bearupon external new knowledge; it does not refer toactual knowledge received and applied by the sub-

sidiary. Given the same amount of knowledgetransmitted by expatriates, higher subsidiary ab-sorptive capacity leads to more effective acquisi-tion and application of the knowledge by thesubsidiary.

First, subsidiary absorptive capacity may moder-ate the relationship between expatriate competen-cies in knowledge transfer and knowledge receivedby a subsidiary. Knowledge transfer success, firstand foremost, requires that knowledge from expa-triates be successfully received by the subsidiary.Theory of knowledge management suggests thatknowledge transfer success depends on the charac-teristics of both the source and the recipient (East-erby-Smith et al., 2008; Szulanski, 1996). It is pos-sible that expatriates as sources of knowledge havethe competencies to transfer knowledge, but sub-sidiary employees as recipients do not fully acquiretbe knowledge because they do not have the priorrelated knowledge needed to recognize, under-stand, and process the new knowledge from expa-triates (Cohen & Levinthal, 1990). Indeed, prior re-lated knowledge is known to be critical forabsorptive capacity and effective knowledge acqui-sition (Lyles & Salk, 1996; van Wijk et al., 2008).Prior research has also suggested that cultural dif-ferences between source and recipient hamperknowledge acquisition (Easterby-Smith et al., 2008;van Wijk et al., 2008). It is possible that subsidiaryemployees will perceive the knowledge from expa-triates to be foreign and less valuable in their localcontext (i.e., the "not invented here" syndrome[Szulanski, 1996]) and thus will not actively learnfrom expatriates, leading to less knowledge re-ceived or acquired by the subsidiary. The reasoningabove suggests that lower (greater) subsidiary ab-sorptive capacity would weaken (strengthen) therelationship between expatriate competencies inknowledge transfer and knowledge received by thesubsidiary at which tbey are working. To sum up,we hypothesize:

Hypothesis 2a. The relationship between expa-triate ability to transfer knowledge to a subsid-iary and knowledge received by the subsidiaryis stronger when subsidiary absorptive capac-ity is greater.

Hypothesis 2b. The relationship between expa-triate motivation to transfer knowledge to asubsidiary and knowledge received by the sub-sidiary is stronger when subsidiary absorptivecapacity is greater.

Hypothesis 2c. The relationship between expa-triate opportunity seeking to transfer knowl-edge to a subsidiary and knowledge received

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by the subsidiary is stronger when subsidiaryabsorptive capacity is greater.

Second, a subsidiary's absorptive capacity mayalso moderate the relationship between the knowl-edge it received and subsidiary performance. Expa-triates represent a small proportion of a subsid-iary's workforce, and eventually they will return toheadquarters. For knowledge transfer to have astrong and lasting effect on subsidiary perfor-mance, the knowledge received firom expatriatesmust become an integral part of the subsidiary'sroutines guiding its operations. But because of po-tential conflicts with existing routines, it is possi-ble that the knowledge received will not be fullyintegrated and applied. Expatriates are often onshort-term assignments with a subsidiary and mayreturn to headquarters before the changes takehold. Another reason for the incomplete integrationand utilization may lie in the subsidiary's absorp-tive capacity. Indeed, research suggests that one ofthe biggest obstacles to successful knowledge trans-fer resides in the recipient's low absorptive capac-ity (Szulanski, 1996). When subsidiary absorptivecapacity is in place, knowledge from expatriates iscombined or integrated with existing knowledge.Such integration creates novel and useful newknowledge (Smith, Collins, & Clark, 2005). Thisintegrative new knowledge is potentially more rel-evant to the subsidiary and more widely utilized,and thus may deliver a greater performance benefittoit.

The reasoning above suggests that subsidiary ab-sorptive capacity may moderate the influence ofknowledge received on subsidiary performance insuch a way that the effect is stronger when subsid-

Academy of Management Journal August

iary absorptive capacity is greater. Prior researchhas focused on absorptive capacity as an anteced-ent to knowledge transfer (Gupta & Govindarajan,2000; Lyles & Salk, 1996; Minbaeva, Pedersen,Bjorkman, Fey, & Park, 2003) but has not examinedwhether it moderates the relationship betweenknowledge received and firm performance. Extend-ing prior research, we hypothesize:

Hypothesis 3. The relationship between knowl-edge received by a subsidiary and subsidiaryperformance is stronger when subsidiary ab-sorptive capacity is greater.

So far our theoretical development suggests thatexpatriate competencies in knowledge transfer in-creases knowledge received by the subsidiary towhich expatriates have been assigned, which inturn enhances subsidiary performance. Further-more, subsidiary absorptive capacity moderates thefirst link (i.e., tie relationship between expatriatecompetencies in knowledge transfer and knowl-edge received by the subsidiary) and the secondlink (i.e., the relationship between knowledge re-ceived by the subsidiary and subsidiary perfor-mance) in the mediation relationship. The combi-nation of the mediating role of knowledge receivedby a subsidiary and the moderating role of subsid-iary absorptive capacity (in both the first and thesecond links of the mediation relationship) leads tothe first-stage and second-stage moderation models(Edwards & Lambert, 2007). Combining the first-stage and second-stage moderation models leads toour integrative model, presented in Figure 1.

The integrative model suggests that knowledgereceived by a subsidiary firom expatriates mediates

FIGURE 1Integrative Model

Expatriate Competencies• Ability to Transfer• Motivation to Transfer• Opportunity Seeking

'•—¥

Subsidiary AbsorptiveCapacity

Knowledge Receivedby Subsidiary '• •

SubsidiaryPerformance

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2012 Chang, Gong, and Peng 933

the relationship between expatriate competenciesin knowledge transfer and subsidiary performance,and this mediation effect is stronger when subsid-iary absorptive capacity is greater. In other words,the strength of the mediated relationship betweenexpatriate competencies in knowledge transfer andsubsidiary performance (through knowledge re-ceived by the subsidiary) varies depending on thesubsidiary's absorptive capacity, and the indirecteffect is stronger when this capacity is greater. For-mally, we present three summary hypotheses:

Hypothesis 4. The indirect relationship be-tween expatriate ability to transfer knowledgeto a subsidiary and the subsidiary's perfor-mance that is attributable to knowledge re-ceived is stronger when subsidiary absorptivecapacity is greater.

Hypothesis 5. The indirect relationship be-tween expatriate motivation to transfer knowl-edge to a subsidiary and the subsidiary's per-formance that is attributable to knowledgereceived is stronger when subsidiary absorp-tive capacity is greater.

Hypothesis 6. The indirect relationship be-tween expatriate opportunity seeking to trans-fer knowledge to a subsidiary and the subsid-iary's performance that is attributable toknowledge received is stronger when subsid-iary absorptive capacity is greater.

METHODS

Sample and Procedure

We contacted 181 British subsidiaries of 181 Tai-wanese MNCs to participate in the study. Thesewere identified through the Taiwanese ForeignTrade Council in London, the Financial AnalysisMade Easy (FAME) database, and the website of theBritish Council's Taipei office. Each of these MNCsoperated a single subsidiary—for reasons includingcost control and financial concerns—to penetrateand serve the U.K. market only. In early 2009, wesent out surveys to the subsidiaries, together with aletter supporting the study by the CEO of eachparent firm. Participants had four weeks to com-plete the survey and were promised a summaryreport of the study's findings. After three rounds ofreminders, 162 subsidiaries had responded, repre-senting an 89.5 percent response rate. On average,the subsidiaries had been in operation for 14 years.The majority operated in the information technol-ogy and computer-related sectors.

We obtained data from three sources. The firstwas 324 expatriates, 2 in each subsidiary, chosen

randomly from a list provided by the subsidiary'sparent firm. Only 2 were selected because the ex-patriate interviewees indicated that they generallyknew each other well within their own subsidiar-ies, and also because it was difficult to get moreexpatriates from the same subsidiary to participatein the survey. These participants were told thestudy's purpose and were asked to rate the knowl-edge transfer competencies of expatriates in theirown subsidiaries. Tbe second source comprised324 local managers: one human resoiurces (HR)manager and one line manager from each subsid-iary. These participants rated the absorptive capac-ity of subsidiary employees (excluding expatriates)and knowledge received from expatriates. Most ex-patriates and local managers were key technicaland executive personnel (e.g., chief engineer, andmanaging director), so they had adequate informa-tion to allow them to respond to the questions. Thethird data source was the FAME and the TaiwanEconomic Journal [TEf\ databases, from which weobtained objective subsidiary performance data forfiscal year 2009-10.

We checked the representativeness of the finalsample. First, respondents were divided into twosubsamples: the earlier responses from 1 to 162 andthe later responses from 163 to 324. These sub-samples were compared on the basis of the hypoth-esis that those who responded late might be moresimilar to those who did not respond than to thosewho responded earlier (Armstrong & Overton,1977). Comparison on dimensions including sub-sidiary years of operation and number of employ-ees revealed no significant difference.

Because data for expatriate competencies inknowledge transfer, knowledge received by a sub-sidiary from expatriates, and subsidiary perfor-mance were obtained from three separate sources,the test for the mediation relationships were notsusceptible to common metbod bias. One of ourinterests was in the moderating effect of subsidiaryabsorptive capacity on the mediation relationships,and such moderating effect also is not susceptibleto common method bias (Podsakoff, MacKenzie,Lee, & Podsakoff, 2003). Nevertheless, we tookmeasures to minimize the potential risk of suchbias, because subsidiary absorptive capacity (theproposed moderator) and knowledge received (theproposed mediator) were botb rated by the localmanagers. First, when designing the survey we fol-lowed suggestions by previous researchers such asconducting on-site interviews and a pilot study toavoid item ambiguity, minimizing the survey'slength, providing clear instructions about complet-ing the survey, and offering confidentiality and an-onymity to the respondents (Podsakoff et al., 2003).

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934 Academy of Management fournal August

Second, we subjected subsidiary absorptive capac-ity and knowledge received measures to confirma-tory factor analyses (CFAs). The fit of the two-factormodel [x^ = 47.58, df=7,p< .01, RMSEA = .08,CFI = .90, GFI = .88, TLI = .89) was significantlybetter than that of the one-factor model (^ = 82.28,d/= 6, p < .01, RMSEA = .92, CFI = .37, GFI = .49,TLI = .37; A / = 34.7, Ad/ = 1, p < .01).

Third, we compared a measurement model witha latent method factor model (Kulik, Cregan, Metz,& Brown, 2009; Podsakoff et al., 2003). To facilitatenested model comparison, we included a methodfactor (variance set to 1) in both models. Items inboth models were allowed to load on their respec-tive theoretical constructs. However, item loadingson the latent method factor were constrained tozero in the measurement model, but free to vary inthe latent method factor model. The latent methodfactor model generated a good fit [x^ = 123.65,df = 19, p < .01, RMSEA = .04, CFI = .94,GFI = .94, TLI = .92). Our model comparison in-dicated that the latent method factor model didimprove fit: A;^ = 182.47, Ad/= 19, p < .01. Be-cause the chi-square difference test is vulnerable tosample size, Bryne (2001) recommended the GFIdifference between models as an indicator of prac-tical significance. The GFI difference between ourtwo models was .03, less than the .05 level sug-gested by Bagozzi and Yi (1990). Fvirthermore, themethod factor explained only 10.8 percent of thetotal study variance, which is less than the medianamount of method variance (25%) observed in theliterature (Wifliams, Cote, & Buckley, 1989). There-fore, we concluded that common method biaswas not a significant concern in this study.

Measures

Before the survey data collection, we conductedqualitative interviews to develop measures and togenerate contextual information about the subsid-iaries and the expatriates. Specifically, one authorinterviewed (in Chinese) 60 expatriates (on assign-ments ranging in length from two to four years)from 60 Taiwanese MNCs operating in the U.K.These expatriates were from a variety of differentfunctions. Some were interviewed twice to clarifycertain points. The expatriates indicated that theirsubsidiaries mainly played the "implementor" roleidentified by Gupta and Govindarajan (1991), oper-ating with high knowledge inflow and low knowl-edge outflow, and many were not mature yet. Thesesubsidiaries thus relied on parent firms for keyresources such as personnel and knowledge. Mostsubsidiaries performed manufacturing and servicefunctions. To ensure compliance with standards

from headquarters and to deliver products and ser-vices to U.K. customers on time, there was a strongneed to transfer production and repair know-how.Another example was the need to transfer corporatecultvire (e.g., cost consciousness and loyalty towardthe parent firm). All interviewees indicated theywere involved in knowledge transfer, althoughsome also had the purposes of developing theircareers and filling positions. For example, thosefilling key positions in subsidiaries also indicatedthat they were involved in knowledge transfer be-cause subsidiary employees were expected to mas-ter parent knowledge and to eventually take overthe positions.

To develop context-sensitive measures, we askedinterviewees about expatriate competencies criticalfor knowledge transfer, tbe major barriers in theprocess, and the ways to overcome the barriers. Theinterviewer took extensive notes and reiterated theinterviewees' comments explicitly to verify theiractual meaning during the interviews. After tran-scribing all the interview data, we coded the datainto categories guided by the ability-motivation-opportunity framework (Blumberg & Pringle, 1982;Campbell et al., 1993) and prior research on expa-triation and/or knowledge transfer (Hansen et al.,2005; Kostova & Roth, 2002; Reagans & McEvily,2003; Szulanski, 1996; Wong & Law, 1999). Oneauthor independently coded the interview notes.To assess the reliability of the coding, a secondcoder with extensive qualitative research experi-ence checked and coded all the interview data us-ing standardized coding instructions. We com-pared the coding and found intercoder agreement(K; Cohen, 1960) of .86. Three major categoriesemerged: expatriate ability, motivation, and oppor-tunity seeking to solve difficulties in the knowl-edge transfer process. All interviewees commentedthat expatriates must possess functional knowledgeand people skills to tackle problems in this process.One interviewee commented:

An expatriate must possess strong functional exper-tise to deal with harriers or problems in the transferprocess. This can geiin credibility in the eyes of localemployees.

Another interviewee said:

We have to be competent in terms of establishingsocial connections with the local staff in order todeal with existing and potential difficulties.

The finding about the need for expatriate peopleskills echoes Wong and Law's (1999) finding thatexpatiates need such skills to build the long-termand in-depth relationships with local employeesnecessciry to have successful localization, defined

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2012 Ghang, Gong, and Peng 935

as "the development of job-related skills within thelocal population and the delegation of decision-making authority to local employees, with the finalobjective of replacing expatriate managers with lo-cal employees" (1999: 34). Ninety-nine percent ofthe interviewees indicated that it is critical to bewilling to overcome barriers in knowledge transfer.Major barriers revealed in the interviews includedcultural differences in coaching and learning andthe fear of losing power or even jobs upon success-ful knowledge transfer. All of the expatriates men-tioned that it is critical to seek and utilize oppor-tunities through social ties to boost trust andcooperation. This is consistent with prior researchshowing that informal social ties are critical forknowledge sharing (Hansen et al., 2005; Reagans &McEvily, 2003; Reiche et al., 2009). As one inter-viewee reported:

Expatriates have to establish social relationships toreduce distrust cimong the parent, expatriates, andlocal employees and to create opportunity forknowledge transfer.

Another interviewee commented:

Some expatriates faced difficulties in transferringrepair-related skills from the parent because theywere unable to utilize social relationships to per-suade local staff to accept such skills.

The qualitative interviews aided the develop-ment of measures because prior research has notprovided measures specifically for expatriate com-petencies in knowledge transfer. Prior research hasfocused on a source's (interviewee's) knowledgeand technical skills per se (Szulanski, 1996; Wang,Tong, Chen, & Kim, 2009) or on social ties of thesource as contributors to knowledge transfer (Han-sen et al., 2005; Reagans & McEvily, 2003). Simi-larly, prior research has examined the motivationsfor a variety of tasks (e.g., test-taking motivation inArvey, Strickland, Drauden, and Martin [1990];motivation to learn in Colquitt and Simmering[1998]), but not for the task of knowledge transferby expatriates. They did not accoimt for barriers inexpatriate knowledge transfer either.

After the interviews, one of the authors devel-oped survey items for expatriate competencies inknowledge transfer—two for ability, five for moti-vation, and two for opportunity seeking. Items weredeveloped in English and based on concept defini-tions, interviews, and prior researcb. An individualfluent in both Chinese and English independentlytranslated the items into Chinese, and a third indi-vidual (also bilingual) then translated the Chineseversion back into English (Brislin, 1980). The Chi-nese version was then sent to 20 Taiwanese expa-

triates. These expatriates were asked to assign eachitem to its intended construct—expatriate ability,motivation, or opportunity seeking in knowledgetransfer—and to comment on the clarity of theitems. All nine items passed the screening (i.e., atleast 75 percent of the respondents correctly as-signed each item [Hinkin, 1998]). We revised theitems for clarity in light of this feedback. We nextdescribe the final items together with a quantitativeassessment of the validity of the measures. Re-sponses in the final survey were on a seven-pointscale for all measures except subsidiaryperformance.

Expatriate ability. During the interviews, someexpatriates indicated that they had been chosenbecause they had the functional knowledge, skills,and experience needed to tackle difficulties inknowledge transfer. We drew on the pilot studyand prior research (Szulanski, 1996; Wong & Law,1999) to develop two items measuring expatriateability in knowledge transfer. In the final survey,we stated that the survey items targeted expatriatessent by an MNC parent to the subsidiary where theywere working and asked the expatriates to rate theextent to which the items accurately described ex-patriates as a whole in the subsidiary: (a) "Possesssuperior managerial (people) competencies (knowl-edge, skills, and experience) to solve difficulties inthe knowledge transfer process" and (b) "Possesssuperior functional competencies (knowledge,skills, and experience) to solve difficulties in theknowledge transfer process" (a = .79). We checkedwithin-group agreement [r^^g) between the expatri-ates (James, Demaree, & Wolf, 1993). Because themean was .80, higher than the .70 level (George &Bettenhausen, 1990), we aggregated expatriates'ratings.

Expatriate motivation. Interviewees suggestedthat as expatriates, they were willing to deal withcultin-al difficulties and not afraid of losing powerin transferring knowledge to foreign employees. Wedrew on the pilot study and prior research (Colquitt& Simmering, 1998; Szulanski, 1996; Wong & Law,1999) to develop five items measuring expatriatemotivation for knowledge transfer. In the final sur-vey, we stated that the survey items targeted expa-triates sent by their MNC parent to the subsidiarywhere they were working and asked the expatriatesto rate the extent to which the items accuratelydescribed expatriates as a whole in the subsidiary:(a) "Are not afraid of losing power and control tosolve difficulties to transfer knowledge to subsid-iary employees," (b) "Are willing to solve difficul-ties to transfer parent knowledge to subsidiary em-ployees," (c) "Are willing to cope with culturaldifferences to transfer knowledge to subsidiary em-

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936 Academy of Management Journal August

ployees," (d) "Are willing to devote time to solvedifficulties to transfer parent knowledge to subsid-iary employees," and (e) "Are willing to make per-sistent efforts to solve difficulties to transfer parentknowledge to subsidiary employees" (a = .86). Thestatements were consistent with the common defi-nition of motivation and captured its key compo-nents (i.e., direction, intensity, and persistence)(Blumberg & Pringle, 1982; Kanfer, 1990; MitcheH,1997) while reflecting the expatriate knowledgetransfer context. The mean r^g was .83. We thusaggregated the expatriates' ratings.

Expatriate opportunity seeking. Some of the ex-patriates commented that they actively searched foropportunities through informal interactions withlocal employees to convince the locals to adoptparent production and quality control knowledge.Two items were developed for expatriate opportu-nity seeking for knowledge transfer based on thepilot study and prior research (Hansen et al., 2005;Kostova & Roth, 2002; Reagans & McEvily, 2003). Inthe final survey, we stated that the survey itemstargeted expatriates sent by the MNC parent to thesubsidiary where they was working, and asked theexpatriates to rate the extent to which the itemsaccurately described expatriates as a whole in thesubsidiary: (a) "Seek opportunities through socialrelationships to solve difficulties in the knowledgetransfer process," and (b) "Utilize social ties to gen-erate trust and cooperation to solve difficulties inthe knowledge transfer process" [a = 0.81). Themean r^^g exceeded .70. We also aggregated the ex-patriates' ratings.

We subjected expatriate ability, motivation, andopportunity seeking measures to CFA analyses.The three-factor model [x^ = 5.6, df = 2, p < .01,RMSEA = .06, CFI = .98, GFI = .98, TLI = .90) fitbetter than all the alternative models (i.e., threetwo-factor models and a one-factor model). For in-stance, the three-factor model fit better than theone-factor model (A;̂ ^ = 121.27, Ad/= 4, p < .01).We thus concluded that the three dimensions weredistinct from each other. We also ran a second-order factor analysis in which the three factors atthe first level were assumed to reflect a second-level latent factor, and this had a poor fit[X^ = 46.02, df = 5, RMSEA = .12, CFI = .80,GFI = .82, TLI = .80). We conducted a furthervalidation study and the results (see the Appendix)also supported the validity of the measures.

During tbe pilot interviews, the expatriates indi-cated that they knew each other well within theirown subsidiaries. They had formal or informalmeetings. For example, expatriates from one sub-sidiary had formal daily meetings to discuss thedifficulties they faced in transferring parent knowl-

edge and the potential solutions to these difficul-ties. Expatriates from another subsidiary organizedregular informal social gatherings at different expa-triates' homes. The expatriate group was relativelysmall (minimum = 2, median = 7, maximum = 17,and about 76 percent of subsidiaries had 10 orfewer expatriates). The small sizes made formal orinformal interactions among the expatriates easier.Nevertheless, we did a further check to ascertainwhether the expatriates knew each other well andwere able to rate fellow expatriates from their ownsubsidiaries. Specifically, we contacted 30 ran-domly selected expatriates after the completion ofthe main study and asked them (a) to list the namesof the other expatriates in his or her own subsidiaryand (b) to rate the extent to which he or she wasfamiliar with the competencies (ability, motivation,and opportunity seeking) of the listed expatriates inknowledge transfer to the subsidiary (1 = "not atall," to 5 = "very familiar"). Twenty-eight expatri-ates responded. We compared the list of namesprovided by each expatriate with that provided bythe headquarters and found a 100 percent match.For item b, 96.5 percent of the respondents gave arating of 5. It appeared that the expatriates in eachsubsidiary did know each other well.

Knowledge received. One indicator of the suc-cess of expatriate knowledge transfer is the knowl-edge actually received by the subsidiary from ex-patriates. The extent to which expatriatestransferred knowledge is a function of knowledgetransmission behavior, but the extent to which thesubsidiary at which the expatriates worked re-ceived knowledge as rated by local managers re-flects an external evaluation of such behavior. Wemeasured knowledge received by a subsidiary withseven items [a = .87). These items were taken fromprior research (Gupta & Govindarajan, 2000; Lyles& Salk, 1996) and then modified in light of ourinterview findings to better capture the operatingactivities of Taiwanese MNCs in the U.K. We askedlocal managers to indicate the amount of knowl-edge that their subsidiaries received ñ'om expatri-ates in the following areas: (a) technological know-how and skills, (b) repair-related know-how andskills, (c) quality control know-how and skills, (d)product-related know-how and skills, (e) manage-rial know-how and skills, (f) knowledge about cor-porate culture, and (g) human resource manage-ment know-how and skills. We conducted a CFA toexamine the discriminate validity of knowledge re-ceived by the subsidiary and expatriate ability, mo-tivation, and opportunity seeking. The four-factormodel fit the data well (^ = 8.67, df = 2, p < .01,RMSEA = .06, CFI = .98, GFI = .97, TLI = .93) andfar better than the one-factor model (A;^ = 232.76,

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2012 Chang, Gong, and Peng 937

Ad/ = 8, p < .01; RMSEA = .15, CFI = .62,GFI = .67, TLI = .63). The mean r^^ for knowledgereceived was .78, so the local managers' ratingswere again aggregated.

Subsidiary absorptive capacity. During the in-terview, some expatriates expressed the idea that toachieve productivity targets, they should not onlyfocus on their own abilities, but also pay attentionto how to improve the ability of the local staff toabsorb and apply the knowledge. We measuredsubsidiary absorptive capacity using six itemsadapted from Jansen, Van Den Bosch, and Volberda(2005), asking local managers to indicate the extentto which the following statements accurately de-scribed their subsidiary's employees (excluding ex-patriates): (a) "Have the ability to acquire newknowledge from the parent company to achievetargets," (b) "Have a vision of what the subsidiary istrying to achieve through the transfer of knowledgefrom the parent company," (c) "Have the technicalcompetency to absorb the knowledge from the par-ent company," (d) "Have the necessary skills toimplement the practices from the parent com-pany," (e) "Have the ability to convert knowledgeor the practices from the parent company," and (f)"Have the ability to exploit new knowledge or prac-tices from the parent company" [a = .87). We con-ducted an exploratory factor analysis. The resultsindicated a one-factor solution with all loadings at.85 or higher. CFA results indicated that the one-factor model fit the data well [x^ = .89, df = 2,RMSEA = .01, CFI = .98, GFI = .99, TFI = .97). Themean r^,,g was .82, so the local managers' ratingswere aggregated.

Subsidiary performance. We obtained two ob-jective subsidiary performance measures—returnon investment (ROI) and return on equity (ROE) forfiscal year 2009-10—from the FAME and TEJ da-tabases. This gave a one-year time lag with themeasures of expatriate competencies, subsidiaryabsorptive capacity, and knowledge received bysubsidiary. Theoretically, knowledge has beenviewed as a key input for production. Knowledgereceived by a subsidiary should increase the utili-zation efficiency of facilities, equipment, and soforth, and therefore boost the returns derivedfrom them.

Control variables. First, we controlled for sub-sidiary age (years of operation in the U.K.), becauseolder subsidiaries may have better-developed rela-tionships with their parent and thus better knowl-edge transfer (Fey & Furu, 2008). Second, we con-trolled for subsidiary size (number of subsidiaryemployees), following past research (Gupta & Gov-indarajan, 2000). We used the log transformation ofsize in hypotheses testing. Third, we controlled for

MNC parent age (years of operation) and size (thelogarithm of the number of employees) (Van Wijk etal., 2008). Fourth, we controlled for subsidiary in-dustry sector using a dummy variable. The majority(85%) of subsidiaries were from the IT and elec-tronic components industry (coded 1), and others(15%) were from miscellaneous industries (coded0). Fifth, we controlled for the number of expatri-ates working at a given subsidiary because it mayaffect knowledge transfer and subsidiary perfor-mance. We used the log transformation of numberof expatriates in hypotheses testing. Finally, wecontrolled for subsidiary function: 84 percent of thesample subsidiaries performed manufacturing andrepair functions (coded 1) to serve U.K. customers,and 16 percent performed other functions (coded0). We did not control for equity ownership sinceall the suhsidiaries were wholly owned. Finally,because we focused on subsidiaries from a singlehome country operating in a single host country,we did not include home- or host-country-specificfactors or measures of cultural and institutionaldistance, as prior studies have done (Fang et al.,2010; Gaur et al., 2007; Gong, 2003a).

RESULTS

Table 1 presents descriptive statistics and corre-lations. Expatriate ability (r = .45, p < .01), moti-vation (r = .25, p < .01), and opportunity seeking(r = .42, p < .01), the three dimensions of expatri-ate competencies in knowledge transfer, were allpositively related to knowledge received by subsid-iary. They were also positively related to subsidiaryperformance. Subsidiary absorptive capacity waspositively related to subsidiary performance (ROI,r = .24, p < .01; ROE, r = .23, p < .01). Knowledgereceived by subsidiary was likewise positively re-lated to subsidiary performance (ROI, r = .37,p < .01; ROE, r = .20, p < .01).

We tested the hypotheses following Edwards andLambert's (2007) procedure, which integrates mod-erated regression analysis and path analysis tocomprehensively analyze simultaneous modera-tion and mediation. The procedure permits simul-taneous examination of first-stage (between expa-triate competencies and knowledge received),second-stage (between knowledge received andsubsidiary performance), direct (between expatri-ate competencies and subsidiary performance), in-direct (through knowledge received), and total ef-fects at a particular level of the moderator(subsidiary absorptive capacity).

A one-step regression was first conducted for themediator, in which the following variables wereentered: expatriate competencies (ability, motiva-

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938 Academy of Management Journal August

TABLE 1Means, Standard Deviations, and Correlations"

Variable

1. Subsidiary age2. Subsidiary size3. MNC parent age4. MNC parent size5. Subsidiary industry6. Number of expatriates7. Subsidiary function8. Expatriate ability9. Expatriate motivation

10. Expatriate opportunity seeking11. Subsidiary absorptive capacity12. Knowledge received13. Subsidiary return on investment14. Subsidiary retiun on equity

Mean

14.3078.8127.19

2,9350.858.740.844.525.104.705.375.030.720.53

s.d.

7.8669.568.29

4,1310.353.610.361.481.321.290.740.730.630.32

1

.15*-.00-.21*

.21*

.13

.22*

.33*

.27*

.32*

.16*-.05

.03-.03

2

.12' -.07' .10

.06' .01' .30**' .21**> .36**

-.12.03.02

-.01

3 4

.08

.11 -.11-.03 -.03-.02 -.08

.04 -.17*

.10 -.02

.04 -.13

.01 -.06-.08 .10

.09 -.02

.07 .06

5

-.06.05.28

-.19*.11.08

-.40**.09

-.05

6

-.02.05

-.04.04.02

-.01-.12

.04

7

.27**

.05

.11

.07

.05-.12-.04

8

.20**

.29**

.25**

.45*'

.21**

.17*

9

.35**

.32**

.25**

.28**

.19*

10

.36**

.42**

.35**

.16*

11 12 13

.41**

.24** .37**

.23** .20** .23**

" n = 162. Mean and standard deviations for subsidiary age, subsidiary size, MNC parent age, MNC parent size, number of expatriates,and subsidiary performance are based on raw data.

*p < .05**p < .01

tion, opportunity seeking), subsidiary absorptivecapacity, and expatriate competencies by subsid-iary absorptive capacity interactions, as capturedby the following equation:

M = ao5 + axsX + azsZ + axzsXZ -I- e^s, ( 1 )

where X is expatriate ability, motivation, and op-portunity seeking; Z is subsidiary absorptive capac-ity; XZ is expatriate competencies times subsidiaryabsorptive capacity; and M is knowledge received.To avoid potential multicoUinearity, we centeredtbe variables and computed the interaction terms asa product of the centered scores on the componentvariables in all analyses. Control variables wereincluded in all regression analyses unless specifiedotherwise.

A one-step regression was also conducted for thedependent variable (ROI or ROE), in wbich thefollowing variables were entered: expatriate com-petencies (ability, motivation, and opportunityseeking), subsidiary absorptive capacity, expatriatecompetencies by subsidiary absorptive capacity in-teractions, knowledge received, and knowledge re-ceived by subsidiary absorptive capacity interac-tions, as captured by the following equation:

(2)

where X is expatriate ability, motivation, and op-portunity seeking; Z is subsidiary absorptive capac-ity; XZ is expatriate competencies times subsidiaryabsorptive capacity; M is knowledge received;MZ is knowledge received times subsidiary absorp-tive capacity; and yis subsidiary performance (ROI

or ROE). Substituting Equation 1 into Equation 2gives Equation 3:

[(0X20-

(3)

In Equation 3, the direct effect of X (expatriateability, motivation, opportunity seeking) on y (sub-sidiary performance) corresponds to the term bx2o+ bxz2oZ, which varies by Z (subsidiary absorptivecapacity). The indirect effect of Xon y correspondsto (ax5 + axzsZ) (faM2o + b^zzoZ), which also variesby Z. The term (ax5 + axzsZ) captures the first-stagemoderation of the indirect effect, and the termibM2o + bMZ2oZ} captures the second-stage modera-tion of that effect.

Table 2 presents the regression results. We thenentered the coefficient estimates from regressionanalyses (Equations 1 and 2) in Edwards and Lam-bert's (2007) constrained nonlinear regression(CNLR) module to produce, via bootstrapping, un-standardized coefficient estimates and bias-cor-rected confidence intervals (for the significancetest) for the simple effects of each path at selectedlevels of subsidiary absorptive capacity. We alsodid the same for difference comparisons of the sim-ple effects of each path at various levels of subsid-iary absorptive capacity. To take into account con-trol variables, we obtained the average effects forthe control variables and added these values to theconstant before testing the substantive effects. Weused one standard deviation above or below the

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2012 Ghang, Gong, and Peng 939

TABLE 2Coefficient Estimates"

Predictors

Subsidiary ageSubsidiary sizeMNC parent ageMNC parent sizeSubsidiary industryNumber of expatriatesSubsidiary functionExpatriate abihtyExpatriate motivationExpatriate opportunity seekingSubsidiary absorptive capacityKnowledge receivedExpatriate ability X subsidiary absorptive capacityExpatriate motivation X subsidiary absorptive capacityExpatriate opportunity seeking X subsidiary absorptive capacityKnowledge received x subsidiary absorptive capacity

Knowledge Received

,02,00

-,01,02

-,02-,01

,00,49**,29**,21**,57**

,63**,42**,23**

,37**

Dependent Variables

Return on Investment

,00,01,12

-,04-,15

,01,02,34**,31**,28**,67***,44**

-,15-,13-,14

,30**,35**

Return on Equity

,00,01

-,02-.01-,04

,00,00,29**,28**,26**,74***,35**

-,16-,15-,18

,35**,29**

" n - 162, Entries under the column labeled knowledge received are unstandardized coefficient estimates from Equation 1, Entriesunder the columns labeled return on investment and return on equity are unstandardized coefficient estimates from Equation 2

**p < ,01***p < ,001

mean to indicate a high or low level of absorptivecapacity (Aiken & West, 1991).

Table 3 presents the results for the simple ef-fect paths at different levels of subsidiary absorp-tive capacity with ROI as the dependent variable[Y). For the expatriate ability path, the indirecteffect was .51 (p < .01) at high subsidiary absorp-tive capacity, -.15 (p < .01) at low subsidiary

absorptive capacity, and the difference was sig-nificant (.51 - [-.15] = .66, p < .01). The resultsthus suggested that the indirect effect of expatri-ate ability on ROI, through knowledge received,was stronger at higher absorptive capacity.Among other findings, the second-stage modera-tion, which applies to the second stage of theindirect effect, was significant (.61 - [-.26] = .87,

TABLE 3Simple Effects of Expatriate Competencies at High and Low Levels of Subsidiary Absorptive Capacity and via

Knowledge Received"

Stage

Independent Variable Subsidiary Absorptive Capacity First

,85**,32**,53**

,53**,21*,32**

,30**,11**,19**

Second

,61**-,26**

,87**

,60**-,26**

,86**

,61**-,26**

,87**

Effect

Direct

,06-,18

,24

,06-,18

,24

,05-,13

,18

Indirect

,51**-,15**

,66**

:31**-,05**

.36**

,18**-,02**

,20**

Total

,57*-,33*

,90*

,37*-,23*

,60*

,23*-,15*

,38*

Expatriate ability

Expatriate motivation

Expatriate opportunity seeking

HighLowDifference

HighLowDifference

HighLowDifference

"il - 162, Tests of differences for the first stage and second stage are equivalent to tests of a^z and b^z, respectively. Tests of differencesfor the indirect and total effects were based on bias-corrected confidence intervals derived from bootstrap estimates. Subsidiary return oninvestment was the dependent variable, subsidiary absorptive capacity was the moderator, and knowledge received was tbe mediator.

* p < ,05**p < ,01

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940 Academy of Management Journal August

p < .01), suggesting that knowledge receivedfrom expatriates benefits subsidiary ROI more athigher subsidiary absorptive capacity. The first-stage moderation, which applies to the first stageof the indirect effect, was also significant (.85 -.32 = .53, p < .01).

For the expatriate motivation path, the indirecteffect was .31 [p < .01) at high subsidiary absorp-tive capacity, -.05 (p < .01) at low subsidiary ab-sorptive capacity, and the difference was signifi-cant (.31 - [-.05] = .36, p < .01). The results thussuggest that the indirect effect of expatriate mo-tivation on ROI is stronger when subsidiary ab-sorptive capacity is greater. Among other find-ings, the second-stage moderation was significant(.60 - [-.26] = .86, p < .01), indicating thatknowledge received benefits subsidiary ROI morewhen subsidiary absorptive capacity is higher.The first-stage moderation was also significant(.53 - .21 = .32, p < .01). Finally, for expatriateopportunity seeking, there was a significant dif-ference in the indirect effects at high versus lowsubsidiary absorptive capacity. The results indi-cate that the indirect effect of expatriate oppor-tunity seeking on subsidiary ROI is stronger athigher subsidiary absorptive capacity. Similarly,both the first-stage and the second-stage moder-ations were significant.

Table 4 presents the simple effect paths at differ-ent levels of subsidiary absorptive capacity witbROE as the dependent variable (Y). Tbe pattern ofresults is similar to that for ROI. The indirect effectsof expatriate competencies in knowledge transfer

on subsidiary ROE through knowledge received arestronger at higher subsidiary absorptive capacity.Again, both the first-stage and the second-stagemoderations were significant. For instance, knowl-edge received benefits subsidiary ROE more athigher subsidiary absorptive capacity (i.e., the sec-ond-stage moderation). Overall, our hypotheseswere supported.

So far we have focused on the most generalmodel, the total effect moderation, which "com-bines moderation of tbe first and second stages ofindirect effect with moderation of the direct effect"(Edwards & Lambert, 2007: 11). We also comparedfour alternative models: (1) the first-stage model, inwhich the mediation relationship is moderated atthe first stage of the indirect effect, (2) the second-stage model, in which the mediation relationship ismoderated at the second stage of the indirect effect,(3) the hypothesized first- and second-stage model,in which the mediation relationship is moderatedat both the first and the second stages of the indi-rect effect, and (4) the total effect moderation. Weconducted nested model comparison by computinga generalized R^ from the regression f?^-values andcomparing it with a Q-statistic (Pedhauzer, 1982;Tepper, Henle, Lambert, Giacalone, & Duffy, 2008),calculated as:

Q = (1 ~ - G more G less reslricted) (4)

where R^ c more restricted refers to the generalized R^for the more restricted model, and R^c less restrictedrefers to the generalized R^ for the less restricted

TABLE 4Simple Effects of Expatriate Competencies at High and Low Levels of Subsidiary Absorptive Capacity and via

Knowledge Received"

Independent Variable

Expatriate ability

Expatriate motivation

Expatriate opportunity seeking

Subsidiary Absorptive capacity

HighLowDifference

HigbLowDifference

HighLowDifference

First

.85**

.32**

.53**

.53**

.21**

.32**

.30**

.11**

.19**

Stage

Second

.55**-.47**1.02**

.55**-.47**1.02**

.55**-.37**

.92**

Direct

.08-.19

.27

.06-.14

.20

.04-.13

.17

Effect

Indirect

.46**-.15**

.61**

.29**-.09**

.38**

.16**-.04**

.20*

Total

.54*-.34*

.88*

.35*-.23*

.58*

.20*-.17*

.37*

* Í1 = 162. Tests of differences for the first stage and second stage are equivalent to tests of a^z and b^z. respectively. Tests of differencesfor the indirect and total effect were based on bias-corrected confidence intervals were derived from bootstrap estimates. Subsidiary returnon equity was the dependent variable, subsidiary absorptive capacity was the moderator, and knowledge received was the mediator.

* p < .05**p < .01

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2012 Ghang, Gong, and Peng 941

model. The significance of Q was evaluated withthe formula W = -(JV - cQlogeQ, where VK is astatistic with chi-square distribution, N and d arethe sample size and the number of restrictions im-posed by the more restricted model when com-pared to the less restricted model, respectively, andloge is the natural logarithm.

Comparisons among tbe models suggested thatthe generalized variance explained by models 3and 4 [R^^ = .31) differed from the variance ex-plained by model 1 [R^c = .28; Q = .93, W = 1.34,d = 1, p < .05) and model 2 [R^^i = -28; Q = .93,W = 1.34, d = 1, p < .05). Hence, the predictivepower of models 3 and 4 was superior to that ofmodels 1 and 2. There was no difference in tbevariance explained by models 3 and 4 [R^Q = .31;Q = .98, W = 1.41, d = 1, n.s.), suggesting thatadding a path representing moderation of the directeffect did not improve the predictive power ofmodel 3. We conducted tbe same analyses for ROEand obtained the same pattern of results. Model 3was therefore preferred. The conditional indirecteffects of expatriate opportunity seeking in the fullmodel (with both stages of moderation) are plottedin Figures 2 and 3. Figures for the conditional in-direct effects of expatriate ability and motivationare available upon request.

DISCUSSION

In this study, we theoretically identified threedimensions of expatriate competencies—ability,motivation, and opportunity seeking—for knowl-edge transfer and empirically sbowed that they

were distinct both from each other and from knowl-edge received by a subsidiary. Expatriate compe-tencies in knowledge transfer enhanced subsidiaryperformance through knowledge received by thesubsidiary, and this indirect effect was strongerwhen subsidiary absorptive capacity was higher.The moderation of the indirect effect manifesteditself in two ways. First, knowledge received by tbesubsidiary led to better subsidiary performancewben subsidiary absorptive capacity was greater.Second, expatriate competencies in knowledgetransfer led to more knowledge received by thesubsidiary when subsidiary absorptive capacitywas greater. Ceteris paribus, a subsidiary acquiresmore knowledge from expatriates when its absorp-tive capacity is higher. It is also possible that expa-triates may engage in more knowledge transfer be-haviors when they see that a subsidiary has betterabsorptive capacity. Among other findings, thenumber of expatriates did not enhance knowledgereceived by a subsidiary or the subsidiary's perfor-mance, but subsidiary absorptive capacity did.Overall, tbree contributions emerge.

Contribution 1: Expatriate Competencies inKnowledge Transfer

Our first contribution is identifying three dimen-sions of expatriate competencies in knowledge trans-fer. Much prior research has examined expatriatestaffing without attending to the characteristics ofexpatriates. The focus has been on tbe more observ-able nvimber (proportion) of expatriates. This ap-proach assumes that expatriates can effectively trans-

FIGURE2Indirect E£fect of Expatriate Opportunity Seeking (via Knowledge Received) on Subsidiary

Return on Investment at High and Low Levels of Subsidiary Absorptive Capacity

Subsidiary Performance(ROI)

3.3 -

2.8 -

2.3 -

1.3 -

0.8 -

0.3

-A- Low absorptive capacity

High absorptive capacity

Low Expatriate Opportunity Seeking High Expatriate Opportunity SeekingMean - 1 s.d. Mean + 1 s.d.

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942 Academy of Management Journal August

FIGURE 3Indirect Effect of Expatriate Opportunity Seeking (via Knowledge Received) on Subsidiary

Return on Equity at High and Low Levels of Subsidiary Absorptive Capacity

Subsidiary Performance(ROE)

3.3 -

2.8 -

2,3 -

1,8 -

1.3 -

0.8 -

0,3

-A- Low absorptive capacityHigh absorptive capacity

Low Expatriate Opportunity Seeking High Expatriate Opportunity SeekingMean - 1 s.d. Mean + 1 s,d.

fer knowledge. With expatriates treated as a blackbox, it has not been clear what is in them that helps orhinders knowledge transfer. We found that expatriatecompetencies in solving difficulties dviring theknowledge transfer process boosted knowledge re-ceived by a subsidiary and subsidiary performance. Itwould therefore be useful to examine what expatriatecompetencies matter for successful knowledge trans-fer in future research on expatriation.

Many MNCs often select expatriates for superiortechnical skills, not their competencies in effectiveknowledge transfer (Peng, 2011; Tung, 1987). It istherefore not surprising that expatriate staffing perse may not enhance subsidiary performance, assome prior studies have shown. This study pro-vides one potential explanation for the mixed re-sults regarding the effect of expatriate staffing onsubsidiary performance found in previous work. Itmay be that expatriates in some subsidiaries (orsome MNCs) have greater competencies in transfer-ring knowledge than those in other subsidiaries (orsome MNCs). Assigning expatriates without com-petencies in transferring knowledge may even hurtsubsidiary performance because expatriates are of-ten more expensive than other sources of staffing.

The implication is that MNCs need to pay closeattention to the criteria for selecting expatriates,especially their "soft" skills, to reflect needs inknowledge transfer. The broader implication is thatthe effectiveness of personnel mobility (expatria-tion in this study) as a means of transferring knowl-edge (Argote & Ingram, 2000; Song et al., 2003)depends on the characteristics of the people beingmoved. Identifying such microlevel factors prom-

ises to enrich our understanding of knowledgetransfer beyond the immediate setting of the head-quarters-subsidiary relationship.

Contribution 2: Knowledge Received bySubsidiary as Mediator

In this study, we suggested that the knowledgetransfer process involves both transmission by expa-triates and receipt by subsidiary. This distinctionclarifies the more ambiguous concept of knowledgetransfer that has been widely used in the literature.We showed empirically that the effects of expatriates'competencies in knowledge transfer on a subsidiary'sperformance take place through knowledge receivedby the subsidiary. We, therefore, provided a test of theidea from the knowledge transfer perspective of ex-patriation that knowledge transfer underlines the ef-fect of expatriation on subsidiary performance (Ed-ström & Galbraith, 1977; Gong, 2003a; Harzing, 2001).Our findings extend prior studies that did not directlytest knowledge received by the subsidiary as amediator.

Contribution 3: Subsidiary Absorptive Capacityas Moderator

As the third contribution, we showed that the in-direct effects of expatriate competencies in knowl-edge transfer on subsidiary performance can bestrengthened when subsidiary absorptive capacity isgreater. Clearly, the presence of expatriate competen-cies alone may not lead to the most effective knowl-edge transfer and highest subsidiary performance.

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2012 Chang, Gong, and Peng 943

Knowledge received by a subsidiary and the subsid-iary's performance reach the highest level when both(1) the expatriates have competencies in knowledgetransfer and (2) the subsidiary has the absorptivecapacify.

No prior study of expatriation and subsidiary per-formance has examined subsidiary absorptive capac-ify as a moderator. This study has revealed theimportant role of the other side—subsidiary employ-ees—in successful knowledge transfer, and thus pro-vided a valuable extension to prior research. Theoret-ically, it extends prior work (e.g., the knowledgetransfer perspective of expatriation) by revealing theboundary conditions of subsidiary absorptive capac-ify that may affect knowledge transfer effectivenessand subsidiary performance. The implication is that amore powerful theory of expatriation and subsidiaryperformance must include the characteristics of bothsides of the knowledge transfer equation: both expa-triates and subsidiary. Empirically, this study pro-vides another potential explanafion for the mixedfindings on the relationship between expatriate staff-ing and subsidiary performance. It may be tbat somesubsidiaries have greater absorptive capacify thanothers, and this makes expatriate knowledge transfermore successful.

In arriving at the third contribution, we utilizedtime-lagged objective subsidiary performance andcollected survey data from multiple sources. Be-cause we used a sample of Taiwanese subsidiariesoperating in the U.K., this study also extends theempirical literature to MNCs from emerging econ-omies that have not been extensively studied.

One interesting finding is that the indirect effectsof expatriate competencies in knowledge transferon subsidiary performance may be negative at lowlevels of subsidiary absorptive capacity. Deployingexpatriates is an expensive undertaking, andknowledge transfer is a long and costly process. Itconsumes time from both expatriates and! a subsid-iary's employees. Considering the costs, subsidiaryperformance may suffer when knowledge from ex-patriates is not as well assimilated and applied inthe subsidiary. It is also possible that knowledgereceived from expatriates may create conflict anddisruption when it is not well integrated with ex-isting routines because of low absorptive capacity.

Practical Implications

MNCs incur substantial costs in sending expatri-ates to subsidiaries because of high compensationand possible failiire in overseas assignments. To belpensure the success of knowledge transfer, it is criticalthat MNCs select expatriates with competencies inovercoming difficulties in the knowledge transfer

process. The abilify and motivation to transfer knowl-edge are critical. The expatriates must, for example,be willing to face a loss of prestige and power whenthe locals master the new knowledge and skills. Theexpatriates must also be willing to cope with culturaldifficulties in the transfer process. In addition, oppor-tvmify seeking through social ties is critical. Expatri-ates must be able to establish relationships with localemployees and use such ties to facilitate knowledgetransfer. Selection, however, is not the only way toobtain expatriates with such competencies. The nec-essary competencies can be taught. For example,MNCs can train expatriates in relaüonship-buildingskills and culturally sensitive ways of coaching andteaching. Such training may smooth the knowledgetransfer process and make it more effective. Overall,MNCs must go beyond the focus on technical skillsand aftend to competencies in transferringknowledge.

MNCs can also take steps to develop their sub-sidiaries' absorptive capacity. Doing so would fur-ther enhance the success of knowledge transfer andsubsidiary performance. MNCs are thus advised toprovide a clear vision as to what their subsidiariesare trying to achieve with the knowledge from theirparent firms. Some human resource practices suchas job rotation may enhance absorptive capacity(Jansen et al., 2005). MNCs may rotate subsidiaryemployees to positions at the headquarters—a pro-cess known as "inpatriation" (Peng, 2011: 519).They may also train subsidiary employees on mul-tiple languages and functional skills. In addition,MNCs may provide a dense, socially connectedenvironment for subsidiary employees to developtrust and cooperation in knowledge transfer.

Limitations and Future Research Directions

This study has at least five limitations that pointout future research directions. First, we did notestablish causality for the relationships examined.For example, greater knowledge received by a sub-sidiary may have led expatriates to believe thatthey are capable of transferring knowledge. It isalso possible that more competent expatriates weresent to subsidiaries further along in the knowledgetransfer process. Second, the number of expatriatesdid not significantly predict subsidiary perfor-mance, but the sample subsidiaries mostly playedan implementor role. It is possible that the numberof expatriates is more important when subsidiariesplay the role of integrated players (i.e., both receiv-ing a high knowledge inflow from their parent andgiving a high knowledge outflow to the parent[Gupta & Govindarajan, 1991]). In that situation,expatriates must not only transfer knowledge (in

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944 Academy of Management Journal August

both directions) but also coordinate with the par-ent. The high level of interdependence and theresulting integration needs are likely to make expa-triates particularly important. Future researchneeds to examine whether our findings generalizeto other types of parent-subsidiary relationships.

Third, the expatriate motivation measure in thisstudy captured the willingness or intention of expa-triates. Theoretically, the actual effort by expatriatesshould have a stronger relationship with knowledgereceived by the subsidiary in which they work. Inother words, our findings regarding expatriate moti-vation should be more conservative. Future researchmay replicate our findings by using different mea-sures of expatriate motivation. Fourth, this study fo-cused on knowledge transfer to subsidiaries. An in-teresting future line of research would be to examinewhat facilitates knowledge transfer from subsidiariesto a parent. Finally, this study focused on MNCs froman emerging economy operating in a developed econ-omy. Although there is no theoretical reason to be-lieve that our model would work differently forMNCs from a developed economy operating in anemerging economy, it would be useful to replicate thestudy in that context.

Conclusions

We have identified three dimensions of expatri-ate competencies in knowledge transfer and exam-ined their indirect effects, via knowledge received,on subsidiary performance moderated by subsid-iary absorptive capacity. Theoretically, we suggestthat expatriation can be used more effectively as aknowledge transfer mechanism when certain con-ditions are met. Empirically, we have found thatexpatriates must have the competencies to transferknowledge and subsidiaries must have the capacityto absorb such knowledge. In conclusion, whenselecting expatriates for overseas assignments,MNCs should go beyond the focus on technicalskills and consider competencies in knowledgetransfer. To achieve the greatest knowledge transferand the best subsidiary performance, MNCs shouldconsider developing subsidiary absorptive capacityat the same time.

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APPENDIX A

Scale Validation for Expatriate Ability, Motivation,and Opportunity Seeking

To further assess the construct validity of the mea-sures, we collected additional data from 92 Taiwaneseexpatriates working in the U.K. To measure expatriateability, motivation, and opportunity seeking in knowl-edge transfer, we used the same items described in theMethods section. The respondents were asked to thinkabout expatriates in the suhsidiary in which they wereworking and rate the extent to which they agreed that theitems acciu-ately described those expatriates as a whole.On average, these expatriates had heen living in the hostcountry for three and a half years and had worked fortheir current parent firms an average of eight and a halfyears. Eighty-six percent of the sample's memherswere male.

To assess discriminant validity, we conducted a seriesof CFAs. First, we examined a three-factor model thatincluded expatriate motivation, ahility, and opportunityseeking in knowledge transfer and compared it withthree two-factor models and with one one-factor model.The three-factor model, in which the factors were corre-lated, fit the data well (;^ = 26.98, df = 5, p < .01,RMSEA = .06, CFI = .95, GFI = .95, TLI = .93) and betterthan all three two-factor models. For example, the three-factor model fit better than the two-factor model in whichahility and motivation were combined (A;^ = 38.66,àdf = 1, p < .01; RMSEA = .09, CFI = .87, GFI = .87,

TLI = .85). The three-factor model also fit hetter than theone-factor model (A^^ = 58.24, At// = 2, p < .01; RM-SEA = .12, CFI = .81, GFI = .81, TLI = .80). Second, weevaluated a second-order factor model in which expatri-ate ahility, motivation, and opportunity seeking (i.e., thefirst-level factors) were assumed to reflect a second-levellatent factor. The result indicated a poor fit (y^ = 87.02,df = 6, p < .01, RMSEA = .14, CFI = .80, GFI = .80,TLI = .79). Overall, these results supported the discrim-inant validity of the measures.

To assess their convergent validity, we included in thesurvey several variables expected on theoretical groimdsto converge with expatriates ability, motivation, and op-portimity seeking for knowledge transfer. For expatriateability in knowledge transfer, we included a two-itemmeasiue for expatriate technical skills (sample item,"The expatriates possess superior technological knowl-edge" (Wang et al , 2009)). The two measures correlatedsignificantly with each other (r = .70). For expatriatemotivation for knowledge transfer, we referred to theten-item test-taking motivation scale of Arvey and col-leagues (1990), which has a combination of items onintention and actual exertion of effort. We adapted thescale to suit our context (e.g., "I want to do well on thistest" was adapted to "Expatriates in this subsidiary wantto do well in transferring parent knowledge to the suh-sidiary," and "I push myself to work hard on this test"was adapted to "Expatriates in this suhsidiary pushthemselves to work hard on transferring parent knowl-edge to the suhsidiary").

We also referred to a three-item motivation to learnscale from Colquitt and Simmering (1998). This measureis similar to ours in that hoth capture intention or will-ingness rather than the actual exertion of effort. Simi-larly, we adapted the items to suit our context. "I willexert considerable effort in learning this material" wasadapted to "Expatriates in this subsidiary will exert con-siderable efi'ort to transfer parent knowledge to the sub-sidiary"; "I will try to learn as much as I can of thismaterial" was adapted to "Expatriates in this subsidiarywill try to transfer as much parent knowledge as they canto the suhsidiary"; and "I have a strong desire to learn thematerial covered in this course" was adapted to "Expa-triates in this subsidiary have strong desires to transferparent knowledge to the suhsidiary." Our measure ofexpatriate motivation for knowledge transfer correlatedsignificantly with the adapted measures from Arvey et al.(1990) and Colquitt and Simmering (1998) (r = .65 and88, respectively).

For expatriate opportunity seeking, we could not iden-tity measures of the same construct. Because expatriateopportunity seeking in our study reflects the search forand utilization of resources and opportunities throughsocial relationships, we expected that it should correlatesignificantly with measures of relational or social capital.We referred to a three-item scale for measuring social ties(Hansen et al., 2005) and adapted the items to this con-text. "From you regularly seek information and ad-vice to help your project work" was adapted to "Expatri-ates in this suhsidiary regularly seek information andadvice to cope with harriers to transferring parent knowl-

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948 Academy of Management Journal August

edge to the subsidiary"; "To you go on a regular basisto get buy-in for your work" was adapted to "Expatriateswould go on a regular basis to get buy-in for transferringparent knowledge to the subsidiary"; and "With youinteract informally as friends" was adapted to "Expatri-ates interact informally with friends (e.g., through socialactivities) to cope with barriers to transferring parentknowledge to the subsidiary." Our measure of expatriateopportunity seeking in knowledge transfer correlated sig-nificantly with the adapted measure from Hansen andcolleagues (2005) (r = .81). The Cronbach's alpha reli-ability coefficients for expatriate ability, motivation, andopportunity seeking in knowledge transfer were .91, 90,£ind .92, respectively. Overall, the results indicate thatthe measures were valid and reliable.

To further assess the distinctiveness of knowledge re-ceived by the subsidiary and subsidiary absorptive ca-pacity, we also included items for them in the scalevalidation study. CFA results showed that the two-factormodel fit the data well ix" = 36.27, df = 7, p < .01,RMSEA = .05, CFI = .92, CFI = .91, TLI = .90), and hada better fit than the one-factor model (>^ = 107.40, df= 8,p < .01, RMSEA = .14, CFI = .78, GFI = .76, TLI = .75):A;^ = 69.13, Ad/ = 1, p < .01. As in the main study, thecorrelation between the two was moderate (r = .39).Further details about the validation study are availableupon request.

Yi-Ying Chang ([email protected]) is an assis-tant professor at National Taiwan University of Scienceand Technology. She received her Ph.D. from Loughbor-ough University. Her research interests are human re-source management, intellectual capital, organizationalambidexterity, and firm performance.

Yaping Gong ([email protected]) is an associate professorat the Hong Kong University of Science and Technology.He received his Ph.D. from The Ohio State University.His research interests include strategic human resourcemanagement, international human resource manage-ment, expatriate management, goal orientation, and em-ployee creativity.

Mike W. Peng ([email protected]) is the JindalChair of Global Strategy at the Jindal School of Manage-ment, University of Texas at Dallas. He received his Ph.D.from the University of Washington. His research interestsare global strategy, international business, and emergingeconomies, with a focus on the institution-based view.

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