Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 Reverse Knowledge Transfer from Subsidiaries to Multinational Companies Myung-Su Chae1, Gap-Yeon Jeong2 and Byung-il Park3 Although examinations of reverse knowledge transfer (RKT) from subsidiaries to parent firms are increasing, the debate discussing primary determinants influencing RKT has not reached academic consensus. By incorporating different facets of the phenomenon, we draw an overall picture for RKT. We advance a series of hypothesis to achieve the research objective by using a sample of subsidiaries in South Korea. By doing this we reveal that ‘market knowledge application by MNCs’ significantly depends on ‘market knowledge absorption by subsidiaries’, ‘socialization mechanisms’, ‘knowledge relevance between MNCs and subsidiary’ and ‘absorptive capacity of MNCs’. In addition, ‘knowledge relevance between MNCs and subsidiaries’ and ‘absorptive capacity of MNCs’ moderate the positive relationship between ‘market knowledge absorption by subsidiaries’ and ‘market knowledge application by MNCs’. JEL Codes: M16, M31 and M39 1. Introduction There is a common understanding that knowledge is one of the key organizational assets for multinational corporations (MNCs) to maintain and strengthen competitive advantages. However, one problem is that no single MNC possesses sufficient knowledge to efficiently compete against other competitors in the global arena. Thus, MNCs often attempt to develop and improve their organizational competitiveness by integrating and blending various sources of knowledge generated internally within MNC networks (Lane, Salk and Lyles, 2001). In this process, MNC subsidiaries often play a pivotal role by absorbing information that resides in the local environment and reverse transferring it to their headquarters (Ambos, Ambos and Schlegelmilch, 2006; Subramaniam and Venkatraman, 2001). These subsidiaries help MNCs to tap into, and revitalize, dispersed knowledge sources, as a crucial ingredient of the group‟s wider creative program (Pearce and Papanastassiou, 2006). These processes are expected to contribute to the richness of the core of knowledge available to the MNC (by their interactive operations in globally dispersed environments). Given the importance of subsidiaries to the competitiveness of MNCs, researchers increasingly attempt to identify primary factors influencing reverse knowledge transfer (RKT) and add valuable contributions to current knowledge. The RKT (i.e., knowledge transfer from foreign subsidiaries to parent companies) is one important process in the intra-MNCs knowledge transfer phenomenon that has recently received attention (Eden, 2009). Previous studies on RKT have employed fragmentary theoretical concepts in conducting similar empirical examinations. That is, some studies emphasized a learning organization‟s (i.e., MNCs‟) learning capability and absorptive capacity (e.g., Ambos et al., 2006), whereas others highlighted relational capital between knowledge transferors and acquirers as a catalyst to enhance a favorable learning environment Dr. Myung-Su Chae, College of Business Administration, Hankuk University of Foreign Studies, South Korea. Email : mschae@hufs.ac.kr Dr. Gap-Yeon Jeong, College of Business Administration, Hankuk University of Foreign Studies, South Korea. Email : kingkap040@hufs.ac.kr Dr. Byung-il Park, College of Business Administration, Hankuk University of Foreign Studies, South Korea. Email : leedspark@hufs.ac.kr 1 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 (e.g., Noorderhaven and Harzing, 2009). Some other scholars exploring knowledge acquisition by headquarters suggest that learning is not possible without social embeddedness (i.e. the subsidiary is deeply embedded in the local social network) (e.g., Schultz, 2001) or knowledge relatedness (e.g., Foss and Pedersen, 2002), which is a circulative link to a subsidiaries‟ absorptive ability in RKT discussions. In contrast, Gupta and Govindarajan (2000) view the maximization of knowledge flow within MNC networks as not plausible without the presence of appropriate knowledge integration mechanisms. These explanations above clearly indicate that although the number of empirical examinations on RKT is rising, limitations still linger. To reiterate, previous studies to date have emphasized fragmentary components by observing partial aspects of the phenomenon. Due to this, a consensus on key factors influencing RKT has not yet been reached. For example, Ambos and Ambos (2009) suggest that the development of intra-MNCs trust relationship is a determinant of RKT, whereas Yang, Mudambi and Meyer (2008) argue that the role taken by subsidiaries positively affects knowledge flow between MNCs and their subsidiaries, and the list goes on. Therefore, we will try to fill the gap by drawing an overall picture for RKT research. Secondly, to the best of our knowledge, determinants influencing RKT have been examined mainly by exploring their cause-and-effect relationships, despite the complex interactions existing among those determinants (Najafi-Tavani, Giroud and Sinkovics, 2012). Therefore, we need to figure out and solve this complexity. Thirdly, previous studies have focused on finding the determinants of RKT in the perspective of parent companies. However, when examining knowledge transfer, we need to identify it both in the perspective of parent companies and subsidiaries (Rabbiosi, 2011). Based on this idea, we will attempt to comprehensively observe the issues related to RKT within the research framework. In other words, grounded in the resource-based view and relational capital view of MNCs, we consider a learning process where overseas subsidiaries absorb knowledge in local markets and then share, transfer, and have it utilized by parent firms. 2. Literature Review: Reverse Knowledge Transfer Traditionally, knowledge has been transferred from MNCs to subsidiaries in a forward knowledge transfer pattern (Yang et al., 2008). However, researchers recognize that MNCs also need to fully exploit knowledge and skills possessed by each subsidiary in order to maintain competitiveness by combining the capabilities of the whole network (Subramaniam and Venkatraman, 2001). Subsidiaries are able to tap local markets for new knowledge which will be diffused and utilized within the MNC networks (Foss and Pedersen, 2002). This knowledge often functions as a useful means for MNCs to choose appropriate global strategies. This implies that researchers generally acknowledge that knowledge can be transferred from subsidiaries to MNCs. Meanwhile, Gupta and Govindarajan (2000) suggest three potential determinants for RKT. First, the value of knowledge is held by subsidiaries. Second, various incentive systems are motivating the acceleration of knowledge transfer. Third, a relational system is between MNCs and subsidiaries. Although this study is well-known and often cited, its drawback is that it does not consider the influence stemming from the attributes of concerned entities exchanging knowledge. Hakanson and Nobel (2001) argue that knowledge absorbing activity of overseas subsidiaries is a starting point initiating RKT, and also suggest that local market network embeddness as a factor that can wield huge influence on knowledge absorption. According to Schultz (2001), overseas subsidiary‟s accessibility toward local market knowledge could affect RKT. In contrast, Zhou and Frost (2003) shed light on the importance of a subsidiary‟s role in bringing a competitive edge to MNCs, and they point out that new value can be developed when knowledge absorbed by overseas subsidiary is transferred to MNCs. This study undertakes an experiment 2 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 on the innate characteristics of overseas subsidiaries amassing knowledge through close contact with the local environment, but the discussion resides only in the catalysts promoting the absorption of local management techniques (Almeida and Phene, 2004). A welcome exception is Adenfelt and Lagerstrom (2008) and they consider subsidiaries as an organization creating local market knowledge through contact with customers, providers and other business partners in a host market. However, elements included in their research framework are limited to MNCs‟ ability to recognize new external information. In the same vein, empirical studies on RKT tend to increasingly attempt to identify influential factors for the topic. Piscitello and Rabbiosi (2006) try to answer the question of whether a company‟s knowledge transfer mechanism, subsidiary‟s role, subsidiary‟s autonomy and subsidiary‟s local market embeddedness can affect RKT. They uncover that knowledge of person-based mechanisms, competence-creating subsidiary and deeply embedded subsidiary‟s knowledge influence RKT. Similarly, Ambos et al. (2006) examine the components that will ease knowledge acquisition by MNCs from subsidiaries. Their findings indicate that the subsidiary‟s competitive advantage in the host market, subsidiary‟s strategic role and parent company‟s absorptive capacity positively stimulate RKT. Li, Barner-Rasmussen and Bjorkman (2007) document the significant effect of the relationship between economic status of the host market where subsidiaries are operating and RKT. In particular, their interesting outcome is that there is a disparity in the level of RKT between overseas subsidiaries located in developed countries and those established in developing economies, and that economic status of the host market can moderate the relationship between social capital and RKT in MNC networks. From the results, they suggest that subsidiaries doing business in developing economies should endeavor to develop social capital with parent firms and other subsidiaries within the networks. As shown, current studies have a propensity to focus on certain aspects of RKT and neglect to incorporate all processes of the issue by simultaneously considering absorption, sharing, transference, and the use of new information by MNCs. Our study contributes extant knowledge by filling this research gap. In terms of research context, Yang et al. (2008) analyze factors that affect conventional knowledge flows transferred from MNCs to subsidiaries, and reverse knowledge inflow transmitted from the latter to the MNC network by surveying subsidiaries in Hungary, Poland, and Lithuania. Here subsidiaries possessing a capability to absorb new local market knowledge and efficiently transfer it to parent firms are also good at conventional knowledge acquisition from parent firms. This is probably because subsidiaries, which function with a creative mandate (Manea and Pearce, 2006) reverse transfer local market knowledge and eventually strengthen MNC competitiveness, are strategically important miniatures and, thus, they are logically plausible to receive collaborative support from MNCs. As indicated, this study takes place in transitional economies, and to our best knowledge, no one has tried to explore RKT in Korea. We believe we will be able to extend our understanding on the issue by applying it to such an economy. 3. Hypotheses The relationship between market knowledge absorption by subsidiaries and knowledge integration mechanisms When overseas subsidiaries and MNCs (i.e., parent firms) have a complementary knowledge integration mechanism, RKT is perhaps accelerated. Knowledge integration mechanism refers to structural collaborative connectors which are used for inter-units knowledge and information 3 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 cooperation (Griffin and Hauser, 1991). According to Zahra and Nielsen (2002), knowledge integration mechanism functions as a lubricant in the RKT process, because it guides managers to ways to initially recognize the importance of learning, efficiently understand the attributes of knowledge, and adequate usage, eventually resulting in the enhancement of MNC competitiveness (De Luca and Atuahene-Gima, 2009). Such knowledge integration mechanism is divided into two different types: formalized integration and socialization (Gupta and Govindarajan, 2000). Formalized integration mechanism consists of formal organizational functions such as task force team and special committee adjusting relevant departments‟ business activities (Nadler and Tushman, 1988). These organizational functions often perform as a catalyst for RKT as (both MNC and subsidiary) employees actively exchange necessary information within the formal channel. On the other hand, socialization mechanism is a systematic instrument, which enlarges intimacy and trust among individuals and encourages interactions among subsidiaries within MNC networks (Gupta and Govindarajan, 2000). Thus it contributes to build the linkages between MNCs and subsidiaries, motivates sharing of invaluable market knowledge and logically facilitates RKT from subsidiaries to headquarters (Bartlett and Ghoshal, 1989). Meanwhile, Gupta and Govindarajan (2000) point out that the more diverse the paths of knowledge flow, the more knowledge integration mechanisms are activated and thus knowledge exchange between MNCs and subsidiaries can be successfully done. Birkinshaw, Nobel and Ridderstrale (2002) argue that in the case where the tacit level of technical knowledge is high, it will strengthen the use of the knowledge integration mechanism. Almeida, Dokko and Rosenkopf (2003) particularly emphasize that various official and unofficial integration mechanisms are necessary for MNCs to acquire new information. To sum up, the more the overseas subsidiary actively absorbs local-market-suit knowledge, the higher the possibility of increasing the usage of the knowledge integration mechanism in MNC networks (De Luca and Atuahene-Gima, 2009). Accordingly: Hypothesis 1: Market knowledge absorption of subsidiaries will positively influence the formalized integration mechanism of MNCs. Hypothesis 2: Market knowledge absorption of subsidiaries will positively influence the socialization mechanism of MNCs. The relationship between absorption of subsidiary market knowledge and its applications by MNCs (i.e., parent firms) Some subsidiaries are better able to enhance the value of their own knowledge by absorbing new local information and blending it with existing knowledge and then using it for business operations in local markets. These subsidiaries often achieve superior performance and competitiveness compared to other subsidiaries within MNCs. In that case, MNCs have a propensity to support such subsidiaries in order to seek an opportunity to learn invaluable local market knowledge through RKT (Rugman and Verbeke, 2001). In the same vein, Davenport and Prusak (1998) emphasize that once MNCs view certain subsidiaries as attractive cooperation partners possessing competitive information, the former usually vigorously attempts to learn and acquire the subsidiary knowledge. Gupta and Govindarajan (2000) argue that in this circumstance RKT to MNCs is actively undertaken and MNCs tend to apply the reverse transferred knowledge to commercial ends. In addition, it becomes particularly vivid when the knowledge owned by subsidiaries is unique and non-duplicable skills, such as specific market information (Bjorkman, Barner-Rasmussen and Li, 2004). In this regard: 4 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 Hypothesis 3: Market knowledge absorption of subsidiaries will positively influence its knowledge application by MNCs. The relationship between knowledge integration mechanisms and application of local market knowledge by MNCs It may be generally accepted as common wisdom that knowledge integration mechanisms need to be accurately exercised by MNCs in order to appropriately share external knowledge within MNC networks. This is because the use of knowledge integration mechanisms decreases the uncertainties on the breadth and the diffusion of knowledge distribution (Schreiner, Kale and Corsten, 2009). Similar commentaries can be easily found from previous studies. For instance, Bresman, Birkinshaw and Novel (1999) point out that richer knowledge integration mechanism are a precondition for knowledge use and application to take place in the perspective of knowledge acquirers. Meanwhile, Gupta and Govindarajan (2000) divided knowledge integration mechanisms between MNCs and subsidiaries into both formalized integration and socialization mechanisms and present them as antecedent variables in knowledge flow relationship. According to Szulanski (1996), the existence of formalized integration and socialization mechanisms facilitate knowledge development by creating trust and mutual exchange of knowledge. This is mainly because interactions of knowledge integration mechanisms within an MNC network enhances „depth‟, „breadth‟, and effectiveness of reciprocal knowledge use (Singh, 2005; Tsai, 2001), as well as increases knowledge accessibility and application of MNC units (Feinberg and Gupta, 2004). In addition, Ambos and Ambos (2009) conclude the discussion by confirming the positive effect of both formalized integration and socialization mechanisms on RKT and knowledge application by MNCs. Thus: Hypothesis 4: Formalized integration mechanism of MNCs will positively influence the application of local market knowledge by MNCs. Hypothesis 5: Socialization mechanism of MNCs will positively influence the application of local market knowledge by MNCs. The relationship between knowledge relevance between MNCs and subsidiaries and application of local market knowledge by MNCs Similar knowledge background is perhaps one of the most important elements for learning to occur in that when new knowledge has similar characteristics with information residing in an existing knowledge reservoir, learning organizations may not need to exercise experimental ways to absorb it and thus knowledge relevance logically plays a pivotal role in acquiring new skills (Park and Ghauri, 2011). In other words, as Powell, Koput and Smith-Doerr (1996: 120) indicate, “Knowledge facilitates the use of other knowledge. What can be learned is crucially affected by what is already known”. Previous studies investigating knowledge acquisition have long recognized the importance of „knowledge relatedness‟ as a key concept in organizational learning (Inkpen, 2000). Thus, researchers often highlight that the extent of RKT is enlarged in the case where both MNCs and subsidiaries share similar cognitive structure. Similarly to this contention, Park (2010) also indicates that among various components that may affect congruence knowledge base between two transferring and acquiring firms, knowledge relevance is a particularly significant element. In addition, Abecassis-Moedas and Mahmoud-Jouini (2008) propose that in many cases, local market knowledge which is learnt on the basis of local economy is useful for MNCs because the information through RKT may significantly contribute to new product development and headquarters‟ knowledge trajectory, which implies that the parent firms will seek to apply the new knowledge to commercial ends. Thus; 5 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 Hypothesis 6: Knowledge relevance between MNCs and subsidiaries will positively influence the application of local market knowledge by MNCs. Hypothesis 7: The higher the knowledge relevance between MNCs and subsidiaries, the higher the impact of subsidiaries’ knowledge absorption on the application of local market knowledge by MNCs. The relationship between absorptive capacity of MNCs and application of local market knowledge by MNCs As the most significant determinant of organizational learning, absorptive capacity has attracted huge attention from the research community. Due to its importance, many researchers have attempted to define it. For instance, Zahra and George (2002: 186) define it as a set of organizational routines and processes by which firms acquire, assimilate, transform and exploit knowledge to produce a dynamic organizational capability. However, the most widely cited is perhaps the definition given by Cohen and Levinthal (1990) who initially coined the concept: “the ability to recognize the value of new external information, assimilate it and apply it to commercial ends” (p.128). That is, if we apply absorptive capacity to RKT, it refers to the ability of MNCs to recognize the value of new local market knowledge and may involve a sense-making process whereby parent firms connect the new information to existing skills and an application activity to create new knowledge from it (Lane et al., 2001). Thus, the greater the absorptive capacity of the MNCs, the more knowledge it can acquire from subsidiaries. According to Lane et al. (2001) absorptive capacity is a moderating variable between the knowledge acquirer‟s learning activity and local market adaptability. They argue that a firm that has a good absorptive capacity can improve their performance by using knowledge transferred from outside, after combining it with its existing knowledge and transforming it to explicit information. These discussions lead to the following hypotheses: Hypothesis 8: Absorptive capacity of MNCs will positively influence the application of local market knowledge by MNCs. Hypothesis 9: The better the absorptive capacity of MNCs, the stronger the influence of subsidiaries' market knowledge absorption on the application of local market knowledge by MNCs. 4. Methodology 4.1 Sample Design and Research Method Viewing the MNC from the parent company and subsidiary perspective, our study identifies key determinants affecting the absorption, sharing, transmittance and the use of local market knowledge in RKT. To this end, this study used the dyad of foreign subsidiaries and their headquarters (i.e., MNCs) as the unit of analysis. The list of all foreign subsidiaries was obtained from the database of the Ministry of Knowledge Economy. This database is an official and reliable source of information on inward FDI in Korea, which covers all foreign investment activities undertaken in the market. Among these foreign subsidiaries we excluded the following samples. First, foreign subsidiaries which have been in business for less than two years are excluded, since it is logically difficult for foreign subsidiaries to efficiently absorb new local market knowledge in cases where they are not accustomed to a local environment due to relatively short operating experience. Second, small foreign subsidiaries with less than 50 employees are excluded, as most of them are perhaps personal or family businesses, which may not be actively involved in RKT to headquarters. Moreover, foreign subsidiaries with headquarters possessing minority ownerships are also excluded because those subsidiaries may not reflect the 6 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 phenomenon (i.e., knowledge flow) in the perspective of MNCs and thus they may not transfer local market knowledge to the parent firms. Through this process, 804 foreign subsidiaries were finally selected as the sample. Prior to the main survey, a pilot test was done and the preliminary questionnaire was sent to 10 executives in foreign subsidiaries and their headquarters. In our study, the sample for the pilot test was randomly chosen from the firms which have been in business for less than two years, as those companies would not overlap with those in the actual study sample. From this process it was found that respondents had difficulty in answering several items on the questionnaire, particularly when it came to understanding the concepts of market knowledge absorption and market knowledge application. Accordingly, a final draft of the questionnaire was revised to make it easier for respondents to understand. The researchers made calls to the selected sample firms to check for appropriate informants (mostly CEOs and executives), ask for cooperation through direct personal contact, ask the firms whether it would be possible to obtain the cooperation of headquarters and also identify possible participants at their parent firms (most potential respondents suggested general managers and directors), and explain the objectives of the research. From March to August 2012, the questionnaire was conducted of the foreign subsidiaries by visiting in person, sending e-mails and fax, and mail; and to their parent companies by e-mail and fax, and mail. A total of 262 responses (i.e., 148 foreign subsidiaries, 114 parent companies) were returned. Among them, 9 were unusable, and thus 253 responses (i.e., 145 foreign subsidiaries, 108 parent companies) were used in our analysis, representing a response rate of 32.6%. We tested the responses for non-response bias by using key parameters (detailed industry classification, origin of MNCs, as well as early versus late respondents). However, we found no significant differences in responses between the non-responding subsidiaries and parent companies with regards to two key parameters, or between the early respondents and the late respondents as well. Based on the results, we conclude that non-response bias was minimal. Comprehensive characteristics of the sample are shown in the following <Table 1>. 7 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 <Table 1> Characteristics of Sample Item Scale The number of respondents Responses Parent Company Subsidiary 108 145 42.7 Ownership in 52.3 Subsidiaries Nationality of our sample Japan USA China Europe Others 25 90 23 94 21 9.9 35.6 9.1 37.1 8.3 Customers of our sample B2B B2C 170 83 % 67.2 32.8 Item Scale 51% share or above 100% share Japan USA Nationality of China CEO of Europe Subsidiary Korea Others Below 30 hundred million 30~100 hundred Annual million Average 100~200 hundred Sales of million Subsidiary 200~500 hundred million Over 500 hundred million % 91 54 62.7 37.3 10 20 13 29 64 9 6.8 13.7 8.9 20.0 44.1 6.5 11 7.5 40 27.5 39 26.8 41 28.2 14 10.0 Machinery Electricity Electron Semiconductor Business Shipbuilding Characteristics Aviation of our sample Mold Home Appliance Vehicle Clothing Others 17 60 24 12 20 14 12 16 24 7 47 6.7 23.7 9.5 4.7 7.9 5.5 4.7 6.3 9.5 2.9 18.6 Age of Subsidiary 2~3 year 3~5 year 5~7 Year Over 7 year 33 36 35 41 22.7 24.8 24.1 28.4 50~100 people Size of Parent 100~200 people Company 200~500 people Over 500 people 33 25 31 19 30.5 23.1 28.7 17.7 Size of Subsidiaries 50~100 people 100~200 people 200~500 people Over 500 people 45 34 42 24 31.0 23.4 28.9 16.7 1.4 Variable Measurements Market knowledge absorption by subsidiaries was measured by a seven-item scale based on Likert-type responses (adapted from Simonin, 1999; Yi-Renko et al., 2001; De Luca and Atuahene-Gima, 2007). In contrast, the knowledge integration mechanism (i.e., formalized integration and socialization mechanisms) was assessed by a four-item scale based on Likert-type responses (modified from Gupta and Govindarajan, 2000; Bjorkman et al., 2004; Noorderhaven and Harzing, 2009). Knowledge relevance between MNCs and subsidiaries was calculated by a six-item scale based on Likert-type responses (adapted from Yang et al., 2008; Lee, Chen and Lu, 2009). Absorptive capacity of MNCs was measured by a five-item scale based on Likert-type responses (modified from Cohen and Levinthal, 1990; Lane et al., 2001). Finally, market knowledge application by MNCs (i.e., RKT) was assessed by a six-item scale based on Likert-type responses (revised from Ambos et al., 2006; Rabbiosi, 2011). All responses were: 1 = very little up to 7 = to a great extent, and the detailed descriptions on the measurement items are 8 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 explained in <Table 2>. <Table 2> Exploratory Factor Analysis Measurement Factor MKA1 MKA2 Market Knowledge Absorption by Subsidiaries MKA3 MKA5 MKA6 MKA7 Formalization Integration Mechanism FIM1 FIM2 FIM3 FIM4 SM1 Measurement Items The extent of knowledge absorption on customer information The extent of knowledge absorption on information for local competitors The extent of knowledge absorption on market environment The extent of knowledge absorption on local marketing tools The extent of knowledge absorption on local marketing skills The extent of knowledge absorption on local government regulation Interactions through regular meeting Interactions through regular report Interactions through the operation of taskforce Interactions through the operation of project team Provision of training program SM2 Participation of expatriates in daily routine Socialization Mechanism Knowledge Relevance between MNCs and Subsidiaries Absorptive Capacity of MNCs SM3 SM4 0.824 0.903 0.814 0.855 0.793 0.807 0.810 KR5 Similarity for distribution channel 0.828 AC1 Understanding extent for new knowledge 0.840 AC2 The possession of prior knowledge on information system facilitating the sharing of knowledge within organizations 0.803 RKT4 0.821 2.164 (9.42) 0.851 2.350 (10.83) 0.836 2.145 (9.21) 0.829 0.806 0.873 0.785 0.768 0.772 RKT3 2.388 (10.75) 0.851 Similarity for product Similarity for markets Similarity for customers Similarity for competitors RKT2 0.807 0.793 KR1 KR2 KR3 KR4 RKT1 2.140 (9.15) 0.843 0.806 0.802 AC4 AC5 0.876 0.829 Frequent communications between MNC and subsidiary top managements The possession of prior knowledge on local market information The extent of marketing skill retention Investments in on-board training The extent of knowledge application on customers The extent of knowledge application on competitors The extent of knowledge application on market know-how The extent of knowledge application on distribution know-how 2.394 (11.32) 0.810 SM5 AC3 Market Knowledge Application by MNCs Frequent face-to-face communications between employees Frequent Invitation of experts Factor Eigenvalue Cronbach's Loading (%) α 0.812 0.928 0.787 0.812 0.819 0.810 0.840 RKT5 The extent of knowledge on sales network 0.870 RKT6 The extent of knowledge on brand management 0.822 9 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 5. Results 5.1 Reliability and Validity Analysis Exploratory factor analysis To check unidimensionality of operationalized measures, we ran an exploratory factor analysis, as seen in <Table 2>. Each item designed in the main survey was grouped as we intended, and when we applied eigenvalue greater than one, a total of six dimensional factors were deducted. Additionally, to verify internal consistency, we also calculated Cronbach's alpha coefficient, and confirmed that most of them demonstrated over 0.6 coefficients. However, each one of the measurement items of market knowledge absorption by subsidiaries (MKA4) and knowledge relevance between MNCs and subsidiaries (KR6) showed relatively low factor loading that affects the reliability of variables and, thus, they were deleted(See <Table 2>). Confirmatory factor analysis After we ran an exploratory factor analysis and reliability verification of the sample data, we statistically re-examined based on discriminant validity and convergent validity and conducted a confirmatory factor analysis to examine whether there were contradictions between hypotheses developed from the basis of previous studies and our data (Anderson and Gerbing, 1998). There was no item deleted, because the level of significance of the measured variables‟ factor score appeared under 0.001 (See <Table 3>). <Table 3> Confirmatory Factor Analysis Standardized Construct Factor estimate MKA1 0.824 MKA2 0.903 Market 0.814 Knowledge MKA3 Absorption by MKA5 0.855 Subsidiaries MKA6 0.810 MKA7 0.829 FIM1 0.843 Formalized FIM2 0.806 integration FIM3 0.793 Mechanism FIM4 0.793 SM1 0.851 SM2 0.806 Socialization SM3 0.807 Mechanism SM4 0.810 SM5 0.782 KR1 0.891 Knowledge KR2 0.785 Relevance 0.799 between MNCs KR3 and KR4 0.846 Subsidiaries KR5 0.803 AC1 0.840 Absorptive AC2 0.803 Capacity of AC3 0.812 MNCs AC4 0.928 t value p value 10.243 11.828 10.053 10.745 10.004 10.481 10.410 10.253 9.743 9.743 10.989 10.585 10.680 10.778 10.184 10.754 10.681 10.699 10.737 10.708 12.683 12.033 12.214 13.296 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 Cronbach's α r 2 r AVE 0.876 0.477 0.227 0.702 0.807 0.394 0.155 0.537 0.821 0.521 0.271 0.608 0.851 0.439 0.193 0.621 0.836 0.447 0.199 0.611 10 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 AC5 RKT1 RKT2 Market Knowledge RKT3 Application by RKT4 MNCs RKT5 RKT6 2 0.787 0.812 0.819 0.810 0.840 0.870 0.822 10.536 11.404 11.522 11.329 11.861 12.163 11.712 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 0.829 0.543 0.295 0.736 χ (df) GFI AGFI RMR NFI RMSEA p>0.05 ≧0.90 ≧0.80 ≦0.08 ≧0.90 ≦0.08 239.427(51), p=0.000 0.916 0.876 0.034 0.947 0.058 In order for us to check adequacy to deduct each scales‟ optimal composition of items, it is necessary to look into χ2, GFI, AGFI, RMR, CFI, and RMSEA. We found that the value of χ2 does not meet the standard, but most of the other model fit indexes demonstrate satisfactory model fit; 0.916, 0.876, 0.034, 0.947, and 0.058, respectively. To verify internal consistency of each construct, we used Cronbach‟s alpha coefficient and every factor used for measurement showed over 0.7, which is the standard of internal consistency (Nunnally and Berstein, 1994). Also, we tested CR (convergent validity) and AVE (average variance extracted). The result was that constructs exceeded the standard value (CR>0.5, AVE>0.7) and every measured item was confirmed to have convergent validity (Hair, Anderson, Tahtam and Black, 2005). When the value of average variance extracted for each factor is bigger than square value of two factors‟ coefficient, it is right to say there is discriminant validity. As we can see from <Table 3>, every factor‟s average variance extracted values exceeded square value of correlation coefficient, which confirms the discriminant validity of our data. 5.2 Hypothesis Test The result of the model fit is illustrated as the following: χ2=232.857 (d/f=51, p=0.000), GFI=0.917, AGFI=0.886, CFI=0.931, RMR=0.048, RMSEA=0.067. χ2 is slightly below the standard but it is still possible to analyze the model (Hair et al., 2005). The structural equation model was based on the path coefficient from „market knowledge absorption by subsidiaries‟, „formalized integration and socialization mechanisms‟, „knowledge relevance between MNCs and subsidiaries‟, „absorptive capacity of MNCs‟ and „market knowledge application by MNCs‟ (See <Table 4>). <Table 4> Hypothesis Test Results Hypothesis Path coefficient Standardized Path coefficient t value p value Result Market Knowledge Absorption by Subsidiaries-Formalized integration Mechanism 0.364 0.396 6.823 0.000 Accept Market Knowledge Absorption H2 by Subsidiaries- Socialization Mechanism 0.457 0.413 7.180 0.000 Accept Market Knowledge Absorption by Subsidiaries–Market H3 Knowledge Application by MNCs 0.209 0.231 2.473 0.032 Accept H1 11 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 Formalized integration H4 Mechanism–Market Knowledge Application by MNCs Socialization MechanismH5 Market Knowledge Application by MNCs Knowledge Relevance between MNCs and Subsidiaries H6 –Market Knowledge Application by MNCs Absorptive Capacity of MNCs – H8 Market Knowledge Application by MNCs 0.102 0.115 1.679 0.140 Reject 0.407 0.438 7.381 0.000 Accept 0.328 0.439 7.736 0.000 Accept 0.394 0.371 6.169 0.000 Accept Hypothesis 7 and 9 are associated with moderating effect of the knowledge relevance between MNCs and subsidiaries and absorptive capacity of MNCs with respect to the relationship between „market knowledge absorption by subsidiaries‟ and „market knowledge application by MNCs‟. To observe a moderating effect in a structural equation, it can be examined through a comparison of χ2 values of the free model and the limited one. The free model is to differently assign the coefficient sizes of the „relationship of the knowledge relevance between MNCs and subsidiaries‟ and „absorptive capacity of MNCs‟. In contrast, the limited model is to create those coefficient sizes as the same figure. At this point, if the χ2 value in free model is bigger than that of limited one, it can be concluded that moderating effect exists (Hair et al., 2005). First, the following is the result on the moderating effect of knowledge relevance between MNCs and subsidiaries: In accordance with free model, χ2 value=126.518, d.f=54, path coefficient=0.267, t=4.176, p=0.000. In terms of limited model, χ2 value=128.729, d.f=56, path coefficient=0.235, t=3.972, p=0.000. The following is the results on the moderating effect of MNCs‟ absorptive capacity: With respect to free model, χ2 value =126.327, d.f=54, path coefficient=0.291, t=3.544, p=0.000. In terms of limited model, χ2 value =128.518, d.f=56, path coefficient=0.274, t=3.162, p=0.000. <Table 5> demonstrates the overall results. The result shows, the „knowledge relevance between MNCs and subsidiaries and absorptive capacity of MNCs are to strengthen the positive relationship between „market knowledge absorption of subsidiaries‟ and „application of local market knowledge by MNCs.‟ The results are summarized in <Table 5>. <Table 5> Moderating Effect of Knowledge Relevance and Absorptive Capacity Free Model Limited Model 2 126.518 54 0.267 4.176 128.729 56 0.235 3.972 2 126.327 54 0.291 3.544 128.518 56 0.274 3.162 H7 Moderating Effect of Knowledge Relevance χ d.f path coefficient t value H9 Moderating Effect Of Absorptive Capacity χ d.f path coefficient t value 6. Findings and Implications First, hypothesis 1 and 2 are associated with the relationship between „market knowledge absorption of subsidiaries‟ and „formalized integration and socialization mechanisms‟. We find that local market knowledge absorbed by subsidiaries significantly influences both formalized integration and socialization mechanisms. This result is meaningful in that we confirm market 12 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 knowledge absorption of subsidiaries is somehow related to the knowledge integration mechanism as its precedent factor. In other words, local market knowledge absorbed by subsidiaries often considered as an element that merely has the potential to become a competitive advantage for parent firms, and it itself is not usually viewed as a valuable resource for the latter to use immediately (e.g., Andersson, Forsgren and Holm, 2002). Unlikely conventional wisdom, our result indicates that local market knowledge absorbed by subsidiaries can function as a vehicle to enhance the competitiveness of parent firms, and thus MNCs attempt to balance the „transference of foreign knowledge and technology to subsidiaries‟ and „acquisition of local market information from their overseas miniatures‟ through knowledge integration and socialization mechanisms. Hypothesis 3 is a discussion on the relationship between „market knowledge absorption of subsidiaries‟ and „market knowledge application by MNCs‟. Our result reveals that market knowledge absorption of subsidiaries is verified as a factor to be influential to market knowledge application by MNCs. It means that active knowledge absorption of subsidiaries increases the chance for parent firms to apply it to commercial ends and eventually improves organizational performance. We also find that that there is a virtuous circle structure between the two elements. This finding is parallel with Krogh, Ichijo and Nonaka (2000). They argue that knowledge management is an instrumental tool for innovation in any organization as a means of change management. Therefore, MNCs should upgrade the level of market knowledge absorption of subsidiaries for their sustainable development, so that MNCs will also be able to practically use the knowledge by incorporating it into their knowledge reservoir. Thus, parent firms need to grant authority to overseas subsidiaries to absorb new local information in their own way to help them to fulfill their role as a knowledge messenger within MNC networks. Hypothesis 4 and 5 are related to the relationship between „formalized integration and socialization mechanisms‟ and „market knowledge application by MNCs‟. The result shows that the formalized integration mechanism does not have an impact on market knowledge application by parent firms. However, socialization mechanism is proven to be influential. This implies that the application of market knowledge absorbed by subsidiaries can be increased through a non-formalized socialization mechanism. This outcome is counter to the explanations suggested by the previous studies shedding light on the role of formalized integration mechanism (e.g., Bartlett and Ghoshal, 1989). However, we can understand the result if we change our way of thinking. That is, the relationship between MNCs and subsidiaries is highly hierarchical. In this situation, coercive formalized mechanisms exercised by MNCs may induce subsidiaries‟ antagonisms and subsequently generated detrimental effect on knowledge flow with subsidiaries, whereas socialization mechanisms represented by collaborative parent support may yield better result on knowledge exchange by building trust between them (Park and Ghauri, 2011). Thus, we infer that MNCs are required to invest more on operating socialization mechanisms rather than formalized integration mechanisms. Hypothesis 6 is about the relationship between „knowledge relevance between MNCs and subsidiaries‟ and „market knowledge application by MNCs‟. The result shows their close association, and it corresponds with the findings by previous studies, which argue that when there is a high relevance between transferred information and the existing knowledge of learning organizations, the potential of new knowledge can be quickly noticed, thereby using the knowledge efficiently (Mudambi and Navarra, 2004). Therefore, when deciding whether to use local market knowledge transferred from subsidiaries for commercial purposes, MNCs should widen the range of its understanding toward the information, and for this, the knowledge relevance between inflowing and existing knowledge plays an important role. 13 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 Hypothesis 7 is to examine the role of „knowledge relevance between MNCs and subsidiaries‟ and „the impact of knowledge absorption by subsidiaries on knowledge application by MNCs‟. Our result reveals that the higher the knowledge relevance between knowledge acquiring and transferring organizations, the stronger the influence of market knowledge absorption of subsidiaries on market knowledge application by MNCs. Such a result is parallel with comments from current empirics indicating that knowledge relevance can moderate the relationship between knowledge providers and recipients (Abecassis-Moedas and Mahmoud-Jouini, 2008). The implication derived from the result is that knowledge relevance, knowledge absorption and knowledge application has sequential effects. Hypothesis 8 is to test the relationship between „absorptive capacity of MNCs‟ and „their market knowledge application‟. Hypothesis 9 is to examine the role of „absorptive capacity of MNCs‟ and „the impact of knowledge absorption by subsidiaries on knowledge application by MNCs‟. Our results demonstrate support for the hypotheses by showing their close association. Such results are also in accordance with the findings by previous studies shedding light on the importance of absorptive capacity to apply new information into commercial ends (Gupta and Govindarajan, 2000). In other words, absorptive capacity and performance enhancement are not separate issues and thus MNCs should seek to escalate their learning capabilities, so that they will eventually be able to improve organizational competitiveness. 7. Summary and Conclusions The study aims to identify key determinants affecting the absorption, sharing, transmittance and use of local market knowledge in the Korean context. In the process, the knowledge-based view of MNCs was used to achieve these objectives. Our results show that the market knowledge absorption by subsidiaries is a critical component to influence the knowledge integration mechanisms of MNCs (i.e. formalized integration mechanism and socialization mechanism) and the application of market knowledge by MNCs. Furthermore, socialization mechanisms, knowledge relevance between MNCs and subsidiaries, and the absorptive capacity of MNCs are keys for MNCs in applying local market knowledge transferred from subsidiaries. In addition, the knowledge relevance between MNCs and subsidiaries and the absorptive capacity of MNCs moderate the positive relationship between market knowledge absorption by subsidiaries and market knowledge application by MNCs. This research additionally includes the comparison between direct impact of market knowledge absorption by subsidiaries on the market knowledge application by MNCs and the indirect impact through knowledge integration mechanisms of MNCs. We discover that in the context of RKT, local market knowledge absorbed by subsidiaries is not likely to be directly utilized by MNCs and suggest that knowledge sharing through integration mechanisms is critical for MNCs and subsidiaries to exchange their knowledge reservoirs and eventually for learning to occur between them. This research has sought to make a contribution to the understanding of the unclear relationship of market knowledge absorption by subsidiaries on market knowledge application by MNCs in the context of RKT. In particular, the primary contribution to strategic management literature was to identify and examine the implications of the effects of market knowledge absorption by subsidiaries and knowledge integration mechanism of MNCs as an important feature of market knowledge application by MNCs. While both market knowledge absorption by subsidiaries and knowledge integration mechanisms of MNCs in RKT have been acknowledged before, they have typically been treated as independent dimensions. This has led to conflicting results of the impact of market knowledge absorption by subsidiaries and knowledge integration mechanisms of MNCs on market knowledge application by MNCs. In this research, we have argued and empirically substantiated that to resolve the ambiguity in the literature regarding the effect of 14 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 market knowledge absorption by subsidiaries on market knowledge application by MNCs, it is crucial to consider which knowledge integration mechanisms to emphasize. In addition, this study extends and advances understanding of knowledge-based view of MNCs. According to this view, knowledge management is a main success factor for MNCs that need to compete against local firms in alien environments, and thus the subsequent process of knowledge management is also important. Although scholars in knowledge management may have different opinions, most of them (e.g., Rugman and Verbeke, 2001) perceive that its process is consisted of knowledge absorption, sharing and application. That is, as at the initial stage, learning organizations absorb knowledge through mechanisms which help them to understand and assimilate new information, and it is referred to as knowledge absorption (Krogh et al., 2000). In contrast, knowledge sharing facilitates the distribution of the new information within the organizations (Alavi and Leidner, 2001), and knowledge application is a completion of learning by commercially using the acquired new information (Gold, Malhotra and Segars, 2001). Based on these explanations, this study attempts to confirm that RKT is also a part of the knowledge management process and various factors in the process of mutual interaction. In the context of RKT, subsidiaries aim to absorb useful knowledge through its knowledge mechanisms from local market. During the process, experience and knowledge are shared not only between MNCs and subsidiaries but also between overseas subsidiaries through knowledge integration mechanisms. Then, the knowledge shared through knowledge integration mechanisms can be eventually applied for MNCs to enhance their performance and elevate organizational competitiveness. Our results suggest that RKT is significantly influenced by knowledge management process of MNCs and extends the knowledge-based view by empirically illuminate the relationship among factors in the RKT process and identify key components in each process. Although this study significantly contributes to current knowledge on RKT and provides invaluable implications to MNCs, we acknowledge that there are some limitations. First, our research context is geographically restricted, and thus it is hard to say if our findings are fully generalizable. Thus, we would like to suggest that future studies use our research framework and test it in other contexts, such as the BRICs. Second, although there are different types and facets of knowledge, we tackle only one, which is local market knowledge. In this vein, we propose that examination of other knowledge forms can be another avenue for future research. Third, since we asked respondents to measure variables we confess to the possible presence of common method bias. In order to avoid such a problem we agree that it is better to incorporate objective data and information into future analysis. References Abecassis-Moedas, C and Mahmoud-Jouini, SB 2008, Absorptive capacity and source-recipient complementarity in designing new products: An empirically derived framework. The Journal of Product Innovation Management, Vol. 25, pp.473-490. Adenfelt, M and Lagerstrom, K 2008, The development and sharing of knowledge by centres of excellence and transnational teams: A conceptual framework, Management International Review, Vol 48, No. 1, pp.319-338. Alavi, M and Leidner, DE 2001, Review: Knowledge management and knowledge management systems: Conceptual foundations and research issues, MIS Quarterly, Vol. 25, No. 1, pp.107-136. Almeida, P and Phene, A 2004, Subsidiaries and knowledge creation: The influence of the MNC and host country on innovation, Strategic Management Journal, Vol. 25, No. 1, pp.847-864. 15 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 Almeida, P, Dokko, G, and Rosenkopf, L 2003, Start-up size and the mechanisms of external learning: Increasing opportunities and decreasing abilities?, Research Policy Vol. 32, No. 2, pp.301-315. Ambos, TC and Ambo, B 2009, The impact of distance on knowledge transfer effectiveness in multinational corporations, Journal of International Management, Vol. 15, No. 1, pp.1-14. Ambos, TC, Ambos, B, and Schlegelmilch, BB 2006, Learning from foreign subsidiaries: An empirical investigation of headquarters' benefits from reverse knowledge transfers, International Business Review, Vol. 15, No. 1, pp.294-312. Anderson, JC and Gerbing, DW 1988, Structural equation modeling in practice: A review and recommend two-step approach, Psychological Bulletin, Vol. 103, No. 2, pp.411-423. Andersson, U, Forsgren, M, and Holm, U 2002, The strategic impact of external networks: Subsidiary performance and competence development in the multinational corporation, Strategic Management Journal, Vol. 17, No. 1, pp.976-996. Bartlett, CA and Ghoshal, S 1989, Managing across Borders: The Transnational Solution. Boston, MA: Harvard Business School Press. Birkinshaw, JM, Nobel, R, and Ridderstrade, J 2002, Knowledge as a contingency variable: Do the characteristics of knowledge predict organization structure?, Organization Science, Vol. 13, pp.274-289. Bjorkman, I, Barner-Rasmussen, W, and Li, L 2004, Managing knowledge transfer in MNCs: The impact of headquarters control mechanisms, Journal of International Business Studies, Vol. 35, No. 1, pp.443-455. Bresman, H, Birkinshaw, J, and Nobel, R 1999, Knowledge transfer in international acquisition, Journal of International Business Studies, Vol. 30, No. 3, pp.439-462. Cohen, W and Levinthal, D 1994, Fortune favors the prepared firms, Management Science, Vol. 40, No. 2, pp.227-251. Davenport, TH and Prusak, L 1998, Working Knowledge Managing What Your Organization Knows. Boston, MA: Harvard Business School Press. De Luca, LM and Atuahene-Gima, K 2009, Market knowledge dimensions and cross-functional collaboration: Examining the different routes to product innovation performance, Journal of Marketing, Vol. 71, No. 1, pp.95-112. Eden, L 2009, Letter from editor in chief: Reverse knowledge transfer, culture clashes and going international, Journal of International Business Studies, Vol. 40, pp.177-180. Feinberg, SE and Gupta, AK 2004, Knowledge spillovers and the assignment of R&D responsibilities to foreign subsidiaries, Strategic Management Journal, Vol. 25, pp.823-845. Foss, NJ and Pedersen, T 2002, Transferring knowledge in MNCs: The role of sources of subsidiary knowledge and organizational context, Journal of International Management , Vol. 8, No. 1, pp.49-67. Gold, AH, Malhotra, A, and Segars, AH 2001, Knowledge management: An organizational capabilities perspective, Journal of Management Information Systems, Vol. 18, No. 1, pp.185-214. Griffin, A and Hauser, JR 1991, The voice of the customer. Working Paper, Sloan School of Management, M.I.T. Gupta, AK and Govindarajan V 2000, Knowledge flow within multinational corporations, Strategic Management Journal, Vol. 21, No. 4, pp.473-496. Hair, JF, Anderson, RE, Tahtam, RL, and Black, WC 2005, Multivariate Data Analysis, 5th. Prentice-Hall, pp.654-667. Hakanson, L and Nobel, R 2001, Organizational characteristics and reverse knowledge transfer, Management International Review, Vol 40(special issue), pp.29-48. Inkpen, AC 2000, A note on the dynamics of learning alliances: Competition, cooperation, and relative scope, Strategic Management Journal, Vol. 21, pp.775-779. 16 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 Krogh, GV, Ichijo, K, and Nonaka, I 2000, Enabling Knowledge Creation. Oxford: Oxford University Press. Lane, PJ, Salk, JE, and Lyles, MA 2001, Absorptive capacity, learning and performance in international joint venture, Strategic Management Journal, Vol. 22, No. 12, pp.1139-1161. Lee, RP, Chen, Q, and Lu, X 2009, In search of platforms to increase market responsiveness: Evidence from foreign subsidiaries, Journal of International Marketing, Vol. 17, No. 2, pp.59-73. Li, L, Barner-Rasmussen W, and Bjorkman, I 2007, What difference does the location make?: A social capital; perspective on transfer of knowledge from multinational corporation subsidiaries located in China and Finland, Asia Pacific Business Review, Vol. 13, No. 2, pp.233-249. Manea, J and Pearce, R 2006, MNEs‟ strategies in Central and Eastern Europe: Key elements of subsidiary behavior, Management International Review, Vol. 46, No. 2, pp. 235-255. Mudambi, R and Navarra, P 2004, Is knowledge power? Knowledge flows, subsidiary power and rent-seeking within MNCs, Journal of International Business Studies, Vol. 35, No. 3, pp.385-406. Nadler, D and Tushman, M 1998, Competing by Design: The Power of Organizational Architectures. New York: Oxford University Press. Najafi-Tavani, Z, Giroud, A, and Sinkovcs, RR 2012, Mediating effects in reverse knowledge transfer processes, Management International Review, Vol. 52, pp.461-488. Noorderhaven, N and Harzig, A 2009, Knowledge-sharing and social interaction within MNEs, Journal of International Business studies, Vol. 40, No. 5, pp.719-741. Nunnally, JC and Berstein, IH 1994, Psychometric Theory(3rd ed.). New York: McGraw-Hill. Park, BI 2010, What matters to managerial knowledge acquisition in international joint ventures? High knowledge acquirers versus low knowledge acquirers, Asia Pacific Journal of Management, Vol. 27, pp.55-79. Park, BI and Ghauri, PN 2011, Key factors affecting acquisition of technological capabilities from foreign acquiring firms by small and medium sized local firms, Journal of World Business, Vol. 46, pp.116-125. Pearce, R and Papanastassiou, M 2006, To „almost see the world‟: Hierarchy and strategy in Hymer‟s view of the multinational, International Business Review, Vol. 15, pp.151-165. Piscitello, L and Rabbiosi, L 2006, How does knowledge transfer from foreign subsidiaries affect parent companies' innovative capacity?, DRUID Working Paper, Vol. 6, No. 22, pp.1-29. Powell, WW, Koput, KW, and Smith-Doerr, L 1996, Interorganizational collaboration and the locus of innovation: Networks of learning in biotechnology, Administrative Science Quarterly, Vol. 41, No. 1, pp.116-145. Rabbiosi, L 2011, Subsidiary roles and reverse knowledge transfer: An investigation of the effects of coordination mechanisms, Journal of International Management, Vol. 17, No. 1, pp.97-113. Rugman, AM and Verbeke, A 2001, Subsidiary specific advantages, Strategic Management Journal, Vol. 22, No. 3, pp.237-250. Schreiner, M, Kale, P, and Corsten, D 2009, What really is alliance management capability and how does it impact alliance outcomes and success?, Strategic Management Journal, forthcoming. Schultz, M 2001, The uncertain relevance of newness: Organizational learning and knowledge flows, Academy of Management Journal, Vol. 44, No. 4, pp.661-681. Simonin, BL 1999, Ambiguity and the process of knowledge transfer in strategic alliances, Strategic Management Journal, Vol. 20, No. 2, pp.595-623. Singh, J 2005, Collaborative networks as determinants of knowledge diffusion patterns, Management Science, Vol. 51, pp.756-770. 17 Proceedings of 29th International Business Research Conference 24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1 Subramaniam, M and Venkatraman, N 2001, Determinants of transnational new product development capability: Testing the influence of transferring and deploying tacit overseas knowledge, Strategic Management Review, Vol. 32, No. 1, pp.359-378. Szulanski, G 1996, Exploring internal stickness: Impediments to the transfer of Best Practice within the firm, Strategic Management Journal, Vol. 17(Special Edition), pp.27-44. Yang, Q, Mudambi, R, and Meyer, KE 2008, Conventional and reverse knowledge flows in multinational corporation, Journal of Management, Vol. 34, No. 5, pp.882-902. Yi-Renko, H, Autio, E, and Sapienza, HJ 2001, Social capital, knowledge acquisition, and knowledge exploitation in young technology-based firms, Strategic Management Journal, Vol. 22, pp.587-613. Zahra, SA and George, G 2002, Absorptive capacity: A review, reconceptualization, and extension, Academy of Management Review, Vol. 27, pp.185-203. Zahra, SA and Nielsen, AP 2002, Sources of capabilities, integration and technology commercialization, Strategic Management Journal, Vol. 23, pp.377-398. Zhou, C and Frost, TS, 2003, Cetrifugal forces, R&D co-practice, and „Reverse Knowledge Flows‟ in multinational firms, Paper Presented at AIB Annual Meeting, 5th-8th July, Monterey, California. 18