Barriers and Enablers when Transferring R&D Activities
from West to China
Assistant Professor Joachim Timlon
Baltic Business School (BBS),
University of Kalmar, S-391 82 Kalmar, Sweden
Joachim.Timlon@hik.se
Niklas Åkerman (Ph.D. student)
Baltic Business School (BBS)
Abstract
Offering a potential for competitive advantage, China has become the most attractive location
to which MNCs transfer R&D activities. In research literature transferring barriers as well as
enablers are recognized. It is argued that the capacity to absorb and exploit new knowledge
from different environments is a key enabler. Emphasis has been placed on organizational
learning as well as the specific context of the transfer. However, too little attention has been
devoted to how the absorptive capacity is realized and the role of individual’s cognitive
structures for organizational learning. The aim of this paper is to explore how learning
capacities are developed and exploited in dyadic intra-organizational relationships to
overcome transferring barriers of R&D activities from West to China. To accomplish the
purpose we use a case study methodology where we describe and analyze the R&D transfer to
China at the Danish pharmaceutical company Novo Nordisk. The analysis reveals that a
mind-set that favours authoritarian relationship between managers and researchers, a ‘face
culture’ and a narrow description of job tasks has negative influence on transferring R&D
activities. The analysis also reveals that the use of expatriates as carriers of knowledge building
trust through social networking, stepwise increasing the difficulty of research tasks, the creation of a
safe learning climate, the use of appreciative feedback for improved communication and the
collocation with local authorities and science parks positively influence the transfer process.
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INTRODUCTION
Globalization and the increasing demand on technological development cause many MNCs in rapidly
changing industries that are dependent on the technological development to seek new technologies and
secure more market driven R&D. Increasingly, R&D is becoming more internationalized. For
instance, in the pharmaceutical industry almost 40% of R&D is undertaken in other countries than the
MNC’s home country (UNCTAD, 2005). In relation to other organizational functions it is the last
activity to be internationalized (A. Y. Lewin and Peeters, 2006).
There has been a rapid increase of foreign multinational activities and investments in China during the
past decade (Hu and Jefferson, 2008; Li et al., 2007; Miesing et al., 2007; Walsh and Zhu, 2007; Xie
and White, 2006; Zhu and Li, 2007). Furthermore, the value added in Chinese industry has increased.
During the period 2000-2005 the value added in Chinese industry increased by almost 200%
(www.most.gov.cn, 2007). In 2003, the value adding activities essentially revolved around production
activities, such as for mass production, whereas in 2006 it also included R&D activities such as
design, prototyping and pilot production (Dedrik and Kraemer, 2006; von Zedtwitz, 2004).
China has become the most attractive location to which MNCs transfer much of their R&D activities.
According to a survey made by UNCTAD in 2005, about 60% of the asked stated that China is the
highest ranked country of interest for R&D locations during 2005-2009. By the end of 2005 there were
750 foreign company owned R&D units present in China of which more than 400 were established
after 2004 (jp.fujitsu.com, 2007). Substantial R&D investments have already been made in China and
more will be made in the future. Estimations based on the 29 most R&D spending MNCs indicate
future R&D investments in the coming years of about 2 billion US dollars (see table 1 in appendix 1).
The major driver for transferring R&D activities to China is to accomplish competitive advantages.
However, how to accomplish the competitive advantages are changing. Global integration and local
adaptation still is a strategic dilemma for MNCs (Bartlett and Goshal, 1998) which is highly relevant
for the internationalization of R&D activities. Traditionally it is argued that competitive advantages
are accomplished based on the ability to globally integrate R&D activities and transfer knowledge to
geographically dispersed units. However, the source of competitive advantage seems to change from
exploiting what is already known and captured in companies’ product portfolios to exploring new
knowledge for new products based on the specific market conditions in China (Xie and White, 2006).
Altenburg et al. (2006) argue that major reasons for the increasing interest to transfer R&D activities
to China are the importance to keep R&D in close proximity to high-potential lead markets. Farris
(2007) argues that innovations are not only created abroad and transferred to China, but there is an
increase in innovations originating from China that are transferred between Chinese businesses. This is
reflected in the number of patents filed by MNCs in China, which has increased at a rate of 22%
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annually since the amendment in the Patent Law was made in 1992 (Hu and Jefferson, 2008). von
Zedtwitz and Gassman (2002) highlight the proximity to other corporate activities and local customers
together with tapping into international sources of technology and expertise. Gassman and Han (2004)
point to the importance of input-oriented factors, such as getting access to personnel, knowledge and
innovation, and performance-oriented factors, such as market-specific development and businessecological factors, such as governmental policies, persistent growth and peer pressure. Gammeltoft
(2005) makes a distinction between six types of motivations for R&D internationalization where
market associated motivations: (i) market-driven, i.e. expanding the use of a company’s assets on
several markets; (ii) product-driven, relating to supporting local manufacturing; (iii) technologydriven, which is about tapping into foreign knowledge and technology; (iv) innovation-driven to
generate new assets; (v) cost-driven, primarily related to the exploitation of differences in factor costs;
(vi) policy-drivers concerning requirements or incentives in national regulatory systems. As MNCs
perform both strategic and tactic R&D in their Chinese units, China is no longer ‘a simple case just for
show’ (Sun et al., 2006). It still seems that R&D activities in China has a huge potential for providing
MNCs competitive advantage but instead of simply transferring knowledge developed in West, the
issue has become more challenging and more complex.
PROBLEMATIZATION
The challenges to transfer knowledge in organizations are widely recognized (Gassmann and Han,
2004; Kostova, 1999; Lyles and Salk, 1996; Szulanski, 1996, 2000; von Zedtwitz and Gassmann,
2002). Szulanski (1996) uses the notion of internal stickiness to explore the difficulty of transferring
practices within organizations. The term is based on the assumption that the (ease or) difficulty of
transferring knowledge is reflected in the cost of transfer that constrains the transfer. However,
Szulanski argues that cost is a poor descriptor of difficulty because to decide which portion of the cost
of the transfer that actually reflects a difficulty requires a base case, which is likely to be distorted if it
is based on past experience in transferring knowledge; and cost might fail to discriminate between
problems that are equally costly but qualitatively very different. For instance, problems that involve
participants whose attention is not normally required are likely to be remembered as being relatively
more difficult to resolve, at least by those who could not cope with them without assistance. Thus, the
perceived difficulty of a problem for the individual is what determines his or her reaction to it why
problems that participants cannot handle on a routine basis are likely to evoke the greatest overall
perception of difficulty and the transfers that involve the most non-routine problems will be perceived
as the most difficult.
A pertinent characteristic of knowledge that hampers it from being transferred is causal ambiguity.
When the precise reasons for success or failure in replicating a capability in a new setting cannot be
determined even ex post, causal ambiguity is present. A major reason for the existence of causal
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ambiguity is the tacit dimension of knowledge embodied in individual human skills as well as a
property of collectively held knowledge. When causal ambiguity exists the outcome is irreducible
uncertainty preventing knowledge transfer from being measured. Causal ambiguity also has
consequences for a company’s ability to establish and sustain competitive advantage as it may result in
uncertain imitability, i.e. ambiguity about the knowledge base on which a competitive advantage is
based make any attempt to imitate that strategy subject to uncertainty (Grant, 2008, p. 213).
Furthermore, Szulanski (1996) refer to two primary characteristics of the knowledge source that is
likely to influence the transfer process; the potential lack of motivation at the sender to share
knowledge based on a fear of losing benefits or unwillingness to invest required resources and the risk
that the source of knowledge is not seen as reliable resulting in a higher degree of questioning of its
knowledge. On the other hand, recipients can be reluctance to participate in knowledge transfer due to
a non-acceptance to outside knowledge. Thus, there may be lacking capacity to absorb new knowledge
as well as lacking ability to retain the knowledge received.
Szulanski, therefore, suggests that in order to overcome the internal stickiness of knowledge transfer,
it might be fruitful “to devote scarce resources and managerial attention to develop the learning
capacities of organizational units, foster close relationships between organizational units, and
systematically understand and communicate practices” (1996, p. 37). The suggestion is to build on the
notion of “absorptive capacity” as initially coined by Cohen and Levinthal (1989) and defined as a
firm’s ability to identify, assimilate, and exploit knowledge from the environment where R&D plays a
vital role in the acquisition of new knowledge from different external environments. The findings
seem to consolidate earlier findings about the role of R&D, for instance, in organizational learning
literature (e.g. Kim, 1993). Cohen and Levinthal (1990) extended their research to individual’s
cognitive structures and problem solving with the aim of developing an organizational learning
processes underlying absorptive capacity, which was re-defined as “the ability to recognize the value
of new information, assimilate it, and apply it to commercial ends” (p. 128). In other words, learning
capability to assimilate knowledge and problem-solving skills to create new knowledge were
requirements for absorptive capacity. In the context of R&D absorptive capacity would then be a set of
closely related abilities to evaluate the technological and commercial potential in a particular domain,
assimilate it and apply it to commercial ends, thereby enabling a firm to exploit new extramural
knowledge as well as to predict more accurately the nature of future technology advances (Cohen and
Levinthal, 1994). Consequently they argued that absorptive capacity would enable firms to more
accurately forecast technological trends and to take advantage of emerging opportunities before its
rivals could recognize them.
More recently, the notion of absorptive capacity has been re-examined and re-defined, giving the
underlying resources and organizational processes as well as the specific context in which it occurs
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more emphasis. Zahra and George (2002) argue that absorptive capacity is a set of knowledge-based
capabilities embedded in routines and processes for acquiring, assimilating, transforming and
exploiting knowledge. Furthermore, they claim that absorptive capacity reflects a dynamic capability
as it involves the ability to reconfigure the firm’s resource base in the face of changing market
conditions, more specifically two subsets of potential absorptive capacity – capabilities to acquire and
assimilate knowledge, and realized absorptive capacity – capabilities to transform and exploit
knowledge. Todorova and Durisin (2007) argue that feedback loops capture the dynamic aspect of
absorptive capacity. Focusing the external dimension of the diversity of knowledge sources, Phene,
Fladmoe-Lindquist and March (2006) argue that a firm’s ability to exploit valuable knowledge from
different contexts depends not only on its R&D capabilities but also on the external context in which
the knowledge is located; knowledge from different geographical and technological contexts may
hamper the firm’s absorptive capacity. Lane, Koka and Pathak (2006) argue that externally held
knowledge is utilized through three sequential processes: (1) recognizing and understanding
potentially valuable new knowledge outside the firm through exploratory learning, (2) assimilating
valuable new knowledge through transformative learning, and (3) using the assimilated knowledge to
create new knowledge and commercial outputs through explorative learning.
However, although it is recognized in the literature that absorptive capacity has a technological and
economical potential in different domains and contexts that can be realized it says relatively little
about how the realization of absorptive capacity occurs and manifests in an organization. Realization
of absorptive capacity seems to occur through organizational learning processes, in which recognition
and understanding of valued information as well as feedback processes play an important role.
However, recognition, understanding and providing feedback are unique human characteristics. With
few exceptions (e.g. Argote and Ingram, 2000; Minbaeva et al., 2003) the literature lacks an
integrative approach on knowledge transfer that balances a human and an organizational perspective.
Although organizational knowledge is founded on individual knowledge the descriptive organizational
learning processes place too little attention on how learning occurs on and is mediated to different
levels giving too little attention to individuals’ cognitive structures as done by Cohen and Levinthal
(1990). Furthermore, although it is recognized that absorptive capacity could be seen as a dyad-level
construct the principles of learning in dyadic relationships is still at a rudimentary state, as denoted by
other authors (e.g. Minbaeva et al., 2003). In other words, the literature says relatively little about how
to foster close relationships between organizational units in order to promote organisational learning.
Thus, there is a need to develop a better understanding of the organizational learning processes needed
to institutionalize knowledge transferred between two intra-corporate units as well as developing an
understanding of the prerequisites of a dyadic relationship.
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The overall aim of this paper is to add to the existing literature on knowledge transfer essentially
regarding the dynamic aspect of absorptive capacity. More specifically, our aim is to explore how
learning capacities are developed and exploited in dyadic relationships to overcome internal stickiness,
leading to successful knowledge transfer that realizes economic and technological potentials. We will
seek to accomplish this by describing how R&D activities in Western parent MNCs are transferred to
recipient Chinese subsidiary.
The analysis is divided into the content and process of the transfer. Regarding the content of the
transfer, our point of departure is the resource-based view and the notion of organizational capability
that captures the embedded nature of knowledge in terms of principles for performing certain kinds of
activities, such as R&D activities. Successful knowledge transfer manifests through the
institutionalization of organizational capabilities (Kostova, 1999). Since the principles are
accompanied by cognitive elements by which they are described and made sense of we argue in favour
of using the term cognitive structure, rather than knowledge as it is a more encompassing concept for
describing the content of the transfer. We therefore argue that successful knowledge transfer also
manifest in institutionalization of the cognitive structures accompanying a certain organizational
capability. Furthermore, aligned with the argument of Minbaeva et al. (2003) that not only ability but
also motivation need to be present in order to optimally facilitate the absorption of knowledge from
other parts of the MNC we examine the drivers of motivation on organizational level. We recognize
three different kinds of potential benefits and argue that the accomplishment of mutual value that
makes both parties better off is the key driver of knowledge transfer. In other words,
institutionalization is linked with the motivation to participate in knowledge transfer. For the parties to
accomplish the benefits by developing new organizational capabilities they need to collaborate and
learn from each other.
Regarding the process of the transfer, we use the concept of organizational learning processes to
analyze and explain knowledge transfer as the development of organizational capabilities. We
recognize the human dimension of the transfer and use a cognitive approach to explain how
knowledge is mediated between different organizational levels. We recognize the difficulties of
aggregating individual to organizational learning by using the notion of feedback loops (Crossan and
Berdrow, 2003; Crossan et al., 1999) and the notion of accessible cognitive structures by Dixon
(1994).
SUCCESSFUL KNOWLEDGE TRANSFER
From a resource-based view, a firm constitutes a bundle of heterogeneous resources (cf. Barney, 1991;
Grant, 2008; Wernerfelt, 1984) which are used to perform certain kinds of activities. The term
organizational capability can be referred to an organization’s capacity to perform a certain productive
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activity (Grant, 2008). Organizational capabilities are what Selznick (1957) coined as distinctive in
order to describe those activities that an organization does particularly well relative to its competitors
in order to achieve a competitive advantage. It is a kind of organizational routine, i.e. a predictable
pattern of activities made up of a sequence of coordinated activities performed by individuals, which
can be viewed as a principle for organizing how individuals cooperate and become more integrated in
order to effectively perform certain activities (Kogut and Zander, 1992; Nelson and Winter, 1982;
Timlon, 1997). A major benefit is that this makes it possible to connect the principles of how
individuals cooperative and perform R&D activities in Western parent MNC is transferred to recipient
Chinese subsidiary and to describe and analyze them with the theoretical concept of organizational
capability.
Kostova (1999) introduces the notion of strategic organizational practices, which she defines as those
practices that have strategic importance for the company because they provide a distinct source of
competitive advantage…fundamentally based on “a set of (un)written rules of how a certain
organizational function should be conducted and an accompanying set of cognitive elements” by which
these rules are described and made sense of (1999, p. 310). The rules of a practice reflect a set of
underlying values and beliefs. These kind of organizational practices are therefore “infused with
value”, i.e. they may acquire meaning for organizational members that is symbolic and normative in
nature, which goes beyond technical efficiency. They therefore tend to be more complex and broad in
scope, and more “people” rather than “technology” focused because these characters are likely to
make a practice less imitable and more critical for the competitive edge of the company. The “valueimpregnated” nature of strategic organizational practices means that the success of knowledge transfer
is determined by the transferability of meaning and value in addition to the transferability of
knowledge.
The accompanying set of cognitive elements reflecting the underlying values and beliefs of an
organizational routine or practice can be labeled meaning structure. A principle or rule describes a
kind of causal relationship between how a certain resource is used to perform a certain action. Dixon
(1994) argues that sense making is “a function of seeing relationships in the data, such as what is
larger or smaller, what is similar to something else, what belongs to the same category, what causes
produce what effect, and what is affected, what comes first, second, third in a sequence” (1994, p. 14).
In other words, concepts do not exist in isolation but are connected into what she labels meaning
structures for organizing and interpreting data. These causal relations can be defined as a set of
assumptions that an individual has about other people, their personalities and behavior and can be used
to specify the content and take account of the connectedness between cognition and social situation.
Dixon (1994) makes an important distinction between meaning structures, knowledge and
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information.
“I have used the term ‘accessible meaning structures’ here rather than using the more common term
knowledge or information because I want to represent something more encompassing than the conclusions
that organizational members have reached. I also want to include within the framework of accessible
meaning structures the relationships of those conclusions to other conclusions… the logic by which those
conclusions were reached, the data that support them, the inferences that were made from them, and the tacit
assumptions behind them. Accessible meaning structures are considerably different from what we would
normally refer to as information. Information is data that are in-formation that is the data have been
organized into charts, graphs, speech, written statements etc. Information thus organized can reside in many
places in the organization, including books, reports, memos and journals, but meaning structures can reside
only in human beings” (Dixon, 1994, p. 38).
In this paper, the term meaning structure is used rather than the term knowledge to represent and
manifest not only the understanding that organizational members have reached but also how and why
it was reached. The main reason for using the term meaning structure, and not knowledge, is that the
former is more encompassing as it includes:

how the understanding of organizational members is related to that of other organizational
members;

the logic by which the understanding was reached and the data that support it;

the explicit/tacit assumptions behind the understanding.
Meaning structures are also different from what is normally referred to as information. Information
can be defined as organized data in a certain formation, such as charts, graphs, speech, written
statement etc. Data can, then, be treated as sub-sets of information. Organizational members can
through their human sensory receptors perceive information, or more specifically a subset of the
information, i.e. data. They can re-organize the perceived data, classify and interpret it so that it makes
sense. This means that information can reside in many different places in an organization whereas
meaning structures can only reside in the heads of organizational members.
ORGANIZATIONAL LEARNING AS A PROCESS OF RELATING MEANING STRUCTURES
Individual learning is different from organizational learning. The difference is capture in what Argyris
and Schön (1978) calls the individual-organizational paradox.
"There is something paradoxical here. Organizations are not merely collections of
individuals, yet there are no organizations without such collections. Similarly,
organizational learning is not merely individual learning, yet organizations learn only
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through the experience and actions of individuals. What, then, are we to make of
organizational learning? What is an organization that it may learn?"
Individuals can learn without an organization. However, an organization learns only through its
members but cannot be dependent on any specific member. Individual learning is a problem-solving
process (cf. Lewin, 1951), expanding the limits of bounded rationality and alleviating causal
ambiguity. It is a cyclic process of continuous interaction between the individual and the environment.
Central in this process is the feedback from interaction experiences, i.e. learning from reflecting by
doing. The individual cyclic learning process is synonymous with what Piaget (1970) denotes as
‘accumulation’ and ‘assimilation’, Nonaka and Takeuchi (1995) as ‘the interchange between
internalization and externalization’ and Senge (1990) as ‘adaptive vs. generative learning’. Individual
learning can therefore be broadly defined as “the process whereby knowledge is created through the
transformation of experience” (Kolb et al., 1995) and more specifically as the process whereby
knowledge is created through the reflection on assumptions and beliefs, re-conceptualizing existing
cognitive structures, increasing the individual’s capacity to take effective action. This implies that
individual learning affects learning at the organizational level through the influence on collective
meaning structures (cf. Dixon, 1994; Kim, 1993).
Dixon (1994) argues that individual learning is transformed into organizational learning when
organizational members engage in the sequence of collectively interpreting information with other
organizational members (who are themselves engaged in the same sequence), resulting in a shared
interpretation of the information on which they then can take action. When a critical mass of
individuals has altered their meaning structures, a new collective meaning structure has been created.
An organization then learns through the organizational members or, more specifically, through
individuals’ capacity to create new meaning structures from their interaction with one another.
Collective learning can be defined as the process whereby knowledge is created through the
transformation of experience, increasing the collective capacity to accomplish a common objective
(Timlon, 1997). The distinction between individual and collective learning is then the transfer and
transformation process through which learning is retained by the dyad, i.e. when new organizational
capabilities have been developed by the dyad and transmitted within the dyad. Thus, organizational
learning occurs when individual meaning structures are related and become integrated into collective
meaning structures, enabling the organization to take more effective action.
A central condition for organizational learning to occur is that individuals have the intention and
willingness to participate in an exchange between cognitive structures, discussing and negotiating their
individual views, making their individual meaning structures accessible to other organizational
members so that they can influence one another. In that way, meaning structures can be surfaced,
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examined and altered by discussing the fundamental assumptions and beliefs on which they are based.
According to Probst and Büchel (1997) and Klimecki and Lassleben (1997) there are six salient
conditions for the development of shared cognitive structures to occur. (i) Individuals need to have the
intention, i.e. to be ready and willing, to participate in the exchange of cognitive structures, discussing
and negotiating their individual views. This means that the development of organizational cognitive
structures is dependent on, not only the intention to engage in the exchange of individual cognitive
structures, but also in communicating them. (ii) Individuals need to communicate the assumptions
underlying the individual cognitive structures by means of language. However, for the communication
process to result in ‘mutual understanding’ (iii) the cognitive structures need to be accessible and (iv)
the content of the communication process needs to be transparent as to ‘reveal’ fundamental
assumptions and beliefs. (v) Transparency, in turn, presupposes the existence of a medium in which
knowledge is stored. The medium in which vision, mission etc. can be stored has an instrumental
value since it enables individuals to gain access to the organization and, if transparent, to reflect on
them. (vi) The integration of group processes into the organization makes individual knowledge
available to the organization.
Similar to individual learning, organizational learning is cyclic too. Organizational learning can be
described as a learning-to-act cycle, which is similar to a single-loop learning process where the selfquestioning ability is the comparison of new information against operating norms; and a learning-tolearn cycle, which is similar to a double-loop learning process where the self-questioning ability is the
process of questioning whether operating norms are appropriate (Timlon, 1997). Capturing the notion
of meaning structures, (Dixon, 1994) describes the learning-to-act cycle as four integrated steps: (i)
generating widespread information, (ii) integrating new/local information into the organizational
context, (iii) interpreting information collectively, (iv) acting in concert. The first step of the
organizational learning process, generating widespread information, is based on the assumption that
individuals have learning capacities, i.e. that they have the capacity to attend, hold and resolve
differences through self-confrontation. On organizational level, this means that individuals have the
ability to confront others who have constructed a different meaning structure. In other words,
individual meaning structures are here made accessible for other organizational members.
Furthermore, diversity of ideas and perspectives is necessary for learning to occur through selfconfrontation. Here, the term ‘generating’ does encompass both the external and internal collection of
data. Interactions with the world external of the organization may generate external data whereas the
interactions within the organization may generate internal data. The term ‘widespread’ implies that the
generation of information is the responsibility of a majority of organizational members; in particular
the primary users of the data. The second step, integrating new/local information into the
organizational context, is based on the assumption that the learning capacity is a function of seeing
relationships in the data. This means that externally and internally collected information can only be
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understood within the context of the whole organization. It further implies that the dissemination of
accurate and complete information is a critical element in integrating new or local information into the
organizational context. The third step, interpreting information collectively, is based on the
assumption that individuals have the capacity to collectively agree about the meaning of information,
i.e. those organizational members can create a similar meaning of the relationships in the collected
data. This implies that learning does not equate information gathering and dissemination. Individuals
selectively attend to data, which is, then, examined for patterns and are compared to the meaning the
individual has stored in the memory. When the individual has created new relationships through this
process and again stored those new relationships in the memory, individual learning has occurred.
Creating new relationships in the collected data the meaning of which is shared among organizational
members implies a process where individuals are selectively attending to data, which is examined for
patterns and compared to the meaning the individual has stored in the memory while interacting with
other organization members who are engaged in the same sequence themselves. In other words, it is a
process of creating collective meaning structures out of organizational members’ accessible meaning
structures. Shared meaning does not mean ‘total agreement’ in a sense that all organizational members
have the same interpretation of the collected data but rather a reduction of the equivocality in the data
collected. The fourth step, acting in concert, is based on the assumption that shared meaning among
organizational members increases their capacity to act in alignment. Acceptance is based on
understanding the reasoning behind the proposed action and having an opportunity to influence that
reasoning. Organizational members who act in alignment generate yet more information and start the
cycle again.
The fourth process adds to the description of the organizational learning process and identifies a
critical link to the institutionalization of organizational capability. Alignment can be defined as a
dynamic process that involves the capability to reinterpret its environment and incorporating this new
understanding into new structures, systems and procedures (Hamel and Prahalad, 1994). Crossan and
Berdrow (2003) refer to this dynamic process as institutionalized learning, which is described through
feedback loops, feed-forward and feedback processes. Feed-forward learning is a process that involves
how learning feeds forward into group learning and learning at the organizational level, such as
changes that affect structure, systems and procedures. Feedback learning, on the other hand, is a
process for the learning that is embedded in the organization and how it affects learning at group and
individual learning levels. The institutionalized feed-forward learning process enables exploitation of
existing organizational capabilities whereas the institutionalized feedback learning process enables
exploration of what has been learned.
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THE CASE OF R&D TRANSFER TO CHINA AT NOVO NORDISK
R&D Transfer Barriers
In 2001, the Danish pharmaceutical company Novo Nordisk established an R&D center within the
field of protein research in Beijing. The major drivers related to the market and to the facilitation of
access to global talents. Three main reasons were stated: (i) supporting business conducted in China,
(ii) creating a cost effective biotechnology centre, (iii) identifying R&D collaboration partners in
China.
However, the management at Nestlé did not expect a cost benefit from the transfer of R&D
activities to China, at least not regarding the costs for middle and upper management. Although the
cost of physical resources and for human resources, such as technician, was lower in China, it did not
include R&D managers. Furthermore, the management saw a big potential in working with Chinese
universities although they were aware of that no relevant contributions to the research conducted at
Novo Nordisk had been done so far. Nonetheless, the intention was to tap into research and
development conducted outside Denmark in order to get access to international talent and, benefiting
from this internal research pipeline, making the R&D activities of Novo Nordisk global. Previous
experiences from collaborating with international research centers in different countries were positive
in terms of improved performance on these markets.
There was a strong intention from the Novo Nordisk managers to create a R&D centre of
technological excellence in China within the field of protein research, even though this research
simultaneously were conducted in Copenhagen, Denmark. The requirement was, however, that the
way of conducting research in the Chinese unit should be the same as in the Danish unit. The Danish
way of solving R&D related problems was that of ‘parallel problem solving’.
In early stages of the transfer the Danish researchers were skeptical. Foremost they were
concerned about the competences of Chinese researchers. The skepticisms were based on a conviction
that the research to be transferred could be performed faster and easier in Denmark because of the
Danish researchers’ technological advantage. Consequently a lot of effort was made to find and recruit
talents with the proper qualifications. It turned out that this was a significant challenge essentially due
to the lower level of education among the Chinese, compared to the Danes, and the lack of researcher
experience. This hampered the transferring process. Due to the lack of experience it took longer time
for the Chinese to perform R&D activities. In addition, the Danes were to often inpatient and did not
want to wait for the Chinese to catch up. Furthermore, the Chinese researchers had a preference for
solving R&D problems in a sequential way, trying out one single solution at a time. Also this approach
further slowed down the transferring process. An additional factor limiting the transfer was that the
Chinese were reluctant to take individual initiative. This was considered to be because of the particular
management styles used in China with high respect for authorities, i.e. managers tell workers what to
do and when to do it. Together, these two factors created a fear to take initiative. There was an
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additional aspect influencing the willingness to take initiatives. The strict project management in Novo
Nordisk inhibited initiatives by quickly killing ideas that were not aligned with corporate goals.
From experience preceding the transfer process it was found that substantial communication
problems could arise from language difficulties. This was experienced in the R&D transfer process to
China as well. The Chinese workers employed often had insufficient English language skills and the
Danish expatriates were not enough familiar with the Chinese language. When communicating in
English, the Chinese workers preferred written language over verbal due to the greater control over
what was written compared to what was spoken. As a consequence, the Chinese recruits did not fully
understand the routines and principles used within Novo Nordisk R&D.
R&D Transferring Enablers
There was a great deal of effort put into finding scientists with an adequate skill base and educational
standard in China. Preferably they should have a Western education and experience from working in
West. These criteria were used when R&D managers were hired. In order to reduce the reluctance
from Danish employees to share knowledge with their Chinese counterparts the skeptics were asked to
be involved in the R&D transfer process, a strategy that proved successful. The involvement consisted
of going to China for training new researchers and conducting networking activities. These expatriates
became key persons in the integration of the Chinese R&D unit with the global R&D organization.
Especially the networking part was particularly beneficial in order to integrate the Chinese unit, not
only to the global R&D organization but also to the corporate headquarter. An open mind in terms of
cultural differences increased the effects of networking and made the Chinese workers more likely to
approach a Danish expatriate.
Travels were made both by the transfer process manager and by scientists from China as well as
from Denmark. The primary reason for this was that persons from the different units got to know each
other on a personal level and there was also a clear advantage in terms of keeping the Chinese workers
up to date with the development of key technologies. By making friends in different parts of the
organization work was found to go easier due to increased understanding and trust. It was especially
important to keep the Chinese unit well informed to prevent them from feeling alienated from the rest
of the organization. Also, Chinese researchers visited the Danish unit. For the Chinese workers on
lower and mid level it was a lifetime experience to be able to visit Demark. The main focus for the
trips was usually socializing more than educative. Some managers felt, however, that the visits in
Denmark could have been even more efficient because most of the time the Chinese lived together in
the same flat and socialized primarily with each other. Instead, if they had been accommodated with
their Danish counterparts the cultural exchange and the personal relationships could have been further
enhanced. Furthermore, it was experienced that only persons that wished to go abroad as expatriates
were sent; monetary incentives to motivate expatriation were not effective.
13
The establishment of the Chinese R&D unit was made in close proximity to their existing Chinese
production unit, making it possible to focus on hiring personnel while using existing infrastructure. If
established on a different site a completely new infrastructure had to be developed, which was
considered very costly. Furthermore, the location was beneficial due to the geographical closeness to
governmental authorities and a life science park centered on biomedicine. The proximity to local
authorities in China enabled the R&D unit to keep track of new legislations and policies and more
easily handle permits of various kinds. Being located within or near a science park was useful since
that center of technology attracted talents. Furthermore, close to the science park was the Olympic
hospital; a place with medical experts and equipment of international standards, attracting other
privately or governmentally funded biomedical research.
At the R&D unit, management considered the Chinese researchers as too passive, i.e. not taking
enough individual initiative. In order to change this behavior the Chinese workers were sometimes
ordered to take initiative. This resulted in that initiatives were taken but not consistently. The strong
respect for authorities among the Chinese employees was considered to be beneficiary when it came to
accomplishing routine tasks that had to be done urgently but it did not promote creativity and
innovativeness. For obvious reasons this mind-set had to change; Chinese researchers had to learn to
take individual initiatives and to view mistakes a natural way of solving R&D related problems
without fear of loosing their face or causing the managers to loose his or her face. Furthermore, the
Chinese researchers were very reluctant to change job tasks. Also this had to change according to
management. As a consequence, knowledge sharing activities were installed once a week facilitated by
Danish and Chinese expatriates. In order to increase the Chinese workers self-confidence the tasks in
the initial phases of the transfer was fairly easy and on a level that management knew that they could
handle. The complexity was then increased over time to give the workers an increasing degree of selfesteem. Sometimes the increasing complexity meant that the projects took longer time than expected.
In other words, due to this approach it took longer time to accomplish the results intended. Eventually,
the research conducted in China was not less challenging than the research conducted in Denmark and
the labs were essentially identical.
One of the main managerial principles at Novo Nordisk was that creating value for employees was
important to attract and retain employees. Employee value was created by investing in sustainable
development aligned with personal values and beliefs. This plan has been successful; in 2003 Novo
Nordisk was ranked number one preferred employer among business, engineering and science
graduates and young professionals, much due to their reputation and commitment to ethical standards.
Probably this has resulted in cost savings compared to the alternative costs of loosing and recruiting
new personnel. The employees regarded environmental and social factors essential for the future
success of the company. The intention was that all employees should embrace the Novo Nordisk
values, which were based on corporate social responsibility and sustainability with focus on
environmental care. This meant responsibility for employees, patients and surrounding community as
14
well as caring for the environment. All these values were to be transferred to China together with the
principles for conducting R&D activities.
Initially the local Chinese management got strict directions regarding doing research as well as in
terms of behavior. This was not perceived by the local Chinese researchers since the local
management appeared to always be in charge of every day operations. Furthermore, these strict
directions were not always applied to foreign expatriates in the same manner as to the Chinese
researchers. Instead, foreign expatriates were given a greater freedom of work. From a solution solving
perspective the Chinese management has proven good at taking care of problems they encounter. For
example, they managed to get the whole employee force re-schooled.
One way of improving intra-corporate communication was through establishing relationships to
other employees and to take part in exchange programs. This enabled employees to more effectively
learn about each others cultures and to establish closer personal bonds. Furthermore, it was considered
important to communicate in an honest way and on-the-spot, taking immediate action instead of
waiting for problematic situations to ease out and that the actions taken were aligned with what was
communicated, i.e. to ‘walk the talk’. This was considered especially important when working in
geographically dispersed units. The risk is otherwise that the Chinese R&D unit will feel isolated.
Sometimes the Chinese experienced insufficient communication, e.g. they were not always informed
of changes in the projects. This could, according to several informants, have, at least partly, been
resolved by using information and communication technology (ICT’s) for increased and simpler
information sharing. At the same time not all information flowed back to the Danish home base. There
was a high degree of tacit knowledge making it difficult to codify and document why this information
remained in China. Although some of the communication problems could be resolved by using ICT’s
the Chinese were also found reluctant to use for example telephones to contact Denmark when in need
for help. The same behavior was found concerning the sharing of new explorations hampering the
potential effects of the R&D transfer. Appreciation and support together with internal prize
competitions were proven effective to cope with these difficulties. In addition, further incentives for
the receiving unit were the development of knowledge from the state prior to the transfer process, i.e. a
development in relation to the previous educational standard from the Chinese system towards an
international standard. On a personal level the possibility to go to China or Denmark was motivating
through the valuable increase of experience in international management and networking.
Expatriates were considered to play an essential role in the R&D transfer.
One additional lesson learned from transferring R&D to a geographically distant place was to
always keep a few expatriates on site. Preferably this could be done in a permanent rotational worker
exchange system to access the education and experience it provided. Five years after the establishment
of the unit it was considered an equal partner by the Danes. This significantly increased information
exchange. One key to make this possible was to establish contacts and networks between the two units
which were further enhanced by having expatriate scientists in the R&D unit for longer time periods.
15
ANALYSING THE CASE OF R&D TRANSFER TO CHINA AT NOVO NORDISK
R&D Transfer Barriers
The barriers in the case of R&D transfer to China at Novo Nordisk can be summarized as the
following:

initial skepticism among the Danish researchers to share their R&D experience and knowledge

inefficient way of solving R&D related problems

reluctance to change job tasks

reluctance towards taking individual initiatives

too much respect for authorities

fear of making mistakes and loosing face causing passiveness

insufficient language skills
As a consequence the transferring process of R&D routines and practices became slow and sluggish.
Performing R&D activities at the Danish unit involved an essential principle for how to solve R&D
related problems, namely that of solving R&D related problems in parallel. This principle is based on
the belief that a kind of ‘non-authoritarian self-organization with empowered and skilled researchers
who are able to easily change job tasks’ is an effective way of organizing and performing R&D
activities. This principle and accompanying cognitive structures were going to be transferred to the
Chinese unit because it was regarded as a very effective way of solving R&D related problems.
Table 1: The Danish principle for organizing and performing R&D activities and accompanying
cognitive structure
Danish R&D principle
Accompanying cognitive structures:


Solving R&D problems in a parallel way
Non-authoritarian
relation
between
managers and researchers

Self-organization with flexible job tasks

Empowered and skilled researchers
In contrast, the Chinese recruits were use to solve problems in a sequential way which they applied to
solve R&D related problems, meaning that subsequent possible solutions were tested only when the
first was completed and failed to provide a solution. The capacity of the Chinese recruits to learn the
16
new approach of solving R&D related problems was hampered due to their existing mental model
concerning ‘work hierarchy’, i.e. how work is best divided and performed. The R&D work performed
at the Chinese unit was initially order-driven where management gave clear directions for how the
research should be conducted, which was not questioned by the Chinese researchers due to a high
respect for authorities. Due to their mind-set, the Chinese researchers did not take any individual
initiative but awaited orders from management, which management, in their turn, understood as
‘passive Chinese researchers’. In addition, the strong ‘face culture’ in China combined with a belief of
being excellent in a specific job task further cemented this behavior. Also, an ‘unforgiving’ and rigid
project management system in combination with low degree of experience, insufficient language skills
and inpatient Danish R&D researchers hampered the learning capacity from being developed.
Table 2: The Chinese principle for organizing and performing R&D activities and accompanying
cognitive structure
Chinese R&D principle

Accompanying cognitive structure
Solving R&D problems in a sequential 
Authoritarian relation between manager
way
and researcher

Don’t loose your face or the face of your
boss

Excel in a specific job task
17
R&D Transferring Enablers
The enablers in the case of R&D transfer to China at Novo Nordisk can be summarized as the
following:

Expatriates as carriers of knowledge building trust through social networking

Stepwise increasing the difficulty of research tasks

Creating a safe learning climate

Appreciative feedback for improved communication

Collocation with local authorities and science parks
Expatriates as carriers of knowledge building trust through social networking
In the case of R&D transfer to China at Novo Nordisk the expatriates were a significant enabler to
overcome the R&D transfer barriers. By involving Danish researchers in the transferring process the
initial skepticism was overcome. The involvement meant going to the Chinese unit on voluntary basis.
Monetary or other financial incentives had little effect. Instead, the primary motivator was the
possibility of the life-time experience that could be gained from working in an exiting new
environment. The aim was to train new recruits and share knowledge through networking, for instance
updating the Chinese recruits about the recent development of different technologies, teaching them
how to solve R&D related problems etc. Being empowered to share their knowledge with the Chinese
researchers, the expatriates functioned as a direct link between the home base unit in the West and the
satellite unit in China. The networking also had a social dimension. This involved the establishing of
personal relationships, learning about each other and of cultural differences, building trust between the
Danish and the Chinese researchers. The social networking was important to reduce the risk that the
knowledge transferred was not rejected by the receiver. Thus, the Danish expatriates acted as human
carriers of knowledge and values to the Chinese unit and the social networking seem to have increased
the likelihood of knowledge and values being embraced by the receiving unit.
Stepwise increasing the difficulty of research tasks
The Chinese recruits employed were use to solve problems in a sequential way which they applied to
solve R&D related problems. Furthermore, they were reluctant to constantly change the way of
working, caused by the many changes in directions of the research. By applying a stepwise increase of
difficulty to the research projects the Chinese recruits developed their skills in solving R&D related
problems, and consequently, their self-esteem was gradually developed by mastering a progressively
more complex situation.
Creating a safe learning climate
Being used to an authoritarian way of working, the Chinese recruits were reluctant to take initiatives
on their own but rather preferred to awaited management’s orders for performing R&D activities. Too
18
much respect for authorities caused passiveness among the recruits. In a constantly changing internal
environment placing demands on the recruited researchers to be flexible, initiative and to a major
extent self-organizing, the authoritarian mind-set caused difficulties. This behavior was further
cemented by the order giving leadership style. Both the leadership style and the mind-set had to
change. To improve the situation management decided to infuse the value that making mistakes while
performing R&D activities was accepted and rather a natural part of the innovation process. The aim
was to create a climate that was considered as safe in terms of that mistakes were accepted and should
be viewed as an opportunity to learn from them. The creation of ‘a safe learning climate’ at the
Chinese R&D unit had a positive influence on the Chinese willingness to test completely new and
different things. Being allowed to make mistakes challenged the ‘Chinese face culture’ to the extent
that this mind-set was replaced with a new one that favored flexibility, initiative taking and more selforganization. Thus, by building skills and self-esteem together with establishing new values, the
authoritarian mind-set was slowly broken down. When the perceived need for direct orders declined
the Chinese researchers got more self-organizing as opposed to the order-driven principle that reigned
in the early stages of the transfer.
Appreciative feedback for improved communication
Communication problems due to insufficient language skills were experienced in the R&D transfer
process to China. The Chinese workers employed often had insufficient English language skills and
the Danish expatriates were not enough familiar with the Chinese language. When communicating in
English, the Chinese workers preferred written language over verbal due to the greater control over
what was written compared to what was spoken. As a consequence, the Chinese recruits did not fully
understand the routines and principles used within Novo Nordisk R&D. Giving appreciative feedback
seemed to be a constructive tool to improve communication at the Chinese R&D unit. Communication
that was honest, on the spot and feedback that showed appreciation of the researchers performance
seemed to be effective. When negative feedback was needed this was done in private in relation to the
Chinese culture because of the potential risk of the researcher’s loss of face among his or hers peers. In
particular, this was a risk if negative feedback was given in public. When the Chinese received
information and were shown appreciation they gave information back. Both in terms of information to
the expatriates on site, but also in terms of information and research results back to the Danish home
base unit. When they felt appreciated they were more likely to feed forward information to the
organization even if they were not sure about the actual results.
Collocation with local authorities and science parks
The co-location with existing operations and the location in close proximity to local authorities and a
life science technology park seemed to have several positive effects. First of all this made it possible to
utilize existing infrastructure, both in terms of physical infrastructure and personal networks. The use
19
of existing physical infrastructure made the establishment of the R&D unit cheaper than if new
facilities had to be built. By using existing personal networks to local authorities the access to
regulations was faster than developing completely new relationships to local authority representatives.
Furthermore, the establishment close to a science park and close to the planned Olympic hospital
attracted talent, both in terms of local talent but also international talent. Since finding the recruits with
the proper qualifications was a significant difficulty this proved important.
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