Headquarters resource allocation for inter-subsidiary innovation transfer: the effect of within-country and cross-country cultural differences.
| Verfasser | Miao, Yuzhe |
| Posten | RESEARCH ARTICLE - Report - Abstract |
Abstract Although the importance of cross-country cultural distance is widely acknowledged in the international business literature, we have limited understanding about how culture distance at different levels influences multinational corporations' (MNCs') subsidiary management. This paper contributes to culture-related research by stressing cultural differences at the sub-national level by examining how cultural distances at both the within- and cross-country levels simultaneously influence headquarters resource allocations for innovation transfer projects between subsidiaries. We find that the within-country cultural distance between subsidiaries is positively related to headquarters resource allocation for innovation transfer projects based on 1439 dyadic innovation transfer projects between Korean MNC subsidiaries located in China, and this relationship is strengthened when the cross-country cultural distance between headquarters and the sending subsidiary increases.
Keywords Cultural distance * Sub-national culture * Innovation transfer ? Headquarters resource allocation
1 Introduction
Intra-firm knowledge transfer has long been seen as a main source of competitive advantage for multinational corporations (MNCs) (Bartlett and Ghoshal 1989; Kogut and Zander 1993). There is increasing emphasis on promoting innovations at the subsidiary level and maximizing their value through subsidiary-to-subsidiary innovation transfer (Birkinshaw et al. 2005; Gupta and Govindarajan 2000; Rugman and Verbeke 2001). However, innovation transfer between subsidiaries is far from being either automatic or cost-free (Gupta and Govindarajan 2000; Szulanski 1996), and resource support from headquarters is often necessary in order to facilitate the transfer and maximize the corporation's value gains (Bjorkman et al. 2004; Ciabuschi et al. 2012b; Dellestrand and Kappen 2011, 2012). Since headquarters cannot provide the same resource support to all transfer projects due to resource constraints, what factors may affect headquarters resource allocations to inter-subsidiary innovation transfers becomes an important research question (Dellestrand and Kappen 2011, 2012).
An important factor affecting MNCs' management of overseas subsidiaries is cultural differences. In particular, it has been acknowledged that cultural differences pose a significant barrier to knowledge transfer (Bjorkman et al. 2007; Hansen and Lovas 2004; Javidan et al. 2005; Sarala and Vaara 2010). However, previous studies predominantly focus on cultural differences at the national level while implicitly assuming within-country cultural homogeneity (Shenkar 2001; Sivakumar and Nakata 2001; Tung 2008). This assumption has been proven fallacious as a number of studies demonstrate the existence of within-country cultural heterogeneity (Tung et al. 2008; Huo and Randall 1991; Kwon 2012; Kwon and Shan 2012). Nevertheless, we know comparatively little regarding how within-country cultural differences may impact an MNC's strategic decisions. There is also a lack of understanding with regard to possible interaction effects between within- and cross-country cultural differences (Kirkman et al. 2006; Tung 2008).
Our study aims to fill this gap and enrich the literature by examining how headquarters resource allocation for inter-subsidiary innovation transfer projects is simultaneously influenced by within- and cross-country cultural differences. Specifically, drawing on the network-based and attention-based views of the MNCs, we examine the relationship between headquarters resource allocation and the within-country cultural distance between the sending and receiving subsidiaries located in the same host country. We also examine how this relationship is affected by the cross-country cultural distance between headquarters and the sending subsidiary. We accordingly follow the literature (Dellestrand and Kappen 2011, 2012) and define headquarters resource allocation as the extent to which an MNC's headquarters allocates resources via direct involvement in decision-making for inter-subsidiary innovation transfer. This definition is based on the notion that headquarters (as the parenting unit) can create value for the MNC as a whole by becoming involved with subsidiary operations via resource allocation activities (Dellestrand and Kappen 2012). Specifically, headquarters can help orchestrate and coordinate innovation transfer activities within the MNC network by becoming directly involved in subsidiary transfer activities and taking certain responsibilities for these decisions. This headquarters involvement is achieved via the allocation of both human and organizational resources in addition to the financial resources that headquarters regularly allocates.
We find that headquarters tends to allocate more resources toward supporting innovation transfer projects as the within-country cultural distance between the sending and receiving subsidiaries increases based on data from 1439 dyadic innovation transfer projects between 362 South Korean MNC subsidiaries located in Mainland China. Our results also show that sending subsidiaries identified as culturally distant from the MNC's home country draw greater attention from headquarters, receiving additional resources and support for their innovation transfer projects. Our findings suggest that headquarters decides on its resource allocation toward each inter-subsidiary knowledge transfer project based on the cultural differences between the sending and receiving subsidiaries as well as the cultural differences between itself and the sending subsidiary. These findings indicate that it is meaningful to examine the interactive effects between cultural distances at multiple levels when observing an MNC's strategic decisions.
The rest of the paper is structured as follows: Sect. 2 outlines the relevant literature, Sect. 3 develops our hypotheses, Sect. 4 provides a description of the methodology, and Sect. 5 presents the empirical results followed by our discussion and conclusions.
2 Literature Background
2.1 Headquarters Resource Allocation for Inter-Subsidiary Knowledge Transfer
Foreign direct investment (FDI) is traditionally viewed as a means for leveraging a headquarters' monopolistic advantages into different markets (Zaheer 1995; Zaheer and Mosakowski 1997; Caves 1996). However, scholars suggest that MNCs should develop into "transnational corporations" wherein global learning is highly valued due to increasingly fierce competition in the international marketplace (e.g., Bartlett and Ghoshal 1989). Subsidiary-specific advantages can become important sources of sustainable competitive advantages for MNCs (Rugman and Verbeke 2001). Recent research accordingly suggests that subsidiaries should include mandated innovation initiatives (Birkinshaw et al. 1998, 2005) in order to become centers of excellence benefiting the entire MNC network (Frost et al. 2002; Cantwell and Mudambi 2005). Inter-subsidiary innovation transfer can allow an MNC to maximize its gains from knowledge sharing. However, such transfer does not occur involuntarily and may be inhibited by obstacles such as information asymmetry between subsidiaries, lack of motivation from either the sending or receiving subsidiaries, and a lack of absorptive capacity in the receiving subsidiary (Bjorkman et al. 2004; Gupta and Govindarajan 2000; Szulanski 1996). The existence of such obstacles is often related to the fact that the sending and receiving subsidiaries are located in different geographic markets with distinct social and cultural contexts (Dellestrand and Kappen 2012; Hansen and Lovas 2004).
Given that headquarters interacts with all subsidiaries and exerts ultimate authority over them, the responsibility of facilitating inter-subsidiary innovation transfer naturally falls on headquarters (Ciabuschi et al. 2011; Dellestrand and Kappen 2012). Headquarters involvement in subsidiary activities, particularly those requiring inter-subsidiary coordination and collaboration, is seen as a "parenting advantage" that may also be a source of competitive advantage (Nell and Ambos 2013; Poppo 2003). Such involvement may require headquarters to allocate nonfinancial resources such as, "management skill, knowledge of organizational processes and routines, the ability to identify complementaries within the organization" (Dellestrand and Kappen 2014, p. 7) in order to support subsidiary activities. Headquarters may also establish links to certain subsidiaries' local networks in order to gain information and knowledge that improve its "parenting" (Nell and Ambos 2013; Nell et al. 2011).
Facilitating inter-subsidiary innovation transfer through resource allocation is a manifestation of headquarters' parenting strategy that adds value to the whole MNC network (Dellestrand and Kappen 2011). Headquarters involvement may facilitate inter-subsidiary innovation transfer in several ways. First, headquarters is responsible for monitoring overseas subsidiaries in order to align their operations with the MNC's overarching goals (Andersson et al. 2005; O'Donnell 2000; Roth and O'Donnell 1996). Fulfilling this responsibility gives headquarters better access to subsidiary-level information regarding the knowledge stock and needs of each subsidiary, as well as motivating headquarters to use this information in order to orchestrate appropriate knowledge flows (Forsgren and Holm 2010). Second, headquarters may allocate resources in order to build communication channels that facilitate interactions between the sending and receiving subsidiaries. Examples of such communication channels include sending expatriates, building interpersonal social networks, and promoting specialized local knowledge (Bjorkman et al. 2004: Scullion 1994; Corredoira and Rosenkopf 2010; Monteiro et al. 2008). Third, headquarters attention and resource support may address issues related to the lack of motivation from the...
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