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Journal of International Business Studies (2004) 35, 340–349

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Organizing knowledge processes in the


multinational corporation: an introduction

Nicolai Juul Foss1,2 and Abstract


Torben Pedersen3 This Introduction discusses the contrast between, on the one hand, the current
popularity of addressing MNC organization in knowledge terms and, on the
1
Department of Management, Politics, and other, the lack of adequate understanding of many of the causal mechanisms
Philosophy, Copenhagen Business School, Center and contextual factors in relations between knowledge processes and
for Knowledge Governance, Copenhagen N, organizational factors. A number of the relevant research challenges are
Denmark; 2Department of Strategy and identified, and it is clarified how the five articles in this Focused Issue addresses
Management, Norwegian School of Economics some of these.
and Business Administration, Bergen, Norway; Journal of International Business Studies (2004) 35, 340–349.
3
Department of International Economics and
doi:10.1057/palgrave.jibs.8400102
Management, Copenhagen Business School,
Frederiksberg, Denmark
Keywords: knowledge processes in the MNC; organizational control and design
Correspondence:
Dr NJ Foss, Department of Management,
Politics, and Philosophy, Copenhagen Introduction: why this focused issue?
Business School, Center for Knowledge It is a truism that scientific curiosity is evoked by contrasts, and that
Governance, Blaagaardsgade 23B, 2200 most scientific activity means solving the puzzles implied by those
Copenhagen N, Denmark.
E-mail: njf.lpf@cbs.dk
contrasts (Laudan, 1977). Contrast-driven puzzles take many
forms. For example, they may emerge from contrasts between
theories designed to explain the same phenomenon, or contrasts
(clashes) between a theory and an observed phenomenon, or they
may consist of ‘digging deeper,’ that is, identifying explanatory
mechanisms on deeper levels, constructing micro-foundations and
the like. Special issues, such as the present one, are often published
in order to take stock on puzzle-solving activity, to account for how
a field has progressed so far, to identify the remaining puzzles, etc.
This Focused Issue is different: it represents an attempt to define
and partially answer a set of puzzles for research in the MNC that
while they may occasionally have emerged in various discussions
have not yet been clearly framed and have in no way been given
the attention they require. It is thus an attempt to carve out a
distinct research program within MNC research, although one that
seeks to take existing research streams in new directions rather
than entirely redefining these. The effort has been prompted by a
number of those contrasts just alluded to. These relevant contrasts
may be conceptualized in terms of, on the one hand, the
widespread acceptance and dominance of knowledge-based
approaches to the MNC1 and, on the other , the apparent lack of
a micro-foundation in much of this work, as well as an absence of
an adequate understanding of many of the causal mechanisms and
contextual factors that mediate between knowledge processes and
administrative and other organizational arrangements.
Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
341

This contrast has an observational dimension: we ring, integrating and deploying knowledge. To put
can observe managers pulling levers of organiza- the matter in general terms that are perhaps
tional control in MNCs to influence processes of reminiscent of the market failure/transaction cost
sourcing, combining, creating, deploying, lever- approach, there is little theory-based understand-
aging, etc. knowledge. This leads to the explanatory ing of how mechanisms of organizational control
dimension of the contrast, for our theoretical are aligned with knowledge transactions in an
knowledge about which levers should be pulled economizing manner. This would seem to be a
under which conditions is scant and meager. In serious lack in understanding, because there are
fact, we are pretty much in the dark about the many a priori reasons, as well as substantial
extent to which MNC managers can pull levers of anecdotal evidence, to support the argument that
organizational control at all in order to successfully organizational factors affect knowledge processes as
influence knowledge processes. Finally, it has a well as the relation between knowledge processes
dimension that relates to contrasts between theories, and MNC performance.
specifically theories of the MNC. Consider this final This lack of understanding of how organizational
point. design issues relates to knowledge processes in
Tallman (2003) has recently drawn attention to a MNCs has a theoretical, an empirical and a
‘ytransition of the dominant conceptual model of managerial dimension. Theoretically, little work
the multinational firm from the market failure exists on how MNC managers can best orchestrate
approach of internalization theory and transaction knowledge processes by means of designing and
cost economics theory to the market imperfections implementing mechanisms of organizational con-
approach of capabilities or knowledge-based the- trol. This means that although some empirical work
ories of the firm’ (Tallman, 2003, 495) that took exists on the relevant issues, this work seems
place during the 1990s. This changed lens has somewhat ad hoc. In the managerial dimension,
arguably produced a host of new insights. A MNC managers are left without much theory-based
fundamental one is the conceptualization of the guidance when it comes to organizational design in
MNC as a knowledge-sharing network whose knowledge-intensive MNCs.3
existence can be understood in terms of its ability In the remainder of this introductory paper, we
to transfer, create, integrate and deploy certain further briefly discuss the ‘knowledge movement’
kinds of knowledge more efficiently than markets in the MNC literature and its relative lack of
are capable of (Kogut and Zander, 1993). A more attention to organizational mechanisms, as well as
specific insight concerns the importance of sticki- outline some of the research challenges (‘Knowl-
ness for knowledge transfer in MNCs and (some of) edge and Organization in the MNC: Research
the cognitive and motivational characteristics of Challenges’) before we finally explain how the
such stickiness (Szulanski, 1996; Gupta and Govin- articles in this Focused Issue take steps toward
darajan, 2000), an insight that has come to define a bridging the gap between knowledge and organiza-
whole cottage industry in MNC research. tion in the MNC (‘Bridging (Some of) the Gaps: The
However, at least one baby was thrown out with Articles’).
the bathwater of ‘the market failure approach of
internalization theory and transaction cost eco- Knowledge and organization in the MNC:
nomics theory’, namely the concern with mechan- research challenges
isms of organizational control (broadly conceived)
that characterizes these approaches.2 A strong Knowledge and organization in the theory of the
indication of this is that the main research interest MNC
in the management of MNC knowledge processes It is to the lasting credit of the theory of the MNC
has been on cognitive aspects, such as absorptive that it recognized knowledge as a key factor
capacity, tacitness, complexity, etc., and on how shaping economic organization long before the
these may influence the costs of transferring, mainstream economics of organization did this
combining and deploying knowledge. (e.g., Buckley and Casson, 1976; Dunning, 1977).4
Considerably less attention has been devoted to As late as 1998 Holmström and Roberts (1998, 90),
how the delegation of authority (and decision two leading mainstream organizational econo-
rights more generally), the provision of incentives, mists, observed that
the monitoring of managers and employees, etc., Information and knowledge are at the heart of organiza-
may impact MNC processes of sourcing, transfer- tional design, because they result in contractual and

Journal of International Business Studies


Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
342

incentive problems that challenge both markets and firms The upshot is that important parts of the MNC
yIn light of this, it surprising that leading economic
literature are indeed concerned with knowledge
theories yhave paid almost no attention to the role of
organizational knowledge.
flows between MNC units and often explicitly
considers the role of organizational mechanisms
At the time that this statement was made, in the process of knowledge transfer. However, even
organization-specific knowledge had already been this literature is still in the early stages of under-
a key construct in the international business field standing the central aspects, mechanisms, and
for more than a decade, complementing (Buckley contextual factors in the process of managing
and Casson, 1976; Dunning, 1977; Rugman, 1981; knowledge in MNCs.
Caves, 1982; Hennart, 1982), and later challenging
(Kogut and Zander, 1993) the ‘leading economic Problems and research challenges
theories’ in that field. The idea that economic In the following, we briefly outline on an abstract
organization – specifically, the comparative con- level some of the – rather closely related – research
tracting issue of whether to export, license or challenges that face research in how MNCs may
establish foreign operations – may be influenced influence knowledge processes by organizational
by the characteristics of firm-specific knowledge means.
assets had been around much longer (Hymer, 1960;
Vernon, 1966).5 The MNC as a knowledge-based entity
Thus, the impression is easily gained that the It has become almost axiomatic that knowledge
theory of the MNC enjoys significant lead-time and learning are at the root of understanding how
with respect to understanding how knowledge and competitive advantage is gained and sustained. The
economic organization connects relative to the ‘knowledge-based view’ of the firm encapsulates
more generic economic theories of the firm. This this position (e.g., Kogut and Zander, 1992; Grant,
is perhaps not so surprising, because the issue of 1996) and an explicitly knowledge-based view has
coordinating knowledge processes may be more been adopted in much recent MNC research (e.g.,
pressing in the full-blown MNC than in firms that Martin and Salomon, 2003). While there are
have more of a national orientation. However, a reasons to be sympathetic to the knowledge-based
general problem is that thinking about how to conceptualization, it is also hard to dispute that the
govern knowledge transactions inside firms is not a view appears to be rather incomplete in the basic
very advanced field. In economics, as well as in the conceptual dimension. In particular, very little
strategy field, theories of the firm are either fully research has been devoted to systematically under-
concerned with knowledge issues to the neglect of standing and theoretically framing the ways in
organizational issues (i.e., the ‘knowledge-based which heterogeneous knowledge elements may be
view of the firm’) or fully concerned with organiza- stratified, distributed, partly overlapping, comple-
tional issues (governance, incentive, etc.), but mentary or, in other words, structured inside MNCs
suppress knowledge issues (i.e., organizational (see Lyles and Schwenk, 1992; Foss and Pedersen,
economics). 2003).
The theory MNC does slightly better. In particu- An indication of this is that most recent re-
lar, the recent emphasis in the differentiated MNC search on the differentiated MNC has given much
literature on orchestrating knowledge flows more attention to understanding knowledge
between MNC units has brought some – although flows between MNC subsidiaries than understand-
largely empirically based – insight into the organi- ing the stratification of knowledge stocks across
zational requirements of knowledge transfer. Thus, the MNC. While the examination of MNC know-
the most comprehensive study published on this ledge flows is an important undertaking, the
topic, Gupta and Govindarajan (2000), observed existing neglect of the MNC stratification of
that the knowledge inflows into a subsidiary are knowledge stocks is not satisfactory, for flows
positively associated with the richness of transmis- emerge from stocks and flows change stocks.6
sion channels, motivation to acquire knowledge, Moreover, costs of transfer arise because firms
and capacity to absorb incoming knowledge. control heterogeneous knowledge elements that
Minbaeva et al. (2003) found that use of HRM- they wish to somehow integrate with other knowl-
practices as training, performance appraisal, pro- edge elements or at least deploy in different
motion, compensation and communication have a contexts. In other words, the costs and benefits of
positive impact on the transfer of knowledge. knowledge transfer (and integration, deployment,

Journal of International Business Studies


Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
343

creation, etc.) can only be systematically com- very much empirically driven. This raises chal-
prehended through an explicit understanding of lenges such as:
how heterogeneous knowledge elements are dis-
 How are individuals motivated to share knowl-
persed across an MNC. However, the field seems
edge, that is, what are the micro-foundations of
far from a consistent understanding of what it
knowledge-sharing within and between MNC
means that the MNC is a knowledge-based entity.
units? Does knowledge sharing raise particular
Some of the research challenges implied by these
concerns about intrinsic motivation, and may
observations are:
the proper balances between intrinsic and extrin-
 What is the unit of analysis in a knowledge-based sic motivation be at least partly culturally
approach to the MNC? Subsidiary-level capabil- determined?
ities? Lower-level routines? What about patents  On which models of behavior should research on
and other IPRs? knowledge processes in MNCs be founded? Is the
 What are the dimensions of the knowledge units rational choice paradigm sufficient (as advocated
other than tacitness that helps us to understand by Buckley and Casson, 2001) or are more
the costs of knowledge transfer? sociological models appropriate?
 What are the dimensions of the knowledge units
that help us to understand the benefits of
integrating knowledge? Complementarities? If Insufficient attention to organization
so, which kinds of complementarities are rele- An implication of the lack of proper micro-founda-
vant? tions is that it is unclear how knowledge processes
may be influenced by mechanisms of organiza-
tional control, such as authority, the use of
incentives, monitoring and the building of shared
Absence of micro-foundations context. This is because there is rather little under-
Like the knowledge-based literature in general, standing of how these controls influence individual
research on knowledge in MNCs often work with behavior with respect to accumulating, building,
notions such as ‘capabilities’, ‘knowledge assets’, sharing and integrating knowledge. This is not to
‘knowledge processes’, etc. These are aggregate deny that many contributions to the MNC litera-
concepts. Such concepts are, of course, not illegi- ture do recognize that the process of knowledge
timate per se, but it is desirable that they come transfer is likely to be supported by different
equipped with a micro-foundation, that is, there is organizational means of control and motivation
some understanding of how they are related to (e.g., Bartlett and Ghoshal, 1989; Gupta and
individual behavior. However, this is hardly the Govindarajan, 1991, 1994; Buckley and Carter,
case for a notion such as firm-level ‘competence.’ 1999). However, knowledge characteristics and the
Definitions of these terms, to the extent that they transfer of knowledge itself are thus seldom con-
are given at all, tend to ‘define’ these ill-defined sistently taken to be endogenous to organizational
concepts in terms of other ill-defined concepts (e.g., arrangements. This means that a host of research
defining competence in terms of ‘capabilities’ and challenges are largely ignored. These are questions
‘routines’). This makes empirical work on knowl- such as:
edge transfer inside MNCs difficult to undertake
(because operationalization is hampered). However,  How can incentive mechanisms be used to foster
it also makes it hard to link knowledge processes, inter-subsidiary knowledge transfer? To what
such as knowledge transfer, to behavior: what extent can organizational mechanisms that have
exactly does it mean in terms of the knowledge of been implemented to foster knowledge sharing
individual agents to ‘transfer a competence’ from within business units or within national firms be
one MNC unit to another one? While this is a used to foster knowledge sharing between sub-
theoretical problem, it has obvious managerial sidiary units that may be placed in very different
implications. cultural spheres?
More generally, because there is little disciplined  How should decision-making authority be allo-
attention to individual behavior in recent work on cated across the MNC network if the aim is to
knowledge transfer in MNCs, arguments pertaining optimize knowledge creation? Can we relate
to intra-MNC knowledge transfer acquires an ad hoc thinking on this issue to existing thinking on
character and, indeed, the literature seems to be subsidiary mandates?

Journal of International Business Studies


Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
344

Unclear causality inadequate conceptualization of the MNC as a


A closely related and key problem in thinking knowledge-based entity, absence of micro-founda-
about the interaction of knowledge and organiza- tions and insufficient linking of knowledge and
tion in the MNC has to do with the causal–tem- organization.
poral structure of managerial choice. To use the
language of optimal control theory (Pontryagin Bridging (some of) the gaps: the articles
et al., 1962; Winter, 1987), the argument so far has The five articles in this Focused Issue are all
been that organization variables may best be occupied with the interaction between knowledge
thought of as ‘control variables’, with knowledge- processes and organization. However, they differ
related variables partaking in the role of ‘state substantially in a number of dimensions, such as
variables’.7 However, it is also arguable that know- the particular knowledge processes and organiza-
ledge-related variables may be constraints on tional mechanisms that they investigate, as well as
the control variables. For example, how much the theories that are applied and the empirical
MNC headquarters know about a given sub- context that is chosen.
sidiary’s normal performance may influence its Table 1 presents some of the basic differences
possibilities of somehow rewarding the subsidiary among the five articles. Although most of the
in case it exceeds normal performance. Or some articles focus on the transfer of knowledge,
subsidiaries may control ‘capabilities’ that are they look at different organizational mecha-
so different from those controlled by other nisms and structures, including MNCs, strategic
subsidiaries that MNC headquarters have diffi- alliances and joint ventures, and some apply
culties benchmarking the subsidiaries against the headquarter (or teacher) perspective while
each other. others make use of the subsidiary (or student)
The tendency in the literature is clearly to take perspective. In terms of applied theories, the
knowledge characteristics as something determin- articles seem to mainly draw on two rather diffe-
ing organizational arrangements. Thus, pondering rent branches of theorizing, namely organizational
the issue of what ‘knowledge approaches can economics (e.g., agency theory) and perspectives
contribute to organizational theory,’ Grandori that are closer to organizational behavior
(Grandori and Kogut, 2002, 225) recently observed theory (e.g., organizational learning theory and
that what has been added is ‘a new ‘contingency’ socialization theory).
factor for understanding organizational arrange- The first article, ‘A Constrained Process Analysis
ments y Knowledge complexity, differentiation of Knowledge Combination in Multinational
and specialization, complementarity and interde- Enterprises’, by Peter Buckley and Martin Carter, is a
pendence are emerging as important contin- purely theoretical piece that outlines a process
gencies affecting effective organization and model for knowledge combination within
governance solutions’ (e.g., Kogut and Zander, MNCs. Knowledge combination is seen as the
1993; Birkinshaw et al., 2002; Foss and Pedersen, process of creating value through the combina-
2002). However, at least some of these know- tion of different types of spatially separated know-
ledge characteristics may also be endogenous ledge in the MNC. The outcome of knowledge
to organizational arrangements; for example, combination depends on how the process is
knowledge differentiation and specialization are designed in terms of allocation of decision rights,
partly endogenous to the choice of organizational the determination of knowledge boundaries
structures. and the design of motivational measures. If not
Of course, the two positions are not necessarily properly designed, the knowledge combination
inconsistent if understood in their proper causal- process will incur imperfections in the form of
temporal context. It may very well be that what knowledge losses, decision objective losses and
we think of as MNC ‘capabilities’ is a short-hand coordination losses. One way among many in
for those aspects of the existing MNC know- which the authors take explicit steps towards
ledge stock that both constrain and enable the creating a micro-foundation for thinking about
MNC’s shorter-run actions, including the choice organizational issues in knowledge processes is by
of organizational mechanisms to influence know introducing the ‘initiator-entrepreneur’ as the
ledge flows. The problem is that the MNC literature motor of the process and the agent responsible for
does not provide much insight into this causal anticipating potential gains as well as costly
structure, partly because of the above problems of imperfections.

Journal of International Business Studies


Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
345

Table 1 Basic characteristics of the five articles

Knowledge Organizational Theoretical Sample Statistical method


processes mechanism foundation

Buckley and Carter Knowledge K Allocation of Organizational


creation in MNCs decision rights economics
K Coordination
mechanisms
K Motivational
measures

Mudambi and Transfer of K Decision rights Agency theory and 275 foreign- Simultaneous
Navarra knowledge from determined by de recent MNC owned high-tech equation models
subsidiary to other facto power theory subsidiaries (3SLS)
MNC units located in the UK

Simonin Transfer of K Learning capacity Organizational 147 US MNCs Structural equation


technological K Partner learning theory involved in modelling (LISREL)
knowledge protectiveness international with group analysis
between K Organizational strategic alliances
international culture
strategic alliance
partners
Dhanaraj et al. Transfer of K Relational Organizational 140 Hungarian Structural equation
knowledge from a embeddedness learning theory joint ventures modelling (LISREL)
foreign parent to (i.e., tie strength, and economic with foreign
an IJV trust and shared sociology parents
systems)

Björkman et al. Transfer of K Corporate Agency theory and 134 Western- Regression
knowledge from socialization socialization theory owned analyses
subsidiary to other mechanism subsidiaries
MNC units K Subsidiary located in Finland
objectives and China
K Compensation
system
K Use of expatriate

Ram Mudambi and Pietro Navarra’s article ‘Is subsidiaries strive for achieving such bargaining
Knowledge Power? – Knowledge Flows, Subsidiary power. A mechanism behind this is that subsidiary
Power and rent seeking within MNCs’ takes its managers who gain bargaining power will be able
starting point in the literature emphasizing the to influence the distribution of MNC resources to
increasing strategic independence of MNC subsidi- their own advantage. Intra-MNC knowledge flows
aries. The strategic independence of subsidiaries are the key source of subsidiary bargaining power.
gives a number of benefits to the MNC, such as Subsidiaries that control knowledge that is vital to
tapping into local systems of innovation, integrat- the rest of the MNC will be able to accumulate high
ing local competencies and introducing more levels of bargaining power. As rent seeking by
dynamism into the parent MNC; however, too subsidiaries with strong bargaining power is ineffi-
much subsidiary independence might be inefficient cient from the perspective of the firm, the head-
from the perspective of the MNC. This tradeoff is quarters’ decision problem becomes one of
modeled in the following manner. increasing strategic independence in subsidiaries
Subsidiaries are conceptualized as pursuing rent- without provoking rent-seeking behavior. The main
seeking behavior within the MNC, that is, increases contribution of this article lies in the identification
in subsidiary bargaining power will enable subsidi- of the interplay between knowledge processes
aries to appropriate rents within the MNC and (subsidiary knowledge creation) and organizational

Journal of International Business Studies


Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
346

processes (subsidiary bargaining power) that foster the relational embeddedness between the foreign
rent-seeking behavior (i.e., the appropriation of parent and IJV as a key determinant of knowledge
MNC resources, including MNC knowledge). transfer. As a construct, relational embeddedness
In the study by Bernard Simonin, ‘An Empirical captures the social aspects of the relationship and
Investigation of the Process of Knowledge Transfer facilitates the transfer of knowledge since it allows
in International Strategic Alliances’, the context is for clarification (i.e., proper interpretation and
the process of knowledge transfer between interna- feedback), and ensures the foreign parent some
tional strategic alliances partners. The study pre- kind of control and motivation to transfer. Rela-
sents an integrated model of knowledge transfer tional embeddedness consists of three dimensions:
that accounts for the concurrent effects of learning strength of ties, trust and shared values and
intent (i.e., organizational motivation), learning systems, and these can be seen as organizational
capacity, knowledge ambiguity and tacitness, and mechanisms that can be applied by managers in
partner protectiveness. The basic structure of the order to facilitate the knowledge transfer, since they
model applied by Simonin on the organizational are all outcomes of managerial action.
level is: Learning intent–learning capacity–knowl- The study gains support for the importance of
edge transfer, which has many similarities with a relational embeddedness; moreover, it is found that
fundamental model of individual learning (motiva- relational embeddedness has a stronger impact on
tion–capacity–learning). transfer of tacit knowledge than on explicit knowl-
Organizational mechanisms enter through the edge transfer. All three dimensions of relational
learning capacity construct, which is an expression embeddedness have a positive impact on the
for all the organizational resources dedicated transfer of tacit knowledge, while only shared
towards learning. These resources include human systems have an impact on the transfer of explicit
resources and physical assets (resource-based learn- knowledge indicating that these organizational
ing capacity), institutional routines and rules mechanisms are particularly important for tacit
inducing commitment to a learning objective knowledge transfer, which typically is the more
(incentive-based learning capacity), and general difficult type of knowledge to transfer. While other
attitudes and beliefs towards learning (cognitive- studies primarily have focused on the impact of
based learning capacity). Learning capacity is cognitive factors (e.g., the tacitness of knowledge),
related to the more well-known concept of absorp- the contribution of this article is the endogenous
tive capacity, but while much of the discussion view of organizational processes where relational
surrounding the absorptive capacity focuses on the embeddedness is constraining the transfer of dif-
complexity and takes the absorptive capacity for ferent types of knowledge (rather than the other
more or less exogenous given, Simonin brings back way around).
the focus on the firm-specific levers and resources Finally, in ‘Managing Knowledge Transfer in
that can be manipulated (the actionable side of MNCs: A Comprehensive Test of Headquarters
absorptive capacity) as the key of learning capacity. Control Mechanisms’, Ingmar Björkman, Wilhelm
Empirically, the study points to the import roles Barner-Rasmussen and Li Li explore a comprehen-
played by somewhat ‘traditional’ variables such as sive model based on agency theory and socializa-
learning intent, knowledge ambiguity and tacit- tion theory that addresses organizational
ness. However, more distinctly organizational mechanisms used by MNC headquarters to control
mechanisms such as incentive-based learning capa- the inter-unit transfer of subsidiary competences.
city and partner protectiveness gain support as, The organizational mechanisms that they include
respectively, stimulating and hindering knowledge are, on the one hand, safeguards against potential
transfer. subsidiary opportunism/moral hazard applied by
The context of the paper by Charles Dhanaraj, the headquarters (i.e., specification of performance
Marjorie Lyles, Kevin Steensma and Laszlo Tihanyi on evaluation criterion, subsidiary management com-
‘Managing the Dynamics of tacit and Explicit pensation, and use of expatriate subsidiary man-
Learning in international joint ventures (IJVs): agers) and, on the other, the development of shared
The Role of Social Embeddedness and the Impact values, objectives and beliefs across MNC units
on Performance’ is knowledge transfer from a (i.e., a corporate socialization mechanism). It turns
foreign parent to their joint ventures located in out that MNC headquarters can influence the flow
Hungary. Drawing on organizational learning the- of subsidiary knowledge by tailoring the criteria
ory and economic sociology, the authors identify used to evaluate subsidiary performance and

Journal of International Business Studies


Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
347

Table 2 Examples of conceptual developments and empirical findings in the five articles

Conceptual developments Empirical findings

Conceptualization of the MNC as a knowledge-based entity


Buckley and Carter:
K Explicit modelling of specific kinds of MNC knowledge,
knowledge complementarities and knowledge combination
Mudambi and Navarra: Mudambi and Navarra:
K Subsidiary knowledge production treated as endogenously K Inflow of knowledge from the corporation and local
determined by the pattern of knowledge flows counterparts are positively related to subsidiary knowledge
production
Björkman et al.: Björkman et al.:
K The stock of subsidiary knowledge and the scope of K The expected positive relationship is strongly confirmed for
subsidiary activities (value chain) are related to the outflow of both the stock of subsidiary knowledge and the scope of
subsidiary knowledge subsidiary activities

Steps towards creating a micro-foundation for knowledge


processes
Buckley and Carter:
K The model envisages an initiator-entrepreneur as the motor
of the knowledge combination process
K Explicit modeling of individually based motivation and
coordination costs
Simonin: Simonin:
K The model is a replication of a fundamental model of K The model gain support when controlled for ambiguity and
individual learning (motivation–capacity–learning) at the tacitness of knowledge
organizational level

Introduction of organizational mechanism


Buckley and Carter:
K Management fiat
K Allocation of decision rights
K Motivational measures
Björkman et al.: Björkman et al.:
K HQ can apply safeguards (i.e., specification of performance K Evaluation criteria for subsidiary performance and corporate
evaluation criterion, management compensation and use of socialization mechanism turn out to be significant drivers of
expatriate managers) and corporate socialization mechanism subsidiary knowledge outflow
in order to control transfer of subsidiary knowledge
Dhanaraj et al.: Dhanaraj et al.:
K Relational embeddedness captures the social aspects of K Relational embeddedness has a strong impact on the transfer
relationships and consists of tie strengths, trust and shared of knowledge, particularly on tacit knowledge transfer
systems
Simonin: Simonin:
K Learning capacity is introduced as the actionable side of K Incentive-based learning capacity is a significant driver of
absorptive capacity and is decomposed into resource-, knowledge transfer, while the importance of resource- and
incentive- and cognitive-based learning capacity cognitive-based are more mixed
K Partner protectiveness is hindering knowledge transfer
K Organizational culture has a moderating role

Causality between knowledge process and organizational processes


Mudambi and Navarra: Mudambi and Navarra:
K Knowledge processes (subsidiary knowledge production) are K The causality knowledge output – subsidiary bargaining
constraining organizational processes (subsidiary bargaining power – rent appropriation is supported in a simultaneous
power), which again constrain rent-seeking behavior (that equation model based on cross-section data
includes knowledge processes)
Dhanaraj et al.:
K The organizational mechanism – relational embeddedness –
is constraining the transfer of different types of knowledge

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Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
348

implement corporate socialization mechanism knowledge processes will prove not only challen-
(Table 2). ging but also fruitful.

Conclusion
In this introduction, we have sketched an ambi- Notes
1
tious program for MNC research. In terms of the As signaled by the recent conferment of the
historical development of the MNC field, we 2003 Palgrave Macmillan/Journal of International
applaud the strong focus on knowledge in the Business Studies Decade Award to Bruce Kogut
MNC literature of the last decade, but argue and Udo Zander for their article, Knowledge of
that it needs to be combined with a view of the Firm and the Evolutionary Theory of the
organizational mechanisms as instruments of Multi-National Corporation (Kogut and Zander,
influencing the sourcing, building, deployment 1993).
2
and transfer of knowledge resources. In some This is not to say that the market failure approach
ways, the transition from the market failure of internalization theory and transaction cost econo-
approach of the 1970s and the 1980s to the mics theory have provided very detailed com-
present knowledge-based view led to a Kuhnian parative treatments of issues of organizational
loss of content (Kuhn, 1970). Thus, the earlier control, but at least these issues are more clearly
perspective had a view of the MNC as a contractual framed and conceptualized than in knowledge-based
entity and a distinct governance structure (e.g., approaches.
3
Teece, 1986). Moreover, it had clear micro-founda- These gaps are not necessarily problems of
tions, to a large extent derived from economics. complete neglect, and they are not absolute. The
And it had a clear, if somewhat crude, view of the literature on the ‘differentiated MNC’ is, in fact,
function of various organizational mechanisms. characterized by paying considerable attention
Our argument has been that the knowledge to organizational mechanisms (e.g., Hedlund, 1986;
approach to the MNC needs to be at least on par Bartlett and Ghoshal, 1986, 1989; Birkinshaw, 1996;
with the earlier approach in terms of conceptuali- Gupta and Govindarajan, 1991, 1994, 2000; Holm
zation of the MNC, micro-foundations and treat- and Pedersen, 2000; Foss and Pedersen, 2002, 2003).
ment of organizational mechanisms. In line with However, even in this literature the organizational
this, we formulated a number of corresponding dimension of MNC knowledge processes is not
research challenges. addressed, conceptualized and theorized in any
We also showed in which ways the articles that coherent and systematic manner.
4
are included in this Focused Issue take steps toward It is perhaps somewhat overlooked today that the
meeting the challenges that we identified by theme of MNC-specific knowledge comes prior to the
suggesting micro-foundations, putting forward ele- advent of explicitly knowledge-based approaches to
ments of a knowledge-based conceptualization of the MNC in the 1990s.
5
the MNC, pondering how organization and knowl- The dominant knowledge-based approach to the
edge are related in the MNC, etc. It is noticeable MNC may therefore be a continuation with a different
that the articles are built on rather different twist of existing themes in the MNC field rather than a
theoretical positions, and therefore approach and radical theoretical discontinuity (as argued by Tallman,
answer the challenges very differently. Further- 2003).
6
more, the subject of organizing or governing Cf. also Kogut and Zander’s (1992) observa-
knowledge processes is also addressed in different tion that much work on organizational learning
MNC contexts, from overall MNC organization to (flows) has neglected organizational knowledge
strategic alliances. This indicates that the issue of (stocks).
7
the organization of knowledge processes is an Control variables are those that can be set quickly
overarching one in MNC organization. Further- (in principle, instantaneously) at the various values
more, it is one that probably needs to be addressed within their feasible ranges, while state variables are
by different approaches, because of the inherent those that change under the influence of the control
multidimensionality and complexity of the subject variables.
8
matter. This Focused Issue therefore only represents Forthcoming as an Introduction to a Focused
a first step in an immensely complicated set of Issue of Journal of International Business Studies on
issues. We are confident that future work on the ‘Organizing Knowledge Processes in the Multinational
MNC that addresses the governance of MNC Corporation’.

Journal of International Business Studies


Knowledge processes in the multinational corporation Nicolai Juul Foss and Torben Pedersen
349

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Journal of International Business Studies