MNC characteristics and global learning

Journal of the Academy of Business and Economics, April, 2003 by Jangho Lee

ABSTRACT

This study attempted to identify firm characteristics related to global learning. The results of this study suggest that cultural proximity, ownership percentage, similarity of processes used and products produced, and competitive advantage are positively related to global learning. The coefficient of the variable representing the size of the MNC, however, is not statistically significant in any of seven regression equations. That might suggest that rapid advancement in information and transportation technology and subsequent decrease in costs of communication and transportation has made global learning affordable regardless of firm size. Meantime, there are no generally accepted measures to examine global learning. Consequently, this study developed seven measures to examine global learning, i.e., scope of global learning, diversity of global learning, diversity of production-related global learning, diversity of non-production-related global learning, intensity of global learning, intensity of production-related global learning, and intensity of non-production-related global learning. As such, this research contributes to collective knowledge on the knowledge-based view of the firm.

1. INTRODUCTION

With rapid advancement of communication and information technology and increasing interdependence of markets, the concept of global learning has received considerable research attention over the last decade. The value of global learning in the multinational corporation (MNC) can be particularly high because foreign markets often provide access to new ideas and stimuli that can be subsequently applied in other countries. By leveraging knowledge in different markets, MNCs are in a position to capitalize on market imperfections and achieve higher returns on their investments. Numerous researchers argued that higher levels of global learning lead to higher MNC performance.

Meantime inward foreign direct investments (FDIs) tend to have high levels of knowledge and to be the dominant channel of knowledge diffusion (Hejazi and Safarian, 1999). Research inquiry into knowledge leakage has long existed. Previous research (Caves, 1974; Globerman, 1979) showed that greater foreign presence is correlated with greater productivity in host countries. Thus many governments offer explicit and implicit incentives to MNCs to establish subsidiaries in their countries. Thus, the practical reasons for investigating factors affecting global learning seem compelling.

A learning corporation is a holographic organization in the sense that information about the whole is stored in each part of the company (Hedlund and Rolander, 1990). In a learning organization, the basic strategy, guiding principles of behavior, and access to detailed information are widely shared. Recent shifts in the business environment allow MNCs to acquire efficiently knowledge critical to their success. The most important of these shifts is the revolutionary improvements in information and communications technologies that make information and knowledge acquisition substantially more efficient for all firms (Porter and Millar, 1985; Ohmae, 1991). Thus information technology is of crucial importance to global learning.

In light of its managerial significance, one would expect a large international business literature on global learning. Despite its clear importance, however, global learning appears to remain one of the most persistently understudied areas in international business, and so little is known about MNC's global learning. Moreover, past research related to knowledge transfer in international business has traditionally focused on technology and other technical knowledge transfers (e.g., Davidson and McFetridge, 1985; Simonin, 1999).

The goal of this paper is to undertake a careful test of the proposition that MNC characteristics are related to the extent of learning and knowledge transfer between MNC headquarters and subsidiaries and among MNC subsidiaries. Correspondingly, the central question to be investigated in this paper is to what extent does MNC characteristics affect global learning among the MNC's components spread throughout the world? Meantime, there have been no generally accepted measures to examine global learning. This study attempts to develop such measures. As such, this research contributes to collective knowledge on the knowledge-based view of the firm. In the following section we review the literature related to MNC characteristics and global learning. Then the issue of their relationship is further developed with empirical research. Meantime this study's use of a sample of MNC subsidiaries in Korea extends the empirical scope of both the multinationality and global learning literatures. Concluding remarks discuss implications of the findings.

2. THEORETICAL BACKGROUND AND HYPOTHESES

A key asset of the MNC is the diversity of environments in which it operates. This diversity exposes it to multiple stimuli, allows it to develop diverse capabilities, and provides it with a broad learning opportunity. The mere existence of diversity, however, does not enhance learning. It only creates opportunities for global learning. The open exchange of information and knowledge is necessary for managers in one organizational unit to learn about and benefit from the experiences of other units in other national markets (White and Poynter, 1990). Such exchanges allow for the diffusion of innovative ideas from the originating unit to the rest of the MNC. In practice, however, such exchanges do not occur frequently. For example, US automobile manufacturers have benefited relatively little historically from the know-how in their European subsidiaries, although the potential for realistic experimentation with small car and performance car production certainly was there (Hedlund & Rolander, 1990). Meantime, global learning has two aspects. One is its scope, and the other is its diversity. In this paper, the scope of global learning addresses to whether learning occurred among their global components, and whether it is dyadic between headquarters and subsidiaries or globally if it occurred. Meantime the diversity of global learning addresses to the question of in how many value activities (Porter, 1985) and to what extent in those activities global learning takes place.