The impact of distance on the intra-firm transfer of knowledge types

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Master Thesis International Business and Management

The impact of distance on the intra-firm

transfer of knowledge types

Dennis Oosterloo

S1447580

d.oosterloo@student.rug.nl

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ABSTRACT

This paper aims to shed light on the role of ‘distance’ on intra-firm knowledge transfer processes. Distance between countries varies. It has been argued that the more distant a subsidiary located host country is from the headquarters home country, the more it has to manage various distance issues. Knowledge that firms have in-house can be differentiated in different forms and types and various distances may have a different impact on their transferability. Specifically, this paper explores how different dimensions of distance; including physical, cultural, linguistic, institutional, economic and strategic distance, affect the intra-firm cross-border transferability of different forms and types of firm knowledge (such as tacit, explicit, technological, marketing and task and routine knowledge). The context of this paper is multinational firms headquartered in the Netherlands. The theoretical considerations and empirical data show that different dimensions of distance influence the transfer of certain types of firm knowledge differently in situations of differentiation and dispersion. In the final section of the paper, an overview and propositions are provided which indicate the relationships between the constructs. The results of this paper are important for understanding the challenges of intra-firm knowledge transfer processes across various distances and help managers dealing with international knowledge transfer issues.

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2.2.1. Physical distance………25 2.2.2. Cultural distance………..……….. 27 2.2.3. Linguistic distance……….……… 31 2.2.4. Institutional distance………..………… 33 2.2.5. Economical distance………..……… 38 2.2.6. Strategic distance………..………. 39 3. METHODOLOGY……… 42 3.1. Research design……….………..……. 42 3.2. Data collection……….………. 43

3.3. Introducing the research objectives……….. 44

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4. EMPIRICAL FINDINGS & ANALYSIS……….………..……….47

4.1. Communication and transfer mechanisms………...…….…47

4.2. Type of knowledge………..……. 49

4.3. The distance dimensions………...………50

4.3.1. Physical distance………..…………..50 4.3.2. Cultural distance………...………. 53 4.3.3. Linguistic distance………...……….. 56 4.3.4. Institutional distance……….……...….. 59 4.3.5. Economical distance………..………..………….. 62 4.3.6. Strategic distance……….……….. 64

4.4. More distance issues………. 66

5. CONCLUSION………..…..………….. 68

5.1. Conclusions………..……….68

5.2. Contributions……….……...………… 69

5.3. Limitations………..………..70

5.4. Suggestions for further research………..………. 72

- Acknowledgement……….…..…………..72

- REFERENCES……….…….………..73

- APPENDIX………. 82

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1. INTRODUCTION

The introduction section aims to enlighten the reader about the background, problem indication, research gap, purpose and objectives of the conducted research. General information about knowledge transfer and distance factors are provided which guide the reader to the main questions under study. The section ends with the disposition of the paper.

“Knowledge is the food of the soul” (Plato)

1.1. Background

The concept of knowledge is becoming increasingly important as the world economy is becoming more globalised and knowledge-driven. The ability to effectively manage knowledge is a core competence of organizations and multinational corporations (MNC’s). Numerous researchers have indicated that knowledge is a strategic resource that is essential and fundamental for organizations in order to develop and retain competitive advantages (e.g. Argote & Ingram, 2000; Birkinshaw, 2001). Within this context, MNC’s are the main producers and transferors of knowledge. Because knowledge is vital for MNC’s, it requires that they need to forward knowledge flows to other units at the correct time and in the desired and right way. The ability of MNC’s to leverage their knowledge across dispersed foreign subsidiaries is the major reason behind the formation of MNC’s and has become essential for achieving and sustaining competitive performance (Gupta & Govindarajan, 2000; Mudambi, 2002; Rabbiosi & Piscitello, 2006).

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is understood as knowledge that is shared between the parent company and foreign subsidiaries, between different contextual settings, geographic locations or time periods.

1.2. Problem indication

Knowledge transfer between headquarter and subsidiary is affected by several factors. When reviewing the literature on intra-firm knowledge transfer processes, the author’s attention was drawn on two research issues upon which this paper is developed.

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unarticulated, intuitive and is generally difficult transferrable, while explicit knowledge is articulated, easily documented and transferrable. Relating the earlier mentioned distance dimensions with the different types and forms of knowledge is a new interesting research topic.

This study is undertaken to address the research issues described above. This means that this paper is studying international intra-firm knowledge transfer and is mostly concerned about how firms transfer their knowledge internally; the forms and types of the knowledge transferred (the knowledge characteristics) and next tot this, the distance dimensions (the relational context) that affect the knowledge transfer processes. Specifically, this paper will elaborate further on the forms and types of knowledge that firms obtain and how different dimensions of distance are affecting their transferability.

1.3. Literature gap

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As explained before, this paper is also concerned with the transfer of different types and forms of knowledge. The transfer difficulties of tacit and explicit knowledge within MNC’s are still relatively unexplored. Next its tacitness and explicitness, knowledge can be further embedded in tools, technology and organizational tasks and routines. Yet current research about intra-firm knowledge transfer has devoted no attention to the study of these types, kinds and characteristics of knowledge in relation to the previously mentioned different distance dimensions. Especially empirical work is rare. Whereas knowledge transfer is especially important in MNC’s where geographical, organizational, and cultural distances often present barriers (Bresman, Birkinshaw, & Nobel, 1999), it is precisely these qualities that provide the incentive to study knowledge types and knowledge transfer in MNC’s.

1.4. Main research question

Accordingly, the issues studied in this paper are related to intra-firm knowledge transfer, knowledge types / characteristics and context differences. The objective of this paper is to examine the influence of distance dimensions on headquarter-subsidiary knowledge transfer, and how different forms of distance affect certain types of knowledge differently in the intra-firm transfer process.

This leads to the main research question:

 How do different distance dimensions between the headquarters home country and the subsidiaries host countries affect different types of knowledge differently in intra-firm knowledge transfer processes?

1.5. Sub-questions

In order to provide a clear understanding and answer to the main research question it is helpful to come up with several sub-questions. Three sub-questions are posed and it will be explained why these sub-question are relevant and helpful in answering the main question.

1. What are the different forms and types of knowledge firms have in-house?

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2. What are the dimensions of distance and how are they related to knowledge transfer? Subsequently, the distance factors (physical, cultural, linguistic, institutional, economical and strategic distance) are investigated and explained. How does current literature describe these various distance factors, and how do they possibly impact knowledge transfer processes? When possible, their impact on the different types of knowledge is also examined. This will provide the reader with a clear understanding about distance and their relationship with knowledge (types).

3. How do various dimensions of distance influence intra-firm knowledge type transfers? Then, it will be empirically described in what way, and to what extent distance factors are influencing the transfer of certain types and forms of firm knowledge. This is done by means of interview conduction in the empirical part. Eventually, this part will result in an analysis and several propositions are posed concerning the influence of particular distance dimensions on the intra-firm transferability of different types of knowledge.

1.6. Disposition

In explaining the research question and the overall main idea, this paper is structured according to a theoretical part and an empirical part. The remainder of this paper is composed in the following way:

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2. LITERATURE REVIEW

The literature review is used as theory building and contains two different sections. In order to obtain better insight in the subject of the paper, the first section (2.1.) will describe and explain several relevant literatures which are frequently used in the field of knowledge management. Important theoretical considerations about knowledge, knowledge management and knowledge transfer processes are discussed. Most important here is how knowledge is differentiated and embedded. The second section (2.2.) will give a thorough description of every distance dimension (physical, cultural, linguistic, institutional, economic and strategic distance) that is influencing intra-firm knowledge sharing.

2.1. KNOWLEDGE THEORIES

The literature on intra-organizational knowledge transfer has proliferated over the last two decades and a large body of literature exists. The major reason that this study investigates conventional knowledge transfer flows is that the headquarters is the prime source of knowledge. They control the overall firm activities and are responsible for the overall firm strategy, structure and further decision making. Thus, in this case the subsidiaries are the main net users of knowledge.

2.1.1. The concept of knowledge

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Knowledge is individually interpreted information that is applied for its intended purpose (Bender & Fish, 2000). Before going more in-depth in explaining knowledge, the terms ‘knowledge’ and ‘information’ need to be distinguished from each other. Although these terms are closely connected with each other and are often used interchangeably, they are certainly not identical (Schulz, 2003). According to Bolisani & Scarso (1999), information is the foundation for the evolvement of knowledge. Information is derived from data; they are series of objective facts about a subject or certain event and are located in records and messages. Knowledge, in contrast to information, is concerned with the values, beliefs and actions of individuals (Nonaka & Takeuchi, 1995), and is included in documents, firm processes, norms and routines (Davenport & Prusak, 1998). It is about the interpretation, understanding and sense-making of these objective facts that turn it into knowledge. Thus, a major difference between the two concepts is that knowledge belongs to the individual, while information can be independent of people. The individual is capable to interpret and give meaning to information. In short, information deals with “what” questions, whereas knowledge deals with “how” and “why” questions. Knowledge can be attained from organizational routines, teams or individuals by structured media or by the contact of individuals with each other (Davenport & Prusak, 1998).

2.1.2. The importance of knowledge to MNC’s

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markets and the capability to transfer this knowledge throughout the organization increases the MNC knowledge base and consequently constitutes sustainable advantages regarding competition (Argote & Ingham, 2000), which ultimately can lead to improved company performance. This is in line with the findings of Schultz & Jobe (2001) who argue that proper management of organizational knowledge is associated with enhanced performance. For this reasons MNC’s consider their knowledge base as a very important asset, because it has great potential to increase firm value. Therefore, MNC’s try to keep their knowledge in-house, away from and protected against competitors. Next to this, MNC’s should make sure that their knowledge transfer processes are strong and work effectively. Lank (1997) argues that one of the most important value-adding assets of a MNC is its employee expertise. The most intelligent and competitive MNC’s enable their workforce to communicate, share and transfer their know-how, skills and experience with other members of the organization (Downes & Thomas, 1999). It can be argued that shared knowledge is knowledge multiplied, because knowledge which is passed through from an individual to another, adds up to this individual’s knowledge stock, without leaving the other. MNC’s are more efficient in exploiting and transferring knowledge in the intra-corporate context than through the external market (Gupta & Govindarajan, 2000). This means that their network of foreign subsidiaries is a crucial element in their ability to leverage knowledge, competences and technology across countries. The transfer of knowledge assists in the (work) coordination practices of the several geographically dispersed subsidiaries. Furthermore, as argued before, effective and successful knowledge transfer between organizational units contributes to the overall MNC performance (Argote & Ingram, 2000) and so becomes important for MNC’s.

2.1.3. Knowledge sharing

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the strength of the tie between them, and on the characteristics of the object that is being created”.

So, knowledge transfer implies adaptation from the source unit, the target unit and the knowledge itself. The knowledge transfer process is constituted according to three steps: (1) Disembedding, i.e. disconnect the knowledge from the source unit, (2) Transfer of knowledge, i.e. the actual movement of knowledge across time and space from the source unit to the receiving unit, (3) Re-embedding, i.e. the translation and internalization of the received knowledge into the received unit (Becker-Ritterspach, 2006). It should be ensured that the transfer of knowledge leads to desired results and can be embedded into the new (local) organizational practices. This means: the transfer is effective and enables institutionalization. In every days work inside a MNC the ability to share knowledge takes place in several different activities such as meetings, joint work programmes, shop-floor discussions, etcetera. These activities are all intended to facilitate the sharing of know-how, ideas or insights. Although the knowledge sharing concept sounds straightforward, the sharing of knowledge inside a MNC is more complex in real life. Knowledge is at all times shared in social communities and can not be completely understood without these social relationships (Kalling & Styhre, 2003).

2.1.4. Forms and types of knowledge

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Knowledge embeddedness

Knowledge can be embedded in various organizational components. The main components of a firm’s knowledge stock are embedded in people, tools and tasks (Argote & McGrath, 1993; Argote & Ingram, 2000). People are the human components of firms. Tools are the technological component. Tasks represent the firm’s goals, intentions, and purposes. This paper will thoroughly describe the organizational elements in which knowledge can be embedded. The following knowledge types are being distinguished:

1. People’s knowledge (referred to as tacit knowledge) 2. Explicit knowledge

3. Technological knowledge 4. Marketing knowledge 5. Tasks and routine knowledge

1. People’s knowledge

A significant part of firm knowledge is embedded in its individual members (Starbuck, 1992), who are the human components of firms. Particularly, people are the main carriers of tacit knowledge. People-embedded knowledge is closely related to the tacit knowledge type, since it is concerned about knowledge that is carried in people’s minds. In order to share people-embedded knowledge within the firm, this would simply mean that the firm has to move its people between units. Another method for intra-firm transfer of this type of knowledge is to extract the tacit knowledge from the individual. Because of the close link between people-embedded knowledge and knowledge tacitness, the remainder of this paper will refer to this type of knowledge as tacit knowledge.

- Tacit knowledge

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(Davenport & Prusak, 1998). This type of knowledge is context-specific and can not be captured and converted easily. Tacit knowledge contains aspects that can not be codified (not all tacit knowledge can be captured outside the human mind) and in order to share tacit knowledge effectively it requires extensive personal contact and trust (Nonaka et al., 2000). Tacit knowledge does not flow so much between individuals, because transmission can only take place through social processes, such as in mutual meetings, personal training or practical experience. An approach to aggregate tacit knowledge is by practice and personal experience within a particular context. This ‘learning by doing’ method of mastering a job practice by observation and imitation is often difficult and time-consuming. Tacit, subtle and complex knowledge that is created and internalized by the knower over a long time period is extremely difficult to replicate in written form (Davenport & Prusak 1998).

2. Explicit knowledge

Explicit knowledge is knowledge that can be formally articulated and can be codified by e.g. words, numbers or codes. Nonaka (2001) states that “explicit knowledge can be expressed in formal and systematic language” and shared in well-structured forms of written mediums or data, such as scientific formulas, reports, manuals, etcetera. It can be captured in e.g. text, tables or diagrams and so is readily transferrable. Due to these characteristics, this type of knowledge can be processed, transferred and stored with relative ease and does not necessarily require personal / social contact among employees. Explicit knowledge can be transferred and exchanged via various ways (e.g. by means of IT), which implies that it is able to travel around the world rapidly. This line of reasoning complies with the study of Kogut & Sander (1995), who argue that the speed of a knowledge transfer between MNC units is influenced by its type and the degree to which knowledge is codifiable. This means that knowledge that contains a high codifiability-degree is faster and easier transferrable, i.e. knowledge that is characterized by a great extent of explicitness travels faster. Through this codification knowledge becomes more effective.

Tacit versus explicit knowledge

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firm to structure knowledge into a set of identifiable rules and relationships that can be easily communicated (Kogut & Zander, 1992). Both tacit and explicit knowledge are transferred among firm units and are therefore important to consider.

Table 1: Overview of the features of tacit and explicit knowledge (Jasimuddin et al., 2005)

Features Tacit knowledge (i.e. skills and experience of employees)

Explicit knowledge (i.e. documents, codes, tools) Content Articulation Location Communication Media Storage Strategy Ownership Non-codified Difficult Human brains Difficult

Face-to-face contact, storytelling Difficult

Personalisation

Organization and its members

Codified Easy

Computer, artefacts Easy

Information technology, other Easy

Impersonalisation Organization

In this paper, tacit and explicit knowledge are distinguished from one another. However, there are scholars (e.g. Inkpen & Dinur, 1998; Makhija & Ganesh, 1997) who argue that “the distinction between explicit and tacit knowledge should not be viewed as a dichotomy but as a spectrum or continuum with the two knowledge types as the poles at either end. At the explicit end of the continuum, knowledge is codified in specific products and processes; at the tacit end, knowledge resides in individual cognition and organizational routines all developed through experience and use”.

3. Technological knowledge

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manufacturing, samples of manufacturing and facilities to ensure that scientific and technological developments are accessible to a wider range of users who can then further develop and exploit the technology into new products, processes, applications, materials or services”. Successful local market operations of foreign subsidiaries are dependent on the technological knowledge transfer from the parent firm (Chung, 2001). Such headquarter-subsidiary technology diffusion contributes to production efficiency, product differentiation and product quality and consequently helps local subsidiaries to increase market demand and sales. The implementation of this know-how at the receiving unit should fit its local environment. Within a MNC, technological knowledge is often related to a specific unit and its transfer can be affected by its degree of specificity (Cummings, 2003). When the knowledge is not specific enough, it is more difficult to transfer since other firm units can not identify themselves with the provided knowledge elements. The sharing of technological knowledge can be done in an informational form or it can be ‘embodied’ in e.g. products (software), processes, or machines. The latter form enables the know-how to be implemented easier. Research has shown that knowledge embedded in products or well-defined manufacturing processes (knowledge that is articulable and explicit) is easier transferred across MNC units than less codifiable knowledge (Kogut & Zander, 1995). Technological knowledge could be codified through e.g. formulas or prototypes. Moreover, technological knowledge is more easy to learn by persons since it is not socially complex. Technological knowledge sharing can lead to increased process, service or product development.

4. Marketing knowledge

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Marketing is a business area that links customers in the market with firms. Marketing knowledge is tangible and mainly involves knowledge about key marketing activities, such as markets, customers, competitors, distribution, advertisement, packaging sales and pricing. Marketing functions create context-specific knowledge and balance global standardization against local adaption. Marketing knowledge can be tacit or explicit. It is possible for marketing knowledge to be captured in a codified way and thus to be transferred explicitly throughout the organization with relative ease and at low costs (Archibugi and Pietrobelli, 2003). This can be done in translating the knowledge into text-based forms. For example, market and customer knowledge can be ‘databased’. On the other hand, codifying and learning marketing know-how can be a rather difficult process whereas marketing knowledge is culturally and socially embedded (Wong et al., 2002), experiential in nature and is generally characterized by a high degree of tacitness (Simonin, 1999; Schlegelmilch & Chini, 2003). Sales approaches and advertisement & product launch strategies are difficult to capture in codified success documents or formulas and are therefore more difficult to share internally within the MNC. Thus, marketing knowledge is a mix of the two different types; some parts are tacit and others are explicit (Hau & Evangelista, 2007). The degree of marketing knowledge tacitness varies from firm to firm. Furthermore, marketing knowledge can relate to marketing skills, marketing know-how, and marketing technology (Rossiter, 2001). Marketing knowledge and technological knowledge is shared between identical functional departments located in different international units. Subsidiaries possess – together with technological and production knowledge – the highest level of competence about marketing (and sales) knowledge (Foss & Pedersen, 2002). It is for this reason that the sharing of this type of knowledge, namely marketing knowledge is worth investigating.

5. Knowledge embedded in tasks and routines

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routines across units is a difficult process. The knowledge system of a firm is contextual and value is assigned to it. This means that routines not only stand for a sequence of tasks being carried out, but also encompass underlying meaning structures (Kostova, 1999), which makes them difficult transferrable (Cummings, 2003). As previously explained, this paper is mainly concerned with tacit knowledge, explicit knowledge, technological knowledge, marketing knowledge and knowledge embedded in tasks and routines.

2.1.5. The process of knowledge transfer

The main idea behind every knowledge transfer project is to successfully transfer knowledge coming from the source unit to the recipient unit. Successful knowledge transfer is approached and defined differently by scholars. From management perspective, Szulanski (1996) defines it as a “transfer that is on time, on budget, and produces a satisfied recipient”. Two main approaches have been developed in the knowledge transfer literature in order to understand the complexity of knowledge transfer processes: (1) the communication model of Shannon (1948) and (2) the spiral model of knowledge by Nonaka & Takeuchi (1995).

The communication model

The basic understanding of the process of intra-firm knowledge transfer is the source-recipient model, which is the theory of knowledge transfer as a communication model. This model has been adopted in many knowledge studies. Each flow of knowledge occurs along a channel between a source and a target (Gupta & Govindarajan, 2000; Minbaeva et al., 2003). The elements that are fundamental to this transfer of knowledge are recognised as: the source, the message, the recipient and the context. It is a process that is involves two actions: (1) the transmission of codified knowledge by the source unit and (2) the absorption and decoding of that knowledge by the receiving unit. This course of action are the basics of the communication model of Shannon (1948).

The spiral model

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transfer. Cognitive transformation needs to take place before any knowledge can be transferred. Nonaka’s model of knowledge creation and usage is referred to as ‘the spiral model of knowledge’. The main idea of the model is that tacit and explicit knowledge are constantly interacting with each other; this interaction is called knowledge conversion. Nonaka (1994) identifies four different modes of knowledge conversion where knowledge creation can take place (referred to as SECI). These four modes are: (1) Socialization (from tacit knowledge to tacit knowledge), (2) Externalization (from tacit knowledge to explicit knowledge), (3) Combination (from explicit knowledge to explicit knowledge), (4) Internalization (from explicit knowledge to tacit knowledge).

Figure 1: The spiral model of knowledge by Nonaka & Takeuchi (1995)

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MNC. As Kogut & Sander (1993) and Hedlund (1994) point out; internalization enables efficient transfer of tacit knowledge and facilitates the knowledge codification process. In short, the creation of organizational knowledge initiates at the individual level, takes a step to become collective group knowledge, and eventually is internalized and so can become a valuable organization-wide knowledge asset. Thus, most crucial here is the objectification of tacit knowledge, thereby making it explicit and transferable and so collectively available.

2.1.6. Communication and transfer mechanisms

How to transfer knowledge the most efficient way? When transferring knowledge, MNC’s need to effectively use available communication and transfer mechanisms. The choice which transfer mechanism needs to be used is dependent on the form or type of knowledge (the knowledge characteristics) a firm wants to transfer. As Hansen et al. (1999) argue; the right degree of knowledge codification should be found, next to the proper choice of knowledge transfer medium. Petersen et al. (2000) group transfer mechanisms in a simplified way: (1) written media and (2) rich communication media. The level of transfer mechanism richness is illustrated below by Murray & Peyrefitte (2007).

Figure 2: Knowledge transfer mechanism richness

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Figure 3: (Mis)fit between knowledge characteristics and knowledge transfer mechanisms

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2.1.7. Main barriers and facilitators of knowledge

There are many determinants that can affect knowledge transfer flows. They can be facilitated or delayed by dissimilar organizational means and conditions. Suzanski (1996) argues that the knowledge transfer process is difficult because of internal stickiness problems. Szulanski (1996) identifies several possible influencing factors that impact intra-firm knowledge flows, which are grouped into four categories: (1) the characteristics of the knowledge transferred or type of knowledge, (2) the characteristics of the source of knowledge, (3) the characteristics of the recipient of knowledge, (4) the characteristics of the context. The following table gives a clear overview of these factors and variables.

Table 2: Factors influencing knowledge transfer (Szulanski, 1996)

Knowledge transferred Source Recipient Context

Causal ambiguity Lack of motivation Lack of motivation Barren organizational context

Unprovenness Credibility Passivity Arduous relationship

Tacit – explicit Fear for loss of ownership Lack of absorptive capacity Social, organizational & relational context

Lack of time Lack of retentive capacity

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2.2. THE DISTANCE DIMENSIONS

A successful knowledge transfer process is easier said than done. Cross-border knowledge transfer is a difficult process because “organizational knowledge is nested within a wider society, related to bounded rationality, politics, power, norms, values, language, attributes, beliefs, and the qualities and preferences of the people involved on either side of a transfer situation” (Kalling & Styhre, 2003). It is important to consider the contextual aspects that are involved with knowledge transfer, because the headquarter-subsidiary knowledge transfer process is contextual embedded (Kostova, 1999). Knowledge is generated in different systems and cultures and when context is changing, knowledge is also changing. When looking at the literature, there are many factors mentioned that influence knowledge transfer processes. The focus of this paper is mainly describing the different distances that exist between a firm’s home and host countries. These distance factors influence, in turn, the types and forms of knowledge transferred transfer between headquarters and subsidiaries.

With respect to knowledge transfer, distance is an important determinant that might hamper the transfer of knowledge from one place to another. Therefore, a key concept in this study is distance. Distance is considered as a fundamental element in international business theory. Distance, according to Ghemawat (2001) encompasses cultural, geographic, economic and administrative dimensions. The distance dimensions are incorporated by Ghemawat into a framework (the CAGE framework), where distances between the source and target country can be explained. In general, Ghemawat’s framework refers to cultural distance as differences in social norms, values and beliefs between two countries. With geographic distance is meant; the actual physical distance in kilometres between the countries. Economic distance refers to differences in economic conditions between the two countries. Eventually, country differences in the working, bureaucratic and political structures are referred to as administrative distance.

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be more easily understood and integrated (Bhagat & Keida, 1998). This is the case because people have closer relationships with each other in a similar context, including culture; e.g. there exist a shared language (verbal and non-verbal) and artifacts. Next to this, a similar knowledge base is present. In other words, without distance being present between MNC units, knowledge flows could move relatively easy throughout the MNC. However, such conditions are barely present within MNC’s since many of its subsidiaries lay in host countries scattered across the world. This means that the sharing of knowledge is within an inter-country context. In turn, this brings up difficulties in communication and coordination of activities of MNC units. However, technologic advances (information technology) have reduced some of these distance challenges (e.g. communication costs). Giddens (1990) argues that through information technology it is possible to ‘disembed’ and disconnect knowledge from time and space. Some researchers even declare the ‘death towards distance’ (Cairncross, 1997). On the other hand, there are studies that counter this statement, and remind us of the difficulties that distance brings within the field of international business. In most literature in the field, distance matters in international business and is viewed as a barrier to knowledge flows (e.g. Ambos & Ambos, 2009; Ghemawat, 2001; Nachum & Zaheer, 2005).

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2.2.2. Physical distance (and knowledge transfer)

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knowledge transfer most often takes place through direct personal interaction, apprenticeship etcetera, because in these cases knowledge can be personally instructed and a sense of identity arises between the sender and receiver. Gupta & Govindarajan (2000) state the importance of corporate socialization mechanisms, such that a greater amount of knowledge is able to flow between headquarter and subsidiary and other MNC units. Harzing & Noorderhaven (2006) found that ‘geographic isolation’ of a MNC unit might not always lead to deceasing knowledge flows. This can be possibly explained by the rise of new and advanced communication technologies and language proximity (e.g. the US and Australia). This leads to the conclusion that the different units of a MNC are less likely to socially interact when large physical distances are present. Next to this, the effectiveness of interaction is decreased through obstacles such as time zone differences and long transmission channels (Daft & Lengel, 1986). Also the costs and complexity of communication increase with physical distance. This means that the dispersion of MNC units makes communication and coordination more complex and may discourage intra-organizational knowledge sharing (Hansen and Lovas, 2004).

The different knowledge types

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marketing knowledge is a process that is involved with constant market changes and requires continuous contact between firm units. Being proximate enhances the transfer of marketing information (Simonin, 1999). Because of the complex character of technology transfer, individuals need to engage in intense interactions at close proximity to develop R&D and manufacturing capabilities (Cummings & Teng, 2003). Therefore, regarding technology transfer, the same logic as for knowledge transfer in general applies; a large physical distance between units means fewer and slower technology transfer (Galbraith, 1990). This is in line with empirical work of Keller (2002) who concludes that technological or scientific knowledge is transferred more weakly over long distances. He furthermore argues that the sharing of technological knowledge is easier accomplished when countries are physically closer to each other. Technology transfer calls for good communication and strong social capital (Cummings & Teng, 2003); something that is harder to develop among physically distant units (Allen, 1977). Moreover, technological knowledge is very complex and often requires intensive adaptation at the receiving end (Kogut & Sander, 1992). For the sharing of knowledge embedded in tasks and routines the same theory as for the tacit knowledge type can be applied. Because of the highly complex and tacit nature of tasks, skills etcetera, it requires close personal contact moments in order for it to be transferred successfully. However, when physical distance increases this means that knowledge embedded in tasks and routines is shared to a lesser extent.

2.2.3. Cultural distance (and knowledge transfer)

This section examines how cultural distance affects knowledge transfer flows within MNC’s. Much of the previous research in the field of knowledge transfer is highlighting cultural differences and cultural distance. In this paper it is argued that (conventional) knowledge transfer between MNC units is essential for a MNC’s success. The fact that cultural differences and cultural distance exist between MNC units might limit or reduce the potential of knowledge transfer effectiveness. This in turn can have big consequences for the quality of the headquarter-subsidiary relationship.

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in studying headquarter-subsidiary knowledge transfer processes, since cultural distance has shown to have an impact on the effectiveness of information transfer and communication between MNC units located in different countries. Next to this, the concept of distance between cultures is essential with respect to MNC’s and its managers which need to acknowledge and understand the fundamental dissimilarities between cultures in order to make strategic decisions. There are numerous frameworks in the literature assessing the consequences of culture. Hall & Hall (1990) conceptualize culture by grouping countries into categories; low or high context cultures. This construct might be too general and broad, while the concept of culture is rather more complex. One of the most famous frameworks is that of Schein (1985), in which an understanding of the compatibility of different cultures is emphasized. Other researchers use the social comparison theory in order to strengthen the cultural compatibility idea. This perceived cultural compatibility can not be separated from the national context, since it is about normative beliefs about culture (Hofstede, 2001). Probably the most prominent framework about culture is that of Hofstede, in which the national context is the main pillar that explains culture in relation to organizations. Therefore, the national context approach of Hofstede seems to be most relevant in this perspective. Analyzing Hofstede’s cultural dimensions index might give one insights about how cultural distance can influence headquarter-subsidiary knowledge flows. Another framework that deserves attention here is the GLOBE project by Javidan et al. (2005), which is also commonly used in cultural research. Both frameworks are presented below.

(1) Hofstede’s cultural dimensions

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(2) GLOBE’s cultural dimensions

The GLOBE research project conceptualizes culture according to nine cultural dimensions. These nine dimensions compare and distinguish different societal cultures from another. The various dimensions are: (1) Power Distance, (2) In-Group Collectivism, (3) Institutional Collectivism, (4) Uncertainty Avoidance, (5) Future Orientation, (6) Gender Egalitarianism (7) Assertiveness, (8) Humane Orientation and (9) Performance Orientation. Every single dimension positions a society in terms of cultural practices and cultural values. The greater the cultural differences, the more difficulties people in the receiving unit have in seeing the advantages of adopting knowledge or practices from the source unit. Cultural distant parties are less likely to share and apply new knowledge due to differences in cognitive structures, values, as well as language and communication barriers (Javidan et al., 2005). The GLOBE study is seen as an important tool to assist managers in dealing with cultural differences within knowledge transfer processes.

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cultural distance on knowledge transfer (Ambos & Ambos, Schlegelmilch, 2006; Cui et al., 2006; Zhou & Frost, 2003). Their empirical data fails to reach significance concerning the negative relationship between cultural distance and knowledge transfer. However, the basic assumption in the literature is that less knowledge is transferred throughout the firm because of cultural distance between headquarter and foreign subsidiary. As a conclusion, cultural distance is prone to have large affects on knowledge transfers.

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which is derived from a particular cultural context. When applying this task or technique in a culturally different context, it could lead to differing outcomes, even if the knowledge of the task is applied in exactly the same manner (Archibugi & Pietrobelli, 2003). Differences in outcomes can be subscribed to dissimilar cultural understandings of the tacit elements of the task or technique.

2.2.4. Linguistic distance (and knowledge transfer)

Another aspect of distance and context-specificity is language. Language is embedded into ones culture and has expressive means. Although language is closely interwoven with culture, it can be argued that it is sufficiently important to be treated as a separate factor since its impact on knowledge flows can be more readily identified. Language, although being a more basic country-related characteristic, has a great influence on doing business abroad. Almost every MNC is multi-lingual, since its foreign subsidiaries are located in several different language environments. Harzing & Feely (2002) stress that language is ‘the forgotten factor’ in international business research, since it has not been researched to a great extent. Some scholars argue that language is one of the most important factors in the field of international business and management, and put this aspect at the core of their study (Marschan, Welsch & Welsch, 1997).

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firm. For example, when the subsidiary staff has a low language competence, difficulties will occur in understanding and dealing with headquarters, which in turn lead to less knowledge exchanges. At the foreign subsidiary level, most often, not all staff has a good command of its parent’s country language and therefore in order to understand the received knowledge, much documents and transcripts need to be translated into the local domestic language. As a result, knowledge transfer processes are delayed and communication costs increase. Moreover, it is been demonstrated that a great language distance leads to a reduced amount of personal visits between the parent firm and the subsidiary. So the fact that foreign subsidiary staff is less able to express themselves in the ‘shared corporate language’ of the headquarters and the MNC as a whole might lead to disconnectedness and isolation from headquarters (Björkman & Piekkari, 2009). This in turn leads to a possibly more uncertain headquarter-subsidiary relationship and less knowledge sharing between the units. The creation and implementation of a common corporate language might help to overcome linguistic misunderstandings and can lead to better and more effective employee communication. Because of a shared corporate understanding, intra-firm knowledge transfer is easier to accomplish than inter-firm knowledge transfer (Kogut & Sander, 1993). English, as a lingua franca, is the most used language within MNC’s and is the dominating language in international business contexts (Tietze, 2008). Therefore, English is of importance to many business people and has high priority for the management of MNC’s. However, the sharing of a common language within a MNC does not necessarily lead to meaningful communication (Marschan, Welsch & Welsch, 1997), and using a common language does not always imply that communication or knowledge transfer is successful. In order to fully ensure successful knowledge transfer, besides language the aspect of social knowledge is of importance. Social knowledge is defined as the mutual understanding of behaviours. It can be significant when one wants to interpreted language, while words can be used in a different context. Two people, although having a similar cultural and social background may mean different things when using the same word. Similar situations of these kind of misunderstandings in communication are much mentioned in marketing knowledge transfer.

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languages spoken in the MNC, even explicit knowledge can be remained inaccessible. In many cases, the explicit knowledge in important documents needs to be translated into local subsidiary language. These translation demands are most often involved with much time and costs. The hidden cost of choosing not to translate could be that local employees deny access to new knowledge or misapply new technology (Welch, 2008). This means that explicit knowledge is not always cheaper and easier to diffuse, especially when large linguistic distances are present. Also marketing, production and R&D departments are affected by linguistic distance; e.g. misunderstandings with foreign marketing staff occur. Intense knowledge transfers call for a common working language. A limited foreign language ability among staff prompted the provision of technical materials in foreign sites (Buckley, 2005). Firms need to make sure that most parts of technical and R&D knowledge is available in local subsidiary language so that their foreign production line workers could assimilate this type of difficult knowledge from the foreign parent.

2.2.5. Institutional distance (and knowledge transfer)

The institutional and governance context is different in each country and, as a result, the transfer of knowledge and organizational practices of MNC’s is influenced by the institutional environment of the MNC parent country as well as the subsidiaries host countries. Differences in country characteristics and differences in institutional environments make it difficult to transfer practices and knowledge across borders. In this section, we take an institutional approach; the primary focus will be on institutions, institutional and administrative distance.

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different influences on foreign subsidiary practices. A subsidiary is connected to its local institutional environment ass well as to the MNC environment. The issue of ‘institutional duality’ can arise, which entails that subsidiaries are pressured to conform to the expectations of their home context whilst also being subjected to the transfer of practices from the home context of the MNC itself (Morgan & Kristensen, 2006). This means that foreign MNC units are constantly faced in their decision making about which set of institutions it finds most important to adopt its practices to. Dissimilarities in institutional structures can lead to varying MNC practices across countries. Most likely the institutional influences coming from the local host country are prevailing and so can lead to difficulties in knowledge sharing between headquarter and subsidiary.

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incoming knowledge in the host country. This means that when the institutional profiles of two countries differ to a great extent (measured in this paper as institutional distance), it is more likely that a misfit will occur in the knowledge transfer process between these two environments (Kostova & Roth, 2002). It also leads in difficulties in communication between the headquarters and subsidiary. So, a higher degree of environmental heterogeneity (compatibility between ‘parent and child’) leads to a higher level of intra-firm knowledge sharing (Birkinshaw et al., 1998). On the other hand, when the institutional distance between countries is small (e.g. there exists a similar legal system), it affects the transfer of knowledge in a positive way. The chance of conflict within the workforce decreases when the institutional distance is small. MNC’s are more willing to transfer knowledge to subsidiaries located in ‘open’ and deregulated economies (Whitley, 1992). So, the type of market economy or institutional environment in which a MNC unit is operating seems to be a determinant of the way, the frequency and the ingredients of the knowledge transferred. Compared to developed economies, emerging markets show the largest amount of institutional variance (because of the lack of fair competition). More examples that can be mentioned are significant country differences in labour market institutions (e.g. the presence of (strong) trade unions), and employment practices (e.g. performance-related pay) (Hitt et al., 2006). A successful knowledge sharing process is most of the times based on the high extent of transferability of meanings and values, since these are these elements that are closely related to knowledge. All in all, knowledge transfer becomes increasingly environmental complex when the specific institutions of the two countries involved differ significantly.

- Administrative distance

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Moreover, large differences in country’s law systems make it impossible for a firm to diffuse practices across its units (Whitley, 1992). A high distance in institutions makes the transfer of firm routines and best practices more difficult.

2.2.6. Economical distance (and knowledge transfer)

This section looks at the relationship between economic distance and knowledge sharing. Although scholars have been heavily examining the issue of cultural distance and to a lesser extent physical and institutional distance variables in knowledge management studies, economic distance seems to be neglected. This dimension (which has received little attention) assesses home and host country distance through relative differences in economic development levels.

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in advanced and successful economies tend to organize their ‘colonies’ along practices that are (almost) similar to those of the home country (thereby having an ethnocentric approach). He noticed that foreign subsidiaries are following a similar strategy when the parent company is involved in information sharing and diffusion more intensively. Similar statements concerning these findings are done by Smith & Meiksins (1995). This means that headquarters direct more knowledge to subsidiaries located in similar (highly) developed ‘lead’ countries than to subsidiaries located in countries that are lagging behind (Ambos et al., 2006). It furthermore means that the headquarters is profiting more from this first group of subsidiaries. Thus, knowledge is more difficult diffusible when big gaps in terms of economic development between the headquarter and subsidiary exist.

Little is known with regard to the transfer difficulties of particular forms and types of knowledge related to economic distance. Since there is hardly any literature about economic distance in the knowledge management literature, even less is out there concerning its impact on the transferability difficulties of different knowledge types. However, Gupta & Govindarajan (2000) note that MNC units located in more advanced economies have more (valuable) technological, marketing and managerial knowledge in-house compared to units located in less advanced economies. Also the transfer of tacit knowledge is said to be weaker between units of relatively similar economic (GDP) or educational country levels (Gupta & Govindarajan, 2000). This is countered by Whitley (1992) regarding the transfer of skills and practices. He argues that firms are most likely to diffuse their skills and practices to economically similar countries.

2.2.7. Strategic distance

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country strategic context conditions of the subsidiary” (Becker-Ritterspach, 2006). An example of such an situation is when knowledge or practices are intended to fulfil headquarters strategic purposes, but are not utilisable in the receiving host context of the subsidiary. Put differently, strategic misfit occurs due to dissimilar strategic context conditions of headquarter and subsidiary. More specifically, strategic misfit means: the mismatch between what transferred parent context knowledge is strategically requires or is designed for, and what the local context strategically offers or demands (Becker-Ritterspach, 2006). The strategic context of a MNC unit involves its task profiles, such as markets served and products manufactured. The case with foreign subsidiaries is that they vary with regard to their local context conditions compared to the headquarters home context conditions. This means that some subsidiaries are more strategic distant than others with regard to the headquarters. When the strategic distance between subsidiary host context and headquarters home context is large, less knowledge, processes and practices are transferred. This is because of the existence of large differences in that subsidiary task profile and host country market conditions compared to the parent’s home context conditions. Next to this, a higher level of knowledge recontextualization is required when large strategic distances are present. On the contrary, a low strategic distance between MNC units leads to increased knowledge transfer effectiveness (Schmegelmilch & Chini, 2003).

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task forces intensify the headquarter-subsidiary relationship and increase inter-unit communication (Björkman et al., 2004). In such circumstances, subsidiaries have greater in-and outflows of knowledge. Furthermore, it is important to mention the social aspect, since firms are more likely to exchange knowledge with social identical, or ‘social proximate’ firms (Baum & Berta, 1999). Although such conclusions are done in an inter-firm knowledge transfer context, this line of reasoning can also be very true for intra-firm knowledge transfers as well. Consequently, one can argue that when MNC units (and their contexts in which they are embedded) are less strategically distant this will lead to better inter-unit communication, which results in increased knowledge transfer success.

Figure 4: Overview of distance dimensions and knowledge type transferability under study

The distance dimensions The different knowledge types

Physical distance Cultural distance Linguistic distance Institutional distance Economic distance Strategic distance Transferred tacit knowledge Transferred explicit knowledge Transferred technological knowledge Transferred marketing knowledge

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3. METHODOLOGY

This section gives a description of the methodology used in this paper. It shows how the research is designed and it gives explanations about the research approach and activities. To conclude, the investigated research objects will be introduced.

3.1. Research design

Research method

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Case study

The empirical part of the research will be designed as a case study, since the main focus of this paper will be on “what” and “how”” questions (e.g. “How, and what type of knowledge is diffused?”, and “How do various distances influence knowledge type transfer processes?”). The application of a case study is to get deeper insights concerning a certain situation and how the involved persons interpret it (Yin, 2003). Thus, case studies are used for strong explanatory purposes. Next to this, a case study is the preferred choice when the researcher has little control over events and when contemporary data needs to be collected in real-life situations. Moreover, case studies are suggested to be particularly well suited in IB research when cross-border issues are involved (Ghauri, 2004). Therefore, as explained before, this research will be qualitative in nature and includes case study research about two different multinational firms. The outcomes from the case study can be used as a theoretical basis for further research, thereby giving the research external validity (Thomas, 2006).

Research approach

A case study will be performed concerning two firms headquartered in the Netherlands. These MNC firms have several subsidiaries abroad located in different countries. Managers employed at the headquarters in the Netherlands will be interviewed in order to measure distance problems in knowledge sharing. The reason for using case studies (in the form of using multiple firms) is the author’s will to deeper study a certain context.

3.2. Data collection

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3.3. Introducing the research objects

Firm A: Royal FrieslandCampina

Royal FrieslandCampina, headquartered in Amersfoort, the Netherlands, is a multinational dairy company. They have around 15,300 member dairy farms in the Netherlands, Germany and Belgium. Their products are for sale in more than 100 countries. Ingredients are sold all over the world. FrieslandCampina has subsidiaries (R&D / production and sales sites) located in the key regions: Europe, Asia and Africa (e.g. Germany, UK, Spain, Russia, China, Indonesia, Vietnam, Nigeria, etcetera). The company employs 20,000 people in 24 countries. Main brands include Friesche Vlag, Chocomel, Fristi, Dutch lady, Appelsientje, Milner, Campina, Landliebe, Optiwell and Mona. Total revenues amounted in 2009 to € 8.2 billion (FrieslandCampina global website, 2010).

Firm B: Océ

Océ is one of the world's leading providers of document management and printing for professionals. The broad Océ offering includes high speed digital production printers and wide format printing systems for both technical documentation and colour display graphics, as well as office printing, copying and scanning systems. Océ is also a foremost supplier of document management outsourcing The Océ headquarters is located in Venlo, the Netherlands. Océ is internationally active in approximately 110 countries, and employs around 24.000 people worldwide. Total revenues in 2009 amounted to € 2.9 billion. Océ has subsidiaries in many different countries (e.g. Belgium, France, Rumania, Japan, US, etcetera). Some of these subsidiaries are R&D and production facilities, while others are sales and service organizations (Océ global website, 2010).

Case study selection criteria

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kinds of different transfer activities with different subsidiaries at various distances. Another selection aspect is the availability of the cases, since not all firms were able and willing to cooperate with this research. In total, two cases are chosen; in order to compare responses and to ensure that different insights are incorporated in the analysis.

3.4. The participants

After explaining the main idea of the research to the firm by e-mail and phone, the right interviewees for this study were found. These persons are selected because they have adequate company experience and knowledge management experience, and therefore are able to say something about their firms and their knowledge transfer processes. Because different types and forms of knowledge are transferred, the participants are selected according to their function. As seen in table 3, two participants work in the marketing department, and two participants work with production, manufacturing or R&D processes. The remaining two participants have the function of general manager and project manager respectively. Then, an appropriate date was scheduled for the interviews, at a place most convenient for the participant. All the interviews lasted 45 – 60 minutes, and have taken place between May and June 2010.

Table 3: Overview of the interview participants

Firm A:

- Royal FrieslandCampina

Respondent A1 - Male, 53 years old, General Manager.

Respondent A2 - Male, 33, Product Developer.

Respondent A3 - Male, 38, Marketing and Sales Manager Foodservice.

Firm B: - Océ

Respondent B1 - Male, 47, Project Manager Operations.

Respondent B2 - Male, 39, Production Engineer.

Respondent B3 - Male, 44, Senior Marketing Manager.

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3.5. Procedure / Interview design

“The purpose of interviewing is to find out what is in, and on someone else’s mind … to assess the perspective of the person being interviewed” (Patton 1990). Because the headquarters of both firms are located in the Netherlands, the interviews are held in Dutch language, face-to-face with the interviewee. In order to make sure that the responses of the participants are their own expressions, the conducted interviews were tape recorded where possible and later written down on paper. The interview questions are divided into parts; a general part, a ‘distance’ part, and a concluding part. The interview questions are based on the theoretical considerations and the author’s own pre-understanding of the context. The interview questions are open-ended questions, which enable the author to come up with follow-up questions in order to get the best possible responses. Next to this, the participants were encouraged to elaborate on interesting issues which were closely connected with the topic of research. For an overview of the interview questions see appendix I.

3.6. Data analysis

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4. EMPIRICAL FINDINGS AND ANALYSIS

This section discusses the empirical findings which are derived from the interviews. The different statements of the responding experts will be provided and discussed. Finally, all findings will be analysed and a clear overview with propositions will be provided.

4.1. Communication and transfer mechanisms

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B3 of Océ says that they employ various communication mechanisms for inter-unit information transmission; e.g. e-mail, telephone, regular mail, fax, chat, meetings, training etcetera. “IT communication is used but only helps in transferring information that is written down”. B2: “Most of the internal communication within our firm takes place through e-mail, telephone or meetings”. B1: “When there is the need for information it is most common to contact colleagues. If necessary, the company’s intranet system provides info about which person knows what. Knowledge is not so much shared during our monthly staff meetings.” B1 further explains: “We believe that knowledge is power, and therefore we try to document knowledge as much as possible. As I’ve said earlier, we have an intranet system that serves as our knowledge bank”. Next to this explicit IT-based knowledge system, it becomes clear that Océ also makes use of in-house training programs and workshops & seminars for communication purposes. Also e-learning is offered and is considered as important. Inter-unit informal communication takes place through personal contacts and face-to-face interaction among different subsidiary managers.

Analysis

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theoretical part of the paper, which presents a ‘fitting’ knowledge transfer mechanism for certain knowledge characteristics.

4.2. Type of knowledge

For the information of the respondent: knowledge can be divided into tacit and explicit knowledge. Tacit knowledge is knowledge which individuals carry in their minds (and so becomes difficult to access). Explicit knowledge is knowledge that can be articulated and shared through written media. What type of knowledge does your company primarily transfer internally?

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Analysis

Internally transferred explicit knowledge is mainly information about the work processes of the firm which written down in manuals or documents and shared throughout the whole corporation. One can think of rules about standard procedures and how to deal with certain business situations. However, the major parts of knowledge that the firms have in-house are tacit and shared through experience. This is in line with Gupta and Govindarajan (2000), who argue that “the bulk of the specialized knowledge of any firm exists in a tacit and thereby non-tradable form”.

4.3. The distance dimensions

4.3.1. Physical distance

The influence of physical separation of firm units on knowledge transfer processes

The physical distance between the headquarters and its subsidiaries is considered as a barrier in communication and knowledge transfer. A1 and A3 confirm that large physical distances call for more extensive use of information technology, such as e-mail, phone and even video chat contacts. B1: “Communication and coordination is more challenging with units that are at large geographical distance”. From the answers of the Océ respondents it became evident that the firm struggles with knowledge transfer and communication issues with largely separated units because of the limited opportunities for interaction, no informal work meetings, leaner communication media, and time (e.g. potentially longer waiting time to obtain confirmation to questions or to inquiries about shipment of goods). B3 about large geographical distance: “…also consider costs, because interactions with other firm units call for arranging conferences and meetings which are involved with travelling costs and also cost a lot of time”.

Physical distance and the transfer of different knowledge types

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hardly good contact moments [e.g. person-to-person contact], which makes it more difficult to work with because of expertise differences. Altering work habits takes more time too”.

- Overview of responses: physical distance and knowledge type transfer difficulty

Knowledge type Tacit Explicit Tech Marketing T & R

Influenced by physical distance

+ – + – +/–

( – represents few difficulties, or no (clear) response given; + represents significant difficulties)

Analysis

The impact of distance on the intra-firm transfer of knowledge types