A simplified version of the integrated knowledge transfer model summarises the above discussion (Figure 2.1). For the efficient transfer of increasingly tacit and less-transferable knowledge (tacit, diffused, leaky) increasingly higher levels of out-and in-transfer capacities are needed, developed by supplementing vertical transfer mechanisms with an increasing number of lateral transfer mechanisms (i.e.; various governance mechanisms for knowledge transfer). The efficacy of the formal vertical exchange mechanisms that are established will determine the move to level II, signified by an extensive capacity for the in-transfer of explicit knowledge. Both the cultural distance and the quality of the local infrastructure may impact on the transfer efficacy of vertical and lateral exchange mechanisms. A move to level III, that is a limited capacity in the subsidiary for the in-transference of tacit knowledge, is conditioned by the ability of the parent to establish effective vertical exchange mechanisms that promote social interaction. Likewise, a move to level IV, that is a substantial capacity for the in-transference of tacit knowledge, will be determined by the implementation and efficacy of social exchange mechanisms of a more lateral type. Once a subsidiary is positioned at level IV it is no longer a subsidiary in the conventional sense, but rather a corporate technology and/or production centre that transfers technology and/or intermediate products to other production or assembly facilities.
Local Conditions
Figure 2.1 Simplified Knowledge Transfer Model
The knowledge exchange mechanisms we have listed are well documented. Further research will undoubtedly uncover further examples and may be able to rank them in regard to their knowledge transference efficacy. The tendency, however, has invariably been to present knowledge transfer mechanisms with only scant regard to the context in which they evolve.
Our paper has attempted to provide this context. We have argued that it is largely determined by the interaction between the out-transfer capacity of the parent company and the
subsidiary’s in-transfer capacity. The development of this interaction is primarily contingent on the ability and willingness of the parent to develop appropriate knowledge exchange mechanisms.
This is particularly the case in regard to the development of lateral exchange
mechanisms, not least because they depend on the parent company being prepared to redefine
its relationship with its subsidiaries. Hence, we emphasise that the role of top management in defining the self-identity of the company is critical for moving beyond the use of vertical knowledge transfer mechanisms.
Although the framing of this paper has been within the context of the development of subsidiaries with low knowledge content to high knowledge content the model we have proposed also has an applicability to high knowledge content mergers and acquisitions.
Successful knowledge exchange depends on the development of a combination of informal vertical mechanisms and lateral exchange mechanisms. Without regard to these mechanisms the synergies that are so often claimed as the raison d’être for mergers and acquisitions will simply not materialise.
Chapter 3
Future Research
As we stated in the background to this paper the conceptual framework we have evolved is aimed at providing a platform for research into knowledge transfer in TMC. In this last section we will present a short overview of our research agenda.
In Chapter One we drew attention to the fact that with the exception of Sonofon in Denmark TMC is a minority stakeholder in all of its foreign direct investments. In other words the reality of its operations is one of a series of equity-based international joint ventures (IJVs) rather than the fully owned subsidiaries that form the basis of the knowledge-transfer
literature.
IJVs are remarkably diverse in character. In the case of the IJVs TMC are involved in it may be assumed that TMC’s motive in the first instance is to acquire access to the licenses in rapidly growing emerging markets that in the next instance should enable it to achieve huge profits and escalating stock value from rapidly increasing sales volume. In the case of
emerging markets it is entering markets where the local licenses can only be obtained in conjunction with a local partner. Added to that it might be argued that the “local knowledge”
necessary for successful operations (local business connections and government relations) is difficult to acquire by any other means than some form of local partnering. For their local partners TMC represents a source of capital as well as a means of acquiring knowledge and technology.
TMC’s and their local partners’ motives are not necessarily commensurate with one another. First, the achievement of scale economies does not necessitate knowledge transfer over and above level II knowledge transfer. TMC’s role, as it acknowledges, is essentially that of a “tool kit man” applying tools (technologies, techniques, procedures) developed in its home market to other settings. Second, any motivation TMC might have for knowledge
transfer over and above level II will be undermined if there is a possibility that TMCs’
partners might terminate the joint venture once the necessary knowledge and technology has been acquired. Contractual instability is a particular facet of emerging economies such as Russia and Thailand (Economist, 2001).
On the other hand overt resistance on the part of TMC to assisting its partners in a move from a “know what” in-transfer capacity to a “know how” capacity may cause its partners to break at an early stage with the alliance and seek an alternative partner. This is by no means a theoretical possibility. The instability rate of IJVs of this type is estimated to be about 50% (Beamish et al, 2000).
The literature suggests two radically different ways of resolving the latent instability of joint ventures but neither fully takes into account the peculiarities of IJVs involving
developing countries:
i) The transaction cost economics (TCE) approach emphasizes the use of unifying incentives as the main device for preventing serious friction from arising between transacting parties (Williamson, 1975). However, in the context of developing countries the enforceability of contracts is so problematic that TCE would cause us to assume that TMC will show no commitment to being anything other than a “tool kit man” – i.e. it will avoid developing the local partner beyond level II unless it is turned into a wholly owned subsidiary.
ii) The capabilities approach emphasizes the importance of “enduring social relationships” (Kogut and Zander, 1992). Some sense of a “collective” of
“shared (corporate) identity” can and must be developed if the stability of the IJV is to be ensured and knowledge transfer over and above level II to occur (Kogut and Zander, 1996). The question is though whether commonalities
can be developed given the cultural dissimilarities between TMC and its local partners in emerging markets. In other words TMC may find it
immensely difficult, despite local partner pressure and expectations, to move beyond its “tool kit man role” even in those developing countries TMC may eventually commit itself to moving its local partners beyond level II.
Although both theses lead to a similar “tool kit man” prediction, their reasoning is essentially different. TMC predicts that going beyond the “tool kit man” role is dependent on developing contractual stability and unifying incentives. The capabilities approach emphasizes the role of “shared identity” as the key antecedent. The former is highly problematic in the case of developing countries with their weak institutional arrangements, the latter in the case of distant-culture settings.
Our future research will seek to analyse and test the implications of these two competing theses by examining TMC’s perceptions of its partners and its partners’
perceptions of TMC with special reference to the development of the means for knowledge transfer. We will do so through a qualitative analysis of knowledge transfer activities in the context of TMC’s subsidiaries in Western Europe, the former Soviet Union and South-East Asia.
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