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The Differentiated Role of Organizational Ambidexterity and Organizational Innovation in the Subsidiary Reverse Knowledge Transfer Process

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Purpose This paper underscores how organizational ambidexterity and organizational innovation play differentiated roles in the subsidiary reverse knowledge transfers (RKT). The authors argue that both organizational ambidexterity and organizational innovation play a positive but differentiated role in the RKT process in that the former positively influences subsidiary knowledge creation, whereas the latter positively influences subsidiary knowledge transfers. Design/methodology/approach Data were collected from 289 foreign subsidiaries operating in Brazil. Hypotheses were developed and tested by applying partial least squares structural equation modeling. Findings The results supported the hypotheses and showed that organizational ambidexterity promotes knowledge creation, and that organizational innovation facilitates knowledge transfers. Research limitations/implications The paper offers implications with regard to drivers of subsidiary investments and actions of subsidiary managers vis-à-vis the subsidiary objectives of knowledge creation and/or transfers. Originality/value Showing the different roles of organizational ambidexterity and organizational innovation, this paper reveals some underlying mechanisms of the RKT process and contributes by explaining the competitive heterogeneity of subsidiaries, with impacts on subsidiary management’s evolutionary and resource dependence perspective.
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The Differentiated Role of Organizational Ambidexterity and
Organizational Innovation in the Subsidiary Reverse Knowledge Transfer
Process
This is an Author's Accepted Manuscript of an article published as:
Borini, F. M., Santos, L. L. D., Raziq, M. M., Pereira, R. M., Brunhara, A, J. (2021), The
Differentiated Role of Organizational Ambidexterity and Organizational Innovation in the
Subsidiary Reverse Knowledge Transfer Process.
Journal of Knowledge Management.
Journal of Knowledge Management
The differentiated role of organizational ambidexterity and
organizational innovation in the subsidiary reverse
knowledge transfer process
Journal:
Journal of Knowledge Management
Manuscript ID
JKM-06-2020-0420.R4
Manuscript Type:
Research Paper
Keywords:
Reverse knowledge transfer process, Organizational ambidexterity,
Organizational innovation, Foreign subsidiaries, International business
Journal of Knowledge Management
Journal of Knowledge Management
The differentiated role of organizational ambidexterity and organizational innovation
in the subsidiary reverse knowledge transfer process
Abstract
Purpose - This article underscores how organizational ambidexterity and organizational
innovation play differentiated roles in the subsidiary reverse knowledge transfers (RKT). We
argue that both organizational ambidexterity and organizational innovation play a positive but
differentiated role in the RKT process in that the former positively influences subsidiary
knowledge creation, while the latter positively influences subsidiary knowledge transfers.
Design/methodology/approach - Data were collected from 289 foreign subsidiaries
operating in Brazil. Hypotheses were developed and tested applying partial least squares
structural equation modeling (PLS-SEM).
Findings - The results supported the hypotheses and showed that organizational ambidexterity
promotes knowledge creation, and organizational innovation facilitates knowledge transfers.
Originality - Showing the different roles of organizational ambidexterity and organizational
innovation, this article reveals some underlying mechanisms of the RKT process and
contributes by explaining the competitive heterogeneity of subsidiaries, with impacts on
subsidiary management´s evolutionary and resource dependence perspective.
Research limitations/implications The article offers implications with regards to drivers
of subsidiary investments and actions of subsidiary managers vis-à-vis the subsidiary
objectives of knowledge creation and/or transfers.
Keywords Reverse knowledge transfer process, organizational ambidexterity, organizational
innovation, foreign subsidiaries, international business.
Paper type Research paper
1 Introduction
MNE-subsidiary research suggests that knowledge transfer is one of the core aspects of
subsidiary management concerning how subsidiaries create and transfer knowledge (Meyer
et al., 2020). Knowledge flows occur from the HQ to the subsidiary as well as from the
subsidiary to the HQ/MNE. Here the former is referred to as conventional knowledge
transfers and the latter as reverse knowledge transfers. Both types of knowledge flows are
more or less ubiquitous in the today’s multinational enterprises (Lessard et al., 2016). Reverse
knowledge transfers serve as a key source of competitive advantage for an MNE (Rugman and
Verbeke, 2001) over local firms as well as other MNEs (Meyer et al., 2020). However, it is
important to note that not all subsidiaries will have a motive, let alone a mandate to create
and transfer new knowledge, although this is something that would generally be appreciated
by the MNE and expected particularly for subsidiaries, which aim at increasing their
relevance within the multinational internal network (Mudambi et al., 2014; Najafi-Tavani et
al., 2015). For such cases, where the subsidiary has a strategic intent or mandate of creating
and transferring new knowledge (Mudambi et al., 2014; Najafi-Tavani et al., 2015), we argue
that the subsidiary would benefit through focusing on organizational ambidexterity as well as
innovation.
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RKT is a complex process (Gaur et al., 2019) involving two main aspects (Kogut and Mello,
2017): (a) the subsidiary's effort in the creation and transfer of knowledge and (b) the
headquarters effort to facilitate absorption of the subsidiary knowledge across the multinational
corporation (MNC). This article focuses on the part of the process associated with the
subsidiary's effort to create and transfer knowledge. The literature highlights the role of
responsiveness and integration between headquarters and subsidiaries (Gaur et al., 2018) to
explain the RKT process. Responsiveness requires the subsidiary's effort to insert external
networks to use new knowledge acquired from these relationships (Rodrigues et al., 2020; Isaac
et al., 2019; Ferraris et al., 2017). On the other hand, integration demands the subsidiary's effort
in favor of the alignment needed to transfer knowledge from the subsidiary to the headquarters
(Borini et al., 2016; Achcaoucaou et al., 2014). Despite the evident importance of the
responsiveness and integration dilemma for the RKT process, articles have been focusing
basically on the subsidiary's effort for knowledge transfer, such as communication, expatriation,
job rotation, alignment, and structure (Kogut and Mello, 2017; Achcaoucaou et al., 2014).
However, the literature fails to specify the subsidiary's efforts for each stage of the RKT process
(knowledge creation and transfer) (Kogut and Mello, 2017; Hadengue et al., 2017).
In this sense, it is essential to understand the subsidiary's effort for knowledge creation and
transfer in the RKT process. We propose one subsidiary's effort as a determinant to the creation
of knowledge — organizational ambidexterity (Gibson and Birkinshaw, 2004) — and an
underlying subsidiary's effort to complete the transfer of knowledge — organizational
innovation (Vaccaro et al., 2012; Mol and Birkinshaw, 2009) — in the RKT process. We argue
that organizational ambidexterity encourages the subsidiary to develop new knowledge, and
then organizational innovation triggers knowledge transfer. Concerning the latter, we propose
a moderating role for organizational innovation in the subsidiary knowledge transfer process.
We draw on survey data from 289 foreign subsidiaries hosted in the large emerging economy
of Brazil, specifically. We do this because, despite being a lesser-explored process (Kogut
and Mello, 2017) with different nuances (Hadengue et al., 2017), research suggests that
subsidiaries hosted in emerging markets can initiate the RKT process, too (Luo et al., 2019).
We test our model employing the PLS-SEM technique and find support for the established
hypotheses.
The main contribution of this article is to the literature of the RKT process (Meyer et al., 2020;
Gaur et al., 2019; Michailova and Mustaffa, 2012), especially related to the subsidiary's effort
in the creation and transfer of subsidiary knowledge (Kogut and Mello, 2017; Hadengue et al.,
2017). By revealing the subsidiary's effort, our results advance on the issue of responsiveness
and integration of subsidiaries for the RKT process (Rabiosi, 2011), complementing the still-
scarce studies (Vlajcic et al., 2019) about the subsidiary´s effort specific for each stage of the
RKT process. Therefore, we advance the literature by showing that a different subsidiary effort
may be needed for each stage of the process, in this case, organizational ambidexterity for
knowledge creation and organizational innovation for knowledge transfer. Thus, we contribute
to the literature on competitive heterogeneity (Hoopes and Madsen, 2008), especially by
clarifying the subsidiary’s internal competition (Najafi-Tavani et al., 2015) and the different
roles concerning knowledge creation and transfer. For subsidiary managers involved with the
RKT process, the message is straightforward: in each stage of the RKT process (creation and
transfer), it is necessary to manage the differentiated subsidiary's effort. It means that the
process does not only depend solely on the headquarters. The central point is the subsidiary´s
effort in the management of organizational ambidexterity and organizational innovation.
The paper is structured as follows. The theoretical knowledge section addresses the process of
knowledge creation and the reverse knowledge transfer process (RKT). Next, we establish the
hypotheses in which the associations between knowledge creation and transfer are argued to be
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moderated by organizational innovation and preceded by organizational ambidexterity. In the
methodology section we present the data collection procedures, as well as the constructs and
measures used in the survey. In the results we show the model's validity and reliability
indications, as well as the results of the hypotheses test. In the discussion we highlight the
theoretical and managerial contributions. Finally, we conclude by reinforcing the main findings
and the limitations and suggestions for future research.
2. Literature review
The RKT process: the creation and transfer of knowledge as a source of subsidiaries’
competitive heterogeneity
The creation and transfer of knowledge has a central role in foreign subsidiaries (Meyer et al.,
2020; Narula, 2014). The two analytical pillars for the RKT process are the support from
headquarters and the subsidiary's effort (Rugman et al., 2011). The present paper focuses on
the last one, on the subsidiary’s effort to create and transfer knowledge, reflecting the RKT
process. Sometimes, the knowledge created by a subsidiary can be transferred (Narula, 2014;
Rugman and Verbeke, 2001) to the headquarters or other subsidiaries. In this way, the creation
and transfer of the subsidiary’s knowledge depends on the subsidiary´s effort in the RKT
process. We understand that the creation and transfer of knowledge are central points to
explain the competitive heterogeneity (Hoopes and Madsen, 2008) of the subsidiaries and
their roles in the RKT process.
The creation of knowledge is one source of competitive heterogeneity that explains the
subsidiary’s role in the RKT process. The environmental determinism explains the
subsidiary’s competitive heterogeneity, the headquarters strategies, and the subsidiary's
initiatives (Birkinshaw, 2001). Looking from the perspective of subsidiary initiatives depends
on creating new knowledge or recombining differentiated resources and activities. In other
words, it depends on the strategy of exploration and exploitation—the organizational
ambidexterity (Birkinshaw et al., 2016). The literature has pointed out that the subsidiaries
need organizational ambidexterity to adapt and create new knowledge fit to a changing
environment (Vahlne and Jonsson, 2016; Luo, 2003).
Organizational ambidexterity refers to the organizational ability, flexibility and balanced efforts
towards simultaneously exploiting their existing competencies as well as exploring future
competencies. Exploring of competencies suggest that the subsidiary engages in, for example,
product, market, and technology development, and exploiting suggests their engagement in
such activities as enhancement of their production facility and quality of their existing products,
as well as reduction in their production costs and the better consumption of raw materials (He
and Wong, 2004; Kauppila, 2010). This balance of exploration and exploitation (Gupta et al.,
2006) creates or renews organizational knowledge as well as enhances the subsidiary
competitive position such that the former helps the subsidiary through product development,
and the latter through improving the subsidiary existing product/service portfolio (He and
Wong, 2004; Stettner and Lavie, 2014). While balancing of exploration and exploitation
involves significant costs (Levinthal and March, 1993), the benefits outweigh such the costs
through enhancing the subsidiary competitive position as well as facilitating the reverse
knowledge transfer process.
The intrafirm transfer of knowledge is another source of competitive heterogeneity that
explains the subsidiary’s role in the RKT process. In a general way, a subsidiary creates
knowledge exploring some local opportunities. Still, if the subsidiary wants to get more power
inside the multinational (Bouquet and Birkinshaw, 2008), one way to reach it is when the
subsidiary enhances an effort to transfer knowledge to the headquarters (Najafi-Tavani, et al.,
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2015). The process of knowledge transfer could be by a strategy of replication or imitation
(Hoopes and Madsen, 2008), which depends on the subsidiary’s effort to become a knowledge
provider acknowledged by the recipient headquarters (Frost et al., 2002). Therefore, the
subsidiary needs an organizational design that favors the transfer (Joia and Lemos, 2010) and
the alignment (Dabic and Kiessling, 2019) of knowledge between the subsidiary and the
headquarters. Organizational innovation (Birkinshaw et al., 2008; García-Morales et al., 2012)
allows the organizational design adaptation, which allows structural alignment for knowledge
transfer.
Organizational innovation represents the invention and implementation of a new management
practice, process, structure or technique designed to promote organizational objectives
(Birkinshaw et al., 2008). In this sense, organizational innovation refers to changes in
organizational tasks, functions, rules and procedures, as well as, the implementation of new
organizational structures, management systems and communication mechanisms within the
company (Vaccaro et al., 2012). Organizational innovation differs from organizational
ambidexterity, because the former implies introducing new management practices designed to
improve knowledge management and organizational performance, while the latter refers to
exploration and exploitation for the knowledge creation purposes (Mol and Birkinshaw, 2009).
3 Hypotheses development
In the next section, we explain the RKT process through the lens of subsidiaries hosted in
emerging markets. For that process, we show that subsidiaries need to develop organizational
ambidexterity for knowledge creation and organizational innovation for knowledge transfer.
3.1 The role of organizational ambidexterity in the creation of knowledge
The essence of organizational ambidexterity is the balance of exploration and exploitation. The
development of subsidiary knowledge based only on exploitation could be insufficient to
subsidiaries hosted in emerging markets. Subsidiaries focused only on strategies that promote
exploitation face the pressure for adaptation in the local market and the need to maintain the
strategic alignment with the corporate strategy at the same time (Yamin and Andersson, 2011).
It is essential to subsidiaries in emerging markets due to the necessity to adapt the headquarters’
knowledge to a highly differentiated local context without losing the alignment with
headquarters (Borini et al., 2016; Luo, 2003). However, exploitation strategy tends to be a low-
degree innovation (Tarraço et al., 2019). Hence, it is weak in the newness of the knowledge. It
means the creation of knowledge with a low degree of attractiveness to the RKT process
(Govindarajan and Ramamurti, 2011; Hadengue et al., 2017).
On the other hand, a subsidiary focused only on strategies promoting exploration tends to bring
to the market solutions with a greater degree of innovation. They are essential for the
competitiveness not only of the local subsidiary but also for headquarters and other subsidiaries
(Michailova and Mustaffa, 2012). However, the solution tends to have little alignment with the
corporate strategy (Yamin and Andersson, 2011). As a result, despite all the subsidiary´s effort
devoted to creating knowledge, it has little potential to be transferred. Then, the RKT process
is impaired due to the lack of alignment (Michailova and Mustaffa, 2012) and the difficulty of
integration (Gupta and Govindarajan, 1994) with the headquarters and other subsidiaries of the
corporation. In the case of subsidiaries in emerging markets, knowledge created by exploration
has the potential to be an interesting reverse innovation (Hadengue et al., 2017; Govindarajan
and Ramamurti, 2011). However, they suffer from the same problem of newness and lack of
alignment hindering transference (Borini et al., 2016).
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In this way, the organizational ambidexterity seems to be an important organizational
subsidiary´s effort to effect RKT process. A subsidiary with an ambidextrous strategy (He and
Wong, 2004) in a single structure (Gibson and Birkinshaw, 2004) can attain the balance of
exploration and exploitation (Gupta et al., 2006). It can overcome the limitations of focusing
only on exploration or exploitation, especially for subsidiaries hosted in emerging markets.
Knowledge created from organizational ambidexterity encourages the alignment (exploitation)
with the corporate strategy and a greater degree of innovation (exploration). Then, regarding
subsidiaries hosted in emerging markets:
H1: In the RKT process, knowledge creation is positively associated with the subsidiary’s
organizational ambidexterity.
3.2 The evolutionary RKT process in subsidiaries hosted in emerging markets
The knowledge created through the organizational ambidexterity has better potential to be
transferred. The newness of the knowledge comes through exploration and the alignment with
a multinational corporation through exploitation. In this way, if the subsidiary is interested in
the RKT (Gaur, et al., 2018), balancing exploration and exploitation (Gupta et al., 2006) allows
the development of knowledge with the potential to be transferred. However, it is more complex
for the case of subsidiaries hosted in emerging markets. In general, headquarters see
subsidiaries in emerging markets just as receivers of knowledge that needs to be adapted (Gaur,
et al., 2018; Forsgren, 2017; London and Hart, 2004) to one particular macroeconomic,
institutional, and industrial environment (Meyer et al., 2009). In this way, the subsidiaries try
to create new knowledge to attend to the local market better. However, some subsidiaries expect
that the knowledge created becomes a future solution for headquarters (Luo et al., 2019). It
follows an evolutionary process guided by the incremental and learning-based process from
knowledge creation to transfer (Cantwell and Piscitello, 2000; Figueiredo, 2003).
The knowledge created has the potential for a reverse transfer (Govindarajan and Ramamurti,
2011; Winter and Govindarajan, 2015) when subsidiaries in emerging markets draw attention
and develop a sense of attractiveness in the headquarters (Kumar, 2013; Ambos and
Birkinshaw, 2010). This can happen when there is a balance between the institutional
(Hamprecht and Schwarzkopf, 2014) and cultural (García-Almeida and Bolívar-Cruz, 2020)
pressures of the local environment and the headquarters’ pressures for integration and alignment
(Borini et al., 2016). The creation of knowledge supported by organizational ambidexterity
allows the balance of differentiated pressures. It can increase headquarters’ involvement with
the subsidiary without contesting the new knowledge developed more autonomously
(Beugelsdijk and Jindra, 2018). In this sense, the subsidiary can be a source of “local-to-global”
knowledge (Luo et al., 2019). In fact, the literature of RKT shows that there is a high-interest
new knowledge developed by subsidiaries in emerging markets (Tarraço et al., 2019; Isaac et
al., 2019; Jha et al., 2016). Then, regarding subsidiaries hosted in emerging markets:
H2: In the RKT process, knowledge transfer is positively associated with the subsidiary’s
knowledge creation.
3.3 The role of organizational innovation in the creation and transfer of knowledge
Despite the readiness for a transfer of the knowledge developed by subsidiaries, the process's
challenges lead us to propose that something else is required. More than attracting the
headquarters’ attention and interest (Kumar, 2013; Ambos and Birkinshaw, 2010), the transfer
of knowledge depends on the subsidiary’s strategic effort (Hoopes and Madsen, 2008). The
subsidiary must have a clear understanding of the strategy to transfer the knowledge (García-
Almeida and Bolívar-Cruz, 2020). This means foreseeing and avoiding some problems related
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to the acceptance of the knowledge by headquarters (Hadengue et al., 2017). In our
understanding, organizational innovation performs the role of being a bridge to the subsidiary's
knowledge reaching the headquarters.
Organizational innovation enhances the RKT process. First organizational innovation generates
knowledge creation. Studies indicate the influence of organizational innovation on the
development of new knowledge in differentiated firm functions, such as marketing
(Birkinshaw, 1998; Eng and Okten, 2011), finance (Calantone et al., 2002), R&D (Soto-Acosta
et al., 2015; Hwang et al., 2020), and the development of product and process (Camison and
Villar-Lopez, 2014; Lee et al., 2017). Therefore, the organizational innovation in subsidiaries
has the central role of renewing the subsidiaries´ knowledge in those subsidiaries hosted in
emerging markets.
H3a: In the RKT process, knowledge creation is positively associated with the subsidiary’s
organizational innovation.
However, organizational innovation also impacts the transfer of the subsidiary's knowledge
from local-to-global levels. In other words, organizational innovation has a direct influence on
the transfer of knowledge. For the subsidiary to transfer its knowledge, the subsidiary´s effort
(Ambos et al., 2010; Birkinshaw et al., 1998) in reviewing and adapting the practices,
processes, and structures for the transfer of its knowledge (Xi et al., 2020) is necessary. Studies
have pointed out that the performance of organizational innovation has an impact on the RKT
process, whether through the adaptation of the organizational structure (Minbaeva et al., 2014)
or through innovation in management practices and processes (Zaragoza-Sáez and Claver-
Cortés, 2011), including new incentive mechanisms (Bjorkman et al., 2007) and
communication (Adenfelt and Lagerstrom, 2008). Regarding subsidiaries in emerging markets,
the subsidiary´s efforts (Raziq et al., 2019; Borini et al., 2016) related to organizational
innovation are mentioned as factors for knowledge transfer. Hence, it is possible to suppose
that organizational innovation plays a central role in the knowledge transfer from a subsidiary
to headquarters.
H3b: In the RKT process, knowledge transfer is positively associated with the subsidiary’s
organizational innovation.
Once it is proposed that (a) the creation of a subsidiary´s knowledge is positively associated
with the organizational innovation and (b) the transfer of a subsidiary´s knowledge is positively
associated with the organizational innovation, it is possible to argue that the organizational
innovation enhances the RKT process, regarding subsidiaries hosted in emerging markets:
H3c: Organizational innovation positively moderates the association between the subsidiary´s
knowledge creation and transfer.
Figure 1 shows the conceptual model of the role of organizational ambidexterity and
organizational innovation in the RKT process.
Figure 1: Conceptual model of organizational ambidexterity and organizational innovation in
the RKT process.
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Source: Elaborated by the authors
4 Methodology
4.1 Data and Sample
This study has a quantitative methodological approach, with primary data collection through
the survey method. The sample is composed of foreign subsidiaries operating in an emerging
market, specifically in Brazil. We have chosen Brazil as the context of analysis because of its
representation as an emerging market. Brazil is one of the primary recipients of FDI flows
(World Bank Group, 2020), and from 2008 to 2018, the FDI inflow grew from USD 76 billion
to USD 149 billion (APEX, 2019). Despite the problems of institutional inefficiency, studies
have shown that foreign companies perform innovation in the country (Tarraço et al., 2019;
Isaac et al., 2019). These subsidiaries are distributed in various industries. The research sample
was formed for convenience. We developed a mailing list from different sources of information
(magazines, rankings) of the 1,000 largest foreign subsidiaries in terms of sales operating in
Brazil (later reduced to 972 valid contacts) from different segments such as industry, commerce,
and services. The pretest was carried out with ten specialists, three scholars, and seven
managers of companies, aiming to verify the questionnaire's comprehension level. Small
adjustments were made in the vocabulary from the suggestions received as feedback. Data
collection took place in 2017 through email and telephone follow-up, using a research
questionnaire sent to managers of departments of marketing, R&D, operational, innovation, and
engineering. We selected these areas because our questions are about these subjects, mainly
about innovation and operational strategies. The field research counted on four researchers
exclusively dedicated to this task for sixty days, sending the questionnaire via email and
telephone, including follow-up tabulation of the responses. A total of 302 questionnaires were
received, but 13 were eliminated because they were incomplete. Thus, the final sample
comprises 289 valid answers.
The sample encompasses subsidiaries of multinational corporations, mostly from developed
countries (90%). The primary origin countries are the United States (22%), Germany (22%),
and Italy (13%). The entry modes of the subsidiaries in Brazil were acquisitions (43%), joint
ventures (32%) and greenfield (25%), considering the sample of subsidiaries. Around 34% of
these subsidiaries started Brazilian operations between 1991 and 2000, while 29% started after
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the year 2000 (29%). Considering the oldest ones in Brazil, only 9% started their businesses
between 1981 and 1990, while 13% began between 1971 and 1980.
4.2 Measures
The operationalization was developed from a questionnaire with 21 closed questions,
measuring the level of agreement to each question using a 7-point Likert scale, where 1 meant
'Totally disagree' and 7 meant 'Totally agree'. Table 1 summarizes the constructs and the
specific items used in the survey method.
The construct Organizational Ambidexterity is formed by the first-order constructs Exploration
and Exploitation tested by He and Wong (2004). To measure the exploration, participants were
asked whether in the past three years the subsidiary had prioritized introducing products of new
generation, expanding the types of products in the portfolio, opening new markets, and entering
in new technological areas. To measure exploitation, they were asked whether in the past three
years the subsidiary had prioritized improving the quality of their existing products, improving
production flexibility, reducing the cost of production, or reducing the consumption of raw
material.
The construct Knowledge Creation is an adaptation from Andersson et al. (2014) and Fang et
al. (2017). To operationalize this construct, participants were asked whether during the past
three years the subsidiary had been constantly developing new knowledge in the following
activities: new product development, operations/production, marketing, or environmental
management practices.
The construct Knowledge Transfer is also an adaption from Andersson et al. (2014) and Fang
et al. (2017). The operationalization of this construct was done by questioning whether in the
past three years, the subsidiary has constantly transferred new knowledge to the headquarters
or other subsidiaries in the following activities: new product development;
operations/production; marketing or environmental management practices.
The Organizational Innovation construct is measured by asking if in the past three years, the
rules and procedures had been revised, the tasks and functions of employees had been modified,
new management systems had been implemented, the remuneration policy had been
restructured, communication within and between departments had been reorganized, and if the
organizational structure had been changed somehow (Vaccaro et al., 2012).
Table 1: Constructs and measures.
Constructs
Measures
Introducing products of new generation
Expanding the types of products in the portfolio
Opening new markets
Entering in new technological areas
Improving the quality of their existing products
Improving production flexibility
Reducing the cost of production
Organizational Ambidexterity
(He and Wong, 2004)
In the past three years the
subsidiary had prioritized…
Reducing the consumption of raw material
Knowledge Creation
(Andersson et al., 2014;
Fang et al., 2017)
In the past three years the
subsidiary…
Developed new products
Developed new operation/production processes
Developed new marketing processes
Developed new environmental management practices
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Knowledge Transfer
(Andersson et al., 2014;
Fang et al., 2017)
In the past three years the
subsidiary…
Transferred new products to the headquarters
Transferred new operation/production processes to the
headquarters
Transferred new marketing processes to the headquarters
Transferred new environmental management practices to
the headquarters
The rules and procedures had been revised
The tasks and functions of employees had been modified
New management systems had been implemented
The remuneration policy had been restructured
Communication within and between departments had
been reorganized
Organizational Innovation
(Vaccaro et al., 2012)
In the past three years…
The organizational structure had been changed somehow
Source: Adapted from (He and Wong, 2004; Andersson et al., 2014; Fang et al., 2017; Vaccaro et al., 2012).
To control the results of the model, we employed some control variables, such as Entry mode
and Age of the subsidiary in the host country. Regarding the entry mode, it is important to verify
if the acquisition mode is not an obstacle to the knowledge creation, since the entry mode
strategy tends not to contribute to organizational alignment initially (Mudambi et al., 2014). On
the other hand, the acquisition may bring the subsidiary new knowledge from the acquired
company, so it could leverage the transfer of knowledge (Belderbos, 2003). Finally, the time
period the subsidiary is operating in the country is also relevant, since subsidiaries with more
time in the host country could be more conducive to creating or transferring subsidiary
knowledge, following the principles of learning process innovation (Kim et al., 2012).
However, less experienced subsidiaries may be more open to innovation without difficulties
from bureaucratic procedures (Hakala et al., 2016).
To mitigate some problems of common method bias and nonresponse bias, we proceeded to
perform some analyses. The constructs were based on the perception of the respondents. There
is a limitation of the common method bias based on perceptions. In this case, the Harman one-
factor test was applied (Podsakoff and Organ, 1986). The reduction of the sample to only one
factor with all constructs used in the research had 39% of variance explained. This is less than
the total variance explained by all factors (72%) and less than 50% as well. Also, the
nonresponse bias was reduced comparing the responses of early and late respondents
(Armstrong and Overton, 1977). The mean comparison of the constructs of the sample
considering early and late respondents showed no significant difference (p<0.05).
5 Results
In this section, we report the quantitative results of the data obtained from the survey. Initially,
here are some descriptive statistics concerning the four main constructs of the model. The
knowledge creation has a mean of 5.38 and a standard deviation of 1.26, while the transfer of
knowledge has a mean of 2.98 and a standard deviation of 1.96. Based on both means, we can
see the difference between the creation and transfer of knowledge, showing that not all
companies reach or have knowledge transfer as a strategy. The mean and standard deviation of
organizational ambidexterity are 5.55 and 0.99, respectively, while organizational innovation
has a mean of 5,31 and a standard deviation of 0.98.
The partial least squares (PLS) method was used to test the constructs and hypotheses.
Structural equation modeling (SEM) was chosen because it allows the evaluation of multiple
relationships between latent variables (constructs), an alternative for the scope of research in
social sciences, especially when the samples are small or when there is an estimation of various
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relationships between the constructs such as moderation relationships, for instance (Hair Jr. et
al., 2016).
Table 2 shows the parameters of the study model validity and reliability. Results show that the
average variance extracted scores are greater than 0.50; the composite reliability is greater than
0.70, and Cronbach's alpha is greater than 0.60, hence meeting the required threshold for
validity and reliability as per SEM standards (Hair Jr. et al., 2009; Ringle et al., 2014).
Table 2: Reliability and validity.
Cronbach's
Alpha
Rho_A
Composite
Reliability
Average Variance
Extracted (AVE)
Organizational Ambidexterity
0.913
0.918
0.929
0.622
Knowledge Creation
0.887
0.892
0.922
0.747
Knowledge Transfer
0.958
0.961
0.969
0.888
Organizational Innovation
0.902
0.905
0.924
0.671
Source: Search Data.
Table 3 shows the results for discriminant validity, which reflect the extent to which constructs
relate to, or are independent of, each other. The criterion established by Fornell and Larcker
(1981) is adopted, and the numbers (root of the AVE) at the diagonal are represented in bold –
these numbers must be greater than the correlation coefficient (r²) for the variables. Through
this method, we analyze how different the constructs are to one another.
Table 3: Fornell–Larcker criterion for discriminant validity.
Construct
Contextual
Ambidexterity
Knowledge
Creation
Knowledge
Transfer
Organizational
Innovation
Organizational Ambidexterity
0.789
Knowledge Creation
0.631
0.865
Knowledge Transfer
0.229
0.389
0.942
Organizational Innovation
0.361
0.483
0.292
0.819
Source: Search Data.
According to Hair Jr. et al. (2014), the structural model describes the relationships between the
latent variables of the model based on a set of linear regressions. To analyze the structural
model, the first step is to assess the existence of multicollinearity between the latent variables
that will be treated as independent variables in each regression implemented. VIF represents
the variation inflation for, which is an index to measure the presence of multicollinearity, to
verify if one independent variable is influencing other independent variables (Hair Jr. et al.,
2014). According to Table 4, it can be noted that the model is not affected by multicollinearity,
since all VIF values are less than 5, the acceptable threshold established by Hair Jr. et al. (2014).
Table 4: VIF of the model.
Organizational
Ambidexterity
Knowledge
Creation
Knowledge
Transfer
Organizational
Innovation
Organizational Ambidexterity
1.673
Knowledge Creation
1.150
Knowledge Transfer
1.939
Organizational Innovation
1.000
1.150
1.460
Source: Search Data.
Table 5 highlights the values of Q², which specify the accuracy of the adjusted model,
considering the expected result (Q²> 0) to mean that the model has an acceptable prediction
power. The effect size (f²), indicated by Cohen (1988), evaluates how much each construct is
useful to fit the model. Values around 2%, 15% and 35% represent weak, moderate and strong
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effects, respectively (Hair Jr. et al., 2014). In this case, the construct Knowledge Creation shows
a strong effect, while the construct Knowledge Transfer presents a moderate effect, and the
construct Organizational Ambidexterity reflects a weak effect.
The explanation power for each construct in the model was analyzed using Pearson’s
determination coefficient (R²). In practical terms, this indicates in a percentage (ranging from
0 to 1) how much of the latent variable’s variation is explained in the regression model.
Accordingly, it was found that 47.3% of the variation in Knowledge Creation is explained by
the Organizational Ambidexterity. Yet 20.3% of the variation in Knowledge Transfer is
explained by Organizational Ambidexterity and Knowledge Creation.
Table 5: Predictive validity (Q²), effect size (f²) and explanation power (R²).
Organizational Ambidexterity
0.077
0.513
0.130
Knowledge Creation
0.343
0.564
0.473
Knowledge Transfer
0.173
0.786
0.203
Organizational Innovation
*
0.533
*
(*) Not applied, moderating construct.
Based on the results presented in Table 6, hypothesis H1 was supported, as a statistically
significant relationship exists between Organizational Ambidexterity and Knowledge Creation
(ß 0.525). Therefore, the implementation of ambidextrous strategies in foreign subsidiaries is
positively associated with knowledge created by the subsidiaries. Also, it was observed that the
association between Knowledge Creation and Knowledge Transfer is statistically significant (ß
0.387), so it is possible to understand that an increase in the creation of knowledge could
influence the knowledge transfer. This result provided support for hypothesis H2. Also, it was
possible to find support for hypotheses H3a, H3b and H3c, once the moderating effect of
Organizational Innovation in the association between Knowledge Creation and Knowledge
Transfer was found, where the moderation coefficient 0.138) was statistically significant
considering a confidence level of 95%. This determination provided more evidence that
Organizational Innovation works to potentialize the RKT process. It is important to note that
the association between Organizational Ambidexterity and Knowledge Transfer is not
significant in additional tests, thus supporting the idea that a differentiated subsidiary´s effort
is vital for each phase of the RKT process.
Table 6: Regression coefficients of the model.
Relationship between constructs
Path Coefficient
T Statistic
P Value
Result
H1
Organizational Ambidexterity Knowledge
Creation
0.525
9.133
0.000
Supported
H2
Knowledge Creation Knowledge Transfer
0.387
5.982
0.000
Supported
H3a
Organizational Innovation Knowledge
Creation
0.294
5.166
0.000
Supported
H3b
Organizational Innovation Knowledge
Transfer
0.211
3.173
0.002
Supported
H3c
Knowledge Creation * Organizational
Innovation Knowledge Transfer
0.138
3.716
0.000
Supported
Additional Relationship between constructs
Path Coefficients
T Statistic
P Value
Result
I
Organizational Ambidexterity Knowledge
Transfer
-0.039
0.603
0.546
Not
Significant
II
Organizational Innovation Organizational
Ambidexterity
0.361
5.198
0.000
Significant
Source: Search Data.
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Table 7 presents the tests using the control variables Age of the company and Entry mode. It
can be seen that the results have not changed. Thus, the hypotheses were supported regardless
of whether the subsidiary had more or less than 20 years’ operating duration in the host country
(Kim et al., 2012; Hakala et al., 2016) or whether the entry mode was acquisition or greenfield
(Mudambi et al., 2014).
Table 7: Regression coefficients of the complementary models.
Relationship between constructs
Time
> 20
years
(n = 156)
Time
< 20 years
(n = 133)
Mode
Greenfield
(n = 164)
Mode
Acquisition
(n = 125)
Organizational Ambidexterity Knowledge Creation
0.443*
(4.834)
0.621*
(9.248)
0.610*
(9.485)
0.417*
(3.746)
Knowledge Creation Knowledge Transfer
0.375*
(5.025)
0.393*
(3.542)
0.314**
(3.157)
0.457*
(5.481)
Knowledge Creation * Organizational Innovation
Knowledge Transfer
0.123**
(2.553)
0.155**
(2.572)
0.095***
(1.791)
0.202**
(2.931)
Source: Search Data.
Note: Path coefficients and T Statistics in parentheses, *p < 0.01; **p < 0.05; and ***p < 0.10.
6 Discussion
The results show that subsidiary organizational ambidexterity and subsidiary organizational
innovation are two important efforts leading to knowledge creation and transfer. So this article's
contribution lies in the differentiated role of these subsidiaries´ efforts in the RKT process, with
impacts for the evolutionary and resource dependence perspectives on subsidiary management.
The Differentiated Role of Subsidiary´s Efforts: Implication to Literature and Practice
The reverse knowledge transfer is relevant for both the multinational corporation and its
subsidiary as they can lead to the development of competitive advantage for the MNE (Meyer
et al., 2020; Claver-Cortés et al., 2018; Pereira et al., 2019), as well as mandates and
bargaining power for the subsidiary in the MNE network (Mudambi et al., 2014). In this vein,
the investment in organizational ambidexterity and organizational innovation is important if the
subsidiary sees in the RKT process a way to gain mandate or power. However, there is the exact
phase of the RKT process to invest in one or other of these efforts of the subsidiary.
Organizational ambidexterity supports the creation of knowledge to guarantee responsiveness
(Zeng et al., 2018), but it does not ensure that the subsidiary's knowledge will be transferred.
Therefore, the subsidiary's organizational innovation is essential to enhance the transfer process
and to guarantee integration. In this way, the findings bring two efforts of the subsidiary for the
RKT process to balance the responsiveness–integration dilemma (Zeng et al., 2018). The
literature shows the subsidiary´s efforts for the entire RKT process (Vlajcic et al., 2019) but
without comparing and distinguishing the different stages of the RKT process (Gaur et al.,
2018). Therefore, this study advances the literature by showing the specific efforts of the
subsidiary for each stage of the RKT process.
The finding of a direct positive relationship between knowledge creation and knowledge
transfer suggests that new knowledge created by the subsidiary is not necessarily linked to the
subsidiary’s location, and could well be transferred to the headquarters as well as to sister
subsidiaries in different countries. Furthermore, the moderating role of organizational
innovation in the above relationship suggests that innovation plays a key role in the knowledge
transfer process. The argument is that new knowledge brings new capabilities, which could be
applicable to the MNE as a whole (Birkinshaw et al., 1998; Rugman and Verbeke, 2001).
Therefore, differently from previous studies that address organizational innovation often as an
outcome variable, this article analyses its role as a factor that promotes the RKT process. This
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is much relevant for literature on subsidiary management and RKT (Meyer et al., 2020; Gaur
et al., 2019; Michailova and Mustaffa, 2012), because existing literature tells little about the
underlying mechanisms of knowledge creation and transfers within the MNE network. This is,
hence, our key contribution.
The prominence of organizational ambidexterity and organizational innovation have some
relevant implications for subsidiary management. Managing the RKT process is one way to be
assured of the subsidiary's competitiveness vis-à-vis competitors and other subsidiaries in the
multinational network (Najafi-Tavani et al., 2015). Thus, our article highlights the role of
executives in developing organizational ambidexterity and organizational innovation to
guarantee the subsidiary’s competitiveness inside the multinational and outside in front of the
competitors. In this sense, we emphasize that for the RKT process, the subsidiary’s executives
must understand and act, aiming for differentiated efforts for the creation and transfer of
knowledge. From a procedural perspective, it is appropriate to drive the organizational
ambidexterity toward the creation of subsidiary knowledge and guide the organizational
innovation toward the transfer of this knowledge. The main function expected from the
subsidiaries’ executives in the RKT process is the expertise of combining the simultaneous
management of these two efforts in differentiated stages of the RKT process.
Advances in the Evolutionary and Resource Dependence Perspective
Our result advances the evolutionary perspective of subsidiary management (Birkinshaw, 2001)
and RKT (Gaur et al., 2019; Michailova and Mustaffa, 2012; Kumar, 2013), showing that to
each moment of RKT process it is necessary to devote more attention to one or more
subsidiaries’ efforts. It is important because the evolutionary perspective explains that the
transfer of knowledge depends on knowledge created by the subsidiaries’ efforts. In this way,
it calls to the importance of emerging strategies and the subsidiaries' entrepreneurial orientation
(Birkinshaw et al., 2005). The evolutionary perspective also highlights the importance of
emerging strategies and presents answers for the subsidiaries' RKT process in emerging markets
(Hadengue et al., 2017; Borini et al., 2016). Furthermore, by identifying the subsidiary’s
differentiated efforts toward the creation and transfer of knowledge in the new product
development, in the operations/production practices, marketing, and environmental
management practices, we contribute to studies that understand that RKT has undergone an
evolutionary process in different functional areas (Kogut and Zander, 1993; Andersson et al.,
2014; Scott-Kennel and Giroud, 2015).
Simultaneously, the results bring some contributions to the resource dependence perspective in
subsidiary management. The resource dependence perspective (Pfeffer and Salancik, 1978), as
it is used in some studies in the context of existing relationships within multinational companies
(Ambos et al., 2010; Chen et al., 2012), reveals how the subsidiary’s control of valuable
resources (Meyer et al., 2020) can be a critical factor in relationships on the corporate internal
network. By showing that there is no single solution for both creation and transfer of
knowledge, we explain somehow the competitive heterogeneity of subsidiaries (Hoopes and
Madsen, 2008), which has an impact on the search for organizational resources and its internal
competition within the multinational corporation (Najafi-Tavani et al., 2015). This
competition is evidenced by subsidiaries that evolve to obtain greater responsibility and
control over strategic decision-making and others that have their functions reduced or even
eliminated (Cuervo-Cazurra et al., 2019). In this sense, the RKT process is strengthened by
both organizational ambidexterity and organizational innovation, and it shows as an alternative
for subsidiaries’ empowerment vis-à-vis the multinational corporation (Ciabuschi et al., 2012;
Wang et al., 2019), working as a mechanism to reduce their dependence from the headquarters.
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7. Conclusion
The main purpose of this study was to highlight the differentiated role of organizational
ambidexterity and organizational innovation in the RKT process. We underscored how
organizational ambidexterity and organizational innovation play a dual role in the RKT
process. We proposed and found support for the positive role of organizational ambidexterity
(in the creation of subsidiary knowledge) and organizational innovation (in the transfer of
subsidiary knowledge) in the RKT process.
The findings extend the literature on international business and offer implications for the
management practice. From a theoretical perspective, we move forward by determining two
important factors for the process of reverse knowledge transfer, i.e., organizational
ambidexterity and organizational innovation, and, hence, offer implications for evolutionary
and resource dependence perspectives. With regard to management practice, we imply that the
subsidiary managers may benefit from organizational ambidexterity and organizational
innovation and understand their differentiated role. In this sense, the decision to engage in each
practice must be in accordance with the current phase of the RKT process, whether it is
knowledge creation or knowledge transfer.
The article has some limitations. Our conceptual limitation is that we drew on only two aspects
for the RKT process: organizational ambidexterity and organizational innovation. Future
research may further identify other aspects that intervene or interact in the RKT process, for
example, organizational structures or institutional distance (Raziq et al., 2021). The second
limitation refers to the unit of analysis, i.e. the subsidiary. However, reverse knowledge transfer
involves the focal subsidiary, as well as the headquarters, and sister subsidiaries so, future
studies may seek perspectives from multiple levels in the MNE. The third limitation is
methodological. As we used a cross-sectional design, it may be worthwhile for future studies
to examine the effects of organizational ambidexterity and organizational innovation over time.
As a fourth limitation, we collected data from a single emerging economy - Brazil. Future
research may look at evidence from other economies and compare large, small, emerging, and
developed economy samples for better insights. Finally, the article did not explore specific
cases to illustrate how the RKT process occurs through the influence of organizational
ambidexterity and organizational innovation. Therefore, future research could highlight some
cases to illustrate and explain the interaction between those variables.
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Purpose Is the development of local innovation capabilities enough for foreign subsidiaries in emerging markets to be able to integrate into global R&D projects? The authors argue that it is not. The purpose of this paper is to show the central role of R&D capacities when it comes to inserting foreign subsidiaries in emerging markets into global R&D projects. Design/methodology/approach The study investigated 131 foreign multinational subsidiaries operating in Brazil. For each subsidiary, the authors surveyed two to five directors or C-level executives from innovation, R&D, engineering, product development and projects. the authors used structural equation modeling for analysis. Findings The results indicate that product and process innovations alone do not guarantee the insertion of the emerging market subsidiaries into global innovation projects. Such insertion depends on the subsidiary’s accumulation of R&D capacities. Practical implications The results reinforce the central issue of building product and process innovation capabilities as the first step toward a blueprint for global projects. However, the effort is not limited to these initiatives. Product and process innovation efforts need be reverted in headquarters’ eyes in order for subsidiaries to gain R&D center status. To achieve this, subsidiaries must align their technological innovations with multinational corporations’ innovation strategies. Originality/value In authors’ view, this study contributes to the literature in three main areas: the evolutionary process of innovation capability in subsidiaries, the reverse innovation debate and the discussion of subsidiaries’ initiatives.
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This study reviews research from 1970 through 2016 on developed country multinational enterprises (DMNEs) entering and competing in developing economies. To identify the current state of knowledge of this research and push it further, we review the literature using bibliometric and qualitative content analyses covering leading journals and books. We articulate frontier issues that are understudied yet critical to both theorization and practice of DMNEs in developing economies. We discuss the findings and conclusions from prior research along five key areas: (1) entering developing economies, (2) organizing local activities, (3) managing alliances and joint ventures, (4) competing in dynamic environments, and (5) dealing with institutions, governments and society. We offer prospective insights into future agenda that have important implications for MNE strategies and decisions, and propose frontier directions that encompass strategic localization, reverse transfer and adaptation, co-evolution with local business ecosystems, reorganizing and restructuring, and strategic responses to institutional and market complexity.