Multinationals: 3 Keys to Unlocking Knowledge Transfer

Sachiko Yamao, Associate Professor of Organisational Behaviour at Keio Business School, Japan, and fellow researcher Prof. Vesa Peltokorpi, University of Wollongong, crystalize their research into multinationals and their subsidiaries’ knowledge transfer – how can they ensure it happens?

Shifting into gear

In an increasingly global marketplace, the business world has seen an increasing number of corporations go multinational, snapping up local champions and incorporating them into the fold of a single parent brand managed from a centralised headquarters. This is the MNC – or multinational corporation – and the big ones are established household names: AXA, BP, Samsung, Sony, Volkswagen, Pfizer or Cadbury Schweppes to mention only a very few.

For these giants, competitive advantage resides in their ability to transfer knowledge effectively and efficiently through their various subsidiaries and networks. There are two ways of doing this: forward transfer when the HQ cascades down information and expertise to their branch-network, and reverse transfer when knowledge is relayed from the subsidiary to the parent Headquarters. According to Prof. Sachiko Yamao of Keio Business School, Japan, and her fellow researcher Prof. Vesa Peltokorpi, University of Wollongong, the latter increasingly has a pivotal role, enabling HQ to access a diverse set of resources and R&D in subsidiaries across the globe that contribute to the improvement and development of new products, services and technologies for the Group. But enabling this to occur is a difficult task. Whereas forward, top-down transfer requires those working in subsidiaries to be able and willing to receive and understand – and, because of power differences, HQ may send down knowledge regardless of whether foreign subsidiaries find it useful or not – reverse transfer meets with an additional challenge: the ability and willingness of subsidiary employees to explain to and convince their hierarchical superiors at HQ. It requires a considerable commitment and effort, especially if the parent organisation’s culture is one influenced by domination or aloofness. Nevertheless, reverse knowledge transfer is highly important – it could mean harvesting the next best thing since sliced bread…or losing out on a billion-dollar earning innovation.

Japan, a testing ground

Aware of this, Profs. Yamao and Peltokorpi decided to test out several hypotheses linked to fostering the best possible strategies to generate positive knowledge transfer from subsidiaries to headquarters of large MNCs. They collected data from Japanese middle managers working in 574 functional departments of foreign subsidiaries in Japan. Why Japan? Profs. Yamao and Peltokorpi cite three reasons: first, Japan has some of the most advanced and sophisticated technology in the world, meaning that Japanese subsidiaries can have active roles in transferring knowledge; secondly, Japanese employees in subsidiaries are found to have low levels of proficiency in English and this could in itself have an effect on the extent to which knowledge is transferred. And lastly, unlike many countries, there is publicly available data in Japan that enables researchers to validate that collected from their surveys. Profs. Yamao and Peltokorpi also included social identity theory (SIT) into their research: people gain a sense of common identity and togetherness through shared values and views. It is not surprising then that having a common language is one of the key factors in fostering this togetherness. Put simply – to get closer, people have to communicate.

Speak, see, share

The importance of the language factor cannot be underestimated. Think of when you find yourself a tourist in an exotic destination, frustrated at not being able to tell your host that you’ve lost your passport or missed your plane. Luckily there is lingua franca, today the most used being English. But here again problems may arise: the vast majority of non-native speakers generally have a much larger receptive vocabulary than productive vocabulary – meaning that we are able to understand much more than we are able to speak and explain. And this is a common occurrence for those of us who work in the subsidiaries of multinationals. Language therefore, in its role as a transfer capability, naturally impacts the amount, willingness and quality of knowledge that a subsidiary can transfer to headquarters. Two other dimensions were put to the test: shared vision, which gives rise to a common identity and goals, and the frequency of communication that takes place between headquarters and subsidiary staff.

Crunching the numbers gathered during their research, Profs. Yamao and Peltokorpi came up with the following. Language proficiency positively impacts on a shared vision – people not only understand it but they are able to share a common identity, direction and set of goals. Likewise, a shared vision partially brings about an increase in language proficiency and ramps up the probability of a subsidiary sharing knowledge with its multinational parent headquarters. In addition, it is the frequency of communication between the headquarters and the subsidiary that also impacts – positively or negatively depending on how often it occurs – language proficiency and shared vision: the more you talk, the more you walk the talk. Too little communication may also have a negative impact on the shared relationship between shared vision and reverse knowledge transfer – the less you speak to each other, the less bonding there is and the less knowledge is shared.

How to ensure reverse knowledge transfer happens

Profs. Yamao and Peltokorpi see several very practical managerial implications in all this. As a basis, it is imperative for organisations to incentivise and support the language training of subsidiary employees in order to boost proficiency in the headquarters’ mother tongue. This means HR being charged with a mission to map out language development needs among staff and perhaps even linking language proficiency to performance appraisals and reward. The positive impact of shared vision – both on knowledge transfer, language proficiency and shared identity – also points to MNCs giving this dimension priority attention, with the kneading in of knowledge transfer into the values and ambitions of the organisation being a possible strategy to undertake. And finally, headquarters must provide foreign subsidiaries with opportunities to carry out reverse knowledge transfer, not least by motivating employees through consistent and increased communication on strategies. Further initiatives could include matrix-type reporting throughout the organisation and the opening up of global knowledge databases, as well as sending foreign subsidiary staff to headquarters for training, get togethers and periods of inpatriation. This is all good business news for the language providers and their huge, behind-the-scenes industry many of us use at one time or another – especially those providers of English in today’s world, Chinese in perhaps tomorrow’s.

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