Determinants of MNC’s Knowledge Inflows to Subsidiaries: A Perspective on Internalization Advantages

Some studies have examined the influence of a sender’s willingness on knowledge sharing in an MNC. The present study contends that although ‘the MNC’s willingness to transfer knowledge’ is related to ‘the motivation of the MNC to transfer knowledge’, the two variables are different. Past studies on an MNC’s willingness essentially focused on the incentive systems used to motivate MNC members to transfer knowledge (Gupta and Govindarajan 1991, 2000; Minbaeva 2007). Nonetheless, from the strategic perspective, this research proposes that the motivation of an MNC to infuse knowledge into a subsidiary is highly dependent on specific advantages acquired by the MNC after conducting knowledge transfers (e.g., the exploitation of an MNC’s knowledge stock). For instance, Gupta and Govindarajan (2000), and Wang et al. (2004) have investigated the impact of the sender’s willingness together with knowledge stock factors (i.e., the exploitation of an MNC’s capabilities) on knowledge inflows to subsidiaries.

Similar to prior research investigating the effects of MNC-level factors on a subsidiary’s autonomy (or an MNC’s level of control over a subsidiary) (e.g., an MNC’s general policy, ownership policy, size, workflow integration, and management philosophy (Garnier 1982); or an MNC’s nationalities (Gates and Egelhoff 1986; Kriger and Solomon 1992), the present study examines the influence of an MNC’s MIA on knowledge inflows to a subsidiary. Hence, it is reasonable to utilize an MNC’s MIA as an independent variable and examine its impact on knowledge inflows to subsidiaries. Furthermore, prior studies have demonstrated that the internalization level of an MNC is associated with MNC-level factor. Rugman (2010) indicates that the internalization theory can be utilized to explain the heterogeneity of firm-level behaviors. Dunning (2000) maintains that some MNCs, which even belong to the same country or industry, would have a higher level of FDI (i.e., a higher level of internalization) than that of other MNCs. He further asserted that an MNC’s internalization level is related to its size, its attitude to risk, and FDI strategy, implying that an MNC has a general level of MIA (that is, it is a general policy or inclination of an MNC), which is highly correlated to MNC-level characteristics. In addition, certain MIA factors in the present study, such as the reduction of transaction costs and technology leakage, are highly related to an MNC’s attitude to risk-taking (Dunning 2000); and a motivation to control the quality of subsidiaries’ activities is associated with an MNC’s technology intensity (Mauri and Phatak 2001).

In the long term, it is possible that the level of knowledge inflows would affect an MNC’s MIA. For instance, if knowledge inflows occurred at time t (KF _t ) really increase the internalization advantages of an MNC (such as the increase in coordination and quality), this would strengthen the level of the MNC’s MIA at time t + 1(MIA _t+1). However, this causal relationship could only be observed and verified through a longitudinal research design. In this study, the research data were collected at time t (i.e., a cross-sectional study). Since an MNC’s MIA is a ‘motivational (or intentional)’ factor and knowledge inflows is a ‘behavior’ factor, it is logically reasonable to assume the MIA factor (motivation) has effect on the knowledge inflows (behavior). Therefore, this research assumes and investigates the influence of MIA on knowledge inflows instead of the other way round. If we wish to understand whether KF _t could affect MIA _t+1, a longitudinal research design should be necessary.