The overlooked distinction of multinational enterprise subsidiary learning: Its managerial and entrepreneurial learning modes

Highlights

• We empirically identify modes of learning in multinational enterprise subsidiaries.

• Managerial learning resembles systems-structural learning.

• Entrepreneurial learning resembles interpretive learning.

• There are also differences in the facilitating contexts and MNE knowledge flows.

Abstract

The theme concerning modes of learning in multinational subsidiaries is the focus of enquiry in the current study. This theme is closely linked to the issue of how subsidiaries become alert and seize opportunities. Such an investigation is also important for management practice because effective subsidiary learning can render sustainable competitive advantage in the host country. We performed an in-depth case examination on six multinational subsidiaries of a large Finnish firm. We identify two learning modes of multinational subsidiaries that we refer to as managerial and entrepreneurial learning. We find that managerial learning shares characteristics with the systems-structural learning perspective; is facilitated by embeddedness of the subsidiary in the MNE system; and, transferred in the MNE through many conventional and reverse knowledge flows. On the contrary, entrepreneurial learning shares characteristics with the interpretive learning perspective; is facilitated by embeddedness of the subsidiary in the host country; and, transferred in the MNE through relatively fewer reverse knowledge flows. The distinction between these two learning modes and their discrete characteristics enlighten past research that has largely failed to pinpoint the importance of the two modes for MNE subsidiary activities.

Introduction

In this article, we investigate the learning modes of the multinational enterprise (MNE) subsidiary at the host country level. Learning is an inherent function of organizations that are perceived to be cognitive enterprises (Deshpande & Webster, 1989) and “bodies of thought” (Weick, 1979). The possession of asymmetric market learning can provide a source of competitive advantage to the organization concerned (Dickson, 1992). This holds also for the internationalized firm as learning affects considerably its growth and performance (Lord & Ranft, 1999). The learning theme is additionally linked to the issue of entrepreneurial opportunity since “[entrepreneurial] knowledge is the alertness leading to the discovery of opportunities” (Minniti & Bygrave, 2001: p. 7). Cultivation of this knowledge may enhance performance of the internationalized firm (Oviatt & McDougall, 2005).

However, while international entrepreneurship studies have experienced a dramatic increase (Jones, Coviello, & Tang, 2011), the role of learning in the relevant literature has received relatively minor attention (Oviatt & McDougall, 2005). Few studies in this field provide insights into how firms acquire knowledge regarding foreign customers, partners, institutions and the modus operandi of doing business abroad. These scant insights refer mainly to international new ventures, which are those small firms that internationalize their activities from inception. In contrast, our knowledge into how subsidiaries of large MNEs learn in their host markets is very limited. Bartlett and Ghoshal (1989) suggest that the chief justification for the existence of MNEs is to capitalize on and take full advantage of learning in host markets. Nonetheless, it is also acknowledged that learning in MNEs can be inefficient (Gupta and Govindarajan, 1991, Von Hippel, 1994). How learning can fed into the organization in order to be converted into behavior of the internationalized firm is an issue of fundamental interest in international business (Forsgren, 2002).

The organizational learning theory would suggest that MNE subsidiaries in their efforts to act upon opportunities in their host markets may be involved in modes of learning such as exploitation and exploration (March, 1991). But, if this occurs, no considerable effort has been devoted to investigating the characteristics of these modes; and, how they can generate effective learning to the MNE subsidiary. Apart from its value to researchers, this neglected theme of dissimilar learning modes in MNE subsidiaries has also considerable managerial importance; inasmuch as subsidiaries that learn better than their competitors regarding the changing host marketplaces are likely to attain a sustainable competitive advantage (Özsomer & Gençtürk, 2003). Hence, the MNE subsidiary would be able to develop those routines and systems that can provide it with effective learning concerning its host market.

Consequently, there are two research objectives in the current study: first, to examine the learning modes in MNE subsidiaries at the host market level in order to acquire evidence on their features, similarities and differences; and, second, to investigate the facilitating contextual mechanisms of these learning modes. The present research seeks to provide empirical evidence through an in-depth case study of six subsidiaries of a large MNE.

This article is structured as follows. In the second section, we provide a review of learning as this is examined in the studies that investigate MNE subsidiaries in particular; and, in the international entrepreneurship, entrepreneurship and international business fields. In the third section, we discuss the rationale behind the choice of the in-depth case study and related methodological aspects. In the fourth section, we explore the findings of this study linked to the research objectives and advance related propositions. In the concluding section, we provide implications for research and management, and suggest future research directions.