Knowledge transfer capacity of multinational enterprises and technology acquisition in international joint ventures

International Business Review 20 (2011) 75–87

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Knowledge transfer capacity of multinational enterprises and technology acquisition in international joint ventures Byung Il Park * Hankuk University of Foreign Studies, College of Business Administration, 270, Imun-dong, Dongdaemun-gu, Seoul 130-791, South Korea

A R T I C L E I N F O

A B S T R A C T

Article history: Received 20 May 2009 Received in revised form 15 April 2010 Accepted 9 June 2010

This paper examines the impacts of the knowledge transfer capacity of multinational enterprises (MNEs) on the extent to which international joint ventures (IJVs) acquire technology. Although MNEs’ capability to transfer knowledge is a key catalyst for IJVs to learn new information, extant literature currently sheds light on only student’s absorptive capacity and neglects teacher’s fundamental ability. Of course, there is no doubt that knowledge acquisition is not only determined by knowledge transfer capacity but also highly influenced by absorptive capacity. However, what we suggest here is that knowledge transfer capacity should not be omitted in the discussion of knowledge transfer. We design a series of propositions to test positive relationships between the capability of foreign firms and IJVs’ technology acquisition. Using a sample of IJVs in Korea, the paper contributes to the literature by confirming that IJVs’ learning also significantly depends on some key factors associated with foreign parents’ capabilities. Based on the results, this study also provides some useful implications for MNEs which intend to establish IJVs in foreign markets. ß 2010 Elsevier Ltd. All rights reserved.

Keywords: IJVs Knowledge transfer capacity Korea Technology acquisition

1. Introduction As global competition continues to intensify, knowledge is increasingly becoming the crucial strategic resource which helps to win against other competitors in today’s struggle for success (Lyles & Salk, 1996). The reason why knowledge is often referred to as critical for organisational success is based on its fundamental characteristics. The inflow of new knowledge that has not been internally available commonly promotes organisational renewal and strengthens sustainable competitive advantage (Inkpen, 1998). Due to this, a number of international business scholars (e.g., Hamel, 1991; Lane & Lubatkin, 1998; Lane, Salk, & Lyles, 2001; Lyles & Salk, 1996) have perceived the acquisition of new sophisticated knowledge as the shortcut leading to the creation of sustainable competitive advantages. How then do firms acquire knowledge-based capabilities from other firms? Although there may be various ways to gain new knowledge, the establishment of international joint ventures (IJVs) is seen as one of the most efficient means to learn or absorb technology and tacit know-how that is organisationally embedded (Kandemir & Hult, 2004). From a knowledge acquisition standpoint, the key forte of the IJVs is especially to access each other’s complementary capabilities between the parent organisations, which have different national origins, and thus internationally transfer critical skills or capabilities. Given the importance that firms place on forming IJVs to exploit learning opportunities, various factors that might affect the knowledge acquisition in IJVs have been examined (Anh, Baughn, Hang, & Neupert, 2006; Lane et al., 2001; Lyles & Salk,

* Tel.: +82 2 2173 3193; fax: +82 2 964 3532. E-mail addresses: [email protected], [email protected]. 0969-5931/$ – see front matter ß 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.ibusrev.2010.06.002

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1996; Park, Giroud, Mirza, & Whitelock, 2008). Through these empirical studies, researchers suggest that IJVs’ absorptive capacity is a critical factor impacting on the process of knowledge acquisition (Cohen & Levinthal, 1990). According to their explanation, absorptive capacity is a prerequisite for organisational learning in the sense that it refers to internal resources that strengthen a firm’s ability to understand, assimilate new knowledge and apply it to commercial ends. Thus, the acquisition of new knowledge is the product of organisational capabilities that enable a firm to promptly recognise and adequately digest external sources of new inflowing knowledge that replaces or amends existing information. Another key concept, equally important with absorptive capacity and varyingly illustrated by extant empirics, is relational capital such as control, trust and cultural distance. This is because the maximisation of this absorptive capacity is often accomplished by relational capital promoting a favourable learning environment within an organisational context. In other words, it is important to understand that although IJVs are effective platforms for knowledge acquisition, giving firms access to the skills and competencies of their partners, the increase of their absorptive capacity is not likely to occur without appropriate control by parents (Makhija & Ganesh, 1997), trust between parents (Norman, 2004) and cultural compatibility with knowledge transferors (Simonin, 1999). Despite the logical view that absorptive capacity is the basis for learning capabilities and although firms often emphasise the significant associations between relational capital and knowledge acquisition, we suggest that IJVs hardly learn even explicit technology in the case where knowledge transferors do not have sufficient knowledge transfer capacity. That is, knowledge acquisition in IJVs is a difficult, frustrating and often misunderstood process when both absorptive capacity and relational capital are not in harmony with a teacher’s knowledge transfer capacity. Although it is a strategically important notion that is worth examining, extant literature currently sheds light on only student’s absorptive capacity and neglects teacher’s fundamental ability by attributing knowledge acquirers’ failure to their own lack of learning capability. Two notable exceptions that have attempted to propose key factors affecting organisational knowledge transfer capacity are studies by Garud and Nayyar (1994) and Martin and Salomon (2003). However, the definition of knowledge transfer capacity suggested by Garud and Nayyar (1994, p. 365) is different from common knowledge in that they interpret it as ability to maintain internally developed technology over time. In addition, although Martin and Salomon (2003) test a multidimensional knowledge transfer capacity, their model could only capture a part of the constructs by focusing on entry mode rather than learning in organisations. To date, knowledge transfer capacity of multinational enterprises (MNEs) has received little attention in the international business area despite its playing a pivotal role in initiating knowledge acquisition in IJVs. In this regard, the essential purpose of this paper is to determine key components within MNEs’ capability to transfer technology (i.e., its main objective is to introduce the concept of knowledge transfer capacity and confirm its substantial importance for the discussion of IJV knowledge acquisition). By adding the foreign firm’s knowledge transfer capacity as an additional explanatory factor, the contribution of this paper is to complete a clear picture showing knowledge acquisition in IJVs. To meet the research objective, the paper’s point of departure is a brief review of the research on knowledge acquisition in IJVs. We then extract key elements in order to develop specific hypotheses on how the knowledge transfer capacity of foreign firms impacts on technology acquisition in IJVs. A series of regressions confirm that technology acquisition in IJVs is significantly dependent upon foreign parents’ behaviour. Finally, suggestions for future research are proposed and the paper concludes with implications for MNEs which intend to establish IJVs in foreign markets. 2. Knowledge acquisition in IJVs Two components are often referred to as key determinants affecting IJV knowledge acquisition: absorptive capacity and relational capital furthering an effective learning environment. Because IJV success is closely associated with learning and knowledge acquisition, both foreign and local parents are urged to create a favourable environment conducive to knowledge acquisition (Norman, 2004). In addition, organisational learning scholars (e.g., Cohen & Levinthal, 1990; Lyles & Salk, 1996) emphasise that knowledge acquisition is not feasible without the ability of IJVs to acquire new knowledge, which is connected to a firm’s absorptive ability. This section explains how strongly knowledge acquisition can be influenced by absorptive capacity and learning environment. 2.1. Absorptive capacity Absorptive capacity has received a lot of attention from the research community as the most significant determinant of organisational learning. Due to its importance, there have been many attempts to define it. For example, Zahra and George (2002, p. 186) define it as a set of organisational routines and processes by which firms acquire, assimilate, transform and exploit knowledge to produce a dynamic organisational capability. In contrast, it has also been defined by Kim (1998) as the combination of prior knowledge base and intensity of effort. However, probably the most widely cited is the definition suggested by Cohen and Levinthal (1990), who initially coined the concept: ‘‘the ability to recognize the value of new external information, assimilate it and apply it to commercial ends’’ (p. 128). That is, if we apply absorptive capacity to knowledge acquisition in IJVs, it refers to the ability of the firm to recognise the value of new parent knowledge and may involve a sense-making process whereby the IJVs link the new knowledge to existing knowledge and a diffusion activity to generate new knowledge from it (Lane et al., 2001). Thus, the greater the absorptive capacity of the IJV, the more knowledge it can acquire from parent firms.

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Cohen and Levinthal (1990) suggest a variety of mechanisms which generate absorptive capacity. Based on their explanation, the fundamental premise of the notion of absorptive capacity is that firms need prior related knowledge to evaluate and utilise outside information. At the most basic level, this prior knowledge includes essential skills or general knowledge which share a similar processing system and norms to those of the knowledge transferor. Empirical research on managerial knowledge acquisition from foreign parents in IJVs proposes that business relatedness between them signifying their similar knowledge domains increases IJVs’ learning from foreign parents (Park, Giroud, & Glaister, 2009). Prior related knowledge has a positive effect on a firm’s absorptive capacity because the latter tends to develop cumulatively, is pathdependent and builds on pre-existing knowledge structure. In this case, a cooperative formation’s diversely accumulated experience typically constitutes the prior knowledge that permits the learning organisation to acquire related problemsolving capabilities. Experience provides two advantages in favour of an IJV’s absorptive capacity (Daghfous, 2004; Park et al., 2009). First, it increases the possibility that the new information will be somewhat associated with knowledge already in the firm, facilitating its assimilation. Second, the diverse experience offers various perspectives from which to process the acquired knowledge, resulting in new associations, linkages and innovation (Cohen & Levinthal, 1990). Cohen and Levinthal (1990) contend that an organisation’s absorptive capacity is also dependent upon the learning capabilities of its individual members. To build up an effectual absorptive capacity, a merely brief exposure of individuals to the relevant prior knowledge is not sufficient. As organisational absorptive capacity tends to develop cumulatively, IJVs wishing to learn available information from parents need to vitalise the learning activities of their individuals. On the same line, Kim (1998) argues that a critical component developing and maintaining individual absorptive capacity is closely related to the inspiration of ‘intent to learn’. Intent to learn means the level of efforts devoted by organisational members to solve problems. Thus, unless a constant effort is made to internalise new information, the development of an IJV’s absorptive capacity is more likely to be difficult. According to Kim (1998), this is because individuals’ intent to learn often intensifies communication among organisational members, which facilitates knowledge conversion and creation at the organisational level. Communication is often referred to as a crucial component of an organisation’s absorptive capacity, in that knowledge transfer is significantly accelerated by interaction between the external environment and the organisation, as well as crossfunctional interplay among the subunits of the organisation and the distribution of expertise within the organisation itself through frequent contacts (Daghfous, 2004). That is, better communication improves social integration mechanisms, which lessens the obstacles to information sharing and raises the efficiency of assimilation and transformation capabilities. In this regard, it is plausible to expect that a fluent internal channel for communication in IJVs aids sharing of ideas so that they will be able to acquire more knowledge (Si & Bruton, 1999). 2.2. Relational capital promoting favourable learning environment A favourable environment for IJV knowledge acquisition largely encompasses several components. According to Makhija and Ganesh (1997), one of the most critical elements which has an influence on knowledge acquisition in IJVs is a control issue. They suggest (1997, p. 508) that ‘‘appropriate controls are essential for learning to take place’’, because they help to increase knowledge sharing within the organisation, promote adequate exploitation of key organisational resources and redefine organisational direction in line with new information. In contrast, ineffective control systems may generate barriers to knowledge acquisition through the distortion, suppression and delay of feedback on organisational activity. The linkage between control and knowledge acquisition is inevitable in that control refers to the ‘‘conduit through which parents’ firmspecific advantages are transferred to the venture’’ (Choi & Beamish, 2004). In this regard, control mechanisms appropriately exercised by parents enable IJVs to easily access and absorb knowledge transferors’ various abilities and technologies (Park et al., 2009). Secondly, interorganisational trust is another critical component for knowledge acquisition as it encourages the knowledge transferor to assist the knowledge acquirer vigorously to understand the knowledge it is teaching (Park et al., 2008). This is particularly plausible in that trust refers to confidence that partners are reliable and will fulfil their obligations. Thus, it promotes behaviours such as open communication and the willingness to share information (Norman, 2004). Consequently, a significant outcome of trust is that it facilitates increase in the extent of partner knowledge exchanged in IJVs and the effectiveness of the exchange. The close association between trust in the relationship and information sharing between parents converges, in turn, in general consensus among IJV scholars that mutual trust between parents provides great learning opportunities for IJVs to acquire sophisticated knowledge and technology from parents (Inkpen, 1998; Pak & Park, 2004; Park et al., 2008). Thirdly, cultural difference is an additional component which should not be omitted. Its possible detrimental effects on the various aspects of knowledge management, ranging from information flows (Lyles & Salk, 1996) to knowledge transfer (Mowery, Oxley, & Silverman, 1996) have been well confirmed (see Simonin, 1999). Particularly in IJVs, cultural differences between parents create extra problems because they make it difficult for managers to work together effectively and develop common values. For this reason, both organisational and national cultures are often referred to as a major obstacle, which has negative influences on all facets of cooperation and difficulties encountered in IJVs (Simonin, 1999). According to Fabry and Zeghni (2003), cultural distance can result in conflicts and misunderstanding between parents and lack of information circulation. This view is consistent with Lyles and Salk (1996), who point out that cultural conflicts can reduce flows of information and impede knowledge acquisition. Similarly, Mowery et al. (1996) argue that distance and cultural differences between parents are key causes of minimising inter-firm knowledge transfer.

[(Fig._1)TD$IG]

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Fig. 1. Focus of paper.

3. Model and hypotheses As discussed, there is a general consensus that an IJV is a vehicle to acquire new technology and sophisticated know-how from (foreign) parent firms (e.g., Hamel, 1991; Lane et al., 2001; Pak & Park, 2004). However, the knowledge acquisition of IJVs is not an automatic phenomenon and the IJV formation does not guarantee its learning from foreign parents (Inkpen, 1998). Although IJV knowledge acquisition is an important issue for foreign parents to quickly replicate their embedded resources and enhance their competitive advantage in host markets, a problem is that knowledge has ‘sticky’ characteristics and thus is difficult to transmit from one firm to another. Due to this, knowledge acquisition has been found to be a complex and a misunderstood process, often coupled with considerable frustration (Anh et al., 2006). To overcome such a difficulty, IJVs are required to possess internal capacity to absorb new knowledge. In addition, a favourable learning environment is another prerequisite to promote efficiently the extent of knowledge acquisition. Apart from these two factors, this research argues that the foreign parents’ ability to transfer knowledge is also one of the critical components which should not be omitted in discussing knowledge acquisition in IJVs. In other words, MNEs’ knowledge transfer has been widely under the spotlight. In discussing the topic, there is no doubt that own internal learning capability of the knowledge acquirer (i.e., IJVs in this research) is important to enhance acquisition of new information, which sheds light on the significance of absorptive capacity in learning organisations. It will also be difficult for IJVs to learn new knowledge from parents in the case where the relationship between foreign and local parents deteriorates the learning environment (e.g., IJV parents distrust each other, they often experience conflicts based on cultural incongruence and IJVs are misguided by inappropriate control systems). Although the current existing empirics have well researched these two areas, they have overlooked another fundamental component that helps to double learning effects by leaving out teaching capability of knowledge transferors (i.e., MNEs). This research argues that a better overall picture of ‘knowledge transfer from MNEs to IJVs’ is drawn when these three constructs are efficiently combined. Among these dimensions, we tackle the third construct (i.e., knowledge transfer capacity of MNEs) to fill the literature gap. Fig. 1 explains how these together form a theoretical framework. This research also suggests that there are two elements which significantly influence the knowledge transfer capacity of MNEs: existing internal capability and intent to share (the fundamental reasons for the choice of variables in these two dimensions are given in Appendix A). In IJV learning, foreign parent’s level of existing internal capability is the context in which knowledge is acquired by IJVs, as it affects the knowledge transferor’s transformative capacity. In other words, no one may deny that the extent to which a student learns knowledge from a teacher is relatively small if the latter does not possess prerequisites to adequately deliver and teach the new technology and practices. Another element comprised in knowledge transfer capacity is intent to share. For various reasons, some foreign parents may be highly protective of their knowledge resources. In particular, they may be very reluctant to share knowledge in a situation of high competitive overlap between

[(Fig._2)TD$IG]

Fig. 2. Research model: knowledge transfer capacity of multinational enterprises.

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the foreign and local parents due to the risk of knowledge spillover to the potential competitor (Inkpen, 1998). However, a number of researchers indicate that efficient knowledge acquisition in IJVs is almost impossible in the case where foreign parents do not have intent to share technologies and expertise. For example, Hamel (1991) suggests that the extent of IJV knowledge acquisition from foreign parents is not only influenced by the acquirer’s receptivity but is also affected by the transparency of the parents. IJVs can turn into an effective platform for knowledge acquisition only with rich knowledge sharing. This argument is supported by Kale, Singh, and Perlmutter (2000) who argue that an IJV is able to acquire new knowledge from parents more easily when the parents’ level of transparency or openness is high (Fig. 2). 3.1. Existing internal capability 3.1.1. Possession of relevant knowledge Firms may have difficulties in delivering information without the possession of sufficient relevant knowledge (Adenfelt & Lagerstro¨m, 2006). For a knowledge transferor, relevant organisational knowledge base represents the level of familiarity and comfort in a certain area and thus predetermines its ability to transfer sophisticated technological capabilities. In particular, ‘knowledge stickiness’ may prohibit the knowledge acquirer from learning new technological skills from foreign parents, particularly when the knowledge transferor does not have confidence in teaching; that is, prior relevant knowledge is a key for the foreign parents to be able to help IJVs to successfully acquire new knowledge from them (Simonin, 1999). Support for this argument ranges from Luo & Peng’s (1999) explanation that accumulated relevant knowledge helps a firm to reduce operational uncertainties and enhance performance by effectively transferring knowledge in foreign markets to the clear indication of Minbaeva, Pedersen, Bjo˝ rkman, Fey, and Park (2003) that the ability to transfer information based on the holding of a relevant knowledge base is one of the main competitive advantages of MNEs in the new host environment. Hence, Hypothesis 1. Foreign parents’ possession of relevant knowledge will be positively associated with joint venture’s technology acquisition. 3.1.2. Prior collaborative experience MNEs with greater collaborative experience may learn higher levels of collaborative know-how compared to firms without it (Luo & Peng, 1999; Tsang, 2002). Such know-how and experience are firm-specific internal resources which may improve an organisation’s ability to transfer knowledge and technology to another firm. This is because a firm’s ability to learn from a prior collaborative experience is likely to enhance its capacity to solve the set of problems possibly encountered through IJV formation in a host country. The knowledge built up in this way is probably ‘learning to teach’. Tsang (2002) argues that ‘learning through prior collaborative experience’ involves not only managing the joint venture per se, knowing about the market environment where the IJV operates, but also concerns implementing technology transfer. Similarly, Inkpen and Dinur (1998) suggest that the prior collaborative experience provides new stimuli that may force changes in the mental maps of the organisation, which significantly develops the firm’s ability to transfer its embedded knowledge. Therefore, Hypothesis 2. Foreign parents’ prior collaborative experience will be positively associated with joint venture’s technology acquisition. 3.2. Intent to share 3.2.1. Open communication with IJVs Knowledge acquisition is an organisationally embedded process and needs close relationships through which both knowledge transferors and acquirers share information. In this vein, IJVs which share information though frequent communication with foreign parents may become a potentially effectual venue for learning (Adenfelt, 2006). That is, the most evident knowledge transfer approach is through open communication between IJV and parents and thus the parents’ open communication with the children significantly helps the latter to win a learning race against others. Here, open communication refers to reducing misunderstandings in management relations and results in better collaboration, which again circulatively leads to information sharing. Inkpen and Dinur (1998) argue that the IJV-foreign parent interactions play a pivotal role in knowledge management and are especially critical in the case of IJVs seeking access to technology resident in the foreign parents. Similarly, Park et al. (2008) highlight that communication facilitates a community of technology and know-how on operational activities throughout the entire organisation, subsequently resulting in higher levels of knowledge acquisition in IJVs. Hypothesis 3. Foreign parents’ open communication with IJVs will be positively associated with joint venture’s technology acquisition. 3.2.2. Active managerial involvement of foreign parents Active managerial involvement of foreign parents has been shown to have a direct positive influence on knowledge acquisition in IJVs (Fabry & Zeghni, 2003). That is, when the foreign parents actively participate in managing details of the various functions of the venture operations, IJVs are likely to gain more knowledge through the management involvement of the parents. In discussing knowledge acquisition in IJVs, Makhija and Ganesh (1997) suggest that the efficient channel of

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transferring knowledge from parents to IJVs is active managerial involvement in the relevant organisational process in which the knowledge is embedded. In addition, results of both Lyles and Salk (1996) and Inkpen (1997) show that knowledge transferor’s active managerial involvement can provide a vehicle for transferring explicit and sophisticated knowledge such as advanced technology. According to Lyles and Salk (1996), to help IJVs to absorb and adapt technical know-how, it is likely to require the active management involvement of the foreign parents so that employees in IJVs can develop a knowledge base from being exposed to ideas, concepts and processes over time. Inkpen (1997) also argues that transfers of technical know-how might take place relatively speedily through socialisation by the foreign parent management. Thus, we propose: Hypothesis 4. Active managerial involvement of foreign parents will be positively associated with joint venture’s technology acquisition. 3.2.3. Transfer of expatriate experts For knowledge in knowledge transferors to transmit to acquirers, there must be knowledge connections between them. With the presence of these connections, the probability of new foreign knowledge to survive and integrate into an organisation’s knowledge base will be increased (Inkpen, 1998). Such knowledge connections take place through frequent interactions between knowledge transferors and acquirers in daily routine (Adenfelt, 2006; Ellis, 2010). These internal interactions promote the sharing and dissemination of individual experience so that acquirers may have better opportunities to develop and upgrade their skills. In addition, foreign firms generally requires the inputs of invaluable knowledge to increase their bargaining power in the IJVs (Nakamura, 2005), and expatriate experts (top managers and technicians) dispatched from foreign parents may play a pivotal role in injecting such intangible organisational assets into the overseas’ subsidiaries (Inkpen & Dinur, 1998). This is because expatriates can help to evaluate skills and capabilities of local employees in IJVs and then introduce new values and practices which have not been internally available in various functions, through interactions with IJV employees. Much literature supports this view that the transfer of expatriate experts is most effective as a mechanism for transferring knowledge. Tsang (2002) argues that dispatch of a large number of expatriate managers facilitates the sharing of individual tacit knowledge. In addition, through dialogues and debates occurring in the sharing process, the knowledge concerned will be refined and made more explicit, resulting in rapid transference of their knowledge. Inkpen and Dinur (1998) suggest that personnel transfer can be regarded as a process of organisational reflection and a vehicle for augmenting public goods’ characteristics of knowledge. Transfers of foreign expatriates possessing better knowledge help the knowledge transferors to understand the host environment from a multiplicity of perspectives, which in turn makes foreign knowledge more fluid and easier to transfer. O’Dwyer and O’Flynn (2005) also assert that the major sources of knowledge acquisition are face-to-face and longer personal interactions between MNEs and IJVs. Hypothesis 5. Transfer of expatriate experts will be positively associated with joint venture’s technology acquisition. 3.2.4. Provision of training To increase the extent of knowledge acquisition in IJVs, foreign firms must show cooperative behaviour based on reciprocal parent-subsidiary ties (Presutti, Boari, & Fratocchi, 2007) and have willingness to share knowledge by enhancing the individual qualifications and the human capital of employees in IJVs (Hong, Snell, & Easterby-Smith, 2009). A possible means to qualify employee skills can be by building a training programme. Inkpen and Dinur (1998) propose that the transference of technology can take place largely through direct linkages between knowledge transferors and acquirers and Fabry and Zeghni (2003) argue that training can be a practical mechanism to link them. Such a global training provided by foreign parents concerns managers and technicians and its goal is primarily, but not exclusively, explicit knowledge transmission from the parent firm. It takes the form of the direct teaching and coaching of IJV employees by the foreign parents and thus this formal teaching is a way to facilitate and accelerate the enhancement of IJV ability to acquire knowledge. Through the training, foreign parents often help IJVs to adapt their skills to modern equipment and practices. There is also extensive evidence that global training improves the quality of IJV employees, generally leading to a positive association between the provision of training and knowledge transfer to IJVs. For example, Daghfous (2004) highlights that investment in training makes it much easier for the knowledge transferor to transfer knowledge, because it develops the knowledge acquirer’s absorptive capacity. Lyles and Salk (1996) confirm his argument empirically and find that the provision of training has a positive relationship with the degree to which IJVs reported acquiring knowledge from their foreign parents. In addition to Lyles and Salk (1996), Anh et al. (2006) also discover parallel results in the Vietnamese context. Hypothesis 6. Provision of training will be positively associated with joint venture’s technology acquisition. In the next section, we will discuss the methodology adopted to test these hypotheses. 4. Methodology 4.1. Research method The data set used was collected by a questionnaire survey of a sample of manufacturing IJVs established between MNEs and Korean local firms. The initial population was obtained from Foreign Direct Investment (2007) published by the Korean

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Ministry of Commerce, Industry and Energy (MOCIE). This publication provides accurate and comprehensive information regarding 2300 IJVs operating across all industries in Korea. In addition, previous studies examining IJVs in Korea also used the same data for their empirical research (e.g., Choi & Beamish, 2004; Pak & Park, 2004). In selecting the IJV sample, two criteria were used to reduce it to manageable size: (1) IJVs in which each parent possesses at least 20% of the equity, and (2) IJVs established with European, US or Japanese parents. Although some scholars perceive a 10% foreign equity ownership as being an IJV (e.g., Dhanaraj & Beamish, 2004; Tatoglu & Glaister, 1998), such a restrictive participation may not provide foreign parents with a sufficient motivation to transfer valuable technology (Demirbag & Mirza, 2000). Thus, this research considers a firm as an IJV only when it is an entity with a foreign shareholding of more than 20%. Similarly, MNEs with an equity of over 80% were also discarded, as too dominant foreign participation may not adequately reflect the characteristics of IJVs. With respect to the foreign origins, the major foreign investors to have established IJVs with Korean local firms are from Japan, US, and European countries (Pak & Park, 2004). The 2007 edition of Foreign Direct Investment also confirms that the major investors conducting 96% of FDI in Korea have these three national origins. By applying the two sampling criteria, 665 IJVs were finally targeted and questionnaires were posted to CEOs. A follow-up in the form of a postcard was sent to IJVs which had not responded by the fourth week to express early thanks to respondents and to remind about the return of the questionnaire. After the follow-up, an additional questionnaire was despatched in the fifth week. During the survey, this research repeatedly guaranteed confidentiality and anonymity to reduce the fear of disclosure of company information. A total of 151 questionnaires were returned, with a response rate of 22.71%. However, 24 of the 151 returned questionnaires did not contain valuable information, as they were marked only in the same figures without careful consideration. Consequently, they were deemed unusable for the empirical research, and 127 were thus chosen for further subsequent analysis and represented, a final response rate of 19.10%. To address the issue of non-response bias, the research compared sample and responses. In terms of three key parameters (detailed industry classification, origin of foreign firm, ownership configuration), we found no significant difference between the responding and non-responding IJVs. We therefore concluded that any non-response bias present was minimal. 4.2. Measurement of variables The dependent variable is the extent to which IJVs acquire technological knowledge from foreign parents. Following Lyles and Salk (1996), this variable was measured by using a five-point Likert scale (1 = very little, 5 = to a great extent). Three different elements of technological knowledge were included (i.e., new product development, production technology and manufacturing process). These measures were adapted from Pak and Park (2004). Independent variables included in this study are related to foreign parents’ existing internal capability and transparency affecting their knowledge transfer capacity. These include possession of relevant knowledge, prior collaborative experience, open communication with IJVs, active managerial involvement of foreign parents, transfer of expatriate experts and provision of training. All independent variables were measured on a five-point Likert scale (1 = very little; 5 = to a great extent). A detailed description of independent variables is given in Appendix B. Five additional elements are also included in the model as control variables: origin of foreign parents (a dummy variable is used with 1 for Japanese parents, 0 otherwise), ownership structure (a dummy variable is used with 1 for majority foreign-owned venture, 0 otherwise), cultural similarity1 (measured by a five-point Likert scale (1 = very little; 5 = to a great extent)), size (measured by number of employees) and age of IJV (measured by number of years since creation of the IJV). 4.3. Common method bias This research asked respondents to subjectively assess both dependent and independent variables by their perceptual judgement, which presents the possibility of common method bias. In this situation, one of the techniques most widely used by previous literature to examine the presence of such bias is Harman’s single-factor test (i.e., one-factor analysis) (Podsakoff & Organ, 1986; Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). The basic assumption is as follows; if a substantial amount of common method bias exists, either (1) a single factor will emerge from the factor analysis or (2) one ‘general’ factor will account for the majority of the covariance among the measures. The proportion of variance criterion shows three independent dimensions. Possession of relevant knowledge, open communication with IJVs, active managerial involvement and technology acquisition have high loadings on the first factor (27.9%); prior collaborative experience and transfer of expatriate experts have high loadings on the second factor (15.3%); and cultural similarity and provision of training have high loadings on the third factor (15.0%). Based on the explanations given by previous studies, the results confirm that the presence of common method bias is minimal.

1 The variable was assessed by average of two questions on level of similarity in corporate culture between two parents and whether local parent understands corporate culture of foreign counterpart. These questions were adopted from Park et al. (2009) exploring managerial knowledge acquisition from foreign parents in IJVs.

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82 Table 1 Descriptive statistics and correlations matrix.

1. Origin of foreign parents 2. Ownership 3. Cultural similarity 4. IJV size 5. IJV age 6. Possession of relevant knowledge 7. Prior collaborative experience 8. Open communication with IJVs 9. Active managerial involvement 10. Transfer of expatriate experts 11. Provision of training

Mean

S.D.

1

2

3

4

5

6

7

8

9

10

0.57 0.33 3.20 156.67 15.83 3.72 1.87 3.85 3.47 1.73 2.52

0.50 0.47 0.96 317.11 15.53 1.30 0.98 0.69 0.80 1.02 1.03

1.00 0.14 0.23** 0.13 0.18* 0.05 0.18* 0.02 0.04 0.08 0.18*

1.00 0.04 0.15 0.18* 0.22* 0.11 0.16 0.11 0.12 0.05

1.00 0.05 0.02 0.05 0.01 0.24** 0.20* 0.05 0.13

1.00 0.34** 0.09 0.09 0.06 0.18 0.20* 0.20*

1.00 0.13 0.05 0.00 0.12 0.14 0.04

1.00 0.04 0.17 0.37** 0.02 0.08

1.00 0.00 0.02 0.14 0.12

1.00 0.44** 0.01 0.03

1.00 0.30** 0.16

1.00 0.01

N = 127. * p < 0.05. ** p < 0.01.

5. Data analysis 5.1. Analysis strategy There may be a number of statistical strategies that can be employed to examine the research topic. No one may deny that the generation of robust analysis results depends on adoption of an appropriate strategy among the various available approaches. The appropriate analysis strategy may be derived from research questions and objectives which represent what we want to know (de Vaus, 1990, p. 121). The primary research question of this study is what the critical factors are which affect the knowledge transfer capacity of an MNE to support IJV learning. Thus, the main objective is to explore the causal relationship between important factors influencing knowledge transfer and the IJV’s learning from foreign parents. One of the conventional techniques to examine the cause-effect relationship between a dependent variable and several independent variables is multiple regression analysis. According to Hair, Anderson, and Tatham (1987, p. 20), ‘‘multiple regression analysis is a statistical technique that can be used to analyse the relationship between a single dependent (criterion) variable and several independent (predictor) variables. The objective of multiple regression analysis is to use the several independent variables whose values are known to predict the single dependent value the researcher wishes to know’’. 5.2. Results and discussion The correlation matrix (Table 1) presents the means and standard deviations and indicates that there are no strong correlations between independent variables. We also ran the variance inflation factor (VIF) to measure the level of multicollinearity among the independent variables. A high value of VIF, say above 5, suggests the possibility of multicollinearity (Hair, Babin, Money, and Samouel, 2003, p. 305). No prominent evidence of multicollinearity was found from VIF, which confirms that multicollinearity is not a problem in the regression analysis. The relationships between the ‘knowledge transfer capacity of MNEs’ and the ‘acquisition of technology in IJVs’ were tested by using a series of linear regression models. All four models are highly significant at p < 0.001. Models 1 to 3 test the effects of independent variables on the gaining of each different set of technology (i.e., new product development, product technology and manufacturing process, respectively). In contrast, Model 4 examines their influence on the overall assessment of technology acquisition. Finally, Model 5 uses an interaction term to substitute the training measures in the previous models (to be discussed in detail later). Interestingly, control variables are generally insignificant, whereas the regression results confirm a strong positive relationship between teacher’s capability (i.e. knowledge transfer capacity of MNEs) and substantial education (i.e., learning in IJVs). Firstly, foreign firms’ possession of relevant knowledge emerges as a strong factor affecting technology acquisition, being both positive and highly significant, which supports Hypothesis 1. In discussing the concept of absorptive capacity, Cohen and Levinthal (1990) argue in their seminal work that prior accumulation of relevant knowledge is a crucial prerequisite for knowledge acquirers to absorb new information from transferors. However, this result implies that pre-ownership of appropriate information is not only an important precondition for knowledge acquirers but is also a key requirement for foreign firms to transfer proprietary organisational knowledge efficiently. In other words, foreign firms may need sufficient prior related knowledge in order to teach, instruct and ultimately incorporate their own new knowledge in IJVs in order to raise the latter’s learning effect. This is because knowledge acquisition is highly associated with the sharing of cognitive business structure between knowledge transferors and acquirers (Lane et al., 2001). If a teacher does not have adequate prior relevant knowledge with a student (i.e., the new cooperative setting), it is most likely that the foreign firm will suffer from a difficulty in applying the previous success programmes. On the other hand, if the teacher has similar prior knowledge, then it does not need to respond in an uncertain experimental way to educate the student (Lyles & Salk, 1996).

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Secondly, prior collaborative experience shows a reasonable level of importance in each model, though it has a relatively mild positive association. Thus, Hypothesis 2 was supported. The challenges for MNEs are generally greater when they enter an uncertain and unfamiliar environment. This means that the fundamental requirement for IJV success is foreign firms’ considerable competence and knowledge, some of which can be accumulated by prior or ongoing collaborative experience (Child & Yan, 2003). In particular, prior collaborative experience in other markets facilitates the transference of new related knowledge and relatively easily fit into the local setting (Barkema, Shenkar, Vermeulen, & Bell, 1997). That is, the more that knowledge transferors already possess collaborative experience and the skills to apply it to other foreign markets, the more their subsequent knowledge acquirers (i.e., IJVs) are anticipated to learn new knowledge. This explanation may also help to understand why MNEs with previous experience of establishing collaborative formations have a propensity to establish other new ventures. The implication is that foreign firms’ wealth of knowledge through prior experience confers a special transformative capacity upon them, which can function as a prime mover for technology transfer. Thirdly, our results reveal that open communication with IJVs has significant positive associations with their technology acquisition from foreign parents, which supports Hypothesis 3. Active communication between knowledge transferors and acquirers is a fundamental feature for efficient teaching and thus MNEs’ willingness to share their technology through extensive conversation is an essential condition (Inkpen & Pien, 2006). This is because the formal and informal sharing of meaningful and timely information is significantly dependent upon the quality of communication, suggesting that foreign firms which would share firm-specific knowledge are more likely to invest resources in technology transfer. This explanation is also consistent with other studies. For example, von Krogh and Roos (1996) argue that without efficient communication, knowledge cannot flow easily from teacher to student. Similarly, Caloghirou, Kastelli, and Tsakanikas (2004) indicate that interactions between knowledge exchange entities play a pivotal role in articulating and codifying knowledge in two ways: open communication helps to establish channels which embed knowledge flows and this will further allow a learning organisation’s knowledge development in the long-term. Thus, transference, conversion and distribution of knowledge depend on the frequency and density of interactions. Si and Bruton (1999) specifically apply these accounts in the technology context. According to them, open communication is a critical component in operating technology exchange between parties efficiently in that the machinery in a technical environment is complex and, without high-quality communication, mistakes can occur in knowledge sharing for production and maintenance. Fourthly, this research strongly supports Hypothesis 4 proposing the positive relationship between active managerial involvement and IJV technology acquisition. Active managerial involvement is not only one of the parent firms’ main mechanisms often used to control the IJV but it is also an important tool to transfer advanced technology, particularly in the case where the foreign firms have more knowledge than local ones (Yan & Duan, 2003). Some may understand the factor as the by-product of ownership (e.g., Glaister, 1995). However, the relationship between the two cannot be simply regarded as such in today’s complicated and diversified global business environment. Mjoen and Tallman (1997) and other studies (e.g. Lin, 2005; Park & Glaister, 2009) argue that the ownership determines the proportion of assets invested by each parent and accompanies a legal authority that is the unilateral power to grant the use of organisational resources. Thus, it gives the right to nominate the board and the power to control the management. In contrast, active managerial involvement means the parent firms’ collaborative managerial support whose objective is to guide the appropriate use of internal resources in order to obtain the common goal and interests (Makhija & Ganesh, 1997). Steensma and Lyles (2000) suggest that the teacher’s extensive managerial support (such as active managerial involvement) makes objectification and codification of technology and even tacit knowledge possible and promotes the enlargement of learning effect. In this light, Lane et al. (2001) document in the transitional economy context that learning catalysed by the teacher’s active support eventually guarantees IJV success. Fifthly, this research also supports Hypothesis 5 by finding a close association between transfer of expatriate experts and technology acquisition and confirms the findings suggested by previous studies. We posit that efficient technology acquisition by the student firm can be extended by the teacher firm’s transfer of foreign expatriate experts who possess advanced technology to the daily operation. Co-working with such expatriate experts in various technological functions may be particularly helpful in acquiring each operational and manufacturing activity. In the perspective of foreign firms, the strategic transfer of expatriate experts can be used as a mechanism which makes it feasible for them to control each technological function (Park & Glaister, 2009). However, in this case, the inputs of intangible technological resources are probably a precondition for the strategic and specific operational focus. In other words, personnel transfer is one of the efficient ways to inject organisationally valuable technological assets and promote the mobilising of foreign knowledge in various key posts (Inkpen & Dinur, 1998). Thus, dispatching foreign staff members plays a pivotal role in providing chances to meet and discuss with foreign experts within IJVs and this often leads to positive influence on technology acquisition in the learning organisations. Similarly, Park and Glaister (2009) assert that the expatriate is a primary driver of knowledge flows in IJVs and thus frequent interactions with foreign experts can be a vehicle to transfer new foreign knowledge and technology. However, surprisingly, this research does not find a significant and positive relationship between provision of training and technology acquisition, which rejects Hypothesis 6. One of the reasons may stem from the fact that transfer of a foreign expatriate is a long-term actor in the process of technology utilisation, whereas provision of training is a short-term support for the purpose of educating local employees. To minutely inspect the phenomenon, this research employs an interaction term (active managerial involvement  provision of training) in Model 5 and uncovers a strong statistical association between them. In addition, the interaction term is the strongest factor explaining the largest variance among all models

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Table 2 Regression analyses for technology acquisition.

Origin of foreign parents Ownership Cultural similarity IJV size IJV age Possession of relevant knowledge Prior collaborative experience Open communication with IJVs Active managerial involvement Transfer of expatriate experts Provision of training Active managerial involvement  provision of training Adjusted R2 F

Model 1

Model 2

Model 3

Model 4

Model 5

0.125 0.046 0.011 0.173* 0.139 0.166y 0.144y 0.165y 0.297** 0.164y 0.031

0.106 0.038 0.031 0.085 0.100 0.166y 0.143y 0.189* 0.257** 0.191* 0.009

0.062 0.037 0.063 0.094 0.113 0.191* 0.143y 0.169y 0.271** 0.170y 0.018

0.100 0.041 0.035 0.120 0.120 0.178* 0.147y 0.178* 0.281** 0.179* 0.008

0.081 0.038 0.060 0.108 0.112 0.186* 0.135y 0.157y

0.296 5.696***

0.262 4.977***

0.278 5.296***

0.292 5.620***

0.178* 0.496 0.608*** 0.303 5.869***

Notes: N = 127. * p < 0.05. ** p < 0.01. *** p < 0.001. y p < 0.1.

(p < .001). Taken together, the result suggests the following possible explanation: to reiterate, ‘‘assistance means that interactions between IJVs and foreign parents engage the latter’s organisational ‘infrastructure’ through supports for managerial functions. These interactions are particularly important for IJVs in developing countries which often have insufficient internal resources to operate independently in the early stages following inception’’ (Park et al., 2008, p. 25). Thus, it can be expected that the teacher firms may often have difficulty in precisely recognising the students’ organisational deficiencies and actual weaknesses without active managerial support. In addition, such foreign firms may possibly provide unnecessary and needless training to local employees and thus synergies through the education are hardly achieved. In other words, teacher firms need to know what they should teach students in order to transfer knowledge and technology effectively and collaborative support in management is an important element to identify areas that should be improved by extensive training. 6. Conclusions This research investigates the issues of technology acquisition from foreign parents and the role of knowledge transferors for organisational learning in IJVs. To achieve the objectives, a series of regression analyses were made to identify critical components in knowledge transfer capacity of foreign firms which may affect technology acquisition of IJVs. These examinations confirm the positive relationship between teacher’s capability and student’s substantial learning and suggest several qualifications, which usher foreign firms to the ways to impact directly and positively on technology absorption in IJVs. According to the results, these essential conditions are possession of relevant knowledge, prior collaborative experience, open communication with IJVs, active managerial involvement and transfer of expatriate experts. Although we fail to confirm the significant influence of provision of training on learning, an additional analysis result using the interaction term suggests that the combination of support in management and training generates a synergy effect on joint venture education (Table 2). Since Cohen and Levinthal (1990) coined the concept ‘absorptive capacity’, it has attracted large scholarly attention. Due to this, a number of empirical examinations have attempted to identify key factors associated with a learning organisation’s absorptive capacity and emphasised the notion as a crucial capability requisite for knowledge acquisition (e.g. Anh et al., 2006; Lane et al., 2001; Lyles & Salk, 1996; Pak & Park, 2004). Another school has focused on the impacts of relational capital promoting a favourable learning environment, such as culture, trust and organisational compatibility, on substantial knowledge acquisition (e.g. Mowery et al., 1996; Norman, 2004; Park et al., 2008; Simonin, 1999). Unlike these studies, this research argues that the extent of learning is not only affected by a student’s innate capabilities and surrounding environment for education but also significantly determined by a teacher’s ability to transfer knowledge (i.e., knowledge transfer capacity). Moreover, by confirming empirically the importance of the knowledge transfer capacity overlooked by previous studies, this research attempts to build the concept, emphasise it as a crucial component to draw a precise picture for knowledge acquisition in IJVs (to reiterate, technology served as a proxy for knowledge in this research) and thus contributes theoretically to the current literature. The findings also provide useful implications for MNEs which intend to establish IJVs in foreign markets. For instance, the results point to the need for foreign firms to open their heart widely to foreign affiliates in order to facilitate the transference of knowledge and technology which, in turn, results in IJV success. The extent of knowledge acquisition in the IJV rests upon the foreign parent’s active support, which includes managerial assistance and transfer of expatriate experts. Central to the effect of provision of training is its close relationship to collaborative managerial support. The results show that training

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accompanied by active managerial involvement eases the technology acquisition process and thereby helps IJVs to absorb new knowledge effectively. Taken together, IJVs’ learning from foreign parents is largely determined by the knowledge transferors and thus MNEs need to pay particular attention to developing their own capacity to transfer knowledge when operating IJVs in foreign markets. Despite these contributions to knowledge, we should acknowledge there are some research limitations. First, as technology was only considered to measure knowledge acquisition in IJVs, we cannot say all contributions made by foreign MNEs are examined. In addition, knowledge concerns what is learnt in dyadic relationships and underlying these processes are bi-lateral exchange and knowledge flows (i.e., MNEs often transfer technology and managerial know-how, whereas local firms transmit local market information). However, the view of technology transfer from MNEs is only one of unilateral transfer and dissemination of knowledge. Third, the empirical examination was made in only one geographical context (i.e., Korea), which signifies that the findings are not perfectly generalisable. Fourth, IJVs were tested to assess the level of learning from knowledge transferors, leaving aside other types of entry formations by MNEs. Fifth, a number of constructs have been introduced but this study has not been able to establish relationship between them convincingly. These limitations suggest avenues for future research. Comparison between the key factors affecting organisational learning in different sorts of knowledge (e.g. technology versus managerial know-how) add to our understanding of knowledge transfer capacity of foreign firms. Future research needs to extend the research scope in order to cover the dyadic relationship in IJVs appropriately. The same framework as in this research can be used in other contexts. It would also be interesting if an experiment attempted to improve the understanding of the foreign parent’s knowledge transfer capacity in other entry modes, an under-researched issue in studying the topic. Finally, other researchers need to explore interactions and relations between key factors influencing the knowledge transfer capacity of MNEs through, for example, structural equation modelling. Acknowledgement This work was supported by Hankuk University of Foreign Studies Research Fund.

Appendix A. Base of two dimensions influencing knowledge transfer capacity of MNEs A.1. Existing internal capability Martin and Salomon (2003) argue that some firms are strong at absorbing idiosyncratic knowledge, yet lack the ability to transfer new information effectively. In contrast, other firms have a weaker ability to develop idiosyncratic knowledge but are quite adept at transferring and disseminating it. This ability to teach and instruct the value of new knowledge is largely a function of the firm’s level of prior related knowledge and we prescribe it as part of the knowledge transfer process. That is, knowledge transfer from MNEs should be greatest if they possess the relevant prior knowledge. That knowledge includes fundamental skills or knowledge of the most recent managerial or technological developments, which may help to understand the traditions and techniques in a given field (Lane & Lubatkin, 1998). Extending these insights into IJVs, this research proposes that knowledge acquisition from foreign parents in IJVs would be increased when the knowledge transferor accumulates a sufficient level of international collaborative experience. Such experience in international markets may provide an invaluable opportunity to learn how to disseminate own skills leading to enhancement in IJV competitiveness and thus it significantly improves MNEs’ capabilities to transfer knowledge and technology to overseas’ subsidiaries. A.2. Intent to share Several scholars (e.g., Barringer & Harrison, 2000; Das & Teng, 2000) note that the collaborative inter-firm relationship may possibly cause a problem, the fear of the unwanted exposure of proprietary knowledge and technology. A joint venture itself is a mechanism that can facilitate venture partners to transfer and develop their own skills and capabilities. On the other hand, some foreign parents often have a propensity to deliberately reduce their sharing of foreign knowledge (Norman, 2004). For competitive reasons, foreign firms seek ways to extend secrecy to protect even highly explicit knowledge against unwanted imitation (Martin & Salomon, 2003). This is partly because the transference of foreign knowledge and technology to IJVs potentially leads to the creation of a competitor when knowledge leakage to a venture partner does occur (Inkpen, 1998). If an IJV partner is a competitor or potential competitor, it seems to be reasonable not to intend to share core and organisationally embedded knowledge, but the knowledge acquisition of the IJV can be significantly influenced by its foreign parent’s level of transparency. Although there are some cases of competitive overlap between partners, Hamel (1991) argues that some foreign parents in the cooperative settings are more open to knowledge acquirers than other transferors, for a variety of reasons, and thus allow them to access their own precious skills, such transparency determining the potential for learning. His

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explanation highlights that to improve knowledge transfer from foreign parents to the IJV, sharing of knowledge is critical. Moreover, an MNE structured in a way conducive to sharing of own knowledge will achieve better knowledge transfer capacity. In other words, when the foreign parents agree to be completely open in sharing knowledge by means of frequent communication, active managerial support, expert dispatches or development of education systems, the IJV can be a more effective device to learn new knowledge.

Appendix B. Variable measurements Variable

Measurement (Each item measured using five-point Likert-type scale, ranging from 1 = very low to 5 = very high)

Cronbach’s alpha

Possession of relevant knowledge (adapted from Anh et al., 2006) Prior collaborative experience (created by this research)

Level of similarity in products or services of foreign parent(s) compared to IJVs. Average of two questions on extent to which foreign parent(s) has collaborative experience (1) in many foreign markets and (2) with many local firms. Average of two questions summarising efficient communication (1) between IJV top management and foreign parents(s), and (2) between foreign and local staff. Average of five questions on extent to which foreign parent(s) support(s) (1) strategic planning, (2) human resource management, (3) financial management, (4) marketing and sales, and (5) R&D or product development. Average of three questions on extent to which foreign expatriate experts participate in (1) new product development, (2) production technology, and (3) manufacturing process. Average of two questions on extent to which employees of IJV are given formal training by foreign parents at time of survey and previous year.

Not applicable

Open communication with IJVs (adapted from Park & Glaister, 2009)

Active managerial involvement of foreign parents (adapted from Lyles & Salk, 1996)

Transfer of expatriate experts (adapted from Minbaeva et al., 2003)

Provision of training (adapted from Lane et al., 2001)

0.887

0.707

0.722

0.967

0.870

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