Knowledge Transfer and Performance of MNCs: Moderating Effects of Absorptive Capacity and Motivation

Abstract

Knowledge is at the root of understanding how organizations gain and sustain competence. But firms struggle in solely creating the requisite knowledge to meet the requirements of a dynamic environment. Thus, to achieve their goals of becoming flexible to environmental changes as well as remaining competitive, firms should acquire and exploit new knowledge, transferring such knowledge from external sources to internal knowledge banks. The scope of analysis in this study is the knowledge transfer from headquarters and other subsidiaries in the same MNC to the focal subsidiary. Focusing on the process and effects of knowledge transfer, this study examines the causal relationships between the acceptability of external knowledge, knowledge absorptive capability and motivation, level of knowledge transfer, and firm performance. Empirical results using data collected from foreign subsidiaries operating in South Korea found that: (a) Firms should seek, transfer, and exploit more external knowledge to improve their competitive edges and their organizational performance. In particular, the acceptability of external knowledge should be an important concern in the process of knowledge transfer. (b) Firms should continuously develop their knowledge absorptive capability (both acquirement capability and application capability) to absorb, learn and use valuable external knowledge. (c) Firms should emphasize not only absorptive capability but also motivation. Various types of incentive systems and policies can be established to motivate employees to search, learn, and utilize external knowledge. Firms with strong absorptive capability and motivation can learn and transfer more external knowledge, which can be translated into greater levels of competence and performance.