The Impact of Distance (External) and Organizational Factors (Internal) on the Knowledge Chain of Multinational Corporations: South Africa as a Host Country

• Published date: 01 May 2018
• DOI: http://doi.org/10.1002/tie.21892
• Date: 01 May 2018
• Author: Bradley Shaw,John M. Luiz

295

Published online in Wiley Online Library (wileyonlinelibrary.com)

© 2017 Wiley Periodicals, Inc. • DOI: 10.1002/tie.21892

Correspondence to: Professor John M. Luiz, School of Business, Management and Economics, Jubilee Building G08, University of Sussex, Brighton, BN1 9SL, UK,

and Graduate School of Business, University of Cape Town, +44(0)1273 87291 (phone), J.M.Luiz@sussex.ac.uk

The Impact of

Distance (External)

and Organizational

Factors (Internal)

on the Knowledge

Chain of Multinational

Corporations: South

Africa as a Host Country

By

Bradley Shaw

John M. Luiz

The geographic dispersion of multinational corporations ( MNCs ) implies that while it gives them access

to new and different knowledge from diverse localities, it also adds to the costs and complexities

RESEARCH ARTICLE

296

RESEARCH ARTICLE

Thunderbird International Business Review Vol. 60, No. 3 May/June 2018 DOI: 10.1002/tie

of managing that knowledge and its effective dispersal across geographies. The purpose of this article

is to examine how knowledge is transferred within MNCs and provide a framework for this process,

particularly focusing on the role that distance (external) and organizational (internal) factors plays

therein. A qualitative study is utilized, focusing on two technology companies from different cultural

home countries and the technology transfer process with their South African subsidiaries. We  nd that

the standardization of knowledge impacts the creation and diffusion of knowledge; expatriates impact

on the creation, diffusion, and adoption; and,  nally, relevance and localization impact on the adoption

and utilization of knowledge. We present a conceptual framework around trust and rationalization as

regards transferring knowledge within MNCs and  nd some evidence of the impact of distance, par-

ticularly cultural, on the methods employed in this transfer. The article illustrates the practical ways in

which MNCs organize their internal resources and overcome various dimensions of distance in ensur-

ing knowledge transfers. By choosing companies from such divergent home countries (one industrial-

ized and one newly industrialized, with very different cultural settings) and examining their knowledge

transfers with their South African subsidiaries, we are able to unpack various dimensions of distance

and how organizational mechanisms affect this process. © 2017 Wiley Periodicals, Inc.

Introduction

A

key issue for multinational corporations (MNCs)

is how knowledge is generated, exploited, and

shared within the organization. The generation

and dispersion of knowledge is key to innovation and

is an important source of competiveness. However, the

challenge lies not only in the production of knowledge

but how it is made available and acted upon within orga-

nizations, and this becomes particularly acute the larger

the enterprise and the more geographically dispersed it

is. MNCs face specific issues in this respect, and distance

has a paradoxical dimension to it, in that it gives MNCs

access to new and different knowledge from different

locales, but at the same time it adds to the costs that the

MNC needs to bear (Jiménez-Jiménez, Martínez-Costa,

& Sanz-Valle, 2014 ; Lupton & Beamish, 2014 ; Zaheer

& Hernandez, 2011 ). These costs are not only directly

associated with operations being far-sprung but also

relates to indirect costs. Knowledge may be generated

at headquarters (HQ) or at the subsidiary level but may

find it hard to gain traction and to be put to use within

the organization as a whole because of the complexity of

being multinational and geographically dispersed. Thus,

the potential for innovation may not be fully realized,

and this is something that MNCs need to guard against.

Where knowledge does flow within the MNC, it often

flows unidirectionally—namely, from the top down—but

there is increasing evidence of the importance of knowl-

edge becoming multidirectional and of the organization

being able to learn from the bottom up (Reilly & Scott,

2014 ).

Reverse diffusion of knowledge has become an area

of growing importance, especially for MNCs operating in

multiple locations, which requires the ability to extract

the benefits of being local and global simultaneously

(Bengoa & Kaufmann, 2014 ; Brem & Wolfram, 2014 ;

Govindarajan & Ramamurti, 2011 ; Hsu & Iriyama, 2016 ;

Lee & McNamee, 2014 ; Peng, Qin, Chen, Cannice,

& Yang, 2016 ; Prabakar, 2015 ; Van der Boor, Oliveira,

& Veloso, 2014 ). Distance can be a significant constraint

to the full production and exploitation of knowledge

within an MNC. Distance can manifest in many different

ways including cultural, administrative, geographic, and

economic (CAGE) (Ghemawat, 2001 ). These dimensions

can impact how knowledge is produced, disseminated,

and absorbed.

This leads directly to our research question: How

is knowledge transferred within MNCs, and what is the

role of distance (external) and organizational (inter-

nal) factors therein? We explore this through two MNC

case studies operating in South Africa: Microsoft and

Samsung. These two companies have different home

countries and thus the issue of distance (in all its dimen-

sions) between the home- and host-country environment

of South Africa manifests differently. We address what

strategies these two MNCs employ to further knowledge

transfers between the HQ and their subsidiaries and how