The Role of Headquarters
New Horizons in International Business series
Edited by Ulf Andersson and Ulf Holm
Chapter 10: Internal versus External Knowledge Sourcing of Subsidiaries and the Impact of Headquarters Control
Jens Gammelgaard and Torben Pedersen INTRODUCTION Recent literature proposes that modern MNCs consist of advanced organizational forms, like the ‘transnational firm’ (Bartlett and Ghoshal, 1989), the heterarchy (Hedlund, 1986), the differentiated network (Nohria and Ghoshal, 1997) or the metanational firm (Doz et al., 2001). The development of new knowledge is no longer carried out or controlled solely by headquarters. It is increasingly recognized that much development of new knowledge in MNCs is happening in subsidiaries, where some of these subsidiaries gain world product mandate or become Centres of Excellence (Holm and Pedersen, 2000). Intense relationships with local counterparts are often the basis for creation of new knowledge in the subsidiaries, implying that they to a large extent design their knowledge creation process to meet the particular context of the local counterparts. However, at the same time, the competitive advantage of MNCs is contingent upon the ability to facilitate and manage inter-subsidiary knowledge transfers (Kogut and Zander, 1992; Almeida et al., 2002), that is that knowledge is transferred from the MNC unit where it is developed in the first place to other MNC units where it may make better value. This creates a potential tension arising from the fact that subsidiaries need to adapt their knowledge to the context of the local counterparts while maintaining some degree of knowledge integration with the rest of the MNC (Håkanson and Nobel, 2001). Some authors assume that subsidiaries adapt a cooperative behaviour creating a smooth internal flow of knowledge among MNC-units (Hedlund, 1986;...
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