Network Knowledge in International Business
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Network Knowledge in International Business

Edited by Sarianna M. Lundan

This book focuses on current cutting-edge research concerning the increasing strategic importance of subsidiary networks to the multinational firm. It combines contributions from three major related areas of inquiry: the changing theoretical conception of networks and the structure of the multinational firm, the importance of spillovers and agglomeration economies related to multinational investments, and the management of the flow of information and knowledge from headquarters to subsidiaries and vice versa.
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Chapter 7: Subsidiary absorptive capacity, MNC headquarters' control strategies and transfer of subsidiary competencies

Ulf Andersson, Ingmar Björkman and Patrick Furu


Chapter 7 21/6/02 11:26 AM Page 1 7. Subsidiary absorptive capacity, MNC headquarters’ control strategies and transfer of subsidiary competencies Ulf Andersson, Ingmar Björkman and Patrick Furu INTRODUCTION Recent writings on the competitive advantage of firms have focused considerably on the role of knowledge, capabilities and competence (Barney, 1991; Cole, 1998; Grant, 1996; Nonaka and Takeuchi, 1995; Winter, 1987). In this research, competitive advantage is determined by the firm’s ability to sustain and develop its competence base by learning from its operations and by absorbing knowledge that is external to the firm (Cohen and Levinthal, 1990; Levitt and March, 1988). Correspondingly, research on the multinational corporation (MNC) has emphasized the competence development that takes place in geographically dispersed subsidiaries, and researchers have pointed to the importance of competence transfer across corporate units (Bartlett and Ghoshal, 1989; Birkinshaw and Hood, 1998; Gupta and Govindarajan, 1991, 2000; Holm and Pedersen, 2000). Competence development is critically dependent on the subsidiary’s ability to ‘recognize the value of new, external knowledge, assimilate it, and apply it to commercial ends’ (Cohen and Levinthal, 1990: 128), i.e. its absorptive capacity. To be able to recognize and absorb knowledge in its environment, the subsidiary must be embedded in local networks. In these networks, firms interact and exchange resources and knowledge (Andersson and Forsgren, 2000; Ghoshal and Bartlett, 1990; Johanson and Mattsson, 1988). As a result, the subsidiary can both absorb knowledge residing with local organizations in its network and utilize this knowledge as an important foundation...

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