Reverse knowledge transfer from subsidiaries to multinational corporations: evidence from Korea

Knowledge is a source of competitive advantage which strengthens multinational corporations’ (MNCs) market position, and thus they set up overseas subsidiaries partly to access other firms’ knowledge which resides in local markets. From the MNC viewpoint, overseas subsidiaries have a chance to access local market information (LMI), develop new competences themselves and share this information with their headquarters; thereby contributing to the formation of MNCs’ competitive advantage.

This study posits that the extent to which overseas subsidiaries reversely transfer local information is influenced by their knowledge transfer capacity and relational capital, both of which enhance the learning environment which facilitates the knowledge exchange process. In this context, the research objective is to identify the effects of factors encompassing knowledge transfer capacity and relational capital on the reverse transfer of LMI from subsidiaries within MNC networks. In addition, this study also tries to examine the different influences of those determinants on different sizes of organisation. Although study on reverse knowledge transfer (RKT) from subsidiaries to its headquarters is becoming increasingly prominent, the debate discussing the key determinants which affect it has not reached an academic consensus. By integrating both knowledge transfer capacity and relational capital as overarching theoretical lenses and exploring cause-and-effect relationships, this study fills certain extant research gaps.

A conceptual framework is developed and then it is investigated empirically, using a sample of 432 subsidiaries operating in the Korean market. OLS regression and Spearman rank order correlation coefficients are used to interrogate the data. The OLS regressions find that knowledge development capability, subsidiary willingness and autonomy are critical factors affecting RKT within MNC networks. Both socialisation mechanisms and trust are the primary facilitators of relational capital between subsidiaries and MNCs and extend RKT from the former to the latter. In addition, the key drivers for RKT for large-sized subsidiaries are knowledge development capability, subsidiary autonomy and trust. For medium-sized subsidiaries, the key drivers are subsidiary willingness, trust and organisational distance. For small-sized subsidiaries, the key drivers of RKT are knowledge development capability, subsidiary autonomy and socialisation mechanisms.

Based on the results, the contributions of this study are three-folds. First, the research identifies what determines RKT from subsidiaries to MNCs in the Korean context. Second, in doing so, it corporates both the relational capital and knowledge transfer capacity perspectives. Thus, it theoretically contributes to those perspectives. Third, it also elucidates the effect of organisational size on RKT.