| From the perspective of MNC, knowledge flows of a multinational subsidiary with its business networks are critical factors for its strategic management, with these kinds of knowledge flows, MNC and host country can both contribute to and benefit from the knowledge flows. There are large studies focusing on the internal knowledge flows between headquarter and foreign subsidiaries, few concern about knowledge flow determinants between foreign subsidiaries and host countries. This study is based on both structure equation model (SEM) to develop an integrated model which associates subsidiary external knowledge flows and knowledge creation capacity, in details, the model will explain the factors affecting knowledge inflows from local environment, assess the impact of such flows on the subsidiary’s knowledge creation ability, and also explain the factors determine the knowledge outflow from the subsidiary to local firms in a single framework. The model is tested on a sample of185multinational subsidiaries in China. And most of our hypotheses are found largely supported.Section1introdcted the exesiting researches about knowledge flows between MNC and its subsidiaries and the research purpuse and significance of this paper. While the studies to date have shed light upon several important aspects of knowledge flows and knowledge creation within an MNC, there is a lack of integrated research in terms of how internal and external knowledge flows are determined, how such flows affect knowledge creation in a subsidiary, and the factors that determine knowledge outflows from the subsidiary to the rest of the MNC and local environment.Section2develops the hypotheses by way of reviewing the literature on subsidiary knowledge flows and creation. H1:the capacity and willingness of MNC HQ to transfer knowledge together with the capacity and intent of receiving such knowledge by the focal subsidiary will determine the knowledge flows from the HQ to the subsidiary. H2:the capacity and willingness of local firms to transfer knowledge together with the capacity and intent of receiving such knowledge by the focal subsidiary will determine the knowledge flows from the local firms to the subsidiary. H3:The capacity for knowledge creation by the subsidiary increases with more knowledge received and/or learnt by the subsidiary from the HQ. H4:The capacity for knowledge creation by the subsidiary increases with more knowledge received and/or learned by the subsidiary from local firms. H5:The higher the level of a subsidiary’s knowledge creation ability and the higher the willingness of the subsidiary to transfer knowledge, the more knowledge the subsidiary will transfer to the HQ. H6:The higher the level of a subsidiary’s knowledge creation ability and the higher the willingness of the subsidiary to transfer knowledge, the more knowledge the subsidiary will transfer to local firms in the host country.The research methodology is explained in section3. The data collection consists of two stages. Stage one concerns the pilot study before the main study is conducted, stage two refers to the main survey (questionnaires were distributed to potential participants by post). A draft research instrument was pre-tested via face to face personal interview with chief executives or other senior managers of7foreign invested firms. During the pilot study, interviews revealed that they interacted with local Chinese firms by introducing new business opportunities to each other due to relational capital. There has been little discussion of this form of knowledge flows between foreign and local firms in the literature. Accordingly, this new channel was incorporated into the final questionnaire in order to determine whether this is a prevailing practice in the interaction between multinational subsidiaries and local Chinese firms. For the main survey, a sample of512firms in Chongqing was choosen.205useable questionnaires were eventually returned. The40%response rate indicates a good questionnaire return. Then20foreign invested firms with less than50%foreign ownership were removed from the sample. After such clearance,185subsidiaries were included in the final sample. Finally, variables used in the research was defined well.In section4, the hypotheses will be examined using an SEM using a survey data set of185foreign subsidiaries of MNCs in China. In the reliability analysis, we choose the χ2value and degrees of freedom, the CFI, and the RMSEA to provide sufficient unique information to evaluate a model. The overall χ2value is 1627.81, with a degree of freedom equal to518(p-value=0.00). The value of CFI is0.90, and the RMSEA is0.1. These diagnostics suggest the model provides a good overall fit. The estimation results with the standardized coefficients and t-value showed that: Hypotheses1and2suggest that the greater the capacity and intent of knowledge inflows from the HQ to the subsidiary, and from local firms to the subsidiary, the more knowledge can inflow into the subsidiary from the HQ and local firms. And, both H1and H2are significantly supported. H3indicating that knowledge inflows from the HQ to the subsidiary has a negative effect on the subsidiary’s knowledge creation ability. Therefore, H3is not supported. However, H4is significantly supporting the hypothesis that knowledge inflows from local firms to the subsidiary has a positive influence on the subsidiary’s knowledge creation capacity. H5and H6predict that the higher level of the subsidiary’s knowledge creation ability and the greater willingness to outflow knowledge by the subsidiary to the HQ and local firms, the more knowledge the subsidiary will outflow to the HQ and local firms. Therefore, both H5and H6are supported. However, the investigation of the sub-groups based on subsidiary’s age, size, mode of formation shows the following results. Firstly, subsidiary age:all statistically significant for both young and mature subsidiaries (in support of Hypotheses1,2,4and5). The only exception is H6. The mature subsidiaries are in support of H6but the young subsidiaries are not. Secondly, subsidiary size:all statistically significant for both large, small-medium subsidiaries (in support of Hypotheses1,2,4and5). The only exception is H6. The small-medium subsidiaries arein support of H6, but large subsidiaries are not. Thirdly, wholly-owned subsidiary (WOS) vs international joint venture (IJV):both the WOS and IJV groups are absolutely consistent with the main analysis. The estimates of H1, H2, H4, H5, and H6are supported while the estimate of H3is not supported.Finally, Section5concludes by summarizing the paper and discussing managerial and policy implications and limitations of this research. In this paper, based on SEM, six hypotheses were developed to investigate the factors affecting knowledge inflows from the MNC and local environment to a subsidiary and how such flows affect the subsidiary’s knowledge creation ability, and the factors that influence knowledge flows from the subsidiary to the rest of the MNC and local environment. The empirical results from an analysis of185multinational subsidiaries in China lend strong support to our structural equation model as the main structural fit values are good and five out of the six hypotheses are supported. It is believed that the current study constitutes an important improvement upon the existing literature on multinational knowledge flows via foreign MNCs. First, this study takes into consideration the relationship between the determinants of knowledge inflows and the output of such inflows from the local environment to subsidiaries. Second, it has suggested and empirically proved that the extent to which knowledge transferred from a subsidiary to the rest of the MNC and local environment is influenced by two main factors simultaneously. Third, the above interactive relationships were explained within a single analytical framework. However, there are some limitations with our study that need to be briefly commented upon. Such as representative of the sample and the source of the data, which may have limited generalization to other settings. |
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