Knowledge Management and Involvement in Innovations in MNC Subsidiaries (1)

Article excerpt

Abstract and Key Results

* This study investigates Penrose's analysis of the relationship between resources (especially knowledge), management of those resources and innovation in a sample of 313 Australian subsidiaries of foreign-owned multinational corporations (MNCs).

* The frequency of use of knowledge management (KM) techniques by subsidiaries tended to be associated with factors internal to the MNC/subsidiary such as MNC size, level of technology and extent of communications networks.

* The subsidiary's involvement in the MNC's innovations network tended to be associated with external factors such as the innovativeness of the industry and degree of involvement with local organizations.

* Nevertheless, in accordance with the expectations from the literature, there remained a significant association between frequency of use of KM techniques and involvement in the innovations network of the MNC.

Key Words

Edith Penrose, Knowledge Management, MNCs, Australian Subsidiaries, Innovation


Theories of the firm have emerged to explain why firms differ in their performance (Chandler 1962, Donaldson 1995, Coase 1937, Williamson 1975, Penrose 1959, Wernerfelt 1984, Barney 1991) and these performance differentials appear essentially as a result of a firm's ability to create a sustained competitive advantage (SCA). Today, knowledge, learning and innovation are at the heart of our understanding of that SCA and Pitelis (2004, p. 524) encapsulates the standpoint by paraphrasing Penrose (1959), 'Her views point to long-term success through innovations'. The intricate web of relationships that links knowledge, learning and innovation is currently the dominant theoretical paradigm in the strategy and international business academic literatures. (Although cf., however, Priem/Butler 2001) To summarize this perspective, the firm is a collection of unique (Conner 1991, Amit/Schoemaker 1993), heterogeneous (Barney 1991), scarce (Barney 1991, Peteraf 1993, Amit/ Schoemaker 1993), embedded (Dierickx/Cool 1989, Szulanski 1996), inimitable (Black/Boal 1994, Teece/Pisano/Shuen 1997), valuable, appropriable (Amit/Schoemaker 1993), causally ambiguous (Foss/Knudsen 2003), tangible and intangible (Collis/Montgomery 1995, Peteraf 1993) resources that must be utilized to respond to market opportunities (Chakravarthy 1997, Grover/Davenport 2001, Janz/Prasarnphanich 2003) by generating innovations that culminate in performance. The primary resource is knowledge (Dzinkowski 2000, Fruin 1997, Nahapiet/Ghoshal 1998, Nonaka 1994, Nonaka/Takeuchi 1995, Nonaka/Reinmoeller 2003, Teece 1998). An accumulation of such resources impedes current and potential competitors from quickly replicating the firm's 'relatively impregnable bases' (Penrose 1959, p. 137).

This focus has seen the management of knowledge and learning and their relationship with innovation take center stage in the academic and professional management literature in recent years but the genesis of these concerns can be traced back to earlier decades (Argyris/Schon 1978, Bell 1973, Daft/Weick 1984, Dretske 1981, Fiol/Lyles 1985, Polanyi 1967, Teece 1987). While Foss (2002) was later to question the direct lineage, even earlier, Penrose (1959) envisaged the firm as a unique (p. 24) collection of heterogeneous (p. 74), indivisible (p. 68), specialized (p. 71) tangible and intangible (p. 24) productive resources.

This knowledge-based view (KBV) has expended much effort on types of knowledge, knowledge creation and the relationship between knowledge and individual and organizational learning and other issues but the specification of the connection to innovation is less well established. It is implicit or taken for granted rather than demonstrated. Penrose (1959, p. 26) made three important contributions to understanding the knowledge/innovation link. First, she argued that any resource (e.g. knowledge) should be considered as a bundle of potential services. …