IBUS 412:Special Topic

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IBUS 412 Special Topic
Topic 10 Reading Kogut, B./Zander, U.
Knowledge of the firm and the evolutionary
theory of the multinational corporation
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IBUS 412 Special Topic

• Firms are social communities that specialise in
  the creation and internal transfer of knowledge
• MNCs arise out of their superior efficiency in
  the transfer of knowledge across borders
• Notion of firm as specialising in transfer and
  recombination of knowledge is foundation to an
  evolutionary theory of the MNC
• Firm as a social community whose productive
  knowledge defines a comparative advantage

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IBUS 412 Special Topic

• Determination of boundaries of the firm based
  on 2 observations 1. Comparative advantages
  (ownership adv.)
• 2. Internalisation
• FDI conceived as transfer of organisational
  principles (knowledge) from one country to
  another
• FDI impeded by difficulty of transferring
  sticky knowledge
• Choice of transfer mode explained by attributes
  of knowledge
• codifiability
• complexity
• teachability.
• Firm as a repository of knowledge

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IBUS 412 Special Topic

• Economic theory of FDI stresses internalisation
  (limitations!)
• FDI is largely transfer of an intermediate
  good knowledge
• MNC in terms of hierarchy more efficient
  than imperfect global markets in transfer of
  specific knowledge
• Costs of global markets not only dependent on
  opportunistic behaviour but also on local
  differences
• Tacit knowledge is difficult to transfer and
  thus constitutes the comparative advantage of
  firms (internal transfer, e.g. FDI).

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IBUS 412 Special Topic

• Difference in knowledge and the embedded
  capabilities between creator and users determine
  firm boundary
• Knowledge is often experiential and is
  accumulated over time
• Principle determinants of transfer costs
• previous experience in transferring the
  knowledge
• age of knowledge (understanding use over
  time)
• number of firms using similar (common)
  knowledge
• ? Costs of transfer are related to accumulation
  of experience and learning

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IBUS 412 Special Topic

• Empirical investigation
• Dimension measuring the tacitness of knowledge
• Codifiability
• Teachability
• Complexity
• Analysis of 82 transfers of innovations to a
  foreign site
• Results
• Codifiability and teachability have positive
  influence on transfer and thus on choice of
  market-based modes
• Complexity has a negative influence on
  transfer, thus favouring hierarchical modes
  (FDI)

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IBUS 412 Special Topic

• Implications
• Technologies difficult to codify as platforms
  for future expansion
• By recombining knowledge firm exploits current
  knowledge for expansion into new markets
  (combinative capability)
• Initial entry serves as a platform for
  recombination
• Gradual accumulation of knowledge in
  internationalisation culminates in a learning
  network of subsidiaries
• Weakness static analysis, no evolutionary
  design

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IBUS 412 Special Topic

• Case study Toyota (Dyer/Nobeoka)
• Toyotas production network assumed to be the
  most efficient in automobile industry
• Toyota network solved 3 dilemmas in knowledge
  sharing
• Motivate members to participate and to share
  knowledge
• Prevent free-riders
• Reduce costs in finding and accessing
  knowledge
• Facilitators
• Creating a strong network identity
• Creation of rules for membership and
  knowledge protection
• Production knowledge viewed as property of
  network

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IBUS 412 Special Topic

• Case study Toyota (Dyer/Nobeoka)
• Interorganisational networks increasingly
  important in innovation and learning
• In Automobile industry, up to 70 of value
  produced by suppliers
• Problems free rider problem and undesirable
  spillovers
• Research suggests that Japanese firms have been
  superior at transferring knowledge throughout
  the network
• After construction of transplants in US,
  local producers imitated quickly but without
  spillover to their suppliers

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IBUS 412 Special Topic

• Case study Toyota (Dyer/Nobeoka)
• Organisational routines are basic building
  blocks of firms
• Organisational learning is based on the
  modification of existing routines by adaptation
  routines and by adoption of new ones
• Learning routines permit transfer,
  recombination, and creation of specialised
  knowledge
• In case study focus on purposefully designed
  routines that facilitate knowledge transfer
  across organisational boundaries
• Distinction of explicit and tacit knowledge

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IBUS 412 Special Topic

• Case study Toyota (Dyer/Nobeoka)
• Dilemmas in knowledge sharing in a network
  setting
• How to motivate self-interested actors to
  participate in a network and to share valuable
  knowledge with others
• Collective action or free rider problem
• Maximise efficiency of knowledge transfers

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IBUS 412 Special Topic

• Case study Toyota (Dyer/Nobeoka)
• Research design
• Objectives
• - identify institutionalised knowledge-sharing
  routines
• - explore how network resolves
  knowledge-sharing dilemmas
• Interviews with 30 Toyota executives of all
  divisions, 10 senior executives of first-tier
  suppliers in Japan, 11 in US
• Archival and survey data on 48 suppliers in
  Toyotas US supplier association, 38 of the
  largest first-tier Japanese

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IBUS 412 Special Topic

• Overcoming knowledge-sharing dilemmas
• 1. Encourage suppliers to participate and openly
  share knowledge
• Initially, heavy subsidisation of network by
  Toyota
• - suppliers learn quickly that participating in
  collective learning is vastly superior to
  stand-alone approaches
• Introduction of network-level
  knowledge-sharing processes and creation of a
  strong identity
• Minimise free rider problem
• Establishment of network rules
• Achieve network efficiency
• Creation of strong tie network with variety
  of transfer processes

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IBUS 412 Special Topic

• Creating a network identity through
  network-level routines
• Philosophy of coexistence and co-prosperity
• Development of network-level knowledge
  acquisition, storage, and diffusion processes
• Supplier association
• - information exchange, mutual development,
  socialising events general meetings, topic
  committees, plant tours
• Consulting division/teams/problem-solving
  teams
• - solve operational problems on-site or at
  Toyota division
• Voluntary learning teams
• - supplier groups for mutual assistance,
  consultancy
• Interfirm employee transfers

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IBUS 412 Special Topic

• Network rules for knowledge protection and
  value appropriation
• Development of rules to prevent members from
• protecting or hiding valuable knowledge
• free riding
• by eliminating notion of proprietary
  knowledge in certain domains.
• Rule of reciprocal knowledge sharing (delineates
  property rights)
• Toyotas willingness to freely share its
  knowledge as starting mechanism
• Price of entry into network is limited ability
  to protect proprietary production knowledge
• ? Rule that defines timing and distribution of
  savings from knowledge transfers

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IBUS 412 Special Topic

• Creating multiple knowledge-sharing processes and
  subnetworks
• Maximisation of the efficiency of knowledge
  transfers
• Bilateral and multilateral processes to
  facilitate creation and diffusion of explicit and
  tacit knowledge
• Supplier association vehicle for
  disseminating explicit knowledge
• Voluntary learning teams vehicle for
  multilateral transfer of tacit knowledge
• Subnetworks vehicles for different types of
  knowledge
• ? Variety of routines required to maximise speed
  and ease of differentiated knowledge transfer

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IBUS 412 Special Topic

• Creation and evolution of Toyotas
  knowledge-sharing network
• Three institutional innovations played important
  role in creation of the network and in
  facilitating learning
• Supplier association in developing weak ties
  (1. Phase)
• Knowledge transfer consultants in developing
  strong ties with Toyota (2. Phase)
• Subnetworks in developing ties among
  suppliers (3. Phase)
• Risk
• Strong tie network largely designed to
  exploit Toyotas production know-how but less
  efficient in creation of (radically) new
  knowledge