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Mobilizing knowledge in Multinational Corporations:

The Role of Regional Relays in Mobilizing Local Knowledge Globally

Mobilizing knowledge in Multinational Corporations

The Role of Regional offices in Mobilizing Local Knowledge Globally

Esia Yosupov

NYU Poly School of Engineering

Author Note

This paper was prepared for Global Innovation, section 7953, taught by Dr. Rao Bharat

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Abstract

In recent years, innovation has been coming from places we least expected of. MNCs

headquarters are no longer the primary source for creating innovation. Globalization has enabled

firms to expand their businesses overseas and strategize competitive advance through its global

subsidiaries. In the nexus of innovation, valuable knowledge can be generated at any level of the

MNCs, in particular at local levels. As firms became global, it has become challenging for

MNCs to mobilize knowledge generated at local units. This paper advocates for the role of

regional offices as knowledge mobilizers. Regional offices act as “knowledge brokers” for

diffusing innovation generated locally to other locations within the MNCs. It outlines a

mechanism of local-to-global innovation cycle, which includes: knowledge identification,

knowledge extraction, and knowledge diffusion.

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Mobilizing knowledge in Multinational Corporations

The Role of Regional offices in Mobilizing Local Knowledge Globally

Introduction

In today’s fast changing environments, multinational corporations (MNCs) need to be

innovative in order to sustain their market positions and competitive advantages (Bartlett &

Ghoshal, 2000). MNCs face considerable pressure to quickly respond to local market needs,

while achieving global efficiency (Prahalad, 1999). This has led some MNCs to recognize the

need to leverage new and valuable knowledge generated within their subsidiaries at local

markets to meet global needs. The challenge of “mobilizing” such knowledge is frequently a

tradeoff between the global view from the MNCs headquarters and the local knowledge

possessed by the national subsidiaries of the MNCs (Kazuhiro & Lehrer, 2003).

In a business environment of rapid technological change, knowledge and intangible

resources have becoming increasingly dispersed (Kazuhiro & Lehrer, 2003). Therefore, the

MNC’s capability to rapidly identify, extract and diffuse knowledge resources within the

multinational corporation is the key constituting competitive advantage. Traditionally,

headquarters were considered to be the primary source of innovation for global transfer and

exploitation (Achcaoucaou, 2014). However, recent trends show that innovation activities are

distributed throughout the MNCs. New valuable knowledge is generated in all directions, in

particular at local levels of MNC’s subsidiaries. Taking Philips Corporation for an example, its

subsidiary in Canada created the company’s first color TV. Another Philips’ subsidiary in

Australia created the first stereo TV, and Philips of the UK created the first TV with teletext

capabilities (Lightfoot, 1992).

Hypothesis: Every innovation in the local to global pattern goes through a regional “mediator”

whose role is to mobilize the knowledge generated locally to the MNC for global application.

This paper aims to identifying regional offices as key agents of knowledge mobilization across

MNCs. It provides a framework for local-to-global innovation, placing the regional offices as the

“knowledge brokers” between knowledge generated at local levels to global knowledge at the

parent company level. The framework includes the identification, extraction and diffusion of

knowledge within MNCs.

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Literature Review

Given the importance of knowledge creation, many studies aim to find the sources of

innovation. A study by Bartlett and Ghoshal (1998) suggested that innovation emerging at MNCs

subsidiaries is substantially useful in other units across the MNC. Other studies investigated the

processes of globally distributed innovation, which aim to conceptualize innovation process

given the premise that innovation can flow in any direction (Colakoglu & Yamao & Lepak,

2014).

Despite the great potential knowledge among MNC’s subsidiaries, little research has

examined the function of regional management as identifying and mobilizing knowledge in

MNCs from the international management perspective. Research is being focused on the

coordination and control decisions functions, rather than the challenges of identifying, nurturing,

and re-deploying knowledge resources within the MNC's global operations by the regional

management (Achcaoucaou, 2014).

Grounded on Bartlett and Ghoshal (1998) framework, there are four innovation patterns:

center-for-global (where a center creates a new product, process or a system for global use),

local-for-local (created and implemented by the national subsidiary for local use), local-for-

global (innovation that are emerging in local-to-local pattern are diffused within the MNC), and

global-for-global, (combining resources and capabilities from the entire organization units for

emerging global opportunities. It is found that the local-for-global innovation pattern is

substantially valuable and useful in multiple locations MNCs (Kazuhiro & Lehrer, 2003). Yet

the regional perspectives on innovation have not been studied extensively.

This paper focuses of the innovation pattern of local-to-global, which brings the strategic

role played by regional levels of management in mobilizing innovation. The Regional

management constitutes an organizational compromise between global integration and local

responsiveness (Kazuhiro & Lehrer, 2003).

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Defining Knowledge

In this paper knowledge is regarded within the technological innovation context.

Innovation in terms of advancing innovation falls under two types of knowledge: explicit

(codified) and tacit. Explicit knowledge refers to formalized and codified information, which can

be easily identified, stored, modified and retrieved (Frost, 2013). It is the “know-what” of the

firm. This type of explicit knowledge is considered to be simple in nature and therefore cannot

generate lasting competitive advantage. Explicit knowledge can be found in databases,

documents, memos and etc. Opposite of explicit knowledge, tacit knowledge usually refers to as

the “know-how”. It is hard to define it, and it is largely accumulated based on experience. That

is the most valuable source of knowledge (Frost, 2013).

MNCs Subsidiaries as an Innovation Source

New and valuable knowledge can be generated in multiple places of the multinational

corporation; it can be generated locally, regionally or globally. Subsidiaries have been

recognized to be innovation drivers to the wider MNCs (Reilly & Sharkey & Scott, 2014).

Creating and sourcing innovation no longer solely rests on the parent company. Subsidiaries

represent an important source of technological competencies addition to MNCs. Its linkage to

local partners enables apparent identification of valuable knowledge. Today, subsidiaries are not

only knowledge receivers but also are knowledge creators (Achcaoucaou, 2014).

However, this was not the always the case. Up until the late 1970’s, the subject of

innovation subsidiaries was ignored. Subsidiaries were considered as dependents centrally,

controlled by the parent company. Innovation streamed down from parent company to

subsidiaries; Innovations were created at headquarters level and implemented at a local level. It

is only at late 1990’s that subsidiaries roles have gradually shifted as potential providers of

global innovative solutions (Reilly & Sharkey & Scott, 2014). The seeming challenge MNCs

face is to capture valuable knowledge from its subsidiaries that can be leveraged into innovative

global application across the MNC to gain competitive advantage. In other words, innovation

direction reverses, it streams upwards from subsidiaries to the parent company, and the parent

company streams it downwards to the rest of its subsidiaries. That is the process of knowledge

mobilization.

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Regional offices enable knowledge mobilization

A case where local knowledge is being diffused or becomes local-to-global innovation

without the intervention of a mediator is very rare (Colakoglu & Yamao & Lepak, 2014). Often,

local knowledge is embedded in local routines and it does not integrate into the overall

corporation operation. MNC’s headquarters is limited by distance to conduct scan of potential

innovations throughout its worldwide subsidiaries (Reilly & Sharkey & Scott, 2014). Therefore,

regional offices are better positioned in matching local to global applications within the MNC.

Regional offices play an important role in mobilizing knowledge between the local

subsidiaries and the global level of the firm. Regional offices may be defined as “knowledge

brokers”, who are in charge of mobilizing knowledge from local units to other regional and/or

global units for global MNC application.

To understand the regional management, local-to-global pattern can be divided into two

sections “local-to-regional” and “regional-to-global”. Local-to-regional refers to the innovation

generated by local units, which can be leveraged for regional use (role). For example, many

Japanese companies open R&D centers in Europe to tap into resources at the European level.

Shiseido's fragrance business is a good example of local-to-regional innovation. Subsidiaries in

Europe are autonomous and highly decentralized. For instance, BPI (Beaute Prestige

Internationale) in France is an entirely owned subsidiary in Paris, acting as a “knowledge

broker”. BPI extracts locally embedded knowledge resources such as fragrance composition

know-how, development and production, and market brand expertise. Then it embodies this

knowledge in its perfume products, which do not carry the Shiseido label (Asakawa & Doz,

2001). These products are developed and manufactured in France and sold in France and in

Europe.

The second pattern of the regional management, is regional-to-global, the goal of

regional innovations is not only leveraging innovation within a specific region but also

mobilizing knowledge worldwide (Kazuhiro & Lehrer, 2003). The diffusion process may

proceed through mediation of MNC’s headquarters or through worldwide subsidiaries. In either

situation, the region effectively serves as a relay for global innovation. Taking the pervious

example of Shiseido’s fragrance business, fragrances were sold not only in France and Europe

but also exported worldwide including Asia, North America, and even in Japan (Kazuhiro &

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Lehrer, 2003). In this case, BPI facilitates not only “local-for-regional” but also “regional-for-

global” innovation.

Another very interesting recent case that illustrates the local-regional-global innovation

flow is innovation generated in Africa, which is relevant to international markets in the

Telecommunications industry. Safaricom and Vodacom are subsidiaries of the Vodafone, a

British multinational telecommunications company headquartered in London. Safaricom and

Vodacom are the largest mobile operators in Kenya. The growing mobile use among locals in

Kenya introduced the idea of transferring airtime using mobile devices (Cisco, 2013). As a

result, M-Pesa mobile payment system was invented which is now used globally. M-Pesa is an

innovative solution to transfer money using a mobile. Essentially, Vodafone used the knowledge

generated in the local rural Kenya market and deployed it in Vodafone operations into other

countries such as in Afghanistan, South Africa, India and Eastern Europe (Vodafone). M-Pesa

represents a case of local-regional-global innovation.

Framework

The role of regional offices is to manage the Innovation Management Cycle which includes

knowledge resource identification, knowledge extraction, and knowledge resource diffusion.

Figure 1 illustrates the Innovation Management Cycle. The shaded area indicates the relative

importance of the role played by the local region and global offices in mobilizing local

knowledge across MNC network.

The cycle including the following:

1. Identify – regional offices and the local units have sufficient proximity to identify relevant

knowledge residing in a certain location within a specific region. In some cases, the regional

offices are located within or near local innovation clusters which makes it much more

practical to regional offices to access it than the MNC’s headquarters.

2. Extraction – regional offices are acting like “knowledge brokers”, connecting both to the

local subsidiaries and the MNC’s headquarters. The extraction process happens by

transferring the knowledge.

3. Diffusion – Regional level of management act as knowledge mobilizers. It is being done by

initiating diffusion of relevant knowledge to other MNC units. Usually engaging corporate

R&D in the process.

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Conclusion and implications

This paper outlines the importance of subsidiaries as a source to innovation in the

changing markets. It illustrates the mechanism of local-for-global innovation cycle of

identification, extraction and diffusion. This paper advocates for the strategic role of regional

offices as knowledge mobilizers between local and global markets in mobilizing innovation. The

framework explains the role of regional offices which is to manage the Innovation Management

Cycle and describes the role of regional offices as knowledge brokers serving for local-regional-

global innovation.

In spite of the fact that subsidiaries are the key players for developing local knowledge,

regional offices identify the potential for innovation and help MNC to identify its greater

application potential and to implement the knowledge in other MNC activities globally which is

acquired locally . Regional offices are the key elements in this whole process of local-for-global

innovation connecting innovative local units and MNC headquarters.

Further Research

Finally, it has been identified how the competitive advantage of MNCs rests largely upon

leveraging the dispersed knowledge and innovative potential of its subsidiary units, supportive

future research can be done on providing expansion for the suggested framework, developing

specifics on the types of regional offices and how it operates will complement this subject.

Figure 1: Innovation Management Cycle

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