I have a question

Communities, alliances, networks and knowledge in multinational firms: A micro-analytic framework☆

Stephen Tallman a,⁎, Aya S. Chacar b,1

a E. Claiborne Robins Distinguished Professor of Business, Robins School of Business, University of Richmond, Richmond, VA 23173, USA b FIU College of Business Administration, Florida International University, University Park, RB 342B, Miami, FL 33199, USA

a r t i c l e i n f o a b s t r a c t

Article history: Received 15 January 2010 Received in revised form 15 September 2010 Accepted 15 March 2011 Available online 26 May 2011

We develop a model of the micro-process of knowledge acquisition, dissemination, and application in the networks of alliances that have become important sources of external knowledge for multinational firms. Based on the concept of communities of practice as sources of highly tacit know-how, this model addresses the use of alliances with local partners to acquire tacit knowledge on a sub-unit level and to then share this knowledge throughout the firm via an internal network of community-level alliances. We suggest that the supposed advantage of multinational firms in accessing and reconstituting knowledge from widely spread sources is composed of multiple micro-processes at sub-unit levels, and therefore much more complex than usually presented.

© 2011 Elsevier Inc. All rights reserved.

Keywords: Communities of Practice Tacit Knowledge Exchange Multinational Networks

1. Introduction

The contemporary multinational firm is commonly described as a network organization and also as an organization that resides in a wider external network of organizations. The critical functions of these networks relate to the gathering, transfer, recombination, and exploitation of knowledge in a global marketplace. Innovation in the multinational firm (MNF) no longer is seen as originating only from the core of the firm. Rather, new knowledge is more often developed through a network of external knowledge sourcing means. One essential alternative approach to external knowledge sourcing is the use of alliances, whether with local partners that are immersed in local business communities or with other MNFs; and whether structured as contractual or shared equity ventures (Mudambi and Swift, 2011). In this new view of the MNF, subsidiaries and affiliates must be able to access and internalize locally embedded and often tacit knowledge spillovers through alliances with partners in host countries (Cantwell, 1989), in local communities and clusters (e.g., Almeida and Phene, 2004; Feinberg and Gupta, 2004), or in international networks, and then to transmit their knowledge throughout the MNF's internal network of units, using both formal and informal internal ties (Bell and Zaheer, 2007).

MNFs are said to create competitive advantage by removing knowledge from its place of origin, using internal transmission to overcome the natural ‘stickiness’ of knowledge (particularly more tacit knowledge), and combining it in unique ways with similarly sticky knowledge from other locations (Kogut and Zander, 1993). These concepts parallel Rugman's (1981) concept of the MNF gaining advantage by combining firm-specific assets with country-specific assets, but go further in that the MNF is no longer seen as seeking country-specific advantages only for improved access to the local market. Rather, as shown graphically in Fig. 1, country-specific knowledge is being captured, converted into local firm-specific knowledge, and then combined with knowledge in the broader firm to create global firm-specific knowledge. Equally, an MNF may use strategic alliances to tap into the

Journal of International Management 17 (2011) 201–210

☆ This article extended the framework developed in ‘Knowledge accumulation and dissemination in MNEs: a practice-based framework’, Tallman and Chacar, Journal of Management Studies, 2011. ⁎ Corresponding author. Tel.: +1 804 353 0593.

E-mail addresses: [email protected] (S. Tallman), [email protected] (A.S. Chacar). 1 Tel.: +1 305 348 4219.

1075-4253/$ – see front matter © 2011 Elsevier Inc. All rights reserved. doi:10.1016/j.intman.2011.05.003

Contents lists available at ScienceDirect

Journal of International Management

firm-specific knowledge of other MNFs, both for immediate gains from cooperative strategies, and as a way to renew its internal stock of knowledge (Rosenkopf and Almeida, 2003; Shan et al., 1994).

The next section develops the concept of communities of practice as the essential generators of tacit practice-based knowledge. We then consider the idea of alliances as the sources of knowledge, followed by a discussion of how knowledge is developed in international alliances of various types, assimilated into the MNF, and then applied in new circumstances, tying these activities to the use of communities and networks of practice in different settings.

2. Communities of practice and knowledge in firms and networks

The focal unit of analysis of most studies of MNF knowledge networks, whether internal or external, is currently the subsidiary or affiliated firm (Gupta and Govindarajan, 2000). Recent developments in the examination of knowledge in multinational firms suggest that both the study and the practice of knowledge-related activities might more accurately be considered at the level of the sub-units that create and use knowledge (Tallman and Chacar, 2011).2 Communities of Practice (CoPs) are small, focused, localized groups of individuals within a firm who have a mutual engagement in the joint practice of some activity (Brown and Duguid, 2001), such as the members of a technological work group (Henderson and Clark, 1990), a product development team, groups of technicians working on common problems (Brown and Duguid, 2001) or a firm management team (Matusik and Hill, 1998). The CoP construct proposes that the creation and movement of valuable tacit knowledge within and among firms in close proximity are tied closely to the “practice” or the actual performance of actions related to creating value in goods or services

Multinational Parent Firm

Partner MNF

Local SubsidiaryLocal

Social Network

Joint Affiliate

Network Partner

Local Knowledge Sharing Network

Knowledge Sharing

Firm-Level Knowledge Sharing

Component Knowledge Assimilation and

Adaptation

Local Partner

Fig. 1. The MNF at the center of multiple networks.

2 We focus on communities of practice, oriented toward pursuing narrowly defined activities with some tacit component. Many of the ideas developed here can be applied to what have been called centers of excellence, work groups, product development teams, and the like that involve informal or temporary groupings of individuals engaged in activities of mutual interest that produce individual identity and commitment, tacit know-how, and shared understandings of joint processes.

202 S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210

(Brown and Duguid, 2001), akin to Nonaka's (1994) knowledge of experience. Only individuals actually engaged in the practice of some activity can obtain a deep understanding of that activity. Through their shared enterprise, members of a CoP develop common operational or component knowledge. Through their close identification with the group and its activities, they also develop common understandings about the whole system of knowledge development and application, or architectural knowledge (Frost and Zhou, 2005; Henderson and Clark, 1990; Matusik and Hill, 1998; Tallman et al., 2004).

Architectural knowledge is defined as highly path-dependent (experiential) in nature, deeply embedded, tacit, and inherently immobile (sticky). It exists as a stock or body of knowledge developed and held at different levels of organization and separates units engaged in different practices (Buckley and Carter, 2004). Sharing common architectural knowledge or understanding defines a community, whether a community of practice among individuals (Brown and Duguid, 2001), members of a technological work group (Henderson and Clark, 1990), firm management (Matusik and Hill, 1998), firms within a geographical cluster (Tallman et al., 2004), or joint development elements within an alliance or joint venture and increases mutual absorptive capacities for knowledge within communities. Common architectural knowledge improves the mutual absorptive capacities of firms for more task-specific component knowledge.

Component knowledge consists of the specific knowledge that relates to identifiable parts of an organizational system rather than to the system as a whole (Henderson and Clark, 1990). Component knowledge is typically a combination of explicit technology, which can be easily absorbed, and tacit understandings related to context and application, which require some degree of insight for absorption. Component knowledge can move among organizations more or less easily depending on the relative size of the tacit component (the more tacit, the slower) and the mutual absorptive capacities of the organizations.

The evidence of such informal but essential groups as critical sources of value within firms is fairly well established (Lave and Wenger, 1991). Local networks of communities within regional knowledge clusters have been identified in various cases, and the existence of internationally dispersed communities or networks of communities within multinational corporations has been proposed and supported with some evidence (Brown and Duguid, 2001). It seems quite likely that successful external alliance relationships among firms also involve active connections among subordinate groups of individuals with intense common interests in certain value-adding activities, rather than formal contracts among top managers alone. Such individuals are motivated to engage in shared knowledge development both by practical consideration of their own knowledge-of-practice gains and by natural social processes acting in relationships that are both physically and intellectually close. Recognition of such networks of communities within and beyond the individual multinational firm offers opportunities to better understand both how tacit, practice-related knowledge can be transferred and transformed within multinational firms and how best to study the specific micro-processes, mechanisms, and outcomes of knowledge management in the contemporary multinational (Andersson et al., 2002).

We propose that understanding the success and failure of strategic alliances as elements in organizational learning requires exploring whether the essential mechanisms for tacit knowledge creation and dissemination exist within the alliance triangle of partner firms and cooperative venture. Borrowing from Tallman and Chacar (2011), we propose that communities of practice (CoPs) are the elemental unit for practice-based, highly tacit knowledge acquisition and dissemination in alliances, both local and strategic, as proposed in the general case of the MNF acquiring knowledge via its subsidiaries. The focus on CoPs helps us propose a single framework for understanding the multi-pronged problem of knowledge development from alliances in a multinational firm: knowledge acquisition from the partner, knowledge integration with the MNF's own knowledge body in order to create unique knowledge that may become a source of competitive advantage, and knowledge dissemination from the acquiring and/or developing unit into the rest of the firm.

3. Strategic alliances and knowledge acquisition

While an alliance strategy may have more than one goal, the use of strategic alliances for knowledge acquisition seems to be a growing and perhaps dominant theme in both the scholarship and the practice of international strategy (e.g., Berg and Friedman, 1981; Grant and Baden-Fuller, 2004; Mohr and Spekman, 1994; Powell, 1990; Teece, 1992). In an era of intensive global competition and imitation, resource renewal, and specifically knowledge development, is essential to long-term competitive advantage (Barney, 1991; Grant, 1996; Penrose, 1957). In the search for new knowledge and the hope for shortening knowledge development cycles, strategic alliances are becoming essential weapons in firms' arsenals. Multinational firms are more prone to using alliances than most large firms since they also need to accumulate deep knowledge on customers, competitors, and nations and not just technologies that lie far outside their boundaries (Glaister and Buckley, 1996). These various forces push MNFs to enter into international alliances and joint ventures in the hope of accessing external knowledge sources (Inkpen, 1998; Ireland et al., 2002).

Although firms participating in strategic alliances may face learning races (Hamel, 1991), prior research shows that learning via strategic alliances can generate various benefits (Grant and Baden-Fuller, 2004). For instance, firms can have a knowledge base that helps them adapt better to their environments (Kraatz, 1998) or enter new/foreign markets (Barkema et al., 1997). Ultimately, knowledge accessed or developed via strategic alliances can help build firms' idiosyncratic resources and knowledge and ultimately generate competitive advantage (Parkhe, 1991). Compared to wholly owned subsidiaries, alliances offer an independent perspective on the relevant activities or technologies, one that is not colored by the internal pressures to conform to the norms of the MNF, either from conception in the case of organic startups, or post-takeover in the case of acquisitions. However, in comparison to market relationships, alliances provide ongoing support for learning processes, ranging from fairly explicit and technical in the case of contractual arrangements to highly sophisticated, tacit, interactive learning in equity joint ventures.

203S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210

This hopeful picture is in contrast to the grim reality that the majority of alliances fail to achieve their goals and that there are many failed alliances (Parkhe, 1991). Researchers are chipping away at this problem and have identified a multitude of potential causes for the failure of these alliance or factors that lead to their success. For instance, the nature of knowledge can influence knowledge transfer and ultimately affect learning outcomes. Simonin (1999) found that knowledge ambiguity is positively associated with the difficulty of knowledge transfer, because tacit knowledge is more difficult to transfer than is explicit knowledge. In the context of cross border knowledge transfer, Lam (1997) showed that the degree of knowledge transfer is determined by knowledge formats and knowledge structures. In the context of international joint ventures, Lyles and Salk (1996) indicated that structural mechanisms, such as training and assistance offered by foreign parent firms, enhance knowledge transfer to international joint ventures. Barkema et al. (1996) showed that cultural barriers to strategic alliance partners hamper firms' learning abilities and outcomes. In addition, the absorptive capacity of a firm (Cohen and Levinthal, 1990) may also affect its abilities to assimilate external knowledge. Following this rationale, better learning outcomes may be generated when a firm has some common knowledge with its strategic partners. Moreover, Inkpen and Beamish (1997) pointed out the importance of unlearning, since a firm's institutionalized practices may hamper its future learning abilities.

4. Cops and knowledge acquisition in international network firms

When scholars such as Birkinshaw (2001) or Andersson et al. (2002) speak of subsidiary firms providing interfaces by which MNFs draw from the local industrial environment, they tend to consider the subsidiary as a monolithic entity. However, in discussing the role of geographical clusters in generating knowledge, Wenger (2000) suggests that CoPs might exist across firm boundaries, and Brown and Duguid (2001) describe local Networks of Practice composed of the interacting CoPs from the various firms in the cluster. They propose that the knowledge spillovers (Zucker et al., 1998a, 1998b) or untraded interdependencies (Storper, 1993) that are commonly described features of regional clusters do not take place in a firm-to-firm network as usually depicted (particularly for complex, highly tacit knowledge or practice-based routines), but rather through the exchange of component knowledge among networked CoPs. Building on Tallman and Chacar (2011), we propose that strategic alliances created for the purpose of exchanging and developing joint knowledge are more likely to be successful at the task at hand if communities of practice in each of the partner firms can efficiently exchange architectural and more tacit component knowledge. This extends the application of the concept of shared knowledge through shared practice from the realm of the spontaneous social network and the unintended spillover of technical knowledge among informal communities to the more structured setting of the formal alliance network in which partner firms intentionally share, or attempt to share, both tacit and explicit knowledge.

We currently have a fairly solid understanding of the mechanisms for the movement of basic information or low-tacit content knowledge in subsidiaries, alliances, or MNFs (e.g., Martin and Salomon, 2003a; Szulanski, 1996). Two key questions remain, however, about the development and transfer of highly tacit knowledge within MNFs (Tallman & Chacar, 2011). First, how do subsidiary or affiliated units absorb complex and embedded knowledge from local or proprietary external knowledge pools (e.g., Liebeskind et al., 1996; Sorenson et al., 2006)? Second, how can such geographically or organizationally sticky, tacit knowledge (Markusen, 1999) be transmitted efficiently to the rest of the MNF's network (Szulanski, 1996) in order to be “re-combined” (Kogut and Zander, 1993) and to create and gain sustainable competitive advantage? In order to answer these questions, we need a more precise understanding of the micro-processes by which highly tacit knowledge is transmitted across the boundaries of firms and across geographical distances and borders. We look to the concept of CoPs to provide a comprehensive theoretical model of such micro-processes to answer both of these questions, particularly in understanding the role played by alliance relationships in the organizational learning processes of MNFs. We propose that the mechanisms of both external capture and internal transfer of knowledge, be it from an alliance partner or other cooperative ties, that has a high tacit content can best be understood and studied not at the level of networked subsidiary firms, but at the micro-organizational level of communities. This is shown graphically in Fig. 2.

Our model of tacit knowledge movement makes two clear assumptions. First, the processes of knowledge codification are at best uncertain and subject to losing much of the tacit content of the knowledge that they are supposed to preserve (Coff et al., 2006). Second, distance, whether geographical, institutional, cultural, or organizational, will make disseminating knowledge even more uncertain (Kogut, 1991; Szulanski et al., 2003), so that tacit knowledge is by nature local (Zucker et al., 1998a). This second point has obvious implications for multinational firms, but is also specifically relevant to alliances, in which two or more firm- specific cultures, institutional systems, strategies, and the like must be combined for effective knowledge development. Overcoming such differences can enhance innovation through combining disparate ideas into new concepts; the difficulty of doing so may go far toward explaining the low rates of success ascribed to alliances in actually accomplishing this task.

Natural social processes occurring among individuals and groups engaged in similar activities in a confined geographical area, or otherwise working hand-in-hand, lead members of closely associated CoPs to create local networks of interacting communities from the various firms and organizations (universities, trade groups, etc.) in a local geographic region or cluster (Brown and Duguid, 2001; Storper, 1993; Tallman et al., 2004; Zucker et al., 1998a). These networks and the social ties that they represent promote the development of network-level architectural knowledge that then eases the transmission of even highly tacit component knowledge among embedded communities by improving absorptive capacities for locally developed technical and operational knowhow – spillovers of knowledge (Brown and Duguid, 1991; Cohen and Levinthal, 1990; Tallman et al., 2004). When the CoPs that are part of an MNF subsidiary firm are embedded in relevant local networks, they will share the local architectural knowledge and be able to internalize the technical knowledge that is available within the cluster (Cantwell and Piscitello, 2005; Mudambi, 2008). If that subsidiary is an alliance or joint venture, the active participation of the local partner both

204 S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210

in the local context and with the MNF should help ease the translation of locally sourced knowledge for absorption by the MNF even further.

Local networks consist of individuals and communities that work on similar issues, have similar training and objectives, share professional norms and so forth (that is, share a common architectural knowledge as described above) (e.g., Faulconbridge, 2008), so they will have high absorptive capacities for component knowledge coming from each other—even knowledge with a high tacit component—easing spillovers among communities in a local network of practice (NoP) (Tallman et al., 2004). For the MNF attempting to tap into such local networks of practice, alliances with connected local firms raise the possibility of immediate access to local networks of practice. These sorts of activity-specific embeddedness, found to lead to superior competence development in the Andersson et al. (2002) study, specifically reflect the expectations of our model. Similar findings by Frost et al. (2002) tie local industry strengths to the development of ‘centers of excellence’ in subsidiary firms, and are attributed to ‘active participation of the subsidiary in the [local] community of practice’ (p. 1002). Knowledge emerges or enters the network of the MNF through CoPs embedded in subsidiaries, affiliates, or partners (Fig. 2).

If we visualize each subsidiary unit of the MNF as consisting of a number of activities, then the subsidiary has the potential of hosting one or more locally and/or network embedded CoPs, each with insight into the tacit processes, or know-how, of its own practice. The practice-based perspective suggests that insofar as complex, tacit knowledge can be gleaned from such networks, it will be done not by the subsidiary firm, but by the CoPs internal to the subsidiary that are actually embedded in these relational networks. For wholly-owned subsidiaries, the problem becomes one of internal CoPs connecting to the local network across firm boundaries, a slow process involving considerable give and take of information, developing social ties, and general embeddedness in the local milieu. For alliances or joint ventures, the local partner offers these connections to the local network, and the focus of access shifts to building joint communities within the cooperative venture. If this can be accomplished, the MNF's personnel will have access to the local network through their internal connections without having to connect to the broader locale. The issue is, though, whether or not this connection can be established in a timely manner.

Partner MNF

Multinational Parent Firm HQ

Local Subsidiary

Local Network of Practice

Local Knowledge Sharing

CoP

CoP

Joint iateteeatttete

ddd

Internal Network of Practice

Component Knowledge Assimilation and

Adaptation

L K

Network Partner

Network Knowledge Sharing

CoP

Local Partner

Fig. 2. Knowledge Networks, CoPs, and the MNF.

205S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210

From a firm-level perspective, formation and staffing of an alliance or joint venture establishes the necessary connections. However, models of alliance failure show that alliances require significant and ongoing investment in transaction-specific relationship building (Madhok and Tallman, 1998), as failure often is a consequence not of technical incompatibility, but of relational distance (Parkhe, 1993) or personal incompatibility (Tallman and Shenkar, 1994). Simply putting people together does not establish a going concern. If we consider the intimate relationships that are required for successful communities of practice, we would expect that overcoming the differences in national and corporate culture, institutions, expectations, and understanding will take time and effort. Simply placing teams of individuals from the partners in common spaces and telling them to work together is inadequate to generate a sense of community. The two teams are almost certain to have different architectural knowledge of even similar processes. Moreover, the organizational learning perspective suggests that overcoming this version of ‘not invented…by us’ is going to be difficult. Indeed, enforced proximity may exacerbate feelings on the part of local employees that they are not respected by the sophisticated outsiders from the MNF, and feelings on the part of any expatriates or visiting employees from the MNF that their skills are resented and resisted. And such perceptions may well be true—an alliance that seems ideal at corporate HQ may seem much less attractive to those attempting to combine different skills and assets at the activity level (Parkhe, 1993). Careful selection of seconded MNF employees for both technical and relational skills, as often suggested in the expatriate literature (Tung, 1987) and investment in team-building as well as skill-matching are essential if community practices are to develop in a timely fashion—before slower than expected production of innovative outcomes discourages the partners and leads to dissolution of the alliance (Madhok and Tallman, 1998).

5. The subsidiary cop as knowledge supplier to the MNF network

Internal network ties have been linked to knowledge acquisition and superior performance at multiple levels of analysis (e.g., Ahuja, 2000; Shan et al., 1994). The standard model (e.g., Gupta and Govindarajan, 2000) assumes that such knowledge is codified within the subsidiary and sent to other subsidiaries or to the parent's headquarters, where it is decoded and applied. This model appears adequate for mostly explicit know-what but raises concerns for communicating more tacit knowledge, which does not move so simply.

We apply the same construct to the movement of tacit component knowledge throughout the widely dispersed international networks of the MNF. Bureaucratic procedures at the level of the firm can help other organizational units access the explicit part of the component knowledge held by a subsidiary or alliance partner. However, internal dissemination of more tacit component knowledge also requires a common architectural understanding to develop across networks of widely spread subordinate and affiliated units. This demands a level of connectedness that has been identified within dispersed intra-firm communities (Buckley and Carter, 2003) or social communities (Noorderhaven and Harzing, 2009), but which, for consistency, we define as Internal Networks of Practice (INoPs). By this term, we mean informal networks that bring together in joint practice the CoPs that are found at intra- and inter-subsidiary levels, and that help in developing common repertoires of knowledge and routines, encouraging the development of shared architectural knowledge, and thereby enhancing the flow of tacit component knowledge.

Noorderhaven and Harzing (2009) demonstrate the importance of social learning to moving more tacit knowledge among subsidiary units. Complex, tacit knowledge is best transmitted through rich communication media, such as face-to-face communication (Bresman etal., 1999), orthe movementof individuals tonewlocations(Almeida and Kogut, 1996; Zuckeret al.,1998b).Consequently, theCoP/NoP model suggests that firm-level hierarchical connections among subsidiaries may offer a weak mechanism for the transfer of high-tacit content component knowledge coming from their own CoPs. Improving our understanding of the movement of component knowledge requires again shifting the unit of study from subsidiary firms to sub-units at activity levels (Foss and Pedersen, 2004).

Our model offers a mechanism through which high-tacit content component knowledge can retain its tacit dimension while being assimilated by other CoPs that are internal to other units of the MNF. Similar to local knowledge transfer into the subsidiary, transfers of tacit knowledge across units of the network MNF will occur much more readily when disseminated among CoPs engaged in joint-practice than when forced to move through formal channels at higher organizational levels. Inside MNFs, such communities of practice can be found in both headquarters and subsidiaries, and potentially can be formed into networks extending across geographical boundaries. Therefore, we propose the concept of the Internal Network of Practice, within which associated, but geographically separated, CoPs communicate directly. The INoP acts as a mechanism for creating a common sense of the architecture of knowledge and to ease the assimilation of component knowledge. Subsidiary CoPs act as links between local NoPs and INoPs to enable knowledge to be readily accumulated and disseminated—that is, learned, by the entire MNF organization. Without this capacity, the concept of the MNF as an arbitrageur of private knowledge (e.g., Bell and Zaheer, 2007; Doz et al., 2001; Feinberg and Gupta, 2004) offered in many models of the MNF is not workable for highly tacit component knowledge (e.g. Gupta and Govindarajan, 2000; Mudambi and Navarra, 2004; Szulanski, 1996).

6. Assimilating tacit knowledge within the subsidiary

The first barrier to the international transfer of highly tacit component knowledge arises within the subsidiary firm. As described by Brown and Duguid (1991) and others (e.g., Buckley and Carter, 2004; Lave and Wenger, 1991; Thompson, 2005), CoPs turn a firm or other organization into a set of subcultures, each with members identifying closely with their own community, but also with a high level of mutual incomprehension among the various communities gathered into the firm. Knowledge that is slippery across the geographical cluster's local CoPs tends to be sticky within the subsidiary firm (as with any firm), because other parts of the firm, as Mudambi and Swift (2009) put it, belong to different professional guilds with different senses of the world. The

206 S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210

different understandings of the (relevant) world, or architectures, developed by various communities engaged in different practices tend to make even fairly explicit within-community component knowledge sticky when proposed for transmission across community boundaries—even among units within a subsidiary firm. These issues are likely to be exacerbated in an alliance situation, where personnel affiliated with the MNF are expected to make the connection between local and global, but may not have roots in the local environment—except through locally based members of the alliance. The importance of relationship building across firms and contextual barriers to create integrated and engaged CoPs not only to generate knowledge, but also to form the basis for a bridge to the rest of the MNF becomes apparent.

7. Tacit knowledge dissemination throughout the MNF

If tacit component knowledge is difficult to move even locally, actually exporting this knowledge without losing its non-codified content remains a considerable challenge. Explicit or codified component knowledge, or know-what, flows relatively easily, but offers little differentiation, as it also flows easily beyond the firm (Martin and Salomon, 2003a). More tacit component knowledge, or know- how, offers a better source of competitive advantage, is the real basis for knowledge-seeking investment, but is harder to transfer (Kogut and Zander, 1993). Szulanski (1996) found that knowledge resources tended to be sticky within individual subsidiaries and were difficult to transfer to other parts of the larger firm, due in some part to organizational motivations, but primarily to “…lack of absorptive capacity, causal ambiguity, [and] the arduousness of the relationship…” (p. 37). Consequently, the knowledge resources that might become part of the MNF's competitive advantage tend to resist movement beyond local (Birkinshaw et al., 1998) or home country (Martin and Salomon, 2003b) application. Hansen and Lovas (2004) conclude that as the spatial distance among subsidiary organizations in an MNF increases, the probability of technology transfer decreases.

In our terms, distance and differences in architectural knowledge from unit to unit limit the potential for high-tacit content component knowledge to be exchanged. Practice-derived highly tacit knowledge is more difficult to comprehend for units that have different architectural understandings than for the originating unit—we suggest above that this is the case across specializations within a subsidiary, and distance effects make this even more likely between geographically separated subsidiaries, or the originating subsidiary and the HQ, particularly in the case of alliance-type subsidiary units (see Fig. 2). The more deeply embedded the originating CoP and subsidiary are in their local environments, the more likely it is that the various factors leading to increased stickiness will be strengthened, and the local or partner side of the alliance will be deeply embedded in its own environment. Due to the loss of critical information in any effort to codify, transmit, and decode tacit component knowledge, impediments to the long-distance dissemination of critical operating knowledge are likely to persist, even within firms, without mechanisms to stimulate intra-firm knowledge transfer and permit increased linkage economies (Mudambi, 2008). Frost and Zhou (2005) demonstrate that “R&D co-practice”, or joint technical activities among units, increases social networking and absorptive capacities and future knowledge exchanges among isolated participating units. Joint practice among geographically separated CoPs will lead to common architectural knowledge across the elements of the MNF, which will in turn make possible the direct transfer of more tacit component knowledge throughout the internal network of the MNF. Of course, as more and more of these units are actually alliances with various partners, each embedded in its own environment, the internal network of practice becomes a complex set of interactions that indirectly connect partner firms that may have no interest in direct ties—indeed, may not even know of each other. The risks of loss of private knowledge through the unintentional medium of the central MNF makes engagement in CoPs that are parts of such INOPs a dramatically more risky proposition than might be assessed in a simple bi- lateral relationship.

The architects of the MNF's organization must consider the need for common practice—actual working together in developing solutions to problems, creating new processes, or designing new products—among the scattered CoPs in a specific area of endeavor if an INoP is going to develop. They must also consider that strong evidence shows that CoPs cannot be mandated into existence; rather, they emerge when compatible practitioners of some activity are placed in extended contact while engaged in joint efforts. Creating the absorptive capacities, trust in motives, and understanding of architecture that Brown and Duguid (2001) propose for local networks of practice and Hinds and Mortensen (2005) find minimize conflict in distributed teams is an activity essential to building geographically distributed networks for tacit knowledge transfer (Frost and Zhou, 2005). Both formal and informal connections among subsidiaries mitigate the negative effects of spatial distance on technology transfer (Hansen and Lovas, 2004). The development of INoPs must go beyond the occasional task force or annual technical fair. Without intense local integration, the firm's CoPs will be unable to share the architectural knowledge of their local NoPs or to access the component knowledge spillovers that they target. Without similarly intense integration as an internal knowledge network within the MNF, the constituent CoPs will struggle to diffuse their knowledge internally but across large geographical distances.

8. Discussion and conclusion

This paper focuses on the accumulation and dissemination of the sort of path-dependent, deeply embedded, tacit know-how that is said to be the basis for sustained competitive advantage in MNFs. Such knowledge is not effectively transmitted through the formal bureaucratic pathways that MNFs rely on to transmit more explicit, codified information, and which are more typically studied by researchers looking at knowledge flows in MNFs. We propose a framework for decentralized knowledge development, acquisition and assimilation (organizational learning) in MNFs based on the concepts of communities and networks of practice. Our model further explicates the mechanisms behind absorptive capacity (Cohen and Levinthal, 1990) by exploring the micro- foundations of organizational processes.

207S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210

Our model projects a natural tension for CoPs that are embedded in their local networks through the naturally close interaction of individuals and groups engaged in the same practice in a small geographical area, but that must become equally embedded in internal, and often international, networks where practice is likely to be somewhat limited and interaction less natural. As we demonstrate, such issues are particularly notable in the close quarters of alliances or joint ventures, in which local and international managers are forced into formal association, but from which informal ties must emerge if highly tacit know-how is to be developed and shared with the rest of the MNF. First, we offer a detailed mechanism to explain how and when knowledge with a strong tacit component can be internalized by local subsidiaries. Without a micro-level mechanism, learning simply is associated with co-location and its success or failure appears as a stochastic process. We argue that a proper understanding makes assimilation of knowledge a management process.

Second, focusing on subsidiary firm to subsidiary firm relationships to understand the internal dissemination, recombination, and application of newly acquired knowledge likewise suffers from level of analysis errors. Understanding the real importance of communities, work groups, centers of excellence, or other informal, multi-disciplinary, sub-firm level units to any real understanding of tacit knowledge explains the mixed findings of empirical studies of internal knowledge transmission and also suggests how to consistently improve organizational learning outcomes. Incentivizing general managers will never be an adequate substitute for inspiring and enabling the individuals and small groups that are actually engaged in the practice of a particular set of skills. Our model offers a consistent, coherent, empirically supported and theoretically defensible solution to the problems seen by MNFs in acquiring and internalizing tacit knowledge and by scholars in understanding this phenomenon.

We believe that such a model is vitally important to the further development of the concept of the multinational firm and its empirical study. Current models have looked inside the larger MNF, but continue to treat complex subsidiary firms and affiliated alliances as monolithic entities. These entities are portrayed as components of networks for knowledge exchange, but knowledge flows are portrayed as occurring at the subsidiary firm level and influenced by subsidiary general manager relationships. We believe that new theorymust be proposed to further break down such models, with their weak and conflictingempirical outcomes, if we are to move ahead in studying MNFs. We appeal specifically to the concept of micro-processes to establish that knowledge in fact is created and disseminated at a much lower level than in the standard model and to propose that only theory set at the proper level of analysis (the CoP in this case) can really help to develop deep understanding. So, we reformulate the concept of internal network relationships. We also reformulate the concept of absorptive capacity. Too often, the capacity for new learning is said to be based on (not just measured by) investment in similar local learning or previous exchanges of information. We say—why is this so? In our model, common practice increases common architectures of knowledge, or ways of interpreting the world and making sense of incoming information. Simply spending R&D money on new products is less important than investing those expenditures in joint knowledge development, whether internal to the firm or in engagement with alliance partners (and, for that matter, what is the real difference in these internal and external networks when it comes to knowledge and learning?). We believe that questioning existing theoretical concepts by offering a cohesive, coherent, consistent alternative theory is critical to the advance of scholarship, as new theory tends to reinterpret existing empirical results and provide a direction for new studies of the phenomenon in question. We believe that our model offers such a guide, but encourage scholars not just to test our concepts by to also consider yet other alternative approaches to a more precise understanding of how knowledge processes function in the MNF.

We look in some detail at the implications of alliance relationships in this setting. Building CoPs from individuals working across firm boundaries as well as locational distances, and in the face of potential loss of private know-how through the intermediary of the MNF's internal networks, suggests the potential for particular value in networks of CoPs that are embedded in networks of inter-firm alliances, but at the same time suggests that the risks for partners are even higher than in the case of wholly owned subsidiaries. As MNFs more and more take on the appearance of true network organizations, spread over wide geographical and social distances, the implications for knowledge development, deployment, and dissemination seem to become stronger both for good and bad and for both the MNFs and their cordons of allies. Understanding the micro-processes behind these activities and outcomes must be understood better if firms are to be able to extract value from this globalizing trend in organizational strategy and structure.

References

Ahuja, G., 2000. Collaboration networks, structural holes, and innovation: a longitudinal study. Administrative Science Quarterly 45 (3), 425–455. Almeida, P., Kogut, B., 1996. The exploration of technological diversity and the geographical localization of innovation. Small Business Economics 9, 21–31. Almeida, P., Phene, A., 2004. Subsidiaries and knowledge creation: the influence of the MNE and host country on innovation. Strategic Management Journal 25,

847–864. Andersson, U., Forsgren, M., Holm, U., 2002. The strategic impact of external networks: subsidiary performance and competence development in the multinational

corporation. Strategic Management Journal 23, 979–996. Barkema, H.G., Bell, J.H.J., Pennings, J.M., 1996. Foreign entry, cultural barriers, and learning. Strategic Management Journal 17 (2), 151–166. Barkema, H.G., Shenkar, O., Vermeulen, F., Bell, J.H.J., 1997. Working abroad, working with others: how firms learn to operate international joint ventures. Academy

of Management Journal 40 (2), 426–442. Barney, J.B., 1991. Firm resources and sustained competitive advantage. Journal of Management 17 (1), 99–120. Bell, G.G., Zaheer, A., 2007. Geography, networks, and knowledge flow. Organization Science 18 (6), 955–972. Berg, S., Friedman, P., 1981. Impacts of domestic joint ventures on industrial rates of return: a pooled cross section analysis. The Review of Economics and Statistics

63, 293–298. Birkinshaw, J., 2001. Strategy and management in MNE subsidiaries. In: Rugman, A.M., Brewer, T.L. (Eds.), The Oxford Handbook of International Business. Oxford

University Press, Oxford, pp. 380–401. Birkinshaw, J., Hood, S., Jonsson, S., 1998. Subsidiary initiative in multinational corporations. Strategic Management Journal 19, 221–241. Bresman, H., Birkinshaw, J., Nobel, R., 1999. Knowledge transfer in international acquisitions. Journal of international Business Studies 30 (3), 439–462.

208 S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210

Brown, J.S., Duguid, P., 1991. Organizational learning and communities of practice: towards a unified view of working, learning and organization. Organization Science 2 (1), 40–57.

Brown, J.S., Duguid, P., 2001. Knowledge and organization: a social-practice perspective. Organization Science 12 (2), 198–213. Buckley, P.J., Carter, M.J., 2003. Governing knowledge sharing in multinational enterprises. Management International Review 43 (SI), 7–25. Buckley, P.J., Carter, M.J., 2004. A formal analysis of knowledge combination in multinational enterprises. Journal of International Business Studies 35 (5), 371–384. Cantwell, J.A., 1989. Technological Innovation and Multinational Corporations. Basil Blackwell, Oxford. Cantwell, J., Piscitello, L., 2005. Recent location of foreign-owned research and development activities by large multinational corporations in the European regions:

The role of spillovers and externalities. Regional Studies 39, 1–16 February. Coff, R.W., Coff, D.C., Eastvold, R., 2006. The knowledge-leveraging paradox: how to achieve scale without making knowledge imitable. Academy of Management

Review 31 (2), 452–465. Cohen, W.M., Levinthal, D.A., 1990. Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly 35, 128–152. Doz, Y., Santos, J., Williamson, P., 2001. From Global to Metanational: How Companies Win in the Knowledge Economy. Harvard Business School Press, Boston. Faulconbridge, J.R., 2008. Managing the transnational law firm: a relational analysis of professional systems, embedded actors and time-space sensitive

governance. Economic Geography 84 (2), 185–210. Feinberg, S., Gupta, A., 2004. Knowledge spillovers and the assignment of R&D responsibilities to foreign subsidiaries. Strategic Management Journal 25, 823–845. Foss, N., Pedersen, T., 2004. Organizing knowledge processes in the multinational corporation: an introduction. Journal of International Business Studies 35 (5),

340–349. Frost, T.S., Zhou, C., 2005. R&D co-practice and ‘reverse’ knowledge integration in multinational firms. Journal of International Business Studies 36, 676–687. Frost, T., Birkinshaw, J., Ensign, P., 2002. Centers of excellence in multinational corporations. Strategic Management Journal 23 (11), 997–1018. Glaister, K.W., Buckley, P.J., 1996. Strategic motives for international alliance formation. Journal of Management Studies 33 (3), 301–332. Grant, R.M., 1996. Toward a knowledge-based theory of the firm. Strategic Management Journal 17 (SI), 109–122. Grant, R.M., Baden-Fuller, C., 2004. A knowledge accessing theory of strategic alliances. Journal of Management Studies 41 (1), 61–84. Gupta, A.K., Govindarajan, V., 2000. Knowledge flows within multinational corporations. Strategic Management Journal 21 (4), 473–496. Hamel, G., 1991. Competition for competence in inter-partner learning within international strategic alliances. Strategic Management Journal 12 (S1), 83–103. Hansen, M.T., Lovas, B., 2004. How do multinational companies leverage technological competencies? Moving from single to interdependent explanations.

Strategic Management Journal 25, 801–822. Henderson, R.M., Clark, K.B., 1990. Architectural innovation: the reconfiguration of existing product technologies and the failure of established firms.

Administrative Science Quarterly 35 (1), 9–30. Hinds, P.J., Mortensen, M., 2005. Understanding conflict in geographically distributed teams: the moderating effects of shared identity, shared context, and

spontaneous communication. Organization Science 16, 290–307. Inkpen, A.C., 1998. Learning and knowledge acquisition through international strategic alliances. Academy of Management Executive 12 (4), 69–80. Inkpen, A.C., Beamish, P.W., 1997. Knowledge, bargaining power, and the instability of international joint ventures. Academy of Management Review 22 (1),

177–202. Ireland, R.D., Hitt, M.A., Vaidyanath, D., 2002. Alliance management as a source of competitive advantage. Journal of Management 28 (3), 413–446. Kogut, B., 1991. Country capabilities and the permeability of borders. Strategic Management Journal 12 (S1), 33–47. Kogut, B., Zander, U., 1993. Knowledge of the firm and the evolutionary theory of the multinational corporation. Journal of International Business Studies 24 (4),

625–646. Kraatz, M.S., 1998. Learning by association? Interorganizational networks and adaptation to environmental change. Academy of Management Journal 41 (6),

621–643. Lam, A., 1997. Embedded firms, embedded knowledge: problems of collaboration and knowledge transfer in global cooperative ventures. Organization Studies 18 (6),

973–996. Lave, J., Wenger, E., 1991. Situated Learning: Legitimate Peripheral Participation. Cambridge University Press, New York. Liebeskind, J.P., Oliver, A.L., Zucker, L., Brewer, M., 1996. Social networks, learning, and flexibility: sourcing scientific knowledge in new Biotechnology firms.

Organization Science 7 (4), 428–443. Lyles, M.A., Salk, J.E., 1996. Knowledge acquisition from foreign partners in international joint ventures. Journal of International Business Studies 27 (5), 877–904. Madhok, A., Tallman, S.D., 1998. Resources, transactions and risks: managing value through interfirm collaborative relationships. Organization Science 9 (3),

326–339. Markusen, A., 1999. Sticky places in slippery space. In: Barnes, T., Gertler, M. (Eds.), The New Industrial Geography. Routledge, London, pp. 98–128. Martin, X., Salomon, R., 2003a. Knowledge transfer capacity and its implications for the theory of the multinational corporation. Journal of International Business

Studies 34, 356–373. Martin, X., Salomon, R., 2003b. Tacitness, learning, and international expansion: a study of foreign direct investment in a knowledge-intensive industry.

Organization Science 14 (3), 297–311. Matusik, S., Hill, C.W.L., 1998. The utilization of contingent work, knowledge creation and competitive advantage. Academy of Management Review 23, 680–697. Mohr, J., Spekman, R., 1994. Characteristics of partnership success: partnership attributes, communication behavior, and conflict resolution techniques. Strategic

Management Journal 15 (2), 135–152. Mudambi, R., 2008. Location, control and innovation in knowledge-intensive industries. Journal of Economic Geography 8, 699–725. Mudambi, R., Navarra, P., 2004. Is knowledge power? Knowledge flows, subsidiary power and rent seeking within MNCs. Journal of International Business Studies

35, 385–406. Mudambi, R., Swift, T., 2009. Professional guilds, tension and knowledge management. Research Policy 38 (5), 736–745. Mudambi, R., Swift, T., 2011. Leveraging knowledge and competencies across space: the next frontier in international business. Journal of International

Management 17 (3), 186–189 (this issue). Nonaka, I., 1994. A dynamic theory of organizational knowledge creation. Organization Science 5 (1), 14–37. Noorderhaven, N., Harzing, A.W., 2009. Knowledge-sharing and social interaction within MNEs. Journal of International Business Studies 40 (5), 719–741. Parkhe, A., 1991. Interfirm diversity, organizational learning, and longevity in global strategic alliances. Journal of International Business Studies 22 (4), 579–602. Parkhe, A., 1993. “Messy” research, methodological predispositions, and theory development in international joint ventures. Academy of Management Review 18 (2),

227–268. Penrose, E.G., 1957. Foreign Investment and the growth of the firm. Economic Journal 66, 220–235. Powell, W., 1990. Neither market nor hierarchy: network forms of organization. Research in Organizational Behavior 12, 295–336. Rosenkopf and Almeida, 2003. Overcoming local search through alliances and mobility. Management Science 49 (6), 751–766. Rugman, A.M., 1981. Inside the Multinationals: The Economics of Internal Markets. Columbia University Press, New York. (Reissued by Palgrave Macmillan, 2006). Shan, W., Walker, G., Kogut, B., 1994. Interfirm cooperation and startup innovation in the biotechnology industry. Strategic Management Journal 15 (5), 387–394. Simonin, B.L., 1999. Ambiguity and the process of knowledge transfer in strategic alliances. Strategic Management Journal 20 (7), 595–623. Sorenson, O., Rivkin, J.W., Fleming, L., 2006. Complexity, networks and knowledge flow. Research Policy 35 (7), 994–1017. Storper, M., 1993. Regional ‘worlds’ of production: learning and innovation in technology districts of France, Italy and the USA. Regional Studies 27, 433–456. Szulanski, G., 1996. Exploring internal stickiness: impediments to the transfer of best practices within the firm. Strategic Management Journal 17 (SI), 27–44. Szulanski, G., Jensen, R.J., Lee, T., 2003. Adaptation of know-how for cross-border transfer. Management International Review 43 (SI), 131–150. Tallman, S.B., Shenkar, O., 1994. A managerial decision model of international cooperative venture formation. Journal of International Business Studies 25 (1),

91–115. Tallman, S., Jenkins, M., Henry, N., Pinch, S., 2004. Knowledge clusters and competitive advantage. Academy of Management Review 29 (2), 258–271. Tallman, S., Chacar, A., 2011. Knowledge accumulation and dissemination in MNCs: a practice-based framework. Journal of Management Studies 48 (2), 278–304.

209S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210

Teece, D.J., 1992. Competition, cooperation, and innovation: organizational arrangements for regimes of rapid technological progress. Journal of Economic Behavior and Organization 18 (1), 1–25.

Thompson, M., 2005. Structural and epistemic parameters in communities of practice. Organization Science 16 (2), 151–164. Tung, R.L., 1987. Expatriate assignments: enhancing success and minimizing failure. Academy of Management Executive 1 (2), 117–126. Wenger, E., 2000. Communities of practice: The key to knowledge strategy. In: Lesser, E., Fontaine, M.A., Slusher, J.A. (Eds.), Knowledge and Communities.

Butterworth Heinemann, Boston, MA, pp. 3–20. Zucker, L.G., Darby, M.R., Armstrong, J., 1998a. Geographically localized knowledge: spillovers or markets? Economic Inquiry 36 (1), 65–86. Zucker, L.G., Darby, M.R., Brewer, M.B., 1998b. Intellectual human capital and the birth of U.S. biotechnology enterprises. The American Economic Review 88 (1),

290–306.

210 S. Tallman, A.S. Chacar / Journal of International Management 17 (2011) 201–210