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Knowledge Flows Within Multinational Corporations: Explaining Subsidiary Isolation and Its Performance Implications

London Business School, Sussex Place, Regent's Park, London NW1 4SA, United Kingdom
Centre for Banking and Finance, KTH, SE-100 44 Stockholm, Sweden
London Business School, Sussex Place, Regent's Park, London NW1 4SA, United Kingdom
fmonteiro{at}london.edu
niklas.arvidsson{at}infra.kth.se
jbirkinshaw{at}london.edu

Applying a new theoretical and empirical approach to intrafirm knowledge transfers, this paper provides some initial insight to the little-researched phenomenon of why some subsidiaries are isolated from knowledge-transfer activities within the multinational corporation (MNC). Knowledge transfer is framed as a problemistic search process initiated by the recipient unit. We show that knowledge flows from units that are perceived to be highly capable to units that perceive themselves to be highly capable. Knowledge flows are also associated with existing levels of communication and reciprocity. Taken together, these findings suggest that knowledge transfers in MNCs typically occur between highly capable members of an "in crowd," and the isolated minority rarely, if ever, engages in knowledge-sharing activities. Finally, we show that the isolated minority underperforms other subsidiaries, suggesting the possibility of a "liability of internal isolation."

Key Words: knowledge flows; multinational management; subsidiary performance; subsidiary isolation; perception gaps; behavioral theory of the firm