International Strategy and Knowledge Creation: The Advantage of Foreignness and Liability of Concentration
| DOI | http://doi.org/10.1111/1467-8551.12054 |
| Published date | 01 July 2014 |
| Author | Udo Zander,Patrick Regnér |
| Date | 01 July 2014 |
International Strategy and Knowledge
Creation: The Advantage of Foreignness
and Liability of Concentration
Patrick Regnér and Udo Zander
Department of Marketing and Strategy, Stockholm School of Economics, Box 6501,
113 83 Stockholm, Sweden
Corresponding author email: patrick.regner@hhs.se
International business scholars increasingly emphasize regional strategies based on an
optimal location of downstream sales. There has been less scholarly attention, however,
to the relationship between international strategy and upstream knowledge creation
including R&D. Building on contemporary strategic management theory and the
knowledge-based view we remedy this. The viability of home-regional or bi-regional
strategies is based on common assumptions that imply negative consequences of distance
and foreignness for downstream sales and marketing and benefits from agglomeration
for upstream knowledge creation activities including R&D. In contrast, we propose that
upstream knowledge creation, radical innovation in particular, rather gains from dis-
tance and foreignness and from being dispersed, suggesting the effectiveness of a global
strategy. Based on the resource-based view and recent research on the economics of
strategic opportunities and competitive advantage, we provide theoretical explanations
for this. We demonstrate how a global multinational corporation is uniquely equipped
with knowledge extensity including heterogeneous social-identity frames in multiple
sub-units. Thanks to arbitrage advantages between the sub-units’ separate and often
locally embedded knowledge, a global multinational corporation can address complex
interdependences and interactions between knowledge sets required for knowledge crea-
tion. This suggests that maximum exploration capabilities are made possible by a global
rather than a home-regional or bi-regional strategy.
Introduction
The healthy shift from the one-eyed focus on glo-
balization to a more balanced one that includes
regionalization (Ghemawat, 2007; Rugman, 2000,
2005) has been accompanied by specific evalua-
tions of how particular multinational corporation
(MNC) activities affect international strategy
(Rugman and Verbeke, 2004). However, as the
scholars leading the shift emphasize, more
research is needed on the specifics of different
functions and activities along the value chain. Our
particular concern is knowledge creation which
has attracted substantial interest recently through
scholarly work on (1) exploitation/exploration
trade-offs (Lavie, Stettner and Tushman, 2010;
March, 1991; Raisch et al., 2009), (2) strategy
renewal (Agarwal and Helfat, 2009; Floyd and
Wooldridge, 2000) and (3) dynamic capabilities
(Eisenhardt and Martin, 2000; Helfat et al., 2007;
Teece, 2007; Teece, Pisano and Shuen, 1997).
Accordingly, in this paper we shift the attention
from an emphasis on downstream markets and
We would like to thank Lars Håkanson for most gener-
ously providing original data regarding the global R&D
activities of multinational corporations from a study
carried out together with Robert Nobel. Our thanks also
go to the editor and the three anonymous reviewers for
challenging comments that have sharpened our argu-
ment and thereby improved the quality of the paper.
bs_bs_banner
British Journal of Management, Vol. 25, 551–569 (2014)
DOI: 10.1111/1467-8551.12054
© 2014 British Academy of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4
2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.
sales in the regionalization/globalization litera-
ture to a focus on upstream knowledge creation
including R&D. The key question then is what
type of international strategy promotes knowl-
edge creation and competitive advantage – a
home-regional, bi-regional or global strategy.
International business research makes impor-
tant contributions to our understanding of firm
globalization and regionalization based on an
analysis of international sales, but it still has some
limitations in the area of knowledge creation.
First, much of the international business and man-
agement literature has primarily emphasized
exploitation and transfer of knowledge once
created (Argote and Ingram, 2000; Bresman,
Birkinshaw and Nobel, 1999; Foss, Lyngsie and
Zahra, 2013; Kogut and Zander, 1993; Szulanski,
2000; Teece, 1977; Zander and Kogut, 1995).
While this is an essential ingredient in international
strategy, we must not forget exploration and the
significance of initially creating new valuable and
inimitable knowledge. Consequently, our focus is
on knowledge creation: the process by which com-
panies combine and recombine knowledge in order
to generate a competitive advantage and thus how
the latter is created in the first place. This suggests
an explicit Schumpeterian perspective that empha-
sizes competitive dynamics and stretches beyond
an MNC’s current optimal location of knowledge
and its transfer. Our emphasis is rather on MNC
innovation, R&D and novel product development.
Second, while traditional issues of research (R)
and development (D) have been considered, their
interaction and effect on the aggregate problem of
corporate MNC knowledge creation have been
considered less researched. For example, different
types of knowledge creation may require different
international strategies and distributions of R&D
activities. We thus assume that the character of
the MNC corporate knowledge creation problem
at hand is the significant and relevant unit of
analysis. Depending on the complexity of this
problem, featuring a continuum between radical
and incremental innovation, the MNC may
benefit from diverse types of international strate-
gies and capabilities.
Third, international strategy research has often
concentrated on the upper-echelons levels of
analysis and implicitly or explicitly assumed top-
down headquarters’ and subsidiary managers’
strategic insight and direction without problema-
tizing the locus and form of managerial decision-
making (Aharoni, 2010). We, however, make
alternative behavioural assumptions and include
other hierarchical levels. We believe that deci-
sions, capabilities and processes suitable for
knowledge creation can also develop autono-
mously bottom-up and involve systemic interac-
tions between geographically dispersed sub-units.
Finally, while general location considerations
and costs of distance have been discussed previ-
ously (Shenkar, 2001), less focus has been put on
the consequences of knowledge creation for
MNCs’ overall international scope and competi-
tive advantage (Ghemawat, 2003). We in contrast
are concerned with what international strategy
(home-regional, bi-regional or global) promotes
knowledge creation and what the implications for
MNC competitive advantage may be. We thus not
only assume that different types of international
strategies have the capacity to address diverse cat-
egories of knowledge creation problems, but that
the choice between them has different conse-
quences for competitive advantage. Specifically,
we address how the location of different types of
knowledge creation and R&D efforts affects com-
petitive advantage. The chosen unit of analysis is
relatively novel, although the outcome of corpo-
rate knowledge creation in terms of firm-specific
advantage has always been central for theories of
foreign direct investment (Caves, 1971; Hymer,
1960).
Our key proposition is that while downstream
activities, like sales, may suffer from the negative
consequences of distance, suggesting the appro-
priateness of regional market and sales strategies,
upstream knowledge creation and R&D activities
may instead gain from geographical dispersion.
Hence, while there is a liability of interregional
foreignness in certain sales dimensions (Rugman
and Verbeke, 2004), there may be ‘advantages of
foreignness’ in knowledge creation dimensions.
Also, while there may be gains from concentra-
tion of knowledge creation when it comes to
incremental innovation and product adaptation
and commercialization, we instead propose a
potential liability of concentration for knowledge
creation involving more radical and novel
product development.
Our contributions are threefold. First and fore-
most, based on the resource-based view and
research on the economics of strategic opportuni-
ties and competitive advantage we unpack firm
regionalization and globalization by teasing out
552 P. Regnér and U. Zander
© 2014 British Academy of Management.
To continue reading
Request your trial