Cross-Border Knowledge Transfer

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Research Paper No. 1518 CROSS-BORDER KNOWLEDGE TRANSFER AND PERFORMANCE IN EMERGING ECONOMIC REGIONS: THE CASE OF JAPANESE INTERNATIONAL JOINT VENTURES IN CHINA TAKEHIKO ISOBE UNIVERSITY OF MARKETING AND DISTRIBUTIONSERVICES KOBE, JAPAN SHIGE MAKINO THE CHINESE UNIVERSITY OF HONG KONG DAVID B. MONTGOMERY

Stanford University

September 8, 1998

CROSS-BORDER KNOWLEDGE TRANSFER AND PERFORMANCE IN EMERGING ECONOMIC REGIONS: THE CASE OF JAPANESE INTERNATIONAL JOINT VENTURES IN CHINA1

By TAKEHIKO ISOBE Associate Professor Department of Commerce University ofMarketing and Distribution Sciences 3-1 Gakuen Nishimachi, Nishi-ku, Kobe, Japan Phone: 81-78-794-3516 / Fax: 81-78-794-6149 Email: Takehiko_Isobe@red.umds.ac.jp

SHIGE MAKINO Assistant Professor Department ofManagement The Chinese University of Hong Kong Shatin, N.T., Hong Kong Phone: 852-2609-7636 / Fax: 852-2603-5104 makino @baf.msmail.cuhk.edu.hk

DAVID B. MONTGOMERY S.S. Kresge Professor ofMarketing Strategy Graduate School ofBusiness Stanford University Stanford, CA 94305-5015 Phone: 650-723-3029 I Fax: 650-725-9932 MontgomeryDavid@gsb.stanford.EDU

September 8, 1998

Please send all correspondences to Shige Makino.

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CROSS-BORDER KNOWLEDGE TRANSFER AND PERFORMANCE IN EMERGING ECONOMIC REGIONS: THE CASE OF JAPANESE INTERNATIONAL JOINT VENTURES IN CHINA

Abstract. As emerging economic regions (EERs) play a significant role in global economies, managers of multinationals have become increasingly aware of the importance of relevant international expansion in these regions. Facing potential market opportunities, the managers are eager to gain first mover advantages and build technology leadership in the EERs. However, given nontrivial uncertainties in EERs, the efforts to be first movers and technology leaders in these regions may not result in successful performance. This study examined whether first movers and technology leaders would attain superior performance in EERs. Building on the literature on knowledge transfer, we focused on two key constructs of crossborder knowledge transfer: the value of knowledge being transferred and the speed of knowledge transfer. We argued that the former would increase the likelihood that firms gain technology leadership, and the latter is related to first mover advantages in the local marketplace. The study examined both the determinants and performance of these constructs, using the survey data of over 220 Sino-Japanese joint ventures in China. The results suggested that both the value of knowledge being transferred and the speed of knowledge transfer had positive impacts on the perceived economic performance of the JVs, suggesting that first movers and technology leaders did attain superior performance in EER markets. Yet, this relationship was found to be significantly contingent upon several internal and external factors, such as the strategic importance of investment, the extent of parental control within the JV, and the availability of complementary assets.

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INTRODUCTION Emerging economic regions (EERs) have been playing a critical role in global economies. Since the regions’ market liberalization and privatization policies were formally set forth, the EERs have attracted many foreign investors (UNCTAD, 1997). The successful entry and start-up of a business operation in these regions is therefore a central issue for contemporary multinational enterprises (MNEs). Nonetheless, some managers of foreign multinationals may see more uncertainty than opportunity in EERs with respect to local demand conditions, the availability of supporting industries and infrastructure, property rights protection, inter-firm spillover problems (in the case of joint ventures), and general economic and political stability. Given the contradictory implications regarding potential opportunities and uncertainties in the EERs, managers of foreign multinationals are facing a dilemma. Specifically, managers face two...
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