Korean MNEs in China, the Relationship between Control Mechanism and Absorptive Capacity, Knowledge Acquisition
Authors:   Asia-Europe Perspective Association, Jeong Jae-Hwi 
Published: June 2018

Firms entering international markets should not only overcome but also adapt to the changes in global market environment to compete successfully in their global markets. Particularly, by transferring firm-specific knowledge to their foreign subsidiaries, they can gain competitive advantages in their foreign markets. However, knowledge transfer from the parent to the subsidiary is not easy and automatic process, faced with various barriers even in intra-organizational transfer. Parent firms should be operating a control mechanism and assist the subsidiaries to learn from them effectively.
The relationship between control mechanism and successful knowledge transfer within organizational units of multinational enterprises(MNEs) has become a central issue to maintaining sustainable competitive advantages. Thus, the study of MNES’ control mechanism into international knowledge transfer has been considered to be one of the key areas of academic research in international business. However, The consensus of the empirical results that previous research on the relationship between the level of control and knowledge transfer have not reported. Some literature demonstrated that the level of control by headquarter is positively associated with effectiveness of the knowledge transfer. However, the other researchers found that a subsidiary endowed with a greater level of decision-making autonomy contributed more to transfer of knowledge. Control of subsidiary’s management by parent firm facilitates speed and amount of knowledge flow to its subsidiary; however, it eventually leads to impeding willingness and efforts that the subsidiary is willing to make to utilize knowledge transferred from its parent firm.
The purpose of this study is to explore the impact of the control mechanism on the absorptive capacity and knowledge acquisition of foreign subsidiaries in china. The sample firms be analyzed were ninety-nine subsidiaries in china. The five hypothesis including mediated effect were analyzed by using structural equation modeling.
The analysis results have following findings. First, the operational control positively affects the knowledge acquisition of foreign subsidiaries, while there was not significant effect in the absorptive capacity. Operational control of parent firm facilitates speed and amount of knowledge flow to its subsidiary. However, it eventually leads to impeding willingness and efforts that the subsidiary is willing to make to utilize knowledge transferred from its parent firm. Second, the social control affects both the absorptive capacity and the knowledge acquisition in a positive way. In other words, the social control affects the knowledge acquisition indirectly through improving the subsidiary’s absorptive capacity. Finally, The absorptive capacity affects the knowledge acquisition positively. In the results of analysis show not only the control mechanism such as operational control, social control but also the absorptive capacity of the foreign subsidiaries important roles in knowledge transfer between the two entities.
There are some limitations in this study. The data are collected from the foreign subsidiaries. Because the performance of international knowledge transfer is also affected by characteristics of parent firms and relationship between the two entities, the data should be also gathered from the parent firm to draw the whole picture of technology transfer process more accurately. However, it is very hard in reality to gather all the data from both parent firm and its subsidiaries. So, we did a survey to expatriate managers who have previous experience of working in the parent firm before dispatching to the foreign subsidiaries.