Headquarters’ Managerial Intentionality and Reverse Transfer of Practices

RESEARCH ARTICLE

Headquarters’ Managerial Intentionality and ReverseTransfer of Practices

Leanne Chung

Received: 26 November 2010 / Revised: 28 August 2013 / Accepted: 7 November 2013

� Springer-Verlag Berlin Heidelberg 2014

Abstract This paper addresses the reverse transfer (RT) of practices in multi-

national corporations (MNCs), a phenomenon which occurs when practices origi-

nating in their cross-border affiliates are transferred back to the parent MNCs. Based

on an empirical investigation of the experience of 503 Hong Kong MNCs with

subsidiaries in Mainland China, this study has successfully and more systematically

tested and discussed the managerial intentionality (MI) related factors on RT than

has been done before in the literature. The results suggest high headquarters

intentional arrangements involving choosing wholly-ownership, International

Human Resource Management control, active trust building, and frequent personal

contact can improve explanatory power of achieving the objectives of reverse

transfer of practices significantly.

Keywords Reverse transfer � Managerial intention � Control � Cross-border

management � China � Hong Kong

1 Introduction

The study reported here contributes to the international business (IB) literature

through an investigation into the impact of headquarters’ managerial intentionality

on the reverse transfer of organizational practices (RT) in multinational corporations

(MNCs).1 RT is an increasingly important means through which MNCs can obtain

scarce inputs from their subsidiaries for innovation and acquire competitive

L. Chung (&)

Cardiff Business School, Cardiff University, Cardiff, UK

e-mail: [email protected]

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Manag Int Rev

DOI 10.1007/s11575-013-0192-1

competence. Even though the effect of headquarters influence on the transfer of

practices has been discussed in the literature (e.g., Ciabuschi et al. 2010; Gupta and

Govindarajan 2000; Martinez and Jarillo 1989), there has been only limited

attention to the effect headquarters’ managerial intentionality may have on RT. This

study tests this effect systematically through a survey of 503 Hong Kong firms with

subsidiaries in Mainland China.

1.1 Importance of Practice Transfers Within MNCs

The cross-border transfer of practices has attracted attention for many years. This is

understandable in the light of the growing influence of the resource-based view of

the firm because practice is actionable knowledge that is recognised to be the key

source of competitive advantages for firms (Barney 1991; Penrose 1959). In

addition, the continued cross-border expansion of MNCs suggests that it places a

premium on transferring practices effectively. This reflects not only the needs of

MNCs to adapt to the specific conditions of new markets, but more importantly, it

suggests a realization that subsidiaries operating in new environment can be

important sources of innovation. Such innovation requires a transfer of knowledge

and practices from subsidiaries to their parent firms.

In the early 1980s and 1990s, most IB literature focused on the dominant role of

headquarters in transferring best practices to their subsidiaries (e.g., Brech 2002;

Cavusgil and Yavas 1984; Harzing 1999; Oliver and Wilkinson 1992), especially

through the vehicle of foreign direct investment (FDI) (UNCTAD 1995). This

emphasis has shifted in recent decades. Many scholars now view MNCs as networks

and draw attention to the increasingly important role of cross-border subsidiaries as

a key source of best practice, suggesting the importance of ‘differentiation’ strategy

and RT as a mean of key source of innovation (Birkinshaw and Hood 2001; Doz

et al. 1981; Doz and Prahalad 1991; Frost et al. 2002; Frost and Zhou 2005; Phene

and Almeida 2008; Vaccaro et al. 2012).2

Through the effective management of RT, MNCs can obtain competitive

advantages by combining local knowledge, technological and management

capabilities, and through their dissemination throughout the company as a whole

(e.g., Frost 2001; Frost and Zhou 2005). RT is expected to benefit the performance

of MNCs in different ways (Eden 2009) such as contributing to the coordination of a

global strategy; enhancing new products, and technological development (Ambos

et al. 2006); monitoring subsidiaries’ power (Yamin and Forsgren 2006); and

orchestrating knowledge transfer processes within their internal networks (Criscuolo

and Narula 2007). There is evidence that RT from subsidiaries is highly beneficial

for global MNC performance (e.g., Holtbrugge and Schillo 2011; Immelt et al.

2009; Zhang 2003).

1 MNCs are conventionally defined as those involved in business and with operations in two or more

countries (Daniels et al. 2008).2 There are several types of subsidiary. This study focuses on wholly-owned subsidiaries and those with

shared ownership (joint-ventures).

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Earlier research on RT focused primarily on the presence of knowledge transfer

between headquarters and subsidiaries. These studies typically use the tracking of

patent data citation between networks (Almeida 1996; Granstrand et al. 1997) or

subjective perceptions of knowledge flows by foreign subsidiary managers (Gupta

and Govindarajan 2000) as evidence of ‘multi-directional’ knowledge transfer

(including RT) and its contingent relation to roles played by subsidiaries (Gupta and

Govindarajan 2000; Harzing and Noorderhaven 2006). Some recent studies have

looked into the organizational arrangements for knowledge transfer, including

through expatriate management (Furuya et al. 2009; Lazarova and Tarique 2005;

Toh and DeNisi 2005), through information-processing (Adler and Hashai 2007;

Carlile 2004; Noorderhaven and Harzing 2009); and through social learning

(Bjorkman et al. 2007; Noorderhaven and Harzing 2009). In this study, the author

will utilize and built on the latter stream of research by theorizing further on the

organizational arrangements that executives at headquarters deploy to fulfil their

intention of managing RT (hereafter, ‘headquarters intention’).

In order to successfully manage RT, it is important both for headquarters’ managers

to have a strong intention to initiate RT by setting up appropriate organizational

policies and arrangements for receiving best practices, and for subsidiary to see the

benefits of taking on the transfer role (Belanger et al. 2003). Studies that emphasize the

role in internationalization of managerial choice, strategy and diversification,

contribute directly to the idea of managerial intentionality (Hutzschenreuter et al.

2007). This idea emphasizes that forms of organization and strategies are arranged

purposively according to managers’ conscious intention and reflection.

As mentioned, there is considerable agreement that RT is essential for MNCs to

develop their competitive advantages. However, even if RT is the key strategic end

goal, the precise factors explaining its successful implementation remain unclear.

This unexplained variance may be subjected to the role of chance, but it may also

encapsulate important unobserved and under-researched effects of headquarters

intentionality. For instance, why is there so much heterogeneity among MNCs in

terms of RT? Why can some firms achieve higher RT and others not? There are still

many examples of MNCs struggling to initiate the transfer of practises from their

foreign units. One example concerns the difficulties arising from the lack of

headquarters intention to reverse transfer in the early stage of General Electric’s

innovation strategy in China and India (Immelt et al. 2009). Difficulties of managing

‘glocalization’ and ‘reverse innovation’ also arose from the absence of supporting

organizational arrangements. These considerations suggest that the key question is to

understand how RT should be managed in order to gain the competitive benefits of

creating a global network of value-adding activities (Porter 1990). Another element

of uncertainty for RT arises from the ‘sticky’ nature of the cross-border transfer of

practices (Szulanski 1996). This effect will be further discussed in the next section.

In order to address management’s role in encouraging RT, this paper argues that

there are two facets of organization at work: Structural and relational. Structural

arrangements help organizations to carry out collective goal-directed activities on a

cohesive and orderly basis (Jaques 1990). The relational facet can be identified as a

set of arrangements that distribute power, rewards, and well being in organizations

(Child 2005). Both structural configuration and relational processes can help to

Headquarters’ Managerial Intentionality and Reverse Transfer of Practices

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actualize headquarters’ intention for RT. The present study will integrate these two

perspectives to develop theoretically grounded predictions regarding the intention

that headquarters can act on RT.

Building on these observations, the objective of this paper is to advance the state

of our theoretical and empirical understanding of headquarters intention as a key

influence on RT. This study contributes to both international management and

organizational theory. In terms of international management, although some

scholars have examined the potential headquarters influence to MNCs (e.g., Ambos

and Birkinshaw 2010; Tallman and Koza 2010) and its effects on knowledge

transfer (e.g., Ciabuschi et al. 2010; Tran et al. 2010), few of them has explicitly

examined the headquarters’ role in RT. This study fills this gap by showing how

headquarters’ can actualize their intention of RT through organizational arrange-

ments that can achieve the strategic needs for efficiency, adaptability and innovation

(Vaccaro et al. 2012).

In terms of organizational theory, this study contributes to a fuller understanding

of how RT can be successfully achieved through the subtle combination of formal

structural and informal relational control arrangements within a multi-unit

organization. That is, the shift of internationalization strategies from knowledge

exploiting to knowledge seeking FDI presents the challenge to corporate executives

at headquarters of introducing stronger organizing activities suited to that purpose.

The present paper contributes by providing new firm-level evidence on this

important issue through a large scale survey. Because of the similarity of cultural

values and geographical proximity, the study of Hong Kong MNCs and their

subsidiaries in Mainland China has the advantage of excluding any significant

impact of culture, which is suggested in the cross-border transfer literature as the

key significant factors for knowledge transfer (e.g., Bhagat et al. 2002; Bjorkman

et al. 2007).

In sum, RT is an important area of inquiry in international management. Given

the barriers arise from reverse hierarchical order and ‘stickiness’ in the transfer; we

assume that RT is a result of headquarters intention, requiring strong purposive

efforts, rather than of spontaneous occurrences within MNC networks. The paper is

organized as follows. It starts by analyzing the RT literature and explaining why

headquarters intention is theoretically relevant to study the phenomenon. The next

section discusses how our hypotheses are formulated and tested. The research

context, method, measures and results are then presented. The final section discusses

the empirical findings and highlights the academic and managerial implications, as

well as suggesting some avenues for future research.

1.2 Reverse Transfer (RT) and Headquarters’ Managerial Intentionality

The shift of internationalization strategy from knowledge-exploiting FDI to

knowledge-seeking FDI presents challenges of managing practice transfer for

MNC managers. These challenges mainly arise from the different organizing logics

behind the two forms of internationalization strategy. Knowledge exploiting FDI

aims to achieve the transfer of practices from parents to subsidiaries. By contrast,

knowledge seeking FDI emphasizes RT. The conventional top-down hierarchical

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order has to be reversed in the later case. Many MNCs are familiar with ways of

managing transfer from parents to subsidiaries, and have been successfully

achieving it (Immelt et al. 2009). However, when the focus shifts to RT, they can

face additional barriers (Teece et al. 1997). In this paper, we will argue that in order

to overcome these barriers, the high intention of RT has to be actualized through the

implementation of appropriate ‘structural’ and ‘relational’ organizational policies.

In the processes of cross-border practice transfer, managers not only need to

overcome the barriers of ‘liability of foreignness’ (Zaheer 1995) and ‘stickiness’

(Jensen and Szulanski 2004; Szulanski 1996), but also the psychological resistance

that arises from the symptoms of ‘corporate immune system’ (Birkinshaw and

Riddlerstrale 1999), ‘not-invented-here’ (NIH) (Katz and Allen 1982) and the ‘not-

sold-here’ (NSH) (Lichtenthaler et al. 2010). These forms of resistance arise from

the fact of the contextual and cultural differences; MNCs prefer their indigenous

developed practices to ones transferred in from elsewhere. Moreover, a sense of

patriotic superiority can result in people not adopting foreign practices (Edwards

et al. 2005). While these institutional and psychological barriers can exist in all kind

of cross-border transfer, resistance to RT can be particularly strong. It is partly due

to the fact that there are some fundamental differences between conventional

forward transfer and the reverse one. In order to effectively manage RT, an

understanding of such differences is essential.

Early IB research suggested that headquarters think they ‘know best’ (e.g.,

Cavusgil and Yavas 1984; Jaeger 1990). This sense of superiority and the

‘principal–agent relationship’ between headquarters and subsidiaries implies that

the ‘top-down’ flow of practices is legitimate and necessary. This is particularly true

when individuals see how developing countries set the key objective in their FDI

policy as that of as learning knowledge from developed countries, as depicted by the

goal of the conventional form of knowledge exploiting FDI strategy. In contrast,

knowledge seeking FDI strategy implies the necessity of ‘bottom-up’ transfer from

subsidiaries to headquarters. This transfer has to go against the normal hierarchical

order. Most likely, headquarters managers have to overcome a sense of superiority

and a fear of losing control of their subsidiaries. In this case, in order to initiate RT,

headquarters first have to be persuaded first to receive ideas transferred from a

subsidiary (Yang et al. 2008). Then, they will need to provide extra incentives to

motivate the subsidiary to take on the transfer role. Without this careful ‘attention’

(Bouquet and Birkinshaw 2008) and ‘intention’ from the headquarters, subsidiaries

may prefer to keep to themselves the competitive advantages of their own power

resources (Bjorkman et al. 2004; Minbaeva et al. 2003). Hence, not only do

headquarters managers need to overcome the challenge of ‘foreignness’ and

‘stickiness’, but they also need to eliminate the strong psychological resistance they

will face in RT, both at the headquarters and the subsidiary levels. As Edwards et al.

(2005) suggest, the political complexities of reverse transfer can be more difficult to

overcome than those of forward transfer. Hence, the management of RT can be

more complicated than the management of the conventional forward one.

Instead of merely focusing on the incremental, gradual, experience- and

knowledge-based aspects of internationalization, the IB literature has suggested

that the role of managerial intentionality can also have significant impact on the


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path, processes, and position of internationalization (Mom et al. 2007; Hutzschenre-

uter et al. 2007). RT is a good example of the result of the strategic decisions of

managers who recognize and seize emergent opportunities in the forms of expanded

exploration through learning new practices from their cross-border subsidiaries.

This can involve a strong strategic intention to initiate the often-espoused idea of

empowering bottom-up processes. This initiative is similar to the way about how

MNCs should be managed in order to gain the benefits of creating a global network

of value-adding activities within their multinational units. Many scholars suggest

that headquarters can add value to MNCs by taking an active role in making

decisions (Egelhoff 2010; Tallman and Koza 2010), and paying close attention to

monitoring performance (Ambos and Birkinshaw 2010) and managing knowledge

transfer (Ciabuschi et al. 2010; Tran et al. 2010).

Several empirical studies of RT have been conducted by Edwards and his

colleagues. Their findings point to the facets of how headquarters intention can

direct the strategic role of their subsidiaries as the key source of knowledge to them

and other MNC units. Edwards (1998) reviewed the literature and found that

successful examples of cross-border transfer of knowledge from foreign subsidiaries

were mostly related to an influential control role exercised by the headquarters. He

suggested that RT is the result of headquarters intention rather than spontaneous

occurrences within MNC networks. Therefore, headquarters intention plays the key

role in distributing resources, building up coordinating systems and communicating

channels, and cultivating the right social culture for RT to take place. Edwards and

his colleagues concluded similarly that RT can be significantly facilitated by

headquarters’ initiatives and organizational arrangements (Edwards 1998, 2000;

Ferner 2000; Ferner and Varul 2000; Edwards et al. 2005). Their most recent work

(2005) has incorporated the dimensions of institutions, culture, and organizational

politics and concluded that RT is a complex organizational phenomenon. A

combination of various factors is required to predict the behaviour of firms

embedded in a distinctive institutional context. Their paper suggested that even

given the ‘liberal market economies’ climate in the US, the institutional, cultural

and organizational characteristics embedded in the US context still present

significant barriers for US MNCs to receive knowledge from their UK subsidiaries.

Hence, given the potential barriers, intentional corporate control is essential to RT,

including both formal structural and informal relational-building arrangements, such

as international committees, task forces, working groups, and overseas assignments.

These arrangements have been found to be essential to knowledge and practices

transfer (e.g., Bjorkman et al. 2004; Noorderhaven and Harzing 2009). Their

effectiveness on RT depends on whether headquarters have a strong end goal of

achieving RT.

However, whilst there may be deliberate managerial intention to effect RT, there

is some uncertainty the extent to which RT is actually taking place. In other words,

RT is largely a deliberate and variable action. It requires both the participants’

willingness and readiness to comply with the organizational arrangements to

cultivate the right organizational contexts for RT implementation. In terms of

cultivating a proper relational context for RT to take place, it is important for

headquarters to purposively set up socialisation arrangements for enhancing the role

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of international managers in transferring knowledge and practices across MNC

networks (Noorderhaven and Harzing 2009; Lazarova and Tarique 2005; Reiche

et al. 2009; Toh and DeNisi 2005). These intentional relational mechanisms can be

even more important in the RT context than in conventional transfer because, as

mentioned before, it helps to prevent the barrier of transfer being subject to

opportunistic or rent-seeking behaviour (Bjorkman et al. 2004; Minbaeva et al.

2003), the ‘NIH’ symptoms (Cohen and Levinthal 1990), the possibility of the

‘corporate immune system’ (Birkinshaw and Riddlerstrale 1999), and can even act

as the safe guard to avoid the transferring of ‘inappropriate’ or ‘irrelevant’ practices

which may not be suitable or beneficial for the headquarters context.

Social interaction does not merely provide a ‘channel’ between the senders and

receivers for transferring knowledge, but also enhances the likelihood of ‘learning’

taking place and the learned knowledge being applied in a new context

(Noorderhaven and Harzing 2009). Consideration is also given to safeguarding

‘what’ to transfer. The idea of ‘relevance’ (Yang et al. 2008) was suggested to be an

essential condition of RT for fitting together the interacting parties’ needs (Foss and

Pedersen 2002) and matching them with the receivers’ respective strategic roles

(Cantwell and Mudambi 2005).

To conclude, it is important to identify the organizational arrangements that can

help to reinforce headquarters’ attention and actualize their intention to provide

more resources and support for their subsidiaries, so that they could operate and

leverage the resources effectively (Ambos and Birkinshaw 2010). It is important to

have the right means to facilitate RT implementation as a strategic intention. Only

having an intention is not enough. Here, we would like to build on the ‘structural’

and ‘relational’ perspectives, and to discuss and test the ‘headquarters intention’

related organizational arrangements more systematically than has been done before

in the literature. The following section develops the studied hypotheses in detail.

2 Development of Hypotheses

Due to the globalizing trends in technologies, financial markets, societies and

cultures, it is important to understand the roles and the types of activities that parent

firms should assume in the complicated contexts within which MNCs operate. Most

likely, the MNC is organized as a hierarchy with headquarters controlling a range of

subsidiaries. The management of headquarters–subsidiary relationships becomes an

important area of scholarly inquiry, in particular the systems and processes that

MNCs use to coordinate their network of subsidiaries. Whenever possible, full

ownership is the most direct way for MNCs to obtain full control on their foreign

units. Although other organizational arrangements and actions such as frequent

personal contacts, active trust building, and formal control mechanisms are also

crucial.

The headquarters intention and action to create appropriate contexts and

mechanisms is essential for the transfer of practice and learning to occur

successfully. The literature has suggested managerial intentionality has many

facets (Hutzschenreuter et al. 2007) but those that impact on transfer of practice


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could be broken down into two facets of organizational arrangements at work:

structural and relational. According to Child (2005), structural components of

organization including hierarchy, specialisation and procedures that can help to

contribute to the successful implementation of objectives by allocating people and

resources to necessary tasks and designating responsibilities and authority for their

control and coordination. Procedures help to consolidate the structures by using

rules and standards that guide people behave in the expected way. The relational

facet of organization can be identified as a set of arrangements that distribute power,

rewards, and well being. Reference to strategic needs of RT, it will become

necessary to the de-emphasis on hierarchy in facilitating the contribution of

subsidiary members on a more devolved and cooperative basis. In addition,

progressive International Human Resource Management (IHRM) policies will

become essential to achieve organizational goals by developing and motivating

people to use their capabilities to achieve high performance. The policies in

question can include delegate of influence, many personal contacts (Noorderhaven

and Harzing 2009; Reiche et al. 2009) and active trust building (e.g., Belanger et al.

2003; Child et al. 2000; Child and Mollering 2003; Toh and DeNisi 2005). It is

believed that these managerial intentionality dimensions are likely to be mutually

re-enforcing to provide a strong structural and process context for the transfer and

management of organizational practices. This study will systematically test the

effects of these headquarters’ intention related factors on RT and discuss if any

differences can be found in relation to the previous literature on conventional

transfer.

2.1 Corporate Ownership

Successful knowledge transfer can be pre-determined by the mode of entry set by

headquarters intention. The existing literature argues that international joint venture

can provide an interactive learning opportunity for knowledge transfer (e.g.,

Shenkar and Li 1999). However, the transfer is more likely to be successful under

the conditions of a congruence of goals and the complementary nature of partners’

abilities and aptitude. However, the freedom to choose the right partner is not

necessary allowed in the host countries. Buckley et al. (2003) provided empirical

evidence based on the case studies of Motorola (China) and Alcatel Bell (Shanghai)

showing that knowledge transfer is better when firms are wholly-owned than when

they are international joint ventures. They further argued that secondary and reverse

knowledge transfer is rooted in the success of the primary transfer. Full ownership

can enhance management control and eliminate conflicts and constraints the

knowledge transfer. Hence, the wholly owned structure can provide a strong ground

for RT.

Studies of international joint-ventures (Killing 1983; Makhija and Ganesh 1997;

Mjoen and Tallman 1997) also indicate that the degree of control that a parent firm

has and its managerial intentionality may influence the knowledge transferred and

the performance (Child et al. 2003) of its cross-border units. Control was found to

be influenced by the relative degree of ownership, the amount of bargaining power,

the disposition of resources, or a combination thereof (Lyles 2003). Therefore,

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choosing wholly-owned entry strategy can be a significant condition for successful

knowledge transfer (Buckley et al. 2003). In addition, recent literature provides

strong empirical evidence that the involvement of headquarters within the

knowledge transfer process can have a positive impact on knowledge transfer and

subsidiary performance (Ciabuschi et al. 2010; Tran et al. 2010). Overall, parent

MNCs tend to have a dominant position in organizing knowledge transfer across

their interconnected international networks (Hedlund 1986; Kogut and Zander 1993;

Bartlett and Ghoshal 1998). Whole ownership can be particularly important in RT

because the reverse transfer logic can be even more complicated (e.g., Edwards

et al. 2005) and the transfer processes may require more monitoring and controlling

than conventional forward transfer. These considerations suggest:

Hypothesis 1: Wholly owned subsidiaries will provide greater RT to their

parent headquarters than subsidiaries that are not wholly owned.

2.2 Formal Control

Formal control can facilitate practice transfer by acting as an effective measure to

ensure that resources are being efficiently utilized so as to maximise business

capabilities and competitiveness. The effective allocation of resources can enrich

the profile of subsidiaries and help the effective knowledge deployment between the

MNC network units (Bouquet and Birkinshaw 2008). This can be best achieved

through effective IHRM mechanisms. In addition, the formal coordination

mechanisms such as formal procedures and reporting systems were also considered

to be important for practice transfer.

2.2.1 IHRM Control

Frayne and Geringer (1990) suggested that IHRM policies and practices can have an

important role as a control mechanism. If RT of organizational practice is the parent

firm’s policy, then implementing control through formal reporting and IHRM systems

can help to facilitate the transfer of practices between MNC networks, including RT.

For example, the IHRM practices can include transparent career development paths

and reward systems, cultivation of organizational culture such as corporate

citizenship, effective selection practices, and good interpersonal relationships at

work. In other words, managers at the corporate headquarters can have the ability to

promote and increase the pay of subsidiary managers to senior positions within the

company. The pay and promotion prospects of subsidiary managers can be linked to

their willingness to transfer practices in the network (Coller and Marginson 1998;

Edwards 1998). Finally, the parent firm that exercises an effective compensation

system can help to encourage the willingness of local managers to share knowledge

with expatriate managers (Reiche et al. 2009; Toh and DeNisi 2005). Hence:

Hypothesis 2a: The higher the headquarters’ IHRM control of the staff in

cross-border subsidiaries, the greater the RT.


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2.2.2 Formalized Procedural Control

Many studies have highlighted the important role of formal coordination mecha-

nisms in knowledge transfer and creation (e.g., Gupta and Govindarajan 2000;

Nobel and Birkinshaw 1998; Grant 1996). For instance, Belanger et al. (2003) argue

that ABB headquarters exerts a growing influence over its overseas affiliates

through strict financial control and procedures. Its formal capital investment

decisions can reward an affiliate that is actively involved in transferring and

adopting new practices. Moreover, the use of close monitoring through frequent

reporting of information on the affiliate’s activities additionally provides control

information (Child 2005) on the extent to which the policy of RT of organizational

practices is actually implemented. Furthermore, formalization provides the ‘struc-

tured knowledge’ (Boisot 1998), which is recodified, categorized, and recontextu-

alized (Brannen et al. 1998), and which is consequently easier to transfer. Of course,

such formalized procedural control can play a role only if it is customized to

stimulate RT, an important reason why headquarters intention is essential here.

Hypothesis 2b: The higher the headquarters’ formalized procedural control

over the staff in cross-border subsidiaries, the greater the RT.

2.3 Delegated Subsidiary Influence

It has been argued that a high degree of subsidiary autonomy is positively related to

its level of knowledge creation and development (Martinez and Jarillo 1989). The

subsidiary’s influence over decisions in its operation reflects the concept of

autonomy. Once new knowledge has been built up at the subsidiary level,

innovation may be more likely to take place there. The reason that delegated

subsidiaries are sometimes more likely to innovate than their parent firms can be

related to the phenomenon of ‘co-evolution lock in’ as suggested by Burgelman

(2002). This phenomenon suggests that successful parent firms may already be used

to their old practices and have a strong resistance to change and innovate. By

contrast, the empowerment of the subsidiary members’ initiatives to channel their

knowledge for the benefit of the whole enterprise can become a key source of

innovation (Chandler 1962).

Hence, on one hand, autonomy is likely to increase a subsidiary’s innovative

capacity and initiative. On the other hand, autonomy may lead to the subsidiary

resisting RT to the corporate level. Subsidiaries may try to enhance their

competitive positions by keeping their strategically most important knowledge to

themselves (Astley and Zajac 1990). However, this potential ‘rent-seeking’

behaviour can be prevented if the headquarters take countervailing actions such

as rewarding the spreading of knowledge (Bjorkman et al. 2004). Here again, we

return to the point that specific actions by the headquarters are necessary in order to

facilitate the reverse transfer of innovation originates in subsidiaries. The sharing of

knowledge can also enhance a subsidiary’s influence within the corporate system

(Chang and Rosenzweig 2003). As suggested by Ciabuschi et al. (2010), by sharing

knowledge with parent firms, subsidiaries can be integrated and be involved with

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the corporate system to a greater degree. In addition, interdependence in corporate

networks can induce the transfer of best practice for the entire activity chain.

Therefore, subsidiaries that obtain and retain substantial decision-making influence

can help to pursue more transfer of practice to their parent firms.

On balance, the forgoing considerations suggest:

Hypothesis 3: The higher the delegated decision-making influence the cross-

border subsidiary has, the greater the RT from subsidiaries to headquarters.

2.4 Building Trust with Subsidiary Staff

For practices to be transferred successfully between parents and their cross-border

subsidiaries, the interacting parties must have belief or confidence in each other’s

honesty, goodness, skill and safety, in order to create mutual dependence between

them (Child et al. 2005). Mutual trust is an important facilitator in transferring

practices, especially for those practices that contain knowledge of a more abstract

and hard-to-explain nature, and have to be transferred on a more interpersonal basis

(Zaheer 1995). If trust cannot be achieved at the earlier stages between parent and

subsidiary, its absence is likely to inhibit the transfer of practice (Gupta and

Govindarajan 2000). In addition, if the RT of organizational practices is a strategic

intent from the parent firm, building trust with the subsidiary staff will become a

significant management strategy. If the subsidiary has no trust towards their parent

firm, they may not be willing to share their knowledge. Even worse, tension can

arise between groups of managers within MNCs. For example, expatriate managers

may identify themselves as key players in the operation to which they have been

sent, while the indigenous managers may resent their presence (e.g., Broad 1994).

The subsidiary needs to manage its competitive position in MNC networks so that

the provision of sufficient resources from the headquarters for its continuous

advancement can be guaranteed (Frenkel 1994; Martinez and Weston 1994). The

parent firm, therefore, plays a significant role in building trust with subsidiary staff

in order to ensure the congruence of organizational and individuals’ values and

inducing its subsidiary members to channel their creative capabilities for the good

of the whole organization (Belanger et al. 2003).

Hypothesis 4: The higher the trust of headquarters’ managers towards the

staff in their cross-border subsidiaries, the greater the RT.

2.5 Frequent Personal Contacts

The maintenance of regular personal relations between the staff of parent firms and

subsidiaries is an essential social control mechanism (Child and Mollering 2003;

Fryxell et al. 2002). Gupta and Govindarajan (2000) suggested that the availability

of communication channels and the motivation in transferring practices can enhance

the bi-directional outflows of knowledge among MNC networks. This explains why

many MNCs with a global structure are more likely to have regular meetings of

managers across different overseas units, to have an international personnel policy

committee, and to promote the mobility of staff through international assignments


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(Marginson et al. 1995). These interaction based control mechanisms help to build

the appropriate organizational context for knowledge transfer and learning

(Noorderhaven and Harzing 2009). Thus, it is important to assign an executive

with sufficient time and resources both to monitor the subsidiary’s progress and to

support this with the necessary personal contact.

Furthermore, personal relations between parents and subsidiaries’ functional and

technical staff are also important, especially if a partner is relying on its superiority in

technical and other competences as a means of guaranteeing participation in the

management of the day-to-day operations. Therefore, technical, advisory, and

managerial inputs offered to MNC units from their local subsidiaries are essential.

These inputs can be obtained from the personal interactions with local staff,

government officials, advisors and partners, on a basis of continuing and close

relations. These interactions can have considerable potential for enhancing opera-

tional control, strengthening the network contexts and facilitating the transfer of

practice (Inkpen and Crossan 1995), including RT. The importance of socialization

and interpersonal interaction has also been highlighted by Nonaka and Takeuchi’s

(1995) notion of knowledge creation, suggesting the importance of the social

constitution of MNC knowledge (Noorderhaven and Harzing 2009), whereby

frequent personal contact helps to create such a particular important context for RT.

Hypothesis 5: The more frequent the personal contacts of parent firms with

their cross-border subsidiaries and other counterparts in the business, the

greater the RT.

3 Methods

3.1 Target Firms for the Survey

The target population was identified as all firms who were both originally

established in Hong Kong and manage activities located across the border in

Mainland China. Since there is no available listing from which to sample and no

census data on the population as a whole for the target firms in the public statistical

systems in either China or Hong Kong, the sampling frame containing the full

population of target firms is missing. In addition, given the need to secure co-

operation for the data collection process, the membership lists of four major

business associations that cover a significant proportion of Hong Kong firms in

different sizes, were used as the starting point for the survey. When firms that had no

presence in China were eliminated, the sampling frame contained 2,669 firms.

3.2 Questionnaire Development and Data Collection

Through a focus group study with 25 Hong Kong managers who are responsible for

China business, a draft questionnaire was developed to measure the variables in the

hypotheses. All items were in non-simplified Chinese (Cantonese when spoken) and

English, following a process of translation and back-translation to ensure conceptual

equivalence of the alternative renditions (Brislin 1970). The draft questionnaire was

L. Chung

123

then administered to 15 executives, leading to some minor amendments in the

grammar and writing styles, and the final version was piloted with a separate group

of 50 senior managers.

Our wish to obtain in-depth data precluded a postal survey, and a team of

research workers spent 7 months visiting all respondents in Hong Kong to

administer the questionnaire and also gather illustrative examples. The interviewed

respondents were Hong Kong corporate-level managers who had key responsibil-

ities in managing business activities in Mainland China. All of the 2,669 firms in the

sampling frame were contacted at least once and the process continued until the

pool of willing interviewees was exhausted. Most executives expressed willingness

to participate but the frequency of travel meant that in many cases it was impossible

to timetable an interview in the period available. Interviews lasted approximately

90 min and the final sample of 503 respondents (one per firm) represented a 19 %

response rate.

The use of interviews permitted an interaction between researchers and

respondents that reduces the risk of misunderstanding and loss of validity. In

addition, a statistical analysis was conducted to show whether respondents and non-

respondents differed significantly in terms of size and turnover, but no significant

difference was found (refer to Ambos and Birkinshaw 2010, p. 458). As all

measures were collected through the same questionnaire, the possibility of a

common method bias was tested using Harman’s one-factor test (Podsakoff and

Organ 1986). A principal-components factor analysis on the items measured yielded

five factors with eigenvalues [1.0, and these accounted for 53.97 % of the total

variance. Since several factors, rather than one single factor, were identified, and as

the first factor did not account for a majority of the variance (only 14.11 %), a

substantial amount of common method variance does not appear to be present.

Finally, in order to test the validity and reliability of the study, a follow-up survey

was conducted in the same 503 companies of the sample via either faxes or emails.

The same questions were asked but instructions were changed to ask the

respondents to answer the questions from the perspectives of the local units. This

time the respondents were local managers based in the China subsidiaries and who

were responsible for China business operations. Usable returns were obtained from

respondents in 150 subsidiaries. There were no statistically significant differences

comparing responses to those from the main sample, and this demonstrated a high

consistency in responses between the corporate and subsidiary levels. In this way,

the problems inherent in reliance on single respondents were checked and found to

be insignificant.

3.3 Characteristics of the Sample

The study was carried out from 2000 to 2003. Of the 503 Hong Kong parent firms

responding, 377 were in manufacturing and 126 in services. 23 % had fewer than

100 employees in Hong Kong and China, 15 % had 100–199 employees and 35 %

were medium-sized (200–1,000 employees). Large companies, with over 1,000

employees in Hong Kong and China, made up the remaining 27 %. It is impossible

to say how the sample is biased compared with the target population. However, it is


123

reasonable to assume that the membership of the business associations is skewed

towards the larger firms and this bias needs to be kept in mind when interpreting the

results. In order to estimate the likelihood of a non-response bias, statistical analysis

was conducted between the respondents and non-respondents in terms of sector, size

and turnover and there were no significant differences found.

3.4 Measures

In order to clarify the concept of RT in the context of parent-subsidiary

relationships, focus groups were held with the participation of managers from both

parent and subsidiary levels. This approach led to the identification of an underlying

logic of RT that is different from the conventional transfer from parent firms. The

reverse direction of transfer from subsidiaries to parent companies becomes

necessary when it is judged that the parents’ existing practices cannot fulfil the

needs of a particular cross-border unit and have to be ‘revised’ or even newly

‘created’ to satisfy the changing needs of the unit. If these newly created or revised

practices from subsidiaries are found to be relevant and benefit (Chung 2004) the

whole corporation, they can be transferred to the parent. This explanation has been

adopted when conducting the survey with the respondents.

In addition, when preparing the survey, a focus group was organized in which 25

managers participated to help to develop the themes and items in the survey questions.

This led to the identification of various sources of technical practices that could be

learned and transferred back to the parent firms. Even though there were also some

business practices originally adopted in the subsidiaries that can be transferred and

learned by parent firms, many of the these practices tended to be specifically applicable

to the particular subsidiary context (e.g., selling practices to Chinese customers,

business practices with Chinese authorities). One can argue that these practices can be

transferred to parent firms and used in other countries that have similar contextual

characteristics (e.g., other emerging economies). However, in order to study the

phenomenon of RT in a generalized manner (rather than limited by the specific nature

of practices), the study only focused on the study of technical practices, the kind of

practices that can be universal, standardized and transferable. In addition, due to the

lack of established scales to measure the specific practice constructs, most of the scales

developed for this study were specifically based on the information provided by the

interviewed managers in the focus group and fieldwork studies.

Standard scale validation procedures were used (De Vellis 1991) to ensure

appropriate standards of measurement. RT assessed the extent to which the objectives

of getting access the technical practices which were originally developed in China

and were successfully transferred to the Hong Kong parents firms. The measure of RT

consists of five items and is scored along 7-Likert point scales. The construct of the

dependent variables is similar to the arguments in the literature, suggesting that the

reverse transfer of practices can relate to both the increase of knowledge stock to the

company (by measuring the degree of both the success of transfer and the success of

learning technologies and obtaining resources from China R&D institutions), and can

also be related to the performance of the parent firms receiving knowledge transfer

(correlation between performance satisfaction of parent firms and success of RT,

L. Chung

123

r = 0.21, p \ 0.001) (e.g., Subramaniam and Venkatraman 2001; Tsai 2001)

(Fig. 1). The Cronbach a coefficient for the scale of RT was 0.89, indicating

reliability in excess of Nunnally’s (1978) benchmark of 0.70.

In addition to the constructs discussed above, factors that can have a contingency

influence in the MNC knowledge transfer were employed as control variables. There

are various internationalization strategies that can have impacts on knowledge

flows. These strategies concern: Strategic orientation (export vs. domestic oriented

manufacturers, e.g., Cantwell and Mudambi 2005); nature of international value

chain (e.g., Noorderhaven and Harzing 2009) (subsidiaries with an upstream

function including R&D, assembly, production were coded as 1, and those without

this function were coded as 0). Other well identified firm level attributes in the

MNCs that can have significant impacts on the predicted headquarters–subsidiaries

relationships and may have potential impact on RT were also included (Bouquet and

Birkinshaw 2008; Luo 2005). These control variables are: Localization (percentage

of managers who were local Mainland Chinese); expatriate ratio (percentage of HK

managers working in the China unit); sector (0 if services, 1 manufacturing); size

(the firm’s direct investment value in China, US$ in millions), years of experience in

host location, and location of the local units (1 if Guangdong region, 0 otherwise).

‘Headquarters intention’ towards RT was assessed with reference to two groups

of variables: Formal Corporate Control and Informal Social Control. Formal

Corporate Control includes four measures: Corporate ownership, IHRM control,

Procedural control and Delegated subsidiary influence. Informal Social Control

includes two measures: Trust in subsidiary staff and frequency of personal contacts.

Corporate ownership was measured as 1, other than wholly owned; 2, wholly

owned. The remaining variables were measured using a 7-point Likert scale rating.

The unidimensionality of multi-item measures was confirmed by factor analysis. In

addition, a two group confirmatory analysis was conducted on the two sub-samples

of services and manufacturing. The result indicates that there were no significant

differences in the components underlying each sub-sample. Therefore, the present

Headquarters’ intentional actions Formal Corporate Control H1: Corporate ownership H2a: IHRM control H2b: Procedural control H3: Delegated subsidiary influence Informal Social Control H4: Trust in subsidiary staff H5: Frequency of personal contacts

Achieving the objectives of reverse transfer of practices

Control variables: strategic orientation, nature of international value chain, localization,expatriate ratio, size, years of experience in host location, subsidiary location, and sector

+

Fig. 1 Conceptual model: headquarters’ managerial intentional actions and reverse transfer of practice


123

study presents the results of the combined sample. Table 1 provides further

information on all the measures employed.

4 Results

Table 2 reports means, standard deviations and correlations for the investigated

variables. As the table shows, the maximum correlation of 0.79 (between IHRM

control and Procedural control), a value smaller than 0.85, indicates that there is no

serious threat to discriminant validity (Campell and Fiske 1959). Also, multicol-

linearity was not significant in these analyses because the greatest VIF factor found

was 3.00, substantially below the conservative cut-off of 10 suggested by Hair et al.

2010.

Hierarchical regression analyses were undertaken to test the hypotheses. This

method was used here because the relative predictive power of each investigated

perspective could be shown for the purpose of comparison. The sets of independent

variables were entered in the following order: control variables first, ownership,

then the ‘formal corporate control’ and finally factors of ‘informal social control’.

The results are shown in Table 3.

As shown in the full models in Table 3 (which controls for all related variables),

most of the variables were significantly related to RT. Corporate ownership was

found to be significant in Step 2 (b = 0.13, p \ 0.05) and marginally significant in

Step 3 (b = 0.11, p \ 0.10). Hypothesis 1 was supported here. The addition of the

‘formal corporate control’ variables in Step 2 had significantly increased the R2 to

9 % (DR2 = 0.07, F change = 5.83, p \ 0.001). Among the ‘corporate formal

control’, the predictive power of the IHRM control was the most significant

predictors of RT (b = 0.27, p \ 0.001) and remained consistently significant in the

final model (b = 0.18, p \ 0.01). Hypothesis 2a was supported here but not

Hypothesis 2b. Delegated subsidiary influence was also found to be not significant.

Hypothesis 3 was not supported.

As the final step, the two factors of Informal Social Control were entered. This

step greatly raised the percentage of adjusted explained variance significantly to

9 % (F change = 7.16, p \ 0.001). Both Hypothesis 4 and 5 were supported in the

final model. This step gave highly significant positive coefficients on Frequency of

Personal Contacts (b = 0.13, p \ 0.05) and Trust in subsidiary staff (b = 0.17

p \ 0.01).

5 Discussion and Conclusion

In pursuit of its research objective, this study contributes to the literature both

empirically and theoretically. Empirically, it examines the impact of headquarters’

managerial ‘intentionality’ on RT more systematically than preciously achieved in

the literature. Theoretically, this study successfully proves that the realization of RT

intention can be reflected by headquarters’ strategic actions: That is, through

L. Chung

123

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L. Chung

123

cultivating the right organizational contexts for successful RT to take place. These

findings can offer important practical implications for MNCs in managing RT.

With controls for certain company attributes such as internationalization

strategies, localization of staff, expatriate ratio, sector, size, experience, and

location, our findings point to the relevance of managerial intentionality to RT: Full

ownership, active-trust building, IHRM control and frequent personal contacts with

local units and other Chinese counterparts, are the most important predictors of RT.

Finally, by comparing these to the conventional knowledge transfer literature, the

results point to the importance of the subtle combination of formal HRM control and

informal social control for practice transfer, especially in the case of RT.

There are various organizational entry mode strategies for FDI. Whole ownership

is the most popular international expansion strategy (Dunning 1981) because it

benefits MNCs by providing a strong structural context for allowing effective

corporate control to take place (Buckley et al. 2003). By exercising full ownership,

parent MNCs can orchestrate the transfer of best practices across their intercon-

nected international networks (Bartlett and Ghoshal 1998; Hedlund 1986; Kogut

Table 3 Reverse transfer of practices: hierarchical regression analysis

Variables Step 1 Step 2 Step 3

b b b

Control variables

Strategic orientation -0.03 -0.04 -0.03

Value chain role 0.02 0.00 0.01

Localization of staff 0.06 0.06 0.04

Expatriate ratio 0.08 0.05 0.05

Size 0.07 0.00 -0.04

Year of experience -0.01 0.08 0.07

Subsidiary location -0.09 -0.09 -0.09

Sector 0.03 -0.01 -0.03

Headquarters intention

Formal corporate control

Corporate ownership 0.13* 0.11�

IHRM control 0.27*** 0.18**

Procedural control -0.02 0.02

Delegated subsidiary influence 0.03 -0.00

Informal social control

Trust in subsidiary staff 0.17**

Personal contacts 0.13*

R2 (adjusted R2) 0.02 (-0.01) 0.09 (0.05) 0.13 (0.09)

Model F 0.73 2.33** 3.06***

DR2 0.02 0.07 0.04

Sig of F for DR2 0.73 5.83*** 7.16***

N = 503� p \ 0.10; * p \ 0.05, ** p \ 0.01, *** p \ 0.001


123

and Zander 1993). Whole-ownership has been proved to be essential for RT

(Buckley et al. 2003) because the reverse mechanism involves a combination of

complicated organizational antecedents (e.g., Edwards et al. 2005) and its transfer

mechanism requires more headquarters’ strategic attention (Ambos and Birkinshaw

2010) and intention than those found in conventional forward transfer. Full

ownership can provide a stronger control on subsidiary development and ensure a

stronger headquarters engagement in the practice transfer management.

One of the key factors, namely active trust building, was shown to be essential

for RT to take place. It can be argued that active-trust building can be even more

important to RT than to conventional practice transfer. Without the pre-condition of

extra effort being made by headquarters to gaining the trust of the subsidiary staff,

RT will be difficult to initiate, gain recognition for, and implement. In the IB

literature, trust has been suggested to be essential in the cross-border reverse

transfer, partly because of the institutional constraints: The ‘sticky’ nature of cross-

border transfer (Szulanski 1996) and the political resistance inherent to the inverted

hierarchical order (Yang et al. 2008). Psychological barriers such as ‘not-invented

here’ (Katz and Allen 1982) and the ‘NSH’ (Lichtenthaler et al. 2010) also require a

strong trust relationship to overcome them. In addition, mutual trust relationship can

be further strengthened by the implementation of formal IHRM control and informal

frequent personal contacts. Without this subtle combination of formal and informal

control (Martinez and Jarillo 1989), it will be difficult to have the foundation of trust

for RT to take place.

Both formal IHRM and informal social control can help to implement the

strategic managerial intentionality of parent firms to facilitate the RT. In particular,

frequent personal contact and active trust-building are essential organizational

contexts not only for the transfer but more importantly for the learning process to

occur successfully (Child and Mollering 2003; Noorderhaven and Harzing 2009;

Toh and DeNisi 2005). However, this study suggested that formal procedural

control and delegated subsidiary influence were not significant predictors of RT.

When comparing the present results to those found in the literature of conventional

transfer, it is interesting to find that there are some commonalities but also important

differences in the impact of headquarters intention on RT.

The relation of formal reporting procedures and the transfer of practice have been

widely discussed in the literature of exploration and exploitation (e.g., Andriopoulos

and Lewis 2009; March 1991; Miller et al. 2006). The common approach to

exploitation is to transfer directly the tried and tested best practices from

headquarters to subsidiaries (e.g., Mom et al. 2007). The important formal

procedural control mechanisms are the use of financial and resource planning

systems, formal rules and procedures, and reporting (Zollo and Winter 2002). These

arguments are mostly related to the conventional transfer from headquarters. They

suggested that practice can be transferred through codified knowledge and exploited

through replications by using rules, procedures, and manuals.

However, the present study suggested that such direct linkage between

formalization and conventional transfer is not evidenced in the case of RT. The

bottom-up transfer from subsidiaries to headquarters tends to involve greater

exploration activities (Mom et al. 2007) and has to be achieved through richer

L. Chung

123

interpersonal learning contexts (Andriopoulos and Lewis 2009; Gupta et al. 2006;

Noorderhaven and Harzing 2009). Merely relying in a formalized way to transfer

practices has been shown here to be insufficient for RT. On the contrary, informal

social control factors are widely proved to be significant drivers for RT (e.g.,

Bjorkman et al. 2004; Gupta and Govindarajan 2000; Noorderhaven and Harzing

2009).

The results here also suggest that delegated subsidiary influence had no

significant effect on RT. Many studies have suggested that subsidiary influence can

have positive effects on MNC performance (Ambos and Birkinshaw 2010) and

forward knowledge transfer and learning (Lyles 2003; Nonaka and Takeuchi 1995).

The empowerment of the subsidiary members’ initiatives to channel their

knowledge for the benefit of the whole enterprise (Chandler 1962) is the ideal

scenario for the existence of MNCs (Buckley and Casson 1976). However, the

positive linkages between delegation and conventional knowledge transfer studies

were found to be not necessary in the case of RT.

As discussed in the context of a micro-political perspective, subsidiaries might be

reluctant to share their best practices in order to maintain their competitive positions

within MNCs (Astley and Zajac 1990). Even though spreading knowledge may

sometimes help to enhance a subsidiary’s power through better integration within

the corporate system (Chang and Rosenzweig 2003; Ciabuschi et al. 2010), such

interdependence in corporate networks can involve a combination of complicated

factors in order to achieve its ultimate goal (e.g., Edwards et al. 2005).

Encouragement of a subsidiary to share its new practice rather than to hoard it as

a power resource will require special intention by the headquarters. Hence, rather

than merely relying on formal corporate control, other social and incentive

mechanisms (e.g., IHRM policies, trust, frequent personal contacts) have to be

effectively implemented before RT can successfully take place (Noorderhaven and

Harzing 2009). Nevertheless, the potential impacts of delegated subsidiary influence

on RT remain debatable and will need further investigation.

Overall, the combination of investigated factors has a stronger effect on RT than

any one of them taken in isolation. This suggests that most of the factors studied are

relevant for understanding the extent to which RT can be successfully achieved

across borders. The whole ownership mode has been found in this large scale survey

to contribute to raising the level of RT. This result introduces new empirical

evidence of how corporate ownership can be a key strategy for MNCs to be

successful in their management intention to transfer and manage knowledge within

their MNC network (Buckley et al. 2003). Among the two groups of factors

affecting RT, the group of variables of informal social control and IHRM control

tends to play the strongest explanatory power in the regression models. This finding

is consistent with the importance of managers at the corporate level realizing the

availability of valuable resources at the subsidiary level and making the securing of

these resources a strategic priority in their host countries business. Both knowledge

of the local context and the capabilities necessary to add value (Egelhoff 2010) to

the local units are key factors for parent firms (Campbell et al. 1995) to exercise

good command without intruding control (Tallman and Koza 2010). Frequent

personal contact and effective IHRM control mechanisms provide a supportive


123

organizational context for RT to take place. This also supports the argument that the

strategic nature of resources that cross-border subsidiaries possess (Birkinshaw

1997; Holm et al. 2005) and the dependence of the MNC parent company on them

(Ambos and Mahnke 2010) for developing best practices are influential in the

success of RT.

There are several limitations to this study. First, the sample is limited to Hong

Kong MNCs’ subsidiaries based in China. The generalizability of the results will

need to be tested by studying organizations from different countries. Second, as the

main survey measures were administered at the headquarters’ level, the risk of

common method bias could be reduced by including more sources including

archival studies (e.g., annual reports and internet information) and reliable data base

resources (e.g., Industrial Classification Index). In addition, it would be desirable to

obtain separate responses from managers at both the headquarters and subsidiary

levels at the same time.

Third, limited by the survey design, not all relevant independent and control

variables could be studied and included in the prediction models. For example,

many studies have suggested that mutual trust is important to knowledge transfer

(e.g., Gupta and Govindarajan 2000; Kostova and Roth 2002). The limitation of

only studying the trust building initiated from the headquarters’ level has to be

overcome in future studies by adding the measure of the trust of subsidiaries

towards their parent firm’s managers. It may be argued that the lack of mutual trust

can often significantly affect the willingness of both parties to share knowledge

(Edwards and Rees 2006). Nevertheless, trust is a strong predictor for practice

transfer. And it is believed that it may be even more important in the context of RT.

Fourth, given the importance of the managerial intentionality factors in terms of

organizational control, the construct of control needs to be studied in greater detail

than was possible in this study. The limitation of using perceived measures for

assessing the control constructs can be replaced by other sources of data that can

reflect the constructs objectively such as in the Aston measures used by Pugh and

Hickson (1976). In addition, it is essential to enrich the operationalization of the

construct of ‘managerial intentionality’ by developing stronger operational indica-

tors in future studies.

Finally, future studies should also incorporate other bodies of knowledge

including organizational behaviour, HRM, political science, psychology, and

economic geography to explore RT in more depth. In addition, a multi-level

perspective (e.g., interaction between individual, firm, and contextual levels) could

help to capture much of the interlocked complexity of the RT phenomenon and

reveal the links and relationships that otherwise remain hidden and black-boxed. For

example, given the growing importance of the evolving role of subsidiaries from

developing countries as the sources of competitive advantages (for example, the

growing trend of outsourcing R&D activities to emerging economies), more studies

could be directed to investigate how the managerial intentionality and organiza-

tional processes of RT can be influenced by contextual characteristics such as

industrial and investment policies, market size, competitiveness, infrastructure and

asset availability.

L. Chung

123

To conclude, this study offers empirical, theoretical and practical contributions to

the understanding of ‘headquarters intention’ in MNCs. Empirically, its results are

based on an extensive data set collected through survey analysis, which allows for a

possibility of generalization across MNCs, an obvious advantage over past studies

of RT which are mostly based on case studies (e.g., Edwards 2000; Edwards et al.

2005; Edwards and Tempel 2010). In addition, by excluding the potential effects of

cultural differences and the nature of practices (e.g., explicit vs. implicit or HR

practices), this study has successfully and more systematically tested and discussed

the impact of headquarters intention related factors on RT than has been done in the

previous literature.

Theoretically, the impact of headquarters intention on RT is an important inquiry in

both international management and organizational theory. Given the challenges arise

from reverse hierarchical order and ‘stickiness’ in the transfer, RT cannot be initiated

through normal exploitation strategies as suggested in the literature of conventional

transfer. Instead, RT is a result of headquarters intention, requiring strong purposive

efforts, rather than of spontaneous occurrences within MNC networks.

Building on the evidence of the present study, managers should realise that

headquarters need to play an active value-added role in providing the appropriate

mechanisms and contexts for RT and learning to take place. The special attention of

the transfer of technical practices here can also provide new insights into the

distinctive role of RT taken by subsidiaries from developing country contexts. As

suggested in the literature review, rather than merely focusing on the existence of

knowledge flows, or the transfer of HR practice between developed countries units,

emphasis should be put on how the strategic intention of headquarters can use

subsidiaries located in developing country contexts as the key sources of innovation

and high technological skills. The emphasis on the RT of technical practices

originally developed from local context can provide new insights into this important

strategic issue.

Last but not the least, this study highlights the importance of both managerial

intentions and proper social and structural organizational arrangements as crucial

conditions for RT. Only having one condition will jeopardise the effectiveness of

the other. Just having organizational arrangements without the intention to use them

is likely to lead to a ‘mock bureaucracy’ (Gouldner 1954). Equally important, just

having an RT intention is not enough; it is crucial to have the proper organizational

arrangements to carry out the headquarters’ intention. In short, strong managerial

intention can help to ensure organizational arrangements are followed properly and

are effective in practice.

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Headquarters’ Managerial Intentionality and Reverse Transfer of Practices

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