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Reverse Knowledge Transfer from Overseas Acquisitions: A Survey of Indian MNEs

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Abstract

In this paper, we examine the effects of subsidiary level factors on reverse knowledge transfer (RKT) in MNEs from the emerging market of India (EM-MNEs). We argue that subsidiary level competencies and capabilities play a vital role in persuading the parent EM-MNEs to initiate the RKT in their attempt to overcome the disadvantages they have. The competency levels of the subsidiary have been captured in terms of the role that the subsidiary has in the network and its host country endowments. In addition, RKT requires the subsidiary units to collaborate closely with the parent EM-MNEs and is also dependent on the extent of complexity of this knowledge. The study involves a survey of MNEs from the emerging market of India with overseas acquisitions. We develop a set of hypotheses and test them with the data using OLS regression. Results show that higher levels of collaboration facilitate RKT to the parent firm, and this effect is more prominent in high technology and knowledge intensive industries. Also, subsidiaries that hail from host countries with a higher competitive index compared to India and those that perform the role of specialised contributors contribute more towards RKT. In addition, a higher level of knowledge complexity leads to a greater extent of RKT.

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Notes

  1. Weaknesses external to the firm are underdeveloped markets, unsophisticated customers, weak suppliers, and other input scarcities, infrastructure bottlenecks and institutional voids. Weaknesses internal to the firm are limited global exposure, lower technological and managerial standards, inadequate resources and capabilities, lack of credibility and legitimacy (Madhok and Keyhani 2012).

  2. Age, revenue figures (2010–2011), profit-loss figures (2010–2011).

  3. Federation of Indian Chambers of Commerce and Industry.

  4. Supplemented also with Grant Thornton, 2010; IBEF, 2006; Mape, 2006; BCG, 2009; Grant Thornton (M&A) Dealtrackers 2005–2010.

  5. We would like to thank an anonymous referee for this helpful suggestion. From the FICCI list of India M&As (secondary data) and based on the information in the company websites and press releases of these acquisitions, we arrived at a qualitative judgment on the subsidiary mandate for 60 of these acquisitions (chosen randomly). It was seen that based on this exercise, 23 % of the subsidiaries had a world mandate, 32 % were local implementers and 45 % were strategic contributors. This is not very different from the pattern seen in the choice of subsidiaries by our respondents.

  6. Based on the 12 pillars of Institution, Infrastructure, Macroeconomic environment, Health and primary education, Higher education and training, Goods market efficiency, Labor market efficiency, Financial market development, Technological readiness, Market size, Business sophistication, Innovation.

  7. It has been developed by the OECD and Eurostat (available on the web at http://ec.europa.eu/environment/emas/pdf/general/nacecodes_en.pdf).

  8. European Technical Centre in UK (2005), INCAT International in UK (2005) and Jaguar & Land Rover in UK (2008).

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Acknowledgments

We would like to thank the guest editors and two anonymous reviewers for their insightful comments on an earlier version of this paper.

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Appendix: Scales

Appendix: Scales

Knowledge complexity

  • Your subsidiary’s knowledge is the product of many interdependent techniques, routines, individuals and resources (Items Know_Compl1, Know_Compl2 and Know_Compl3 for technical, marketing and managerial knowledge respectively).

Collaboration

  • Both parent and subsidiary work together to share new ideas (Collab1).

  • Both parent and subsidiary frequently share proprietary information with one another (Collab2).

  • Both parent and subsidiary work together to take advantage of new opportunities (Collab3).

  • Both parent and subsidiary work together toward common goals (Collab4).

RKT

  • Our subsidiary provides us with knowledge and skills in (Items Rev_Flow1, Rev_Flow2 and Rev_Flow3 for technical, marketing and managerial knowledge respectively).

Absorptive capacity

  • We have the academic background to understand our subsidiary’s knowledge.

  • We have better capabilities for adopting new techniques than our competitors.

  • We provide various education programs for employees.

  • We allocate financial resources for new ideas and research.

  • We provide frequent training programs abroad.

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Nair, S.R., Demirbag, M. & Mellahi, K. Reverse Knowledge Transfer from Overseas Acquisitions: A Survey of Indian MNEs. Manag Int Rev 55, 277–301 (2015). https://doi.org/10.1007/s11575-015-0242-y

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