Headquarters‐subsidiary knowledge strategies at the cluster level

• DOI: http://doi.org/10.1002/gsj.1356
• Published date: 01 August 2020
• Author: Pengfei Li,Harald Bathelt
• Date: 01 August 2020

RESEARCH ARTICLE

Headquarters-subsidiary knowledge strategies

at the cluster level

Pengfei Li

1

| Harald Bathelt

2

1

Department of International Business,

HEC Montréal, Montréal, Quebec, Canada

2

Department of Political Science and

Department of Geography and Planning,

University of Toronto, Toronto, Ontario,

Canada

Correspondence

Harald Bathelt, University of Toronto,

Department of Political Science and

Department of Geography and Planning,

Sidney Smith Hall, 100 St. George Street,

Toronto, ON M5S 3G3, Canada.

Email: harald.bathelt@utoronto.ca

Funding information

Social Sciences and Humanities Research

Council of Canada, Grant/Award Numbers:

Banting Postdoctoral Fellowship, Insight

Grant Number 91855; Canada Research

Chair of Innovation and Governance

Abstract

Research Summary: This article examines how multina-

tional enterprises (MNEs) leverage knowledge across

clusters. Based on the geographical sources and the con-

textuality of knowledge, we construct a typology of four

MNE knowledge strategies across space: replicating,

scouting, connecting, and integrating, and take into con-

sideration their spatial, industrial, and leadership contexts.

A fuzzy-set qualitative comparative analysis of 49 pairs of

headquarters-subsidiary linkages between Canada and

China suggests that replicating strategies occur in cluster-

to-non-cluster contexts or in fields with a knowledge gap

between the two countries, whereas scouting strategies are

typical in non-cluster-to-cluster investments. Connecting

and integrating strategies are focused on cluster-to-cluster

contexts. We also find that while connecting occurs in

fields where knowledge is locally bounded, integrating

takes place in nonlocally bounded contexts. Finally, scout-

ing and integrating strategies are associated with home

nationals as subsidiary leaders.

Managerial Summary: How do multinational enterprises

(MNEs) transfer knowledge over space between clusters

and between other locations? To explore this question, we

construct a typology of four MNE knowledge strategies

(replicating, scouting, connecting, and integrating) and

examine the spatial, industrial, and leadership conditions

of each. By examining 49 headquarter-subsidiary linkages

between Canada and China through detailed interviews,

we find that replicating strategies occur in cluster-to-non-

cluster contexts or industries with a knowledge gap

Received: 12 June 2018 Revised: 22 July 2019 Accepted: 3 August 2019

DOI: 10.1002/gsj.1356

Global Strategy Journal. 2020;10:585–618. wileyonlinelibrary.com/journal/gsj © 2019 Strategic Management Society 585

between the two countries, whereas scouting strategies are

typical in non-cluster-to-cluster investments. Connecting

and integrating strategies are focused on cluster-to-cluster

contexts. We also find that while connecting occurs in

fields where knowledge is locally bounded, integrating

dominates where this is not the case. Finally, scouting and

integrating strategies are associated with home nationals

as subsidiary leaders.

KEYWORDS

connecting strategy, integrating strategy, MNE knowledge strategies

across space, replicating strategy, scouting strategy

1|INTRODUCTION

Geography is important to understand global innovation strategies of multinational enterprises

(MNEs). By strategically positioning themselves across various geographical settings, MNEs create

“systemwide advantages”(Porter, 1986) not only to reduce costs and increase efficiency but also,

importantly, to leverage diverse knowledge pools with respect to global innovation (Ghoshal &

Bartlett, 1990; Kogut & Zander, 1992). How MNEs leverage knowledge across locations has become

an important question spanning the disciplines of international business (Buckley & Ghauri, 2004;

Cano-Kollmann, Cantwell, Hannigan, Mudambi, & Song, 2016; Cantwell, 2009; Doz & Wilson,

2012; Dunning, 2009), strategy (Alcácer, Kogut, Thomas, & Yeung, 2017; Sorenson & Baum,

2002), and economic geography (Bathelt & Cohendet, 2014; Bathelt, Malmberg, & Maskell, 2004;

Maskell, 2014). Since knowledge spillovers occur locally, research in these disciplines is converging

toward the idea that a fine-grained analysis of the subnational level is key to better understand MNEs'

knowledge strategies (Alcácer & Chung, 2014; Stallkamp, Pinkham, Schotter, & Buchel, 2018).

Supported by recent studies, it has become clear that there is both diversity between locations in

terms of knowledge pools as well as heterogeneity in firms' capabilities to manage global knowledge

networks (Lahiri, 2010; Scalera, Perri, & Hannigan, 2018; Shaver & Flyer, 2000; Zhao & Islam,

2017). This research implies that complex relationships exist between MNEs' spatial configurations

and their knowledge strategies. At the subnational level, clusters are both a geographical representa-

tion of an industrial community and a fundamental reference point for technological developments in

an organizational field (DiMaggio & Powell, 1983). They have thus been identified as an essential

scale in research programs on MNE internationalization (Alcácer & Zhao, 2012; Almeida & Kogut,

1999; Li & Bathelt, 2018; Monteiro & Birkinshaw, 2017; Mudambi, Mudambi, Mukherjee, &

Scalera, 2017). Taking all these insights together, it can be expected that MNEs pursue different

knowledge strategies when connecting different types of cluster locations at home and abroad.

Following this line of enquiry, this article aims to examine the knowledge strategies MNEs imple-

ment between headquarters and subsidiaries at the cluster level. Specifically, we investigate how

MNEs leverage knowledge differences across cluster space. In doing this, we contribute to the litera-

ture by developing a typology of four knowledge strategies based on the geographical sources and

the contextuality of knowledge (Figure 1): replicating, scouting, connecting, and integrating.

586 LI AND BATHELT

Replicating, that is, the transfer of knowledge created at home to a foreign subsidiary, and scouting,

that is, the transfer of knowledge from at the host country location back home, are strategies that

occur when the knowledge of interest originates at a single location, either the home or host location.

When knowledge is generated at two or multiple locations simultaneously, connecting and integrat-

ing strategies are chosen. Connecting and integrating differ with respect to the spatial nature of

knowledge. When knowledge is not locally bounded (Rugman & Verbeke, 2001; Westney, 2001),

MNEs can create complementary technologies in diverse geographical settings and integrate them to

develop new products and solutions. When knowledge is contextual and cannot be easily transferred,

MNEs can adopt a connecting strategy by offering a package of multiple local knowledge bodies to

their clients.

In our analysis, we investigate how MNEs pursue these knowledge strategies depending on the

cluster or non-cluster contexts of their headquarters and subsidiary locations. Existing research dem-

onstrates that knowledge flows between headquarters and subsidiaries are shaped by the subnational

environment within which affiliates operate in their host country (Cantwell & Iammarino, 2003;

Frost, 2001). We extend our focus on the subnational unit also to the home location context. The idea

behind this is that we need to consider the knowledge profiles of both home and host locations to

properly understand MNE knowledge strategies (Alcácer & Chung, 2011; Gupta & Govindarajan,

2000). Since clusters are rich and dynamic settings of knowledge compared to non-clusters, we show

that replicating strategies are associated with firms investing from cluster to non-cluster areas,

whereas scouting strategies are characteristic of firms investing from non-cluster areas to clusters. In

contrast, connecting and integrating strategies are chosen by firms that engage in cluster-to-cluster

investments. Besides these locational aspects, our research demonstrates that MNE knowledge strate-

gies are also shaped by the industrial environment in which they operate and that they require differ-

ent types of local leadership for successful strategy implementation (Gupta & Govindarajan,

1991, 2000).

Since we propose a configurational relationship between the selection of knowledge strategies

and a set of contextual variables, we adopted a configurational approach to examine firm strategies

(Miller, 2018). In our empirical study, we investigated 49 cases of MNE knowledge strategies

between headquarters and subsidiary locations across Canada and China. We conducted face-to-face

interviews with executives at the respective locations to understand their knowledge strategies, local

environment, industrial context, and leadership structure. We used statistical data on employment at

the city level in both countries to determine the cluster status of the headquarters and subsidiary loca-

tions. The knowledge strategies, industrial environment, and local leadership were identified by sys-

tematically coding our interview data. Finally, the identified variables were analyzed using a

FIGURE 1 Atypology of four MNE knowledge

strategies. MNE, multinational enterprises

LI AND BATHELT 587