Managing knowledge in the age of global capital.

Author:Mir, Raza


For scholars and professionals in the field of business management, the challenges of the twenty first century appear to be especially daunting. On one hand, the recent past has seen a tremendous acceleration in the rate of trade between countries, the growth of MNCs, and fundamental changes in work practices leading to increased productive efficiencies in organizations (UNCTAD, 2013). On the other hand, the future poses intensified challenges. Will organizations of the future be "wiser" than they were before (Sims & Sauser, 2013)? Will newer forms of technology be deployed by organizations to increase their grasp of the market (Block, 2014)? How can organizations better interlink their product delivery systems to offer more integrated services to their customers (Clark, Huckman & Staats, 2013)? How will they respond to the challenges of a diverse workforce by instituting systems that are equitable and just (Scheel, Rigotti & Mohr, 2014)?

In this paper, we advance the contention that organizational theory and practice are both in a state of dynamic mutual interaction, with theory often playing a lagging role. In other words, organizational actions precede, and are retroactively described (and legitimized) by theoretical developments. We examine one such instance, which is the emergence of the knowledge-based formulations of the theory of the firm in the 1990s. We suggest that the new theories of the firm as a receptacle of knowledge emerged in the context of the intensified knowledge communication within organizations in the early 1990s. In that time, as we crested the socially constructed temporal milestone into the new millennium, we saw a sudden intensification in management theory of "knowledge- based" perspectives in organizational theory, especially in strategic management. Knowledge management became the subject of special issues in a variety of influential journals, the exclusive topic of a plethora of academic websites, and a number of consultants began to market executive programs aimed specifically at managers wishing to take advantages of knowledge routines within firms . This trend continues till today, as we talk about knowledge management in new organizational configurations (Wagner, Hoisl, & Thoma, 2014), absorptive capacity (Huang, Lin, Wu & Yu, 2015), dynamic capabilities (Knudsen, Levinthal & Winter, 2014), and intellectual property (Liu, & La Croix, 2015).

Why did organizational theorists suddenly develop this burst of interest in the concept of "knowledge?" After all, the view that firms should be studied primarily as effective carriers of capabilities is not a new concept, dating back to the works of Edith Penrose (1959), and the resource based view of the firm (Barney, 1991). Why then this need to drastically rethink the premises under which firms exist and operate? Is there a theoretical basis for this perspective, or is knowledge management merely a fad, and management theory (and practice) is falling victim to its own theories of isomorphism (Powell and DiMaggio, 1991)?

We believe that there is indeed a historical basis for the growing importance of knowledge as a concept in management theory. We further contend that this interest in knowledge-based perspectives is directly related to the new concerns of management as it seeks to preserve its property rights in a new industrial climate. In other words, we contend that knowledge-based theories of the firm represent tools to assist corporations to manage labor in an era of the new international division of labor.

The rest of this paper is organized into three sections. In the first section, we discuss the issue of knowledge communication within firms across geographical distances, especially as they relate to the transfer of knowledge within MNCs. We also examine the new technological and organizational arrangements that need to be deployed to facilitate better coordination of diversified firms. In the second section, we unpack the concept of knowledge by examining how it has been represented in a variety of social science traditions, and what our theories can learn from these alternative representations. In the process, we critique existing operationalization of knowledge in management theory. In the final section, we engage in a discussion on the potential meaning of knowledge-based theories. We end by offering a set of caveats that both theorists and practitioners need to heed if knowledge-based theories of the firm are to become more inclusive and egalitarian.


Over the past few years, management theorists have been preoccupied with the role of the firm as an efficient carrier and distributor of knowledge (see Klarl, 2014, for a review). In particular, these theories have been applied to MNCs (Sofka, Shehu & de Faria, 2014), and suggest that the inefficiencies of trade across geo-political boundaries can be transcended by a large, spread-out organization, which can then be a conduit for knowledge flows. Knowledge transfer has not only been subjected to theoretical examination, but has also been empirically measured (see Wijk, Jansen, & Lyles 2008, for a thorough review). This theoretical interest in knowledge communication parallels extraordinary development in the movements of capital across national boundaries all over the world.

In the last quarter century, especially following the collapse of the command economies of Eastern Europe, many countries across the world have affected significant policy shifts toward "neoliberalism" at the expense of import-substitution policies. These neo-liberalist policies were developed as a means to attract foreign capital, primarily through an increased proliferation of investments by multinational corporations (MNCs) (Kant, 1996). The trend of globally dispersed investment by corporations continues till today. For example, the inflows of foreign direct investment, a key marker of MNC investment approached $2 trillion in 2013, with over $500b reported as mergers and acquisitions (UNCTAD, 2013), leading to a more concentrated global economy. The top 500 MNCs of the world showed revenue growths in excess of 10% and profit growths in excess of 15% in 2012 despite the global economic downturn (Fortune, 2013), and their revenues routinely exceeded the GDP of most nations; if firms and nations were listed together (annual revenues alongside national GDP), each of the top five corporations in the world (Royal Dutch Shell, Walmart, Exxon Mobil, Sinopec and China National Petroleum) would be ranked as a top 30 nation. Not only have FDIs grown, existing MNCs in these regions have begun to increase the communication between headquarters and subsidiaries. This has exposed the local industrial landscape to a bewildering influx of production methods, new technologies, and new management practices, all of which constitute newer ways of thinking and doing. It is an effort to comprehend these phenomena, and bring them into the ambit of "theory", that has led to the renewed interest in knowledge transfer in management theory.

One side effect of theorizing about knowledge flows has been that researchers have been forced to re-evaluate their fundamental theories of the firm. Most knowledge theorists, despite the apparent heterogeneity of their subject matter, share dissatisfaction with "static" theories of the firm, in particular the transaction cost perspective.

It may be recalled that most management theorists have hitherto relied on the transaction cost perspective to understand the existence of the firm. Under the premises of this theory, economic activities are internalized into hierarchies (firms) when contractual and marketbased arrangements fail, primarily as a consequence of bounded rationality on the part of actors, asset specificities in transactions, and the possibility of opportunistic or "morally hazardous" behavior by contractual partners (Williamson, 1985).

In the 1990s, a new breed of researchers sought to bring a new understanding of MNCs to bear in postulating an entirely new theory of the firm. Advocates of the knowledge-based theory of the firm (Kogut and Zander, 1996) attempted to use the phenomenon of knowledge communication to explain the very existence of firms. Through this theory, they attempted to move explicitly from earlier, contractual theories of organizing into more processual, knowledge-based...

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