The external knowledge sourcing process in multinational corporations

• DOI: http://doi.org/10.1002/smj.2487
• Date: 01 February 2017
• Published date: 01 February 2017
• Author: Julian Birkinshaw,Felipe Monteiro

Strategic Management Journal

Strat. Mgmt. J.,38: 342–362 (2017)

Published online EarlyView 9 February 2016 in WileyOnline Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2487

Received 30 March 2015;Final revisionreceived 27 November 2015

THE EXTERNAL KNOWLEDGE SOURCING PROCESS

IN MULTINATIONAL CORPORATIONS

FELIPE MONTEIRO1*and JULIAN BIRKINSHAW2

1INSEAD, Fontainebleau, France

2London Business School, University of London, London, U.K.

Research summary: We study the processes through which multinational corporations (MNCs)

identify and make use of external sources of knowledge. Based on a seven-year longitudinal

study of one MNC’s overseas scouting unit, we show how a simple one-directional“channelling”

process gradually gave way to three higher value-added processes, labelled “translating,”

“matchmaking,” and “transforming.” Building on these insights, we develop an integrative

framework, dening the conditions under whicheach of the four processes is likely to transpire, and

showing how the stock of social capital held by the scouting unit allows it to perform increasingly

high value-added activities over time. Implications for the MNC, external knowledge sourcing,

and boundary-spanning literatures are discussed.

Managerial summary: Over the years, many multinational corporations (MNCs) have created

overseas “scouting” units to tap into new ideas and opportunities in leading-edge markets, but

with mixed outcomes. In this study, we describe the development of a European telecom rm’s

scouting unit in Silicon Valley during the 2000s, focusing on the specic approaches used by

the scouting managers to build effective connections between Silicon Valley start-ups and the

rm’s business units back in Europe. We identify four distinct approaches for different types of

opportunities, and we observe a clear sequencing of effort over time as the scouting managers

built the necessary capabilities and credibility. Copyright © 2015 John Wiley & Sons, Ltd.

INTRODUCTION

To compete effectively in a fast-changing world,

an increasingly important capability for rms is

external knowledge sourcing— the ability to tap

into new ideas and technologies from beyond their

boundaries (Katila and Ahuja, 2002; Laursen and

Salter, 2006; Rosenkopf and Nerkar, 2001). This

is particularly true for multinational corporations

(MNCs). To become adept at tapping into the inno-

vative developments in markets around the world

Keywords: knowledge transfer; knowledge sourcing;

multinational management; headquarters-subsidiary

relationships; boundary-spanning

*Correspondence to: Felipe Monteiro, INSEAD, Boulevard

de Constance, Fontainebleau, 77305, France. E-mail: felipe.

monteiro@insead.edu

Copyright © 2015 John Wiley & Sons, Ltd.

(Doz, Santos, and Williamson, 2001; Gupta and

Govindarajan, 2000; Patel and Vega, 1999), foreign

subsidiaries cannot simply focus on manufacturing

or local sales; they must become the “eyes and

ears” of the MNC by sensing and acting on ideas

picked up in their local market (Almeida, 1996;

Meyer, Mudambi, and Narula, 2011).

However, gaining access to external knowl-

edge is far from straightforward because there

are signicant institutional, technological, and

geographical boundaries to be crossed, and the

skills required for external search are rarely the

same as those for internal transfer (Hansen, 1999).

In the MNC context, Mudambi (2011) calls this

the “innovation-integration dilemma”: foreign

subsidiaries need to be locally embedded to have

access to leading-edge ideas; they need to be

The External Knowledge Sourcing Process 343

integrated into the corporate network to transfer

those ideas, but it is hard to do both at the same time

(see also Andersson, Forsgren, and Holm, 2007).

How can this dilemma be resolved? In inter-

national business, there are some examples of

subsidiary units having achieved “dual” embed-

dedness in the local and corporate contexts (Meyer

et al., 2011), and the external knowledge-sourcing

literature abounds with evidence that rms with

greater openness to external knowledge do better in

terms of innovation performance (e.g., Katila and

Ahuja, 2002; Laursen and Salter, 2006; Rosenkopf

and Nerkar, 2001). However, most of these studies

employ quantitative methodologies, typically based

on archival patent data (e.g., Almeida, 1996; Chung

and Alcácer, 2002) or large-sample surveys (e.g.,

Garriga, von Krogh, and Spaeth, 2013; Laursen and

Salter, 2006), so while we can identify rms that

have resolved the innovation-integration dilemma,

we know little about how they did it; we understand

the outcome of the process (i.e., there is evidence

that knowledge transfer occurred), but not the

activities and efforts that led up to it. This lack of

understanding of the process of accessing and

using external knowledge is a signicant gap in the

literature.

The purpose here is to address the gap through

a seven-year case study of the external knowledge

sourcing process at Global Telco (name disguised),

one of the largest MNCs in the telecommunica-

tions sector. To isolate this phenomenon, we focus

on the activities of its Silicon Valley-based scout-

ing unit that acts as a “sensing unit” or “listen-

ing post” for the parent company (Doz et al., 2001;

Gassmann and von Zedtwitz, 1999), and frame

our study within a boundary-spanning perspective,

as it is highly relevant to the dual embeddedness

challenge described above (Mudambi, 2011). Our

research question: How does the external knowl-

edge sourcing process work in a scouting unit?

was broken down into three subquestions: (1) What

forms does the external knowledge sourcing process

take in this setting? (2) Under what conditions does

each form transpire? (3) How do these processes

evolve over time?

Our ndings offer insight into the specic ways

MNC scouting units access and use external knowl-

edge as well as potentially generalizable observa-

tions about the broader process of external knowl-

edge sourcing. Weprovide the rst detailed descrip-

tion of the different ways scouts bring external

knowledge inside the rm, and how they build

the capabilities to do this. In addition to the

standard process of “channelling” general technical

knowledge, we observe three higher value-added

processes— referred to as “translating,” “match-

making,” and “transforming”— and the conditions

under which each one was used. We also show how

the relative emphasis on these external knowledge

sourcing processes shifted gradually toward higher

value-added processes as the scouts became more

skilled at identifying suitable opportunities and

developed social capital within the parent company.

In terms of external knowledge sourcing more

generally, recent literature has either focused on the

internal structures and capabilities of the rm that

enable it to access and prot from external knowl-

edge (Arora, Belenzon, and Rios, 2014; Cohen

and Levinthal, 1990; Garriga et al., 2013), or has

emphasized the diversity and breadth of the exter-

nal networks to which the rm is exposed (Fleming,

Mingo, and Chen, 2007; Katila and Ahuja, 2002;

Laursen and Salter, 2006). Our study focuses atten-

tion on the critical role of boundary spanners (such

as scouts) in making the necessary linkages between

internal capabilities and external networks, that is,

the process of boundary-spanning. This linking pro-

cess is often critical to the effectiveness of the

knowledge sourcing process, and deserves greater

attention.

THEORETICAL BACKGROUND

External knowledge sourcing and scouting

in multinational corporations

How do MNCs gain access to external knowledge

in their global operating environment? Early

studies focused on “environmental scanning,”

the process used “to gather and interpret perti-

nent environmental information” (Aguilar, 1967;

Ghoshal, 1985; Lenz and Engledow, 1986: 69;

Stubbart, 1982). In the 1980s, with the recognition

that MNCs needed more sophisticated ways of

using specialized resources in their subsidiary

operations to tap into opportunities in overseas

markets (Hedlund, 1986; Prahalad and Doz, 1987),

the notion of environmental scanning was replaced

by a more differentiated model for generating input

from particular overseas markets (e.g., Bartlett

and Ghoshal, 1986). Scouting units— also called

sensing units (Doz et al., 2001: 160) or listening

posts (Patel and Vega, 1999)— were rst used in

Copyright © 2015 John Wiley & Sons, Ltd. Strat. Mgmt. J.,38: 342–362 (2017)

DOI: 10.1002/smj