Today, an increasing number of companies organise their global operations as network organisations. Wilhelmsen Ships Service is one of those with units all over the world serving 2,400 ports.
Networks have different purposes. One is to make it easier to transfer knowledge. By creating internal and external networks organisations get access to a great variety of knowledge sources. Network organisations face, however, some challenges that need to be solved in order to capitalise on these knowledge resources.
One competitive advantage in the modern global economy is the firm’s knowledge base. If you have lots of unique competences and know how to make use of these, you have a strong position. It is said that one reason for establishing multinational corporations is to make the transfer of knowledge across borders easier. Especially this is relevant for organisations with what we call a ‘transnational strategy’, which is one of several alterative international strategies.
One alternative is to have a global strategy. In that case the position of the headquarters is strong. Activities are standardised and centralised. Most decisions are taken at headquarter level, and local units follow their orders. Knowledge flows basically from the headquarters to subsidiaries. Alternatively, the firm may have strong needs to adjust to different local markets and chooses a multinational strategy. That means that subsidiaries have more autonomy, decisions are delegated and more of the knowledge is produced locally.
The transnational strategy combines these strategies. In that case you have both a headquarters that develops standardised products to be delivered globally, like in 2,400 ports, and strong local units that needs to know the local market and deal with local customers. All units create knowledge, and knowledge should be shared in strong networks between the headquarters and units, and not at least between units in different countries. However, this is difficult due to various barriers.
“I know that the Norwegians are the experts, but they should also learn from us”, one Brazilian engineer who works for a Norwegian company in Rio de Janeiro said to me. “There does not seem to be an active driver at the European office for wanting to learn from Asia”, another one said in Shanghai.
In some organisations the process of sharing knowledge is hampered by ethnocentrism among top managers. This means that there is an attitude among top management of, “we know the best”. Of course the headquarters should have a strong position, to promote innovations and be a key resource for knowledge development. But if they don’t listen to what is going on in the different corners of the global organisation, it would be difficult to develop the unique competence you need to get a competitive advantage. “Innovations are driven from Oslo, but we get feedback on small things from customers,” a general manger of a foreign subsidiary in the maritime industry said. This is how it works in network organisations.
One challenge for an organisation that sells standardised products to the global market is how to handle the internal pressure from different global units. If they also want to increase the local market share in a certain market, they will have to develop knowledge about that market. This is best done by using local experts who know the market and the culture, and then you have given the unit some autonomy.
This specific knowledge has to be shared and moulded with the firm’s general market knowledge, and this process challenges internal power structures as well as initiates discussions on local autonomy. “We see that the marketing material that is being produced in Oslo does not work here”, one general manager of a Norwegian unit in Shanghai said.
These processes create one of the most difficult dilemmas regarding knowledge sharing within multinational corporations. If you want to adjust to the local context and subsidiaries get a lot of autonomy to do that, they will get access to more local knowledge resources outside the firm. Networks, acquaintances and business transactions create enormous possibilities to make use of knowledge sources in the local community. But autonomy also means that the headquarters have less direct control.
Consequently the channels for sharing knowledge between headquarters and the local unit become weaker. Centralised control means that it is easier to transfer knowledge, but the local units get access to less external knowledge. Units that are more autonomous are more integrated and get access to more knowledge, but it is also more difficult to share with other units in the organisation. In other words, the more context-specific the local knowledge is, the less it can be used by other units.
Global expatriates as carriers of knowledge
How then should an organisation deal with this dilemma? How could a network organisation that wants to be global, by offering standardised products, as well as wants to be strong and well integrated locally, be able to learn from local experiences outside the units and share this knowledge within the organisation? According to research, for example by Hocking, Brown and Harsing in the journal Human Resource Management, 2007, people who move could play a key role in this respect.
Many network organisations invest heavily in formal computer-based systems for sharing knowledge. When a local unit has had some great experiences, or finished a project, they write a report and put it in the database, and management hope others can use it. This may be very useful for documentation, but there are two problems.
First, few read these reports. Secondly, the most interesting and exciting experiences are just difficult to write down. They are what we call ‘tacit’, which means that they are so linked to individual experiences and practice that it is difficult to write these experiences down or codify them in other ways.
What works better is when people carry this knowledge across the globe. Yes, it is expensive to organise global seminars and meetings, but research claims that more knowledge is shared between units in this way than by investing in IT-based knowledge-sharing systems.
However, more successful than all other channels for knowledge sharing are the people working abroad bringing knowledge across to the organisation when they move back, or move to other units.
“When I came down here three years ago, the CEO and his team back in Norway didn’t understand what was happening in China, and that was one of the reasons why I was sent here, to send something back to Norway”, an expat serving as general manager in Shanghai told me.
By sending expats, headquarters contribute to transfer knowledge to the unit where he or she is going to work. Expats will share knowledge that the headquarters want the local unit to have. That is why we see so many expats in multinationals with a global strategy. They are sent out to manage units, and to make sure that the units act according to headquarters’ strategy.
The backside of this control-regime is that an expat will have difficulties in being integrated with the local culture. If you are abroad to produce for lower cost to the global market, that may be okay because in that case you do not need to get access to any local knowledge base. But if you want to adjust to local markets or to get access to local experiences, then you may let a local manager take care of the local operation. But, then it is more difficult to share this knowledge with the rest of organisation, not at least due to cultural barriers and misunderstanding.
A third way is to develop a group of global managers who both know the values and the strategies of the company in its home country as well as being good at adjusting to other contexts. These are often what we call third nationals.
“For us it is good that we can recruit people from Singapore to China”, one CEO said. The Singaporeans, he argued, knew the company and its culture well since the company had been in Singapore for decades. “They are one of us”. They can therefore transfer the company’s values and other types of knowledge to new areas, in this case to China. Since the Singaporean business culture also is closer to the Chinese than the Norwegian is, they have also better preconditions for adjusting to local markets and knowledge resources in China. That is the logic. Firms that have experiences from Singapore, Hong Kong and Taiwan before entering mainland China, are more productive than those who do not have that kind of experience, according to a study by Carlsson, Nordgren and Sjöholm in the journal International Business Review, 2005.
Global expats are key resources for increasing the knowledge base of a firm founded on what they experience abroad. Some succeed better than others. “My mother taught me always to taste the food when I was offered food. That has helped me a lot in Asia”, one successful businessman said. Organisations do not, however, seem to be able to learn and adjust as quickly as individuals. Many organisations do not know how to make use of these experiences, and to complete the chain of knowledge flow. “When I came back from China after five years, I was so enthusiastic and wanted to share all my knowledge. But no one wanted to listen to me,” an experienced expat said to me after having moved back to Norway.
The organisations’ capabilities to absorb the experiences and knowledge that individuals develop when working abroad are in many network organisations the most critical link in the chain of global knowledge sharing.
This article has been adapted from HELM Magazine with permission.