Relational mechanisms, formal contracts, and local knowledge acquisition by international subsidiaries

TLDR

The study examines how relational and contractual mechanisms affect foreign subsidiaries’ acquisition of tacit and explicit knowledge from local suppliers. The authors surveyed 168 foreign subsidiaries in China to test an analytical framework linking relational and contractual mechanisms to knowledge acquisition. The results show that shared goals and trust boost both explicit and tacit knowledge, with trust favoring tacit; network access via a focal supplier raises explicit but not tacit knowledge; formal contracts enhance explicit knowledge and amplify relational mechanisms for both types of knowledge. © 2009 John Wiley & Sons, Ltd.

Abstract

Abstract This research focuses on relational and contractual mechanisms and examines their impact on foreign subsidiaries' acquisition of tacit and explicit knowledge from local suppliers. Using survey data from 168 foreign subsidiaries operating in China, this study finds broad support for the proposed analytical framework. When the foreign subsidiary and supplier share common goals, the foreign subsidiary acquires greater levels of both explicit and tacit knowledge; trust between the two parties promotes the acquisition of greater levels of tacit than explicit knowledge. However, access to the local supplier network through the focal supplier enables the foreign subsidiary to acquire greater levels of explicit but not tacit knowledge. Formal contracts play a complementary role in knowledge acquisition: contracts enhance the acquisition of explicit knowledge and further strengthen the effects of relational mechanisms on tacit and explicit knowledge acquisition. Overall, these findings provide important implications for foreign subsidiaries regarding how to acquire local knowledge in host countries through both formal and informal mechanisms. Copyright © 2009 John Wiley & Sons, Ltd.