Emerging Economy MNEs


Joan Lilian Ogendo

Emerging Economy
MNEs
Exploring the Integration of Knowledge Transfer
and Strategy for Sustainable Performance


Joan Lilian Ogendo
Emerald-El Jay Management
Consultants
Nairobi, Kenya

ISBN 978-3-319-52035-3
DOI 10.1007/978-3-319-52036-0

ISBN 978-3-319-52036-0 (eBook)

Library of Congress Control Number: 2017930631
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I dedicate this book to the Almighty God for the gift of life, wisdom and
the understanding of knowledge; to my Dad Mr. Samson Ogendo
Apondi, now deceased, and to my mother Mrs. Yuniah Ogendo. Dad, I
appreciate you for imparting knowledge in me and your dream to
perceive my future publications that your demise did not allow you to
witness. Mama, I am grateful for your consistent support, prayers,
patience, understanding and love that enabled my determination to
attain this far.


PREFACE

The acquisition of knowledge is on high demand in the current age of the
twenty first century. Competition is the order of this century in the
production of substitute goods and services being offered in the market.
It would be appropriate if the competitors understood the market and

utilized the available knowledge efficiently and effectively in producing
quality goods and services to their firms’ customers and other stakeholders’ at the most economical values. This book focuses on the modes
of knowledge transfer practiced, strategic actions adapted, the dynamic
business environment of predictability and changeability experienced; and
the applied sustainable balanced scorecard performance by the Emerging
Multinational Enterprises in Kenya. The book describes the strategic
actions that are applied for sustainable performance. It further explains
the linkage of strategic actions and the modes of knowledge transfer for
sustainable performance. Fundamentally, the book enlightens about the
influence of the modes of knowledge transfer on strategy for sustainable
performance in dynamic business environment.
The integration of knowledge transfer and strategy for sustainable performance in Emerging Multinational Enterprises is important to managers,
investors, business persons, researchers, post graduate students and consultants. Managers may be interested to ascertain ideas that can enable them to
set up their organizational policies. Investors could be interested in geographical regions and organizations where they can invest in. Business persons
would be interested in organizations where they can trade their products and
services. Researchers may be interested in information that would enable
them to create awareness to their clients on business issues and benefits of
vii


viii

PREFACE

given regions. Post graduate students would be interested for academic
reference and clarity of knowledge. Consultants would use this information
to advise their clients on the appropriate policies and practices of Emerging
Multinational Enterprises.
The research was conducted on 25 Emerging Multinational Enterprises in
Kenya who have their headquarters offices in Kenya and trade outside Kenya

or have foreign direct investments. These Emerging Multinational
Enterprises operate in diverse business sectors across the economy. Among
the business sectors, these organizations operate in agriculture, commercial
and services, telecommunications and technology, banking, insurance, manufacturing and allied, construction and allied; and energy and petroleum
business sectors. Some of these Kenyan Multinational Enterprises operate
within the East African countries of Kenya, Uganda and Tanzania. Others
operate in the African countries such as Zanzibar, Malawi, South Sudan,
Rwanda, Burundi, Ethiopia, Congo, Mozambique, Somalia, Egypt,
Zimbabwe, Angola, Ghana, Nigeria and Zambia. A few operate outside
the African continent.
I acknowledge Professor Evans Aosa, Professor Martin Ogutu and
Professor G. P. Pokhariyal for encouraging me to pursue the research to
accomplishment. Dr. James Njihia, Dr. Vincent Machuki, Dr. Nicholas
Letting and Professor Z. B. Awino for guidance during the research work.
Siblings, Mr. Paul Apondi and Dr. Margaret Ogendo – Oloo for their
encouragement and empathy prior, during and after the script of this
book; and finally, the University of Nairobi fraternity, together with all
the Emerging Multinationals that participated in this research to ensure its
success. The author is also grateful to all those who participated directly
and indirectly and are not mentioned above.


CONTENTS

1 Introduction
Strategy and Knowledge Transfer for Sustainable Performance
Emerging Economy of Multinational Enterprises
Justification of the Book
Theoretical Foundation
References


1
1
3
4
9
13

2 Materialization of Knowledge Transfer, Strategy,
Dynamic Environment and Sustainable Balance
Scorecard Performance
Knowledge Transfer
Strategic Actions
Environmental Dynamism
Sustainable Balance Scorecard Performance
References

17
17
21
24
29
34

3 Strategy for Sustainable Performance
Strategy and Sustainable Performance
The Effect of Strategy on Performance
References

37

37
38
44

4 Integral Modes of Knowledge Transfer on Strategy
for Sustainable Performance
Strategy, Knowledge Transfer and Sustainable Performance

47
47
ix


x

CONTENTS

The Influence of the Knowledge Transfer on Strategy
and Performance
The Influence of the Modes of Knowledge Transfer
on Product Development and Performance
The Influence of the Modes of Knowledge Transfer
on Market Penetration and Performance
The Influence of the Modes of Knowledge Transfer
on Market Development and Performance
The Influence of the Modes of Knowledge Transfer
on Diversification and Performance
References
5 Achieve Sustainable Performance in Dynamic
Business Environment

Strategy, Knowledge Transfer, Business
Environment and Performance
The Effect of Strategy, Knowledge Transfer,
Environmental Dynamism and Performance
The Effect of Industry Environment on Strategy,
Knowledge Transfer and Performance
The Effect of Macroenvironment on Strategy,
Knowledge Transfer and Performance
The Effect of Microenvironment on Strategy,
Knowledge Transfer and Performance
The Effect of Environmental Dynamism on Strategy,
Knowledge Transfer and Performance
The Influence of the Modes of Knowledge Transfer and
Environmental Dynamism on Strategy and Performance
References
6 Conclusion and Recommendations
Summary
Conclusion
Implications of this Book
The Theoretical Implication
Methodological Implication
Implication for Policy and Practice
Contribution to Knowledge

48
64
66
68
70
74


77
77
78
83
84
84
85
86
88
89
89
91
92
92
93
94
97


CONTENTS

Recommendations
References
Index

xi

99
100

101


LIST

Fig. 1.1

Fig. 3.1
Fig. 4.1
Fig. 5.1

OF

FIGURES

The linkages of strategic actions, the modes of knowledge
transfer, environmental dynamism and sustainable balanced
scorecard performance
The significant results on strategy and performance
Significant results on strategy, knowledge transfer and
performance
The significant results on strategy, knowledge transfer,
environment and performance

9
44
74
87

xiii



LIST

Table
Table
Table
Table
Table
Table
Table
Table
Table
Table
Table

2.1
2.2
2.3
2.4
2.5
3.1
3.2
3.3
3.4
3.5
4.1

Table 4.2
Table 4.3

Table 4.4
Table 4.5
Table 4.6
Table 4.7
Table 4.8

OF

TABLES

Manifestation of knowledge transfer
The demonstration of strategic actions
The display of predictability of business environment
The display of changeability in the business environment
The expression of sustainable performance
The effect of product development on performance
The effect of market penetration on performance
The effect of market development on performance
The effect of diversification on performance
The joint effect of strategy on performance
The influence of socialization on product development
and performance
The influence of internalization on product development
and performance
The influence of externalization on product development
and performance
The influence of combination on product development
and performance
The influence of socialization on market penetration
and performance

The influence of internalization on market penetration
and performance
The influence of externalization on market penetration
and performance
The influence of combination on market penetration
and performance

21
24
26
28
31
39
40
40
41
42
50
51
52
53
53
54
55
56

xv


xvi


LIST OF TABLES

Table 4.9
Table 4.10
Table 4.11
Table 4.12
Table 4.13
Table 4.14
Table 4.15
Table 4.16
Table 4.17
Table 5.1
Table 5.2
Table 5.3
Table 5.4

The influence of socialization on market development
and performance
The influence of internalization on market development
and performance
The influence of externalization on market development
and performance
The influence of combination on market development
and performance
The influence of socialization on diversification and
performance
The influence of internalization on diversification and
performance
The influence of externalization on diversification and

performance
The influence of combination on diversification and
performance
The influence of knowledge transfer on strategy and
performance
The effect of strategy, knowledge transfer, industry
environment and performance
The effect of strategy, knowledge transfer, macro
environment and performance
The effect of strategy, knowledge transfer, micro
environment and performance
The joint effect of strategy, knowledge transfer
and environmental dynamism on performance

57
58
59
59
60
61
62
63
64
80
80
81
82


CHAPTER 1


Introduction

Abstract Ogendo presents the background of the integration of knowledge transfer and strategy for sustainable performance. The focal point
explains the theoretical foundation, the emerging economy of multinational arguments and the predicament of the book. The theoretical foundation engages the dynamic theory of knowledge creation, the
knowledge-based theory of the firm, contingency theory, Porter’s five
forces model and the stakeholders’ model. The chapter delves into the
broad and specific goals and explains the theoretical, policy and practical
aspects of the book.
Keywords Emerging economy MNEs Á Knowledge creation
Knowledge-based theory Á Stakeholders’ theory Á Porter’s five forces

Á

STRATEGY AND KNOWLEDGE TRANSFER FOR SUSTAINABLE
PERFORMANCE
The transfer of knowledge in organizations is more complicated, since
most of it is tacit and difficult to articulate (Argote and Ingram, 2000)
besides, knowledge mostly dwell on tools, tasks, the stakeholders of the
organizations and their sub-networks. Knowledge transfer in the fields of
organizational learning and development may cause practical problems
(Levin and Cross, 2004). Nonaka (1994) argued that declarative knowledge is real knowledge conveyed in the form of suggestions, while
© The Author(s) 2017
J.L. Ogendo, Emerging Economy MNEs,
DOI 10.1007/978-3-319-52036-0_1

1


2


EMERGING ECONOMY MNES

procedural knowledge is methodological knowledge applied in activities
such as remembering how to ride a bicycle and how to play the piano. He
further suggested that for cognitive skills to develop, declarative knowledge
is expected to change into procedural knowledge. The strategy typology by
Miles and Snow (1978) visualizes strategy as a collection of decisions that
align managerial processes with the environment of the organization’s strategic business unit (Desarbo et al., 2005). Ansoff’s (1965) strategic choices
of market penetration, product development, market development and
diversification, focus on the expansion of business strategies. Porter (1980)
introduced cost leadership, differentiation and focuses on identifying the
business strategy. The environment is dynamic. Therefore, environmental
scanning keeps abreast of change, reveals factors that constitute threats and
opportunities, monitors competitors’ activities and gives the necessary strategic formulation and implementation inputs (Babatunde, 2012). Johnson
and Kaplan (1987) claim that the traditional cost or management accounting system measure of performance, introduced in the early 1900s, is not
appropriate in the current business environment anymore.
Inkpen (2008) argued that the effectiveness of knowledge transfer can
actively be improved and managed, given that, there is a possibility of
designing organizational strategies and structures to support and enhance
knowledge sharing in international alliances. Pillania (2009) established
that in the recent years, Multinational Enterprises (MNEs) from the emerging markets are rapidly expanding and acquiring companies in the developed countries. He further ascertained that emerging market MNEs are
giving tough competition to the existing MNEs in developed countries as
well as Third World countries. Khanna and Palepu (2010) suggested a
structural framework for thinking about the nature and extent of differences between emerging economies that involve mature markets on the
one hand and emerging markets on the other.
On the theoretical perspective in this study, knowledge transfer
anchors the dynamic theory of knowledge creation (Nonaka, 1994)
and the knowledge-based theory of the firm (Grant, 1996). Ansoff’s
(1965) strategy matrix deals with the expansion of business. The

Industrial Organization Economics paradigm of structure-conduct-performance framework, the behavior of which is based on the industry
environment in which it competes (Porter, 1981), anchors the linkage of
strategic actions, knowledge transfer, and organizational performance.
The stakeholders’ theory focuses on the sustainable balanced scorecard


1

INTRODUCTION

3

(Kaplan and Norton 1992; Hubbard 2009), which communicates strategy across the organization and anchors the organizational performance.
Lawrence and Lorsch’s (1967) contingency theory and Porter’s five
forces model anchor the environmental dynamism.
The concept of knowledge transfer involves the transfer of awareness
through social media, team working interests, individual creativity, on
the job training, product development, manager’s flexibility, information
technology, sharing culture, strategic plan, workshops, replication and
provision of non-financial bonuses. Strategic actions involve product
development, market development, market penetration and diversification of goods and services. Environmental dynamism signifies the predictable development and observed environmental changes. It involves
the threat of new entrants in the industry, competition among rivals in
the industry, exit barriers in the industry, relative power of customers of
the firm, the relative power of suppliers of the enterprise, the threat of
substitute products within the industry, macroenvironment and microenvironment. The balanced scorecard measures the financial perspective
of the financial returns required by investors, customer perspective on
what customers want, internal business process perspective on what the
company needs to deliver; and learning and growth (Kaplan and Norton,
1992) social and environmental aspects (Figge et al., 2002; Hubbard,
2009).


EMERGING ECONOMY OF MULTINATIONAL
ENTERPRISES
The topic of knowledge transfer is relevant in the context of the emerging economy of MNEs. Leposky et al. (2015) ascertained that the
emerging market subsidiaries are becoming increasingly significant for
MNEs due to their high potential growth and future outlook. They
further established that knowledge transfer across MNEs sub-units is a
key component of organizational competitiveness. Khan et al. (2015)
studied the role of socialization in knowledge transfer from international
joint venture assemblers and established that simple socialization tools
improve awareness but not speed, while formal socialization mechanisms
improve the comprehension and speed of knowledge transfer to the local
suppliers. However, having a mechanical organizational structure among
educational recipients is a precursor to formal socialization leading to


4

EMERGING ECONOMY MNES

improved knowledge transfer. Bezerra et al. (2013) established that the
impact of the in-house and external network on the reverse knowledge
process for Multinationals’ foreign subsidiaries within their economies
and their subsidiaries abroad, do not occur with integration. Nair et al.
(2016) established that perceived knowledge relevance, capability, and
absorption capacity positively influence reverse knowledge transfer.
For a successful sustainable balanced scorecard performance, the
MNEs should mobilize change through the strategic actions deployment, translation of knowledge, alignment of the organization to the
strategy, and scan the environmental dynamism. Knowledge transfer may
be an issue in most organizations due to the lack of proper education,

competition and globalization. The way these organizations manage
their modes of knowledge transfer should influence the choice of strategy
and ensure optimal sustainable balanced scorecard performance, given
the fact that they are not subject to the same environment which can
affect modes of knowledge transfer and strategic actions to give the
sustainable performance.

JUSTIFICATION

OF THE

BOOK

This book examines knowledge transfer rather than knowledge creation
due to their relationship. Knowledge transfer is the movement, conveyance or transmission of information, facts or data from one individual,
group or organization, to another. Knowledge creation involves the
transfer of tacit and explicit knowledge within the matrix of the four
modes of knowledge conversion (Nonaka, 1994); indeed, conversion
means, to transfer. Knowledge creation is, therefore, an approach, form
or means of knowledge transfer. For that reason, knowledge transfer and
knowledge creation intertwine, since knowledge creation involves the
cyclical transfer process of learning from socialization, externalization,
combination to internalization on a particular concept. According to
Gourlay (2004), the model of knowledge creation finds support in
socialization and combination, but it also has some shortfalls. He
explains that the origin of knowledge creation study describes that each
mode of knowledge transfer is pegged on different case studies and not a
specific one to confirm a spherical process of knowledge creation. He
further ascertained that the cases specified the activities of bread making
for socialization, a car production for externalization; MBA education

and modern computer for combination, and learning by doing for


1

INTRODUCTION

5

internalization. The distinct application of each and every mode of
knowledge transfer for separate activities in Nonaka’s (1994) study confirms the justification of examining knowledge transfer and not knowledge creation in this study. This argument implies that knowledge
transfer is the construction of knowledge creation. This book considers
knowledge transfer with regard to Nonaka’s (1994) knowledge creation
theory.
The book focuses on the Emerging market MNEs in Kenya. The
Emerging markets Multinational are the MNEs headquartered in Kenya
and are engaged in outbound Foreign Direct Investments. The reason for
selecting Kenya as a country is because Kenya is a key growth centre which
is dignified to become one of the fastest growing economies in Africa.
Globally, Kenya positions at 102 and 131 in the ranking of 189 economies
on the ease of enforcing contracts and trading across borders respectively
and is ahead of the Sub-Saharan Africa (The International Bank for
Reconstruction and Development/World Bank 2016). According to the
World Bank, Kenya has made the enforcing contract and trade across
easier. It has since introduced a case management system that will help
boost the efficiency and cost-effectiveness of commercial dispute resolutions; and also speeded up business by implementing an electronic cargo
trading system and linking this system to the Kenya Revenue Authority’s
electronic data interchange system for customs clearance, respectively.
The generation and transfer of knowledge is an essential source
(Osterloh and Frey, 2000) of firm’s sustainable competitive advantage.

There are practical problems caused by knowledge transfer in the organizational learning and development (Levin and Cross, 2004) in any
given corporate set up. Knowledge transfer has been found to be
among the ways through which organizations achieve their goals. The
way organizations undertake the modes of knowledge transfer is
expected to influence sustainable balanced scorecard performance.
However, this power would be subject to strategic actions and environmental dynamism.
Emerging MNEs in Kenya operate in various industries that cut across
the different sectors of the economy in which businesses entail both
services and tangible products. These organizations may manage the
modes of knowledge transfer that have implications on their performance
to sustain competitive advantage. However, the organization’s strategies
are likely to affect this relationship. These Emerging MNEs operate in
environments that manifest different levels of dynamism that are likely to


6

EMERGING ECONOMY MNES

influence the effect of their strategic actions on the modes of knowledge
transfer. It will be important to note that the ultimate impact of the modes
of knowledge transfer on the organization’s sustainable performance would
be subject to both the nature of their environmental dynamism as well as the
strategic actions that these Emerging MNEs make.
While studies (Rasula et al., 2012; Hassan and Al-Hakim, 2011; Fernandes
et al., 2006; Osterloh and Frey, 2000) have established the relationship
between knowledge transfer and performance, (Ogendo, 2014) the influence
of environmental dynamism and the effect of strategic actions in this relationship is inconclusive. Knowledge transfer has been a subject of much empirical
research (Lin et al., 2005; Jacobson et al., 2005; Hansen, 2002; Zander and
Kogut, 1995). The contextual gap in the previous empirical studies is the

Emerging MNEs in Kenya. Studies conducted on companies in Kenya including MNEs have focused on various concepts. These ideas include ownership
structure, board effectiveness and managerial performance (Ongore, 2008);
board of directors’ attributes, strategic decision making and corporate performance (Letting, 2011); and external environment, strategy co-alignment,
firm level institutions and performance (Machuki, 2011). The conceptual
gap in these studies is the relationship between knowledge transfer, strategic
actions, environmental dynamism and sustainable balanced scorecard performance. While these studies (Lin et al., 2005; Rasula et al., 2012; Hassan and
Al-Hakim, 2011) have treated performance as a dependent variable, their
independent, moderating and intervening variables are different from each
other.
From the empirical studies on knowledge transfer, the relationship
between modes of knowledge transfer, strategic actions, environmental
dynamism and organizational performance is inconclusive. The inconclusiveness has prompted the need to establish a book on the relationship
between strategic actions, the modes of knowledge transfer, environmental dynamism and sustainable balanced scorecard performance. This book
examines the influence of the modes of knowledge transfer and environmental dynamism on the relationship between strategic actions and sustainable balanced scorecard performance of the MNEs in Kenya. From the
literature review, knowledge transfer, strategy and organizational performance empirically study distinct concepts. The knowledge gap is the
inclusion of external environment in the joint study of strategic actions,
the modes of knowledge transfer, environmental dynamism and sustainable balanced scorecard performance. Knowledge transfer conceptualizes
as an independent variable and at times intertwined with strategy as


1

INTRODUCTION

7

moderating variables in the previous empirical studies. The empirical
research in this book conceptualizes strategic actions as an independent
variable distinct from the modes of knowledge transfer. Environmental
dynamism considers the moderating variable. Strategic actions as the

intervening variable and organizational performance as the dependent
variable. This book focuses on the firms’ sustainable performance and
not the subsidiary performance, since the organizational performance
represents the sustainable balanced scorecard (Hubbard 2009) of the
company, of which the subsidiary is a part. Grant (1996) conceptualized
the firm as an institution for integrating knowledge. This book, therefore,
focuses on firm and not just the joint venture or subsidiary.
The broader objective of this book is to establish the relations between
strategic actions, the modes of knowledge transfer, environmental dynamism
and sustainable balanced scorecard performance. This book specifies the
influence of the modes of knowledge transfer and environmental dynamism
on the relationship between strategic actions and sustainable balanced scorecard performance, by integrating these concepts. Prior research on knowledge have been classified according to the model type of game-theoretical and
linkages, for example, knowledge transfer type such as information structure
and knowledge management; and research types such as field study and
laboratory. Some empirical studies are not comparable due to the model
type. However, the findings by Fernandes et al. (2006) and Lin et al.
(2005) seem to support one another since firms see improvement when
knowledge efficiently transfers and that knowledge transfer must decide to
which type of information structure it belongs.
This book connects various theories which may contribute to the
advancement of the knowledge-based theory of the firm, the dynamic
theory of knowledge creation, Ansoff strategy matrix, contingency theory,
Porter’s five forces model and the stakeholders’ theory. To the academicians and researchers, the study may be a data bank about information on
strategic actions, knowledge transfer, environmental dynamism and sustainable balanced scorecard performance.
Policies and practices may be applied in given organizations to ensure
efficient and effective sustainable balanced scorecard performance about the
modes of knowledge transfer and strategic actions. The policy makers of the
organizations in public and private sectors including global MNEs may use
the information obtained from this book to make their plans. The systems
may also enable organizations to gain a competitive advantage over their

competitors in the global market.


8

EMERGING ECONOMY MNES

This book may enable the practicing consultants to advise their clients on
the need to apply effective transfer of knowledge in the firm despite turbulent environments. The consultants might obtain the insight of the influence
of the modes of knowledge transfer and environmental dynamism on strategic actions and sustainable balanced scorecard performance. The insight
may resolve issues about knowledge transfer in the given organizations.
Knowledge is substantial in the competitive sustainability of any organization. Nonaka (1994) provided the foundation for this model when he
examined the dynamic theory of organizational knowledge creation. This
book examines first, the effect of strategic actions on sustainable balanced
scorecard performance. Second, the effect of strategic actions and the
modes of knowledge transfer on sustainable balanced scorecard performance. Third, is the influence of modes of knowledge transfer and environmental dynamism on the relationship between strategic actions and
sustainable balanced scorecard performance.
There are four views of knowledge transfer that underlines this book.
Knowledge is transferable through socialization, externalization, combination and internalization (Nonaka, 1994). Socialization is the method
that transmits tacit knowledge in one person to another. Externalization is
the process of making tacit knowledge explicit and involves the articulation, eliciting and translating tacit knowledge of others. The combination
is a process whereby knowledge is conveyed in databases, documents,
email, as well as through briefings and meetings. The internalization
process transfers organization and group explicit knowledge to the
individual.
The conceptual framework of this book narrates how the modes of
knowledge transfer and environmental dynamism are to influence the
outcome of the strategic actions on the sustainable balanced scorecard
performance. The modes of knowledge transfer are expected to be present
from the time that the strategic actions are operational, to the time they

affect the sustainable balanced scorecard performance. The sustainable
balanced scorecard performance should be the outcome or results
obtained from the effects of the strategic actions, the modes knowledge
transfer and the environmental dynamism. Figure 1.1 illustrates the conceptual framework.
The Emerging MNEs in Kenya include the business sectors of agriculture, commercial and services, telecommunications and technology, banking, insurance, investment, manufacturing and allied, construction and
allied and petroleum and energy.


1

Environmental Dynamism:
Industry Environment,
Macroenvironment,
Microenvironment

Strategic Actions:
Product Development,
Market Development,
Market Penetration,
Diversification

The Modes of
Knowledge Transfer:
Socialisation,
Externalisation,
Combination,
Internalisation

INTRODUCTION


9

Sustainable Balance
Scorecard
Performance:
Financial Performance,
Customer Performance,
Internal Business
Process Performance,
Learning and Growth
Performance, Social
Performance,
Economical Performance

Fig. 1.1 The linkages of strategic actions, the modes of knowledge transfer,
environmental dynamism and sustainable balanced scorecard performance

THEORETICAL FOUNDATION
There are underpinning theories that anchor the concepts of this book.
Knowledge transfer is anchored to the dynamic theory of knowledge creation and the knowledge-based theory of the firm. Strategy actions is
anchored to Ansoff’s strategy matrix. The external environment is anchored
to contingency theory, while the sustainable balanced scorecard performance is anchored to the stakeholders’ theory. However, these theories
have their benefits and weaknesses. The dynamic theory of organizational
knowledge creation through the modes of knowledge transfer analyses the
discipline of a learning organization by ensuring the application of shared
vision, testing mental models and system thinking. As a result, the knowledge-based theory of the firms would be adaptable when knowledge is
transferable within and around the organizations. Coordination mechanism
may lead to efficient knowledge transfer. Knowledge transfer may be active
through socialization, internalization, externalization and combination. The
coordination mechanism may apply to common language for integration

and symbolic communication through information technology.
The dynamic theory of knowledge creation and the knowledge-based
theory would affect the industrial organizational economics theory at the
commencement of strategy formulation, affirmation of strategic actions
and during the strategy process. The industrial organizational economics


10

EMERGING ECONOMY MNES

theory evaluates the strategic actions-the modes of knowledge transferperformance framework. Given this, the book engages the contingency
theory to assess the environmental dynamism and the stakeholders’ theory
to evaluate the sustainable balanced scorecard performance of the
Emerging MNEs in this book. The outcome of the stakeholders’ theory
in this book is the function of the dynamic theory of knowledge creation,
the knowledge-based theory of the firm, the industrial organizational
economics theory and the contingency theory.
The dynamic theory of organizational knowledge creation (Nonaka,
1994) intensifies individual creativity and shapes it up as part of the
knowledge network of the organization. This theory has four modes of
knowledge transfer. First, it postulates knowledge transfer from tacit
knowledge to tacit knowledge through socialization. Second, knowledge
transferred from explicit knowledge to tacit knowledge through internalization. Third, knowledge transferred from tacit knowledge to explicit
knowledge through externalization, and finally, knowledge transferred
from explicit to explicit through combination; and enables the collection
of raw data, retrieving data; investigates new solutions based on probabilistic queries and install permanency of newly discovered actions (Bhaghat
and Black, 2000). The theory explains how knowledge can be created by
individual, organizations and societies through spiral interactive intensification of tacit and explicit knowledge. The application of this theory
facilitates the transfer of knowledge in organizations. Knowledge creation

is essential in organizations with scarce resources (Aghajani et al., 2011).
However, the approach is limited to tacit and explicit knowledge creation.
It focused on the knowledge creation within the organization and
assumed that the team could not create in their surroundings. The theory
could have considered the external environmental factors that enhance
knowledge creation. Organizational learning has mediating influence on
social capital and knowledge transfer performance (Li and Luo, 2010).
When the corporate education costs are high, the financial goal may be
impaired. Senge’s focus on distributed leadership disregards issues of
practice and power, since his work does not provide the discovery for
the mounting dispersion of human agency, knowledge, power and autonomy within the workplace (Caldwell, 2005).
The knowledge-based theory of the firm surveys the skill mechanisms
through which firms integrate the specialist knowledge of their members.
Grant (1996) argues that these tools depend upon the existence of common knowledge for their operation. The common knowledge postulates


1

INTRODUCTION

11

common language for integration of mechanism which relies on verbal
communication between individuals. There are other forms of symbolic
communication such as information technology; commonality of specialized knowledge; shared meaning and recognition of particular knowledge
domain. Business strategy affects knowledge sharing within organizations
(Ryan et al., 2010) which support the knowledge-based theory of the firm.
The use of common language within and around organizations would
enhance efficient knowledge transfer that may lead to optimal performance. However, inefficient symbolic communication through information technology may hinder knowledge transfer to most of the
stakeholders of the organization, and thus, result in inadequate performance by the teams in question.

The concepts of strategic actions, the modes of knowledge transfer and
sustainable balanced scorecard performance support the traditional
Industrial Organization Theory of structure-conduct-performance framework work of the firm (Porter 1981). The conduct represents the modes
of knowledge transfer of the enterprise, while performance is the goal of
the company. The concept of strategic actions represents the structure of
the industrial-organizational economics theory. The strategic choice
aspect bases Miles and Snow’s typology that describes the dynamic process
in which organizations continually adjust internal interdependencies to
environmental prospects and threats (Miles and Snow, 1978). The strategy attempts to achieve a long-term sustainable advantage in each of its
businesses, by responding appropriately to the opportunities and threats in
the firm’s environment and the strengths and weaknesses of the organization (Hohnen, 2007). The strategy is a consistent, unifying and amalgamated pattern of decisions (Bakir and Todorik, 2010). It selects the
businesses that organizations operate in or are expected to function in
(Mircea, 2008). The industrial organization economics theory assumes
that conduct is the intervening variable of structure and performance.
However, Habib and Victor (1991) confirmed that conduct-structure fit
had no effect on organization’s economic performance. Wolf and Egelhoff
(2002) argue that conduct-structure fit is an attribute created by managers
and selected by competitive environments.
The concept of environmental dynamism supports the contingency
theory (Lawrence and Lorsch, 1967) which argues that organizations
have to be differentiated and integrated to optimal performance subject
to the level of environmental uncertainty. The environmental dynamism postulates by Porter’s (1980) five forces model of industrial


12

EMERGING ECONOMY MNES

environment postulates threat of new entrants, competition for rivals,
exit barriers, the relative power of customer and suppliers of the firm,

macroenvironment and microenvironment. Dess and Beard (1984)
integrated strategic management and organizational theory literature
and provided theoretical and empirical support for environmental dynamism, complexity, and munificence. The particular environment that
one is in dictates the trust builders that offer the greatest potential for
improving interpersonal trust (Abrams et al., 2003). Mason (2007)
argued that a stable environment changes little and is predictable,
while there are many unexpected variations in a turbulent environment.
He further explained that environmental complexity measures diversity
in the environment, as systems become more involved, making sense
becomes more complicated, and ecological adaptation becomes more
problematic. Environmental munificence entails the abundance of
resources or otherwise (Machuki, 2011). The firm’s adoption capability
to different business environments is valuable, difficult to imitate, nontradable, rare but not scarce and path-dependent resource (Ferreira
et al., 2009).
The concept of sustainable balanced scorecard performance supports
the stakeholders’ theory of balanced scorecard (Kaplan and Norton,
1992) and the sustainable balanced scorecard (Figge et al., 2002;
Hubbard, 2009). The balanced scorecard postulates that the organizational performance has four perspectives. The financial perspective
appraises financial returns for investors; customer perspective measures
customers’ wants; internal business process perspective gauges the business delivery needs; and the learning and growth perspective assesses on
how to sustain the business. On the other hand, sustainable balanced
scorecard has an additional non-market performance which gauges the
social and environmental aspects of organizations. The balanced scorecard can predict the effectiveness of an organization’s strategy through a
series of linked performance measures based on the perspectives (Išoraité,
2005). Building a balanced scorecard performance system using a given
framework would enable managers to think more strategically about
their organization (Caraiani et al., 2012). The global crisis has demonstrated the need for reporting that gives better information about how
businesses perform against the long-term strategy. Companies that
implemented balanced scorecard suggested that it contributed to their
success and none of them was to abandon it (Petr et al., 2012). The

balanced scorecard is tailored for large public owned businesses rather