Knowledge transfers in Strategic Alliances in China

Abstract

Based on a mixed methods approach drawing on open and closed questions within an online questionnaire, this research seeks to explore knowledge transfers undertaken by Chinese firms as part of an international strategic alliance. Drawing on the overall importance of international strategic alliances in the Chinese economy, this research seeks to understand what are the key challenges of knowledge transfers in this environment, what do they look like and how can knowledge be used in a manner to sustain competitive success. There is a need to conduct this research in the Chinese context in light of the cultural differences and uniqueness of this market coupled with its transition economy status. The findings of this study highlight the power of knowledge transfers and the intangibility of knowledge that can be used to refresh and revitalise the capability base of the firm. Further, the study reveals the unique challenges related to the Chinese business environment which in particular align to the cultural difficulties and the technological challenges associated with the protection of valuable knowledge.

1.0 Introduction

This introductory chapter outlines the central research context and introduces key concepts. In order to understand the nature and importance of knowledge transfers, this chapter defines the meaning of knowledge drawing on both its tacit and explicit forms. In addition it introduces the reader to the growing importance of international strategic alliances, with a central focus on the Chinese market. Recognising that there is a strong link between strategic alliances and competitive success in the literature, this research focuses upon the Chinese market in particular in order to understand what such alliances look like, the nature of knowledge transfers and the specific challenges that exist within this growing and important market. This information is needed to then assess the extent to which Chinese firms are able to use the knowledge obtained to strength their own competitive position.

1.1 Background/Context

China has been predicted by Wilson and Purushothaman (2003) to be the world’s largest economy by 2050 and stemming from this has been positioned as one of the BRICS economies (a group made up of Brazil, Russia, India, China and South Africa). As a result of this focus on growth, increased attention has been directed towards China and in particular, an examination of strategic alliances in China, a process by which many Chinese firms are expanding their international markets. Although strategic alliances offer potential and opportunities for knowledge sharing and the leveraging of knowledge, such exchanges can result in challenges which this research seeks to understand within this unique cultural context.

For the purpose of this research, a strategic alliance can be defined as ‘a legal agreement between two distinct organisations that provides for sharing resources collaboratively in pursuit of a mutually beneficial goal’ (Financial Times, 2016: 1). Further the very nature of a ‘strategic’ alliance refers to a variety of criterion ranging from an organisation, which has undertaken an alliance or partnership with another firm critical to the success of that business. A business for example may undertake an alliance to increase capacity for knowledge sharing or capabilities, however to achieve this a firm may have to overcome a great deal of challenges. Second, an alliance often restricts or blocks a competitive threat and as such, alliances are regularly positioned as being a process which enables competitive strength as presented in the research of Brouthers, Nakos and Dimitratos (2015), and Bouncken, Pesch and Gudergan (2015). This research seeks to understand how Chinese firms use the knowledge they have obtained as part of an international strategic alliance to strengthen their overall competitive position.

Knowledge transfers and the process of sharing knowledge can be defined as “the exchange of knowledge between and among individuals, and within and among teams, organisational units, and organisations. This exchange may be focused or unfocused, but it usually does not have a clear a priori objective” (Schwartz (2006) cited in Paulin & Suneson, 2015 p. 82). This definition noted in captures the different levels at which transfers may take place and captures the extent to which these may be either formal or informal with challenges coupled with each form. Drawing on this definition, there is a need to think about the context within which knowledge emerges and how such knowledge transfers can be facilitated drawing in particular on challenges which may occur in the Chinese business environment which is notably different to that of the West. A focus on the differences within the Chinese market is important and provides a core rationale for this research due to the increasingly powerful political and economic nature of China.

In this research, knowledge transfers in strategic alliances are examined with a particular focus on the Chinese market. China is positioned as a market of growth something which has been linked in part to their growth strategy underpinned by strategic alliances (Jin, Von Zedtwitz & Chong, 2015). In light of this, there is a need to examine the challenges which Chinese firms face when trying to obtain knowledge as part of the international strategic alliance process and the nature of knowledge transfers which exist. A key question of ‘how’ therefore emerges.

1.2 Justification/Rationale

The first motivation for this research is to understand what knowledge transfers look like specifically within the context of the Chinese market, due to its significant global importance. This is required due to the business approach in China being widely noted to be different to that of the Western markets. Within this context, there is a need to explore if different challenges occur surrounding knowledge transfers within international strategic alliances taking place with Chinese firms. An understanding of what challenges exist is therefore the second motivation for this research. This study will be beneficial in improving the understanding of the Chinese market and will inform businesses both within China and in external economies of the methods and challenges involved in strategic alliances with China. The findings produced should help to improve the success of such alliances.

1.3 Research Objectives

This research is underpinned by one central research objective: ‘To explore and examine knowledge transfers within Chinese strategic alliances’. This research objective will be achieved through a focus on three research questions:

1. What are the challenges faced by Chinese firms in obtaining knowledge in their international strategic alliances?
2. How much knowledge transfer exists for Chinese firms in their international strategic alliances?
3. How do Chinese firms use the knowledge obtained from international strategic alliances to strengthen their competitive position?

Summary and Structure

This chapter has introduced the concepts aligned to the research objectives and the specific research context within which this research exists: the challenging yet growing Chinese market. The next chapter presents a detailed and systematic examination of the literature drawing on the core theoretical and empirical foundations of the research: knowledge transfers, challenges and international strategic alliances in China. Relevant studies are critically analysed and used to guide and direct the empirical study. Reflecting upon the research context within which this study exists, emphasis is placed on studies from China where possible to further discuss the specific nature of strategic alliances in China and the potential challenges associated with this environment. Chapter three then moves on to present the methodology of the research collect empirical data using a mixed methods methodology. The justification and the details of the methodology employed are presented and discussed in detail. Chapter four then presents the data presentation and the analysis of the data and provides a series of descriptive statistics alongside a more thematic analysis approach. The final chapter then presents the conclusions, recommendations and areas of future research drawing out the central importance of the research presented.

2.0 Literature Review

2.1 Introduction

This chapter presents the theoretical basis for the research aligned to the research objectives presented in chapter one. This chapter introduces the key theoretical concepts and empirical studies that underpin the arena within which this research sits.

2.2 The meaning of knowledge

The crux of this exploratory research seeks to understand the extent to which knowledge transfers exist in strategic alliances and the extent to which these underpin competitive success. For this to be examined, the meaning of knowledge and the nature of knowledge transfers must first be understood. At a basic level, knowledge transfers refer to some exchange of knowledge, which may be either explicit or tacit which is used to enhance learning within the firm. Such knowledge transfers are increasingly positioned as being valuable as a result of their treatment as a capability allowing an organisation to achieve superiority if such a capability is achieved and then focused upon (Calvo-Mora et al, 2016; Suarez, Calvo-Mora & Roldan, 2016). Interpretations of knowledge are often generalised and thus can be interpreted as being ambiguous in tone. As a result discussions of knowledge tend to be coupled with terms such as understanding, experience, and intuition which although useful fail to appreciate the importance of context. Knowledge can take both implicit (also called tacit) forms which may be innate or based on the experience of an individual or it may take a more explicit form where information is depicted and translated easily. For knowledge transfers to promote a superiority and competitive advantage, tacit, implicit information is valuable, and this fundamentally resides within the individual (Rubenstein-Montano et al, 2001). As a result, a strategic alliance must be able to effectively capture tacit knowledge in order to maximise the benefits of the strategic decision.

An alliance is a ‘partnership between two or more relatively independent organisations that are united to pursue some on-going activity or process’ (Williamson, 1985: 14). Alliances are commonly used as a method of drawing out the value of interfirm cooperation in a manner that supports growth in particularly dynamic and changing markets. Once a firm forms an alliance, it may then be able to benefit from a range of opportunities which may not have been achievable on their own. Entrepreneurial opportunities, innovation and learning within an organisation all require a commitment and extra resources and thus strategic alliances may ‘provide an appropriate conduit through which firms can access and utilize such resources that lie beyond their boundaries’ (Teng, 2007: 44). If alliances are positioned as a learning mechanism then it is possible to understand that learning flows can transfer from one flow to another.

2.3 Knowledge and competitive success

The knowledge based view of the firm suggests that there is a need to focus upon firm specific knowledge and to do this to gain advantage in a way that stimulates success. Knowledge can be a valuable and unique capability that in turn inspires both competitive advantage but also sustainable transfers and growth. Knowledge flows in strategic alliances and the value of such has however been questioned with Jiang et al (2013) arguing that trust and competence are drivers of effective knowledge transfers and yet these two factors are often lacking. Knowledge exchanges regularly take place and often such knowledge exchanges and transfers have been positioned as having the potential to facilitate growth and to promote sustainability (Zhang et al, 2010). However, a great deal of literature has also been directed towards the negative impact of such knowledge flows particularly if they weaken the capabilities or specific knowledge of one firm (Carlile, 2004; Matusik & Hill, 1998). Knowledge leakage (firm specific knowledge that spills out to competitiors) could therefore be an issue and one, which may need to be contained for knowledge transfers to be positive. Relating to the concept of knowledge spillover, one important source of opportunity is often deemed to be the facilitation of knowledge transfers to improve an overall focus on learning and development. Knowledge creating firms have to be able to exploit learning opportunities and do so in a way which can allow overall capabilities to be increased. Entrepreneurial opportunities may for example be realised through the potential of spillovers.

Inkpen (1998) highlights the importance of learning and knowledge acquisition as part of international strategic alliances and in particular draws out that one of the central areas of importance is that it questions the existing knowledge base within the organisation. Drawing on this Hitt et al (2004) argue that for Chinese firms one of the central motivations relates to a need to learn unique capabilities which support competitive advantage based on Barney’s (1991) ideas of intangibility. Relating this to why Chinese firms partake in international strategic alliances to fuel economic growth, Inkpen and Beamish (1997) articulate that this is due to the bargaining power knowledge and capabilities provide which allow for entry into perhaps challenging or unknown international markets. This is particularly the case due to the consideration of China being a culturally different market (Pan & Zhang, 2004). Pan and Zhang (2004) reflect upon such unique cultural considerations by highlighting that Chinese managers have to develop a cultural competence to do business in the West which is vastly different to their own practices.

Further exploring the link between knowledge transfers and competitive success, inter-organisational learning theory highlights the notion of the ‘boundary paradox’ that emerges from a focus within the alliance context. The paradox positions that in order for an organisation to learn they must be willing to open up the transfer of knowledge to the alliance firm and must be willing and receptive to new learning opportunities to stimulate advantage. However, a difficult situation can occur when, once such knowledge boundaries are opened such knowledge could be misappropriated by the alliance firm which in turn thus results in knowledge being protected from the offset. This type of knowledge protection can however greatly reduce the value of learning and access to entrepreneurial opportunities in an alliance context. Inter-organisational theory however highlights the value and thus states the need to work in a co-operative fashion to facilitate knowledge exchanges and learning practice something which the Chinese firm must focus upon across cultural borders (Shu et al, 2013).

2.4 The transfer of knowledge

Knowledge is not a physical entity but is instead intangible and it is largely transmitted during international strategic alliances. Whilst information and knowledge can be easily distorted, often through noise resulting from barriers to communication, the flow of knowledge is often facilitated by a wide range of factors including effective organisational communication, trust, and personal values. This facilitation of knowledge transfer is critical in guiding firm level and subsequent individual level interactions crucial to competitive success. However, in light of looking at knowledge transfers which are often intertwined with a discussion of spillover there is a need to think about the extent to which knowledge transfers and knowledge spillovers are different and therefore need to be treated as different constructs:

‘While knowledge transfer involves the cross-party compensation of the value of the knowledge flowing between individuals or organizational units in a market-like transaction, knowledge spillovers relates to knowledge flows that are un- or undercompensated. That is, the recipient of the knowledge spillover is able to access the knowledge without completely paying for the value of the knowledge. Further, knowledge transfer may also (though not always) connote rivalness of use, while knowledge spillovers entails that the knowledge is simultaneously available to both parties’ (Agarwal et al, 2008: 272).

Whilst knowledge transfers are often examined within organisations little attention is often directed towards the nature of knowledge transfers in strategic alliances and as a result there is a need to focus on this area for this study. As a result, emphasis must be placed on how a strategic alliance can improve their transfer or knowledge to exploit knowledge in an effective manner. Unexploited knowledge could, in this vein be considered a lost opportunity (Krylova, Vera, Crossan, 2016).

Alliances in themselves can be viewed as a critical source of external knowledge which can be accessed in order to obtain advantage. Alliances arise when an opportunity exists and one signal of opportunity can be underpinned by knowledge transfers and the value they yield. The learning opportunity that results from strategic alliances can then be used to promote an overall focus on dynamic interactions and competitive advantage.

2.5 International Strategic alliances: explore or exploit

Drawing on the knowledge based view of the firm, resources or capabilities may be shared in an alliance in order to reduce costs and associated risks (Qian & Qian, 2013). Across the international business literature, a great deal of attention is directed towards the motive for alliances stemming from this focus on access to resources and access to knowledge. In particular, as noted by Qian and Qian (2011) alliances may be the central strategy used in an attempt to mitigate environmental dynamism. More recently, in the work of Jiang et al (2016) knowledge flows in strategic alliances were examined from a contingency perspective which highlights the importance of knowledge acquisition in both types of alliance: those intended to explore opportunities and those intended to exploit. What runs throughout both is a focus on knowledge and the power of knowledge to facilitate opportunity (Jiang et al, 2016).

Two different motivations for carrying out an alliance are referred to in the international business literature. As noted by Yamakawa, Yang and Lin (2011) whilst strategic alliances are often positively related to firm performance, little is known about the conditions, which in particulate facilitate superior and long-standing competitive performance. In order to deal with increased uncertainty and dynamic conditions, a firm may undertake an alliance, which has to align to either flexibility or stability, which March (1991) positions as ‘exploration or exploitation’. Exploration as a strategic alliance motivation aligns to a way of thinking where emphasis is placed on the importance of searching, exploring, discovery and innovation. On the other hand more of an exploitation approach examines a focus on activities such as execution and implementation which adopts a more short-term focus to the alliance procedure. Those alliances, which are motivated from an exploratory basis, may be those which have the potential to facilitate longer-term relationships, something key to sustainable success (Si & Bruton, 1999).

2.6 Learning/Knowledge as a capability

More than just a capability, learning can increasingly be viewed as something, which when facilitated by knowledge transfers promotes evolutionary capabilities that stimulate competitive success. This in turn places great importance on the need to consider the way in which alliances can foster the environment needed for such transfer to take place. Reflecting upon the very notion of a capability, Helfat and Peteraf (2003) argue that for knowledge to be a capability it must ‘change a resource base, be embedded and form a routine’ (p.34). In this instance, knowledge needs to do something in the alliance and is therefore an active process to facilitate change. Taking this one step further, knowledge and learning can be positioned as a dynamic capability, a capability that allows an organisation to mitigate dynamism in the external business environment.

A focus on learning within the alliance can be a positive thing for change and a commitment to such learning has been noted by Easterby Smith and Preito (2008) to be something which harnesses individual level employee commitment. During an alliance, there may be concerns surrounding the viability or security of the alliance and thus a focus on learning allows for employees to feel invested in to then invest in the alliance. A commitment of learning in this vein is therefore needed to be able to foster individual level passion and motivation to actively share knowledge in the first instance.

To view learning and the exchange of knowledge as a capability further requires a focus on treating the alliance from a systems perspective to ensure that knowledge transfers or a commitment to knowledge are not contained within one part of the organisation only. The systems view therefore entails that all members of the two firms are committed to learning and have been facilitated to exchange knowledge to enhance capabilities.

Knowledge transfers within strategic alliances have been strongly linked in the literature to performance (Hamel, 1991; Howard, Steensma, Lyles & Dhanaraj, 2015). In order to examine this type of knowledge exchange, emphasis has to be placed on the need to look at and consider intra-organisational knowledge which is defined by Calantone, Cavusgil & Zhao (2002: 520) to be ‘the collective beliefs or behavioural routines related to the spread of learning among different units within an organisation’. This is a core part of knowledge exchange where knowledge transfers must be open and fluid. This may be achieved by the facilitation of sharing knowledge throughout departments perhaps, for example, through mixed representation at departmental meetings. As seen in the work of Moorman and Miner (1998) this is a necessary and fundamental foundation upon which knowledge transfers must be built.

2.7 Challenges of international strategic alliances in China

China is a transitional economy and as a result any interaction with this country is as Tian (2016) articulates ‘a daunting challenge’ (p.23). Such a strategic decision in an emerging economy can in itself raise a number of challenges, which a firm has to respond to in order to draw out the benefits of international strategic alliances. Johnson et al (2014) argue that firms have to ‘navigate challenges’ in light of the transitionary environment and thus that policy vision and the political arena are central challenges in international strategic alliances with China. However, as argued in the work of Ahlstrom and Ding (2014) international strategic alliances promote entrepreneurship and innovation, something which although beneficial is challenging due to the protection of knowledge and the intangibility of such knowledge creation.

Eisemann, Heginbotham and Mitchell (2015) position external challenges as being an issue particularly in the case of international relations between countries. The decision as to who to undertake an international strategic alliance with is therefore important in particular due to the cultural dynamics that exist between China and international partners. The more culturally different an organisation is the more likely it may be for challenges to occur. Such cultural challenges as noted by Schein (2012) may be fundamental to action and change.

Doz (1996) argues that cooperation within international strategic alliances is a learning process and therefore despite being faced with challenges, the approach to such challenges will be dependent upon solutions put in place aligned to the business environment. An organisation may for example have to accept challenges as a natural part of the process when dealing with strategic alliances on an international basis due to heightened cultural conditions.

2.8 International Strategic alliances in China

An alliance is often considered to be a strategic move and this is widely the case in China where alliances are considered to fuel not only organisational level growth but also economic growth. Referring to a wide body of literature across the international business field, alliances may stimulate improved international connections, which in turn allow for organisations that undertake alliances to perform better than those who don’t. In particular, as noted in the work of Jin, Von Zedtwitz and Chong (2015), in the Chinese mobile telephony industry alliances have become the ‘cornerstone of global competition’ and have so due to the focus on capabilities and sharing of resources capable of dealing with increasingly dynamic business environments. The sharing of technology and the capabilities surrounding technology are particularly prominent due to the technological capabilities of China as a whole which in turn opens up international opportunities. Xu and Hitt (2012) argue that Chinese firms aim to often align with Western firms in order to support the difficulties they may face as part of the internationalisation process. Dunning (2015) argues that in light of this focus on strategic alliances there is a need to reappraise the way in which firms undertake foreign direct investment. Firms strategically look for alliance partners and then use alliances as a way of tapping into previously unexplored markets. This is therefore an example of a valuable knowledge exchange, which takes place to support different international markets and the unique knowledge required almost as a pre-requisite to entry (Lew & Sinkovics, 2013).

Luo (1996) conducted a study to evaluate the performance of strategic alliances in China and referred to the power of global strategic alliances in the automotive industry. Luo (1996) noted that strategic alliances can be thought of as an organising framework where partnership and relationships facilitate the knowledge and capabilities required to sustain an international growth strategy. Perceptions of strategic alliances from a Chinese perspective have also been explored with Dong and Glaister (2007) exploring the cultural differences from a Chinese perspective. One key determinant Dong and Glaister (2007) note in the relationship is the importance of trust in facilitating success in this relationship. This reinforces the work of Das and Teng (2001) who articulate the resource based theory of strategic alliances in pooling technological knowledge, something considered central to the Chinese context to facilitate a growth strategy.

Examining the nature of strategic alliances in China, international strategic alliances are a dominant strategic choice in a number of industries including telecommunications, automobiles and pharmaceuticals. Emerging as a strong strategy since the 1990s, strategic alliances stimulate globalisation and allow for achievement of a global scale to stimulate research and development and thus innovation/capabilities. As seen in the work of Zhang, Duysters and Fillippov (2012) Chinese firms have recently been undertaking international strategic alliances in Europe and have been doing so in order to enhance technological and internationalisation competence. The evidence supports a rising number of international strategic alliances in the Chinese market and this is supported by substantial links between this strategic choice and performance as confirmed in the work of Yan and Gray (1994) and Li et al (2016).

Li et al (2016) provide an interesting and recent study examining China-UK strategic alliances in higher education. Li et al (2016) argue that despite a notoriously high failure rate of international strategic alliances, one industry that has achieve success is the higher education sector and strategic alliances between Chinese and UK partners. Despite cultural differences, a focus of mutual interest is highlighted by Li et al (2016) to be important in stimulating connections which achieve commonality and collegiality across a given vision. Li et al (2016) argue that in order to overcome challenges and weaken the possibility for failure, international strategic alliances explored have to be structurally supportive (in terms of both resources and employees) of the alliance and thus be receptive to deeply rooted changes within the organisation.

2.9 Scale Development

In order to examine, and importantly measure, knowledge within the firm, six different types of knowledge transfers have been identified within the literature. The Learning Capability Scale by Gomez, Valle-Cabrera & Lorente (2005) captures learning in a previously validated manner and this scale is underpinned by attention to commitment to knowledge transfers within the firm, systems perspective of learning, knowledge transfers and innovation and learning outcomes from the strategic alliance. Further, scale items have been influenced by the intra-organisational knowledge sharing scale which was first developed by Calantone, Cavusgil and Zhao (2002) to capture knowledge sharing between organisations. Part of a wider scale, the scale items in this scale in particular can be used to determine the relat