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Procedural Justice, Not Absorptive Capacity, Matters in Multinational Enterprise ICT Transfers

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Abstract

  • This paper empirically tests the effectiveness of information and communications technology (ICT) knowledge transfer and adoption in the multinational enterprise (MNE) as an issue of critical importance to contemporary MNE functioning. In contrast to mainstream thinking on absorptive capacity, but in line with prevailing international business theory, our research supports the proposition that perceptions of procedural justice, rather than absorptive capacity, determine effectiveness, especially in cases of high tacit knowledge transfers.

  • Data was collected from senior ICT representatives in 86 Canadian subsidiaries of foreign owned MNEs. Each of these subsidiaries recently experienced a significant ICT transfer imposed by the parent organization.

  • Support was found for the main propositions: Procedural justice significantly predicted successful ICT transfer and adoption, while absorptive capacity was not significant. These findings are consistent even when knowledge tacitness was high.

  • The perceived success of the ICT transfer as well as its adoption varied widely across these firms. The potential reasons for this divergence in effectiveness are manifold, but our findings suggest that in situations of substantial knowledge tacitness, a higher level of procedural justice, rather than a higher level of absorptive capacity, is critical to effective transfer and adoption.

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Notes

  1. Birkinshaw (1996) already noted more than 15 years ago that no definitive list exists of foreign subsidiaries in Canada, and this was still the case in 2008.

  2. The website addresses with linkages for each of the mentioned lists are:

    • FP 500 (2008). ‘Canada’s Largest Corporations’. FP Business Magazine, Toronto: Financial Post, http://www.financialpost.com/magazine/fp500/charts/data2.html (accessed 28 May 2008).

    • Report on Business 350 (2007). ‘Top 350 Private Companies’. Globe and Mail Report on Business, Toronto: Globe and Mail, http://www.reportonbusiness.com/v5/content/tp1000-2007/index.php?view=top_350_private (accessed 28 May 2008).

    • Report on Business 1000 (2007). ‘Top 1000 Publicly Traded Companies’. Globe and Mail Report on Business, Toronto: Globe and Mail, http://www.reportonbusiness.com/v5/content/tp1000-2007/index.php# (accessed 28 May 2008).

    • CanCorp Financial Business Directory and LexisNexis Corporate database.

  3. Items used in our questionnaire are available upon request.

  4. For brevity, the measure of organizational factors and conditions ‘organizational structure’ (formalization-centralization) was omitted, as this measure had no significant direct or interaction effects.

  5. Titles of positions with the number of respondents having that title in parentheses include President (3), CIO (8), Vice President (5), Director (12), General Manager (4), Manager (34), other (11), and not identified (9). The parent companies involved, represented eleven home countries: US (53), Germany (6), Japan (6), UK (6), Switzerland (3), Hong Kong (2), France (2), Australia (1), Netherlands (1), Spain (1), Norway (1) and not reported (4). This resulting distribution is largely consistent with the regional distribution of foreign direct investment stocks in Canada, with the United States still largely dominating these stocks, and the various European countries together representing a distant, second investment region. We also coded each company’s main industry (two-digit SIC) where available: Resources (13), manufacturing (36), services (32), or unknown (5). This distribution is also largely consistent with the broader population of 746 foreign-owned subsidiaries in Canada.

  6. The factor analysis for the absorptive capacity variable identified one element that did not contribute. This element was omitted from the final absorptive capacity variable, with eleven elements remaining, resulting in a Cronbach’s alpha of 0.847. The factor analysis for the procedural justice variable indicates that all five elements contributed, with a Cronbach’s alpha of 0.83. The factor loading for one element was slightly below the established cut-off value but its continued inclusion was considered to be necessary for consistency with the foundational theoretical concepts. The factor analysis for the knowledge tacitness variable identified eight elements that did not contribute and four elements below the factor loading cut-off value. The resultant knowledge tacitness variable was reduced to the ten remaining items with a resulting Cronbach’s alpha of 0.766. The factor analysis for the performance outcome variable identified one element that did not contribute. The resulting performance outcome variable was reduced by this element with ten remaining elements and a Cronbach’s alpha of 0.874.

  7. Mean-centering of all variables was considered as the literature shows that mean-centering can reduce the covariance between the linear and the interaction terms, thereby suggesting that applying such a statistical technique reduces collinearity. However, Echambadi and Hess (2007) analytically demonstrate that mean-centering neither changes the computational precision of parameters, the sampling accuracy of main effects, simple effects, interaction effects, nor the R2. Therefore mean-centering was not applied.

  8. The factor loadings of each scale item from the factor analysis are available upon request.

  9. The correlation analysis did reveal a significant Pearson correlation coefficient (p < 0.01) between the independent variables procedural justice and absorptive capacity. The significant correlation suggests a dynamic interaction between absorptive capacity and procedural justice. Procedural justice’s creation of transparency and involvement in the decision-making process has a positive effect on absorptive capacity characteristics in terms of developing a common set of language and symbols and expanding the subsidiary’s internal contact network. Further studies could re-examine the integrative model to determine the implications of such an interaction and develop supporting propositions.

  10. Only 11 of the respondents were from countries with a Hofstede power distance score more than one point higher than Canada’s.

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Authors and Affiliations

  1. Haskayne School of Business, University of Calgary, Calgary, Canada

    Alain Verbeke Ph.D. & Brenda Nguyen

  2. Herberger Business School, St. Cloud State University, Minnesota, USA

    Vernon Bachor Ph.D.

Authors
  1. Alain Verbeke Ph.D.
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  2. Vernon Bachor Ph.D.
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  3. Brenda Nguyen
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Correspondence to Vernon Bachor Ph.D..

Appendix A: Sample Quotes from Interviews

Appendix A: Sample Quotes from Interviews

Procedural justice

Company 1: On local adaptation requests: “So the ultimate decision maker looks at revenue… and that’s what determines what will get in and out… The organization is structured such that IT and all initiatives are driven by revenue”

 

Company 2: On decision making input: “What I do in Canada… I would be in an influencing role only. So I can give my opinion. I can’t give directionally what I think… Beyond that, no… there’s nothing… very little… very little (local adaptation)”

 

Company 3: On local adaptation requests: “If we can really justify it yeah… For everything else, no. Usually it’s the Big Brother mentality. Thou shall do this”

 

On standardization: “They’re trying to centralize one stop shopping… No (input). This is one of these… this is mandated from up top”

 

Company 4: On decision making input: “Very little… it’s usually from president to president of IT department… we don’t find out about the change until the user calls us up. The communication side from Houston to us is not there at all”

Absorptive capacity

Company 4: On knowledge sharing: “We have… if there’s certain training that is needed, we bring trainers in and from the central location and bring them here. So if we have enough people that need training we will do that… we have quite an extensive intranet for the employees”

 

Company 7: On knowledge sharing: “I usually call someone up and say, hey, how do I do this? And if they don’t know they’ll find out from someone. There’s people whose job down there is just to work with Microsoft”

 

Company 8: On knowledge sharing: “So in terms of kind of knowledge sharing is it relies heavily on the fact that there’s people still that have a history of being in roles for longer period of time or perhaps people remaining in the country who can transfer that knowledge… then you go to so and so who’s still here in Canada and they’ll give you the information. … It’s not that it’s just stored in people’s head. There is some kind of documentation to it. But it’s not necessarily stored on what we would call a team space or even some kind of a systemic system”

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Verbeke, A., Bachor, V. & Nguyen, B. Procedural Justice, Not Absorptive Capacity, Matters in Multinational Enterprise ICT Transfers. Manag Int Rev 53, 535–554 (2013). https://doi.org/10.1007/s11575-012-0156-x

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