Paper short abstract:

This empirical study uses cross-sectional data from both the Japanese and locally-owned Indonesian automotive sector of cars, motorcycles and auto parts firms. It focuses on relationships between the MNC-subsidiaries in legitimizing and adopting the Japanese MNC's practices in Indonesia.

Paper long abstract:

There is a large body of literature investigating the nature of knowledge transfer between a parent firm and its foreign affiliates, and an equally extensive volume of research that explores knowledge transfer to local firms, usually through the lens of spillovers. However, this study seeks to unravel the complexities of knowledge transfer by examining a unique study carried out from both the host and home country perspectives, and incorporating both firms and institutions involved in knowledge transfer. Thus, this study strives to extend the existing literature in two ways. First, building on Minbaeva et al. (2003), it focuses on the role of human relations, institutions and the firms' existing absorptive capacity. Second, it considers the degree to which knowledge transfer in a local company with foreign investment facilitates the development of those parts of the business that are independent of foreign ownership. In this way, we explore not only the learning that occurs in the foreign-owned sector but also the importance of the local sector in this co-evolution of best practices.

It argues here that an exploration of the interactions between different ownership structures, and various employees' abilities and motivations enhances our understanding of foreign interventions in local firms. Moreover, the research setting facilitates our examination of the absorptive capacity both within the foreign affiliate and within local establishments.

The data we collected offers a new perspective on absorptive capacity through the lens of organizational learning theory. It investigates the causality of varying mechanism of absorptive capacity. Consequently, this study builds on the existing work on inter- and intra-organizational levels of analysis. This investigation is overlaid with an analysis of Japanese institutions that are seeking to facilitate the spread and impact of "Japanization". The findings suggest that inter-human relationship fundamentally important to the flows and creation of knowledge.

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