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1
Chapter 5
Creating Worldwide Innovation and Learning:
Exploiting Cross-Border Knowledge Management
True/False
1. The innovation process described as local-for-local implies the decentralization of R&D
activities in multiple countries.
2. Globally linked innovations involve processes designed to ensure that the special resources
and capabilities of each subsidiary are globally available to other units of the organization.
3. The greatest risk facing center-for-global innovation is market insensitivity.
4. Company X is operating in a fast-changing, knowledge-intensive industry. The most feasible
structure for its innovative processes is therefore central-to-global because that allows for a
high degree of corporate control.
5. To make central innovation effective, the purpose of building multiple linkages between
headquarters and subsidiaries is to exercise better control over those operations.
6. The two main prerequisites for local innovation are the dispersal of organizational assets and
resources and a concentration of authority.
7. Linking local managers to corporate decision-making processes makes them more effective in
managing local innovation.
8. A local-for-local approach to innovation is not compatible with cross-functional integration
within national operations.
9. The development of transnational innovation requires that the roles performed by
organizational units worldwide are essentially uniform, and that the headquarters manages all
of its subsidiaries in the same manner.
10. In transnational companies like Unilever, products, functions, and geographic regions are
coordinated in a differentiated manner, accounting for the respective demands for integration
and responsiveness.
11. Emerging strategic demands make organizational models based on interdependence the
most appropriate form for headquarter-subsidiary relationships.
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12. Transnational innovation requires management processes to be dominated by simple
systems of control.
13. The most effective way to coordinate knowledge flows in a transnational organization is
through the process of formalization.
14. Despite the differences that exist among transnational organizations, there is one optimal
approach to managing innovation in these firms.
15. An MNE’s ability to develop and slowly diffuse innovations around the world is vital, and in
this challenge overseas operations need to take on important new responsibilities.
16. Locally leveraged innovation involves ensuring that the special resources and capabilities of
each national subsidiary are available only to that local entity.
17. The most effective way to exploit the knowledge within an organization depends on the
complexity of the technology itself and the understanding of the focal market.
18. Frank is director of technology in an MNE in which most of the R&D activities are
performed in the parent company’s home country, but then, foreign subsidiaries are
responsible for introducing the resulting innovations to their local customers. The innovation
process adopted by Frank’s MNE is:
a. globally linked.
b. local-for-local.
c. center-for-global.
d. locally leveraged.
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19. With responsibility for his company’s largely centralized R&D activities, Frank worries that
the center may not understand local market needs, while the subsidiaries may not be
committed to innovations developed at the center. To respond to these concerns, Frank’s
priority should be to:
a. adopt a single point of contact between headquarters and the subsidiaries to focus the flow of
information.
b. ensure that several key people in the foreign subsidiaries are linked to individuals at the
headquarters who can represent and defend their views.
c. carefully select the people he interacts with in the subsidiaries in order to reduce conflicting
perspectives regarding innovation management.
d. listen to the different national perspectives and priorities, but minimize differences in views
from multiple subsidiaries’ input.
20. Which of the following does not enhance the efficiency of a local-for-local innovation
process?
a. Dispersing assets and resources to the subsidiaries and delegating decision-making authority
regarding innovations to them.
b. Assigning competent headquarter managers to lead development projects within a subsidiary.
c. Improving linkages between headquarters and subsidiaries through the use of expatriates.
d. Promoting cross-functional integration at the subsidiary level.
21. Local-for-Local innovative processes can be enhanced through integrating subsidiary
functions across different levels. At which level are the control and conflict resolution tasks
best concentrated?
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a. At the project level (called “article team” at Philips), where relatively junior managers from
the commercial and technical functions work together
b. At the product level, where a team of technical and commercial representatives engage in
cross-functional coordination
c. At the senior management committee level, where the top commercial, technical, and
financial managers in the subsidiary foster subsidiary-level coordination
d. All of the above
22. Which of the following management assumptions is most likely to support transnational
innovation in MNEs?
a. The roles of different organizational units should be uniform and symmetrical.
b. The headquarter-subsidiary relationship should be based on clear and unambiguous patterns
of dependence or independence.
c. Career paths should be structured to give managers cross-border and cross-functional
experience.
d. Headquarters should be responsible for exercising decision-making and control uniformly.
23. What is the primary advantage of operating interdependent subsidiaries?
a. It reduces the need to control subsidiaries and to coordinate their activities.
b. It allows the company to integrate scale-efficient operations and to cross-subsidize
subsidiaries when necessary.
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c. It provides an opportunity to balance the interests of subsidiaries with the needs of the
headquarters. .
d. It prevents subsidiaries from becoming too independent or uncontrolled.
24. TechInnovation is a large MNE operating in an environment characterized by rapid changes.
During the past 50 years, its subsidiaries have operated independently. Which of the
following actions will be least helpful to increase the interdependence across its widely
dispersed national organizations?
a. TechInnovation could centralize more decision-making to counter-balance the
decentralization that has taken place during the past 50 years.
b. TechInnovation could create regular cross subsidiary meetings to coordinate activities and
resolve differences.
c. TechInnovation could break up its value-chain to ensure that subsidiaries perform
interrelated activities.
d. TechInnovation could develop career paths to routinely transfer managers across
subsidiaries.
25. In developing differentiated coordination processes in a transnational organization, which of
the following factors would be most important for an MNC manager to consider?
a. How the company sources its raw materials, transfers technologies, and manages scarce
resources.
b. How the company is structured and how decision-making authority is assigned.
c. The environment in which the firm operates and the nature of competition in that
environment.
d. The portfolio of products that the MNE offers and the markets in which it offers them.
26. Which of the following is not an appropriate coordination mechanism to be employed by a
transnational corporation with worldwide activities?
a. The coordination of information flows through the socialization of employees.
b. The coordination of asset flows through a process of rationalization.
c. The coordination of product flows through formalized management processes.
d. The coordination of resource flows through centralized decision-making.
27. Worldwide Consulting Limited is an Italian-based service company with activities in 23
countries. The company operates by embedding a large number of expatriates in foreign
subsidiaries, even though the expatriates are not always familiar with the host country to
which they are assigned. What is the most important benefit Worldwide Consulting is most
likely to achieve through this practice?
a. An exchange of information and knowledge across subsidiaries facilitated by the expatriates.
b. The presence of expatriate employees enhances the prestige of the foreign subsidiaries and
increases client satisfaction.
c. The presence of a large number of expatriates improves employee motivation and reduces
employee turnover.
d. Having ex-pat employees allows the parent company to keep tighter control of its offshore
subsidiaries.
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28. Which of the following is not one of the four processes of cross-border innovation and
learning?
a. Locally leveraged
b. Globally Linked
c. Center-for-local
d. Local-for-local
29. An effective way to exploit the knowledge within an organization with a high complexity of
market knowledge and a high complexity of technological knowledge is:
a. Move information about the technology to where the market is
b. Exchange information
c. Move information about the market to where the technology is
d. Move knowledge by rotating people by temporary co-location
Essay
30. What are the challenges associated with managing a center-for-global innovation process and
what are some of the measures that can be employed to ensure that the process is efficient?
31. Campbell Enterprises is an MNE in which local-for-local innovation is a priority. A new
CEO wants to understand the conditions needed to make such innovations more effective, as
well as your reasons for making such recommendations.
32. Mr. Smith is the recently appointed CEO of a diversified MNE operating in 22 countries on
four continents and in multiple industries ranging from bulk chemicals to consumer
packaged goods. He became concerned that in his very decentralized organization, all
businesses were managed primarily by the national subsidiaries. With a poor record in
innovation, Smith wondered what he could do to improve the innovation process. What two
or three changes would you recommend he consider?
33. Vito is a consultant advising a major corporation. His client has requested assistance with
improving the effectiveness of its innovation process. Vito noticed that the client’s
subsidiaries enjoy a high degree of independence. Vito suspects that there may be
significant risks associated with this degree of independence. What are these risks and what
are some alternatives that can be employed to mitigate these risks?
34. There is no one best way to manage innovation in MNEs. Please comment.
35. Traditionally, MNEs developed innovation processes that were either very centralized
(resulting in center-for-global innovation), or very decentralized (resulting in local-for-local
innovation.) More recently, companies have developed two transnational innovation models.
Describe the new models and the advantages they have over the older approaches to
innovation.
