LITERATURE REVIEW - Role on Knowledge Transfer of the Mining Sector in Mongolia

Chapter Overview

This chapter presents review of the relevant literature which assisted to researcher to draw out the research issue. Literature review tried to emphasis background of the related research fields. Point out why those issues are important to study and tried to deliberately explain in details. Some part of the review might be absolutely new for readers because of the country specialty therefore literature attempted to explain each issue in details.

Mining Sector in Mongolia

Mongolia is an East Asian country with relatively spare population and rich with diverse natural resources that covers vast area of land. Economic activity in Mongolia has based on herding and agriculture although development of extensive mineral deposits of copper, coal, molybdenum, tin tungsten, and gold have emerged as a driver of industrial production. Mining sector contribute to country economy 21.8% of GDP and agriculture 15% of GDP beside that dominant industries in the composition of GDP are trade, service, transportation, communication and tourism in recent decade (ADB report, 2010). According to the IMF, the country‟s GDP rate will double in 5 years and quadruple in a decade (International Monetary Fund, 2009). Oyu tolgoi and Tavan Tolgoi, two mines in the south, of Mongolia are expected to provide much of the new wealth. According to the World Growth Organization, Oyu Tolgoi will produce 500,000 tons of copper and 330,000 ounces of gold a year for the next 45 year, making it one of the largest mines in the world. The mining sector was expected to play an important role in the country‟s future economic development. The Government adopted several long term programs to explore for and develop metallic and nonmetallic minerals, such as coal, copper, gold, oil, and silver. The Government also encouraged foreign investment and participation in exploration exploitation and processing of the minerals. Mining accounted for about 30% of the country‟s industrial output 60% of its export revenue (Mongolia Development Gateway, 2005). Those projects will require huge investments, over the duration of the project companies‟ estimate to invest a total of 7.5 billion USD in real terms. Investment will be not just in the mining sector, besides that, other sectors like infrastructure-transportation, communication, construction,

education, retail, other related business and sectors will boost with it. The scale of the boom will be vast the whole new towns will need to be built around the mines. Many challenges will be posed to this rapid development. One of the greatest will be the strain on the labour market (Business Asia, 2000). The changes in the structure of the economy, greater openness and competitions, as well as greater use of the technology have all resulted in increased demand for skilled and educated labor. But those changes from a low base-Mongolian are far from being a high skill-intensive economy. The skills that are in increasing demand include analytical skill, behavioral skill, practical knowledge of English and IT and technical skills. In today‟s complex and changing environment, the challenge is to build above mentioned skill and knowledge.

According to the World Bank report, (2010) about 37% percent of firms reported that Mongolian skilled technicians performs worse than their counterparts; In terms of the skills Mongolians labour force lack the most following skills; analytic skill, critical and creative thinking, behavioral skills, communication skill, work discipline, leadership and teamwork. The other two big gaps are in practical knowledge: English 59%, IT 37% and technical/ professional skills 23%.

In other words we can describe current situation as mismatch between the skills that workers bring to the labor market and those demanded by the labor market. Additionally to this situation, during the transition period, many highly educated middle age Mongolians, who graduated in the Former Soviet Union, left to find better working conditions and higher salaries in developed countries like the US, Great Britain, Japan Australia Korea etc. Approximately 200,000 Mongolians are living and working in 60 different countries (National Statistical Office of Mongolia, 2010). Currently it is inventible that Mongolia will need high skill and knowledge of expatriates and their participation in all level of industries and businesses. It is obvious that Mongolian HR practitioners‟ specially mining companies‟ HR practitioners must recruit large amount of expatriates from different country.Currently construction and mining companies are recruiting foreign workers to respond to the inadequacy of skill of the local labor force. The number of the employment permits issued or renewed to foreign workers in 2005 was 14,210 with a total of 5828 foreign workers working in Mongolia at the end of 2005 (World Bank, 2006).

To strengthen competitive advantage and to increase productivity, companies will spend resources on recruitment of the expatriates. Especially joint ventures and foreign companies will be in this count. Currently there are several large joint ventures are operating in Mongolia:

Erdenet Mining Corp., : Erdenet 49% and Samsung Corp. of the Reblic of Korea 51% joint

venture, Shim Technology :Erdenet 30% shares and Metal-Tech Ltd. of Israel 70%, Ivanhoe Mines Ltd. Etc (Mining journal, 2004). Therefore it is important to investigate role and contribution of the expatriates who are currently working in Mongolian mining companies.

The Needs of Expatriation

Expatriate-employees come from a country that is different from the one in which they are working. Organizations send expatriates overseas or into a multinational work setting expect those expatriates to perform, whether that involves building a dam, managing a factory, negotiating a contract, teaching children to read, or developing and training local staff. Edstrom

& Galbraith (1977) suggested that the presence of expatriates in subsidiaries satisfies three main needs:

a. To fill positions when no local talent is not available b. To provide training for managers

c. To expose members of the organizations in general and expatriates managers in particular, to a process of socialization that will reinforce the culture links between the home office and subsidiaries.

In the position-filling function the expatriates fills a vacuum in knowledge in developing subsidiaries. In other words, the expatriate managers are expected to transfer knowledge from the home office to her new assignment. By standing as a contact between the two units, expatriate manager contributes to the absorptive capacity of the firm (Cohen & Levinthal, 1990). Those types of expatriation was the main target of this thesis study. Dowes and Thomas (2000) found that young subsidiaries have a proportionally larger population of expatriates than old subsidiaries. Mining companies in Mongolia are mostly very young subsidiaries which lack of experienced experts.

Black and Gregersen (1999) identified two principal objectives of sending expatriates: To generate knowledge for the organization and to develop global leaders. The first objectives involve knowledge transfer from headquarters to subsidiary, as well as learning from that subsidiary. The second objective involves long-term development of global leaders. In order for an executive to develop a global perspective on business, it is an imperative to have time working abroad. More specifically, they found three general practices among successful expatriations: a focus on knowledge creation and global leadership development; a selection of

people whose technical skills are exceeded or matched by their cross-cultural abilities; and the use of a deliberate repatriation process well planned in before. According to Fish & Wood (1993) the integration of international business and expatriate career management is an important consideration for any firm wanting to succeed internationally.

The Expatriate Role in Knowledge Transfer

One of the important research fields of international human resource is expatriates.

Expatriates can be used for number of various reasons: for management development, control coordination, special staffing needs and organization development purpose: knowledge transfer and settling organizational culture(Edström & Galbraith, 1977). Traditionally expatriates has been associated with ethnocentric approach and indicated the practice of using parent-country nationals for staffing key position in host country (Minbaeva & Michailova, 2010). Mainly most important role of the expatriate was well defined control and coordination (Harzing, 2002).

Business scholar had a wide focus on expatriation topic especially focus was on the selection, pre-departure training, adjustment, successful expatriation and recently repatriation become popular field to conduct studies (Bonance & Brester, 2001; Delios & Bjorkman, 2000; Dowes

&Thomas 2000; Tsag 1999).

Over the recent two decades expatriates assignment concept changed within the globalization and high technological intensive business world. Old understanding of the expatriates: -just get job done- is no longer relevant. Nowadays expatriates are expected play in local staff development, support skill and knowledge transfer. Research reveals various possible strategic targets for expatriates in that area (Minbaeva & Michailova, 2010). The knowledge-related function of expatriates is complementary to traditional function of coordination and control. Delios & Bjorkman (2000) noted that expatriates with control and coordination responsibility transfer parent organization‟s knowledge and professional skill to hosting organizations. The ability of the parent organizations to transfer knowledge depends on the skills of the individuals who are directly involved in the transfer process, because ultimately it is the individuals who are imparting and receiving knowledge (Argyris & Schon, 1978). One of the main responsibilities of expatriates is to bring and transfer skill from parent organizations in to the host countries (Bonanche & Brewer, 2001). The research topic on the role of the expatriates as transferor of the knowledge to host organizations becoming new trend in human resource

management studies (Bonance & Brester, 2001; Delios &Bjorkman, 2000; Dowes &Thomas 2000; Tsag 1999). According to the Executive Report on New Forms of International Working by the Center for Research into Management of the Expatriates (2002), organizations appear to be making increasing use of all type expatriate assignments. Moreover skills /knowledge transfer is among the main reasons for using each type of assignment. After reviewing and analyzing related literatures researcher figure out that there are not much research on the role of expatriates on knowledge transfer process especially no relevant research have been conducted in Mongolia.

But current situations caused in labour market of Mongolia insisting researchers and practitioners to concern about those issues. As mentioned before to respond to the current mismatching situation Mongolian organizations are increasing recruitment of the expatriates. Therefore focus of the current research is knowledge transfer to Mongolian mining companies through expatriates. Purpose of this study is identify what is the main role of the expatriates on knowledge transfer, what type of knowledge transferred by expatriates, what is the main factors which affecting expatriates on knowledge transfer, what is the obstacle that they face during the knowledge transfer process. In order to respond to research questions researcher attempt to link human resource and knowledge management fields together specifically expatriate and knowledge management issues. According to the studies of Hansen (1999) the greatest benefit of the knowledge management will only be achieved when it is coordinated with HR and in alignment with company strategy. Knowledge and human resource are critical organizational resource which provides a sustainable competitive advantage in a competitive and dynamic economy (Davenport & Prusak, 1998; Foss & Pedersen, 2002; Grant, 1996; Spender & Grant, 1996).

The success of knowledge transfer depends on the appointment of competent expatriates.

Previous research by Bjorkman & Schaap (1994) indicated that most importantly, good expatriates must possess superior managerial and technical skills. Beside this, however good expatriates must also have a genuine desire to impart years of hard-earned professionals know- how to local employee s, commit to localization and work themselves out of jobs (Rogers, 1999).

Especially for the current situation when many mining companies are facing skill mismatching issue in order to solve and to build competitive advantage it is necessary to rely on staffing and selecting expatriates who has specific knowledge, skill, abilities or competencies (Brown &

Duguid, 1991). Result of the studies on knowledge transfer and sharing shows that successful

knowledge transfer is positively related to reduction in production cost, faster completion of new product development projects, team performance, firm innovation capabilities and firm performance including sales growth and revenue from new products and service (Arthur &

Huntley, 2005; Collins & Smith, 2006). Transfer of knowledge, especially when transferred it has tacit components, may require numerous individual exchange (Berthoin, Lenhardt, &

Rosenbrock, 2001; Nonaka, 1994; Szulanski, 1996). When an MNC decided to transfer knowledge, particularly tacit knowledge, between subsidiaries they often assign employees to the foreign operation. In other words, expatriates are among the basic mechanism to transferring knowledge (Bonache & Brewster, 2000; Downes & Thomas, 2000; Inkpen, 1998). So it is obvious that personal involvement play critical role on the knowledge transfer. Additionally desirable attributes of good expatriates for knowledge transfer are ability to communicate, integrity and role model, willingness to learn from and respect local employees and patience.

However, little research has been conducted on how individuals transfer knowledge what are the impacting factors. In the following section of the study researcher attempted to provide literature review on knowledge management especially on knowledge transfer.

The Knowledge for Knowledge Management

Before to talk about knowledge transfer it would be logical to describe first about what is the knowledge and what is knowledge management, why knowledge management issues are becoming important to all the organizations and conclude discussion by presenting knowledge transfer issue in detail. There are many literatures on knowledge and knowledge management topic. Researchers have not yet reached consensus on the knowledge definition for example Debowskii (2006) defined knowledge as a process of translating information (such as date) and past experience into meaningful set of relationships which are understood and applied by individuals. Other researcher Nonaka (1994) considered that knowledge is based on the information and justified by one‟s belief. Other researchers believe that all information is considered as knowledge, but knowledge is more than just information, knowledge includes information and know-how (Machlup, 1980; Zander & Kogut, 1995). Comparing many definitions of knowledge from the literature review this study sympathizes following definition:

knowledge is information processed by individuals including ideas, facts, expertise, and

judgments relevant for individual, team and organization performance (Alavi & Leidner, 2001;

Bartol & Srivastava, 2002).

Most of the literature differentiates two type of knowledge: explicit and tacit. Explicit knowledge is knowledge that can be shared with others- it can be documented, categorized, transmitted to others as information and illustrated to others through demonstrations, explanations and other forms of sharing (Debowskii, 2006). Comparing explicit knowledge to tacit knowledge, tacit knowledge has far harder component to identify and manage. Knowledge which draws on the accumulated experience and learning for a person and which is hard to reproduce or share with others called tacit knowledge (Debowskii, 2006). If we can duplicate explicit knowledge tacit knowledge is hard to duplicate, replace or interpret, as it grounded in a blend of experience, research and induction which may have been refined over many years. The difficulty of translating this knowledge into tangible product or process raises two issues for the organization: how to identify who holds such knowledge, and how to enable others to access it when they need it.

Managing Knowledge in Knowledge Transfer

Main concern of this research is how expatriates transfer explicit and tacit knowledge that they own to Mongolian mining companies. Because for any organization to survive and complete in today‟s globally competitive market place the concept of knowledge management and transfer must be understood and embraced across the organization (McLaughlin, 2007). Traditionally that knowledge has not been treated with degree of systematic, deliberate or explicit effort as devoted to managing human, material and financial resources. But recent decade organizations are changing, many of them have invested considerable time and money into knowledge management initiatives including development of knowledge system which consist from technology to facilitate knowledge collection, transfer, sharing, storage and distribution of knowledge (Wang & Noe, 2000). So what is knowledge management? According to the Debowskii (2006), knowledge management is the process of identifying, capturing, organizing and disseminating the intellectual assets that are critical to organization‟s long-term performance.

The purpose of the knowledge management is helping companies create, share, and use knowledge more effectively. Effective knowledge management reduce errors, create less work, provides more independence in time and space for knowledge workers, generate fewer questions,

produce better decisions, reinvent fewer wheels, advance customer relations, improves service and develops profitability (Karlsen & Gottschalk, 2004).

From the beginning of the development of knowledge management research, researcher defined knowledge transfer differently in the different time period for example in 1994, Singley

& Anderson (1994) defined KT as how knowledge acquired in one situation applies to another.

Szulanski (2004) defined differently according to researcher knowledge transfer typically has been used to describe the movement of the knowledge between different units, divisions, or organizations and individuals. Recently Wang and Noe (2010) defined knowledge transfer as process which involves both the sharing of knowledge by the knowledge source and the acquisition and application of knowledge by the recipient. Knowledge transfer receives much attention from the researchers and practitioners (Argote & Ingram, 2000). Knowledge transfer include movement, training, communication and observation of personnel, technology transfer, replication routines, patents, scientific publication and presentation, interaction with suppliers and customer, alliances, and other form of the inter-organizational relationships.

The Personal Role in Knowledge Transfer

Main resource of the knowledge transfer is individuals who have specific knowledge and skill. Prusak (1996) stated that knowledge and experience is created and resides in a person‟s mind and both knowledge and experience therefore remain person-bound. Torbiorn (1997) suggested that the transfer of knowledge and experience across national boundaries may require the continued transfer of staff in order to apply company norms or know-how, to set up activities, and educate. Garvin (1993) also argued that it is very difficult to become knowledgeable in passive way; personnel rotation programs are one of the most powerful methods to transfer knowledge and experience. The significance of the personal role then should not be underestimated, especially in global business, where an understanding of cultural difference, such as business behaviors attitudes, mindsets and language can be critical to an organization success. Knowledge must be viewed as originating in the person, as it is shaped by one‟s initial reserve of knowledge and the inflow of the new information (Fahey & Prusak, 1998). This means that every person carries unique knowledge and experiences. For example after reading same book every person will have different opinion and understating depending on their previous knowledge and experience. As every individual builds her or his own knowledge by

transforming and enriching information knowledge cannot easily be transferred to another person.

Knowledgeable employees can teach or train employees in a certain field by passing on their knowledge in lectures, meetings, presentations, on-the–job training, by demonstrating how to approach certain task (Bender & Fish, 2000). The characteristic of knowledge and experience described above shows that it is significant for the organization to retain knowledgeable people.

For current study researcher concern expatriates as a main figure in organization who transfer and facilitate knowledge transfer. If hosting organization is unable to fully utilize expatriates knowledge it will cause financial loss and waste of time. Certain knowledgeable people are irreplaceable. Especially if expatriates who carries knowledge and skill that are not held by local staff. Not just technical skill and knowledge transferred though expatriates organization culture, management skill, knowledge about products or services, financial skill or market skills are all can be transferred. Researcher is emphasizing in this study knowledge transfer through person because nature of the knowledge demand direct contact in order to make transfer possible. Most of cases technology can never substitute for rich interactivity, communication and learning that

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