Reverse Knowledge Sharing in SMEs

Reverse knowledge sharing within MNCs is different from with SMEs because for multinational companies with business activities carried out in different markets reverse transfers of knowledge mainly comes from subsidiaries to their headquarters (Barlett &

Ghoshal, 1989; Gupta & Govindarajan, 2000; Ambos et al., 2006). However there is little mention in the literature of reverse knowledge sharing and its actors in small or medium enterprises. Knowledge that is obtained using the OI model may be obtained from different sources. Local partners are considered as knowledge creators for SMEs because they usually conduct their business operation in a region. Research shows that the greater part of the knowledge that SMEs acquire is collected from other firms consisting of suppliers,

competitors, and clients (Prince, 1999, as cited in Kerste & Muizer, 2002). Particularly, SMEs consider business partners and universities as critical actors positively affecting product innovativeness (Gudda et al., 2013). According to the value net framework developed by Brandenburger & Nalebuf (cited in Levy & Powel, 2004), the establishment of cooperation with multiple partners like customers, competitors, suppliers should be highlighted (Figure 2.4). In addition, knowledge that SMEs absorb from their close partners as customers and suppliers is very valuable for new product development (Jetter et al., 2006). Therefore, it is assumed that reverse knowledge sharing can be conducted between SMEs and external stakeholders like suppliers, consumers, business alliances, competitors and universities or research institutions.

Figure 2.4 The value net for co-opetition

Source: Levy & Powel. (2004). Strategies for growth in SMEs: The role of information and information systems

2.3 Hypothesis Development

2.3.1 The Effects of Open Innovation in SMEs

The critical difference between Closed and Open Innovation can be found in the ways enterprises test the viability of their ideas (Chesbrough, 2003b). Three main characteristics of illustrating Closed Innovation are (1) “A strong but very narrow scientific and technical body of competencies, in their own area of interest”; (2) “R&D carried out, in a very unstructured fashion, inside organizational units devoted to technical assistance activities”; (3) “A focus on markets where customers are relatively low demanding in terms of product innovation and where competition is rather weak” (Chiaroni et al., 2010, p. 228). External knowledge also seems very limited in Closed Innovation paradigm (Chesbrough et al., 2006), as a result, it assumes that Closed Innovation does not allow for knowledge flow, inflow or outflow. In contrast, OI is “all about leveraging and exploiting knowledge” (Chiaroni et al., 2010, p.226).

OI is defined as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and to expand the markets for external use of innovation” (Chesbrough et al., 2006, p.01), therefore, the prevalence of open over Closed Innovation models is because the former can encourage the knowledge transfer between open communities.

One critical mission of the OI model is to help enterprises gain access to external knowledge, therefore, the quality of OI can be measured by the effectiveness of the knowledge/information inflow. For MNCs, a multinational telecommunication company named Deutsche Telekom can serve as a prominent example. The majority of company-specific innovations in Deutsche Telekom come from inflow of information generated by its suppliers such as Ericson, Nokia Siemens Networks and Alcatel-Lucent (Rohrbeck et al., 2009). For SMEs, OI can offer better access to modern technologies and laboratory facilities, and major R&D investment that may take SMEs more time to gain

in-house (Chesbrough, 2003a; Chesbrough et al., 2006). Two examples demonstrate this. First, a large number of SMEs with OI approach have had more opportunities to access R&D funding from the UK government with easier registration of patents than SMEs with Closed Innovation (Wynarczyk, 2013). Second, Quilts of Denmark engaged into the OI approach to gain valuable knowledge such as temperature regulation and technology of Temprakon from external partners including sleep researchers and space agency NASA. These external resources largely contributed to the production of a temperature regulating pillow, thereby helping Quilts establish subsidiaries in thirty countries since it started business in 2000 (EURIS, 2011).

Due to the important role that the introduction of innovative products, services, and processes play in firm growth, enterprises engage in OI to accelerate product development. OI is designed to enhance the introduction of innovative products, service, processes or business models (Chesbrough, 2006). In doing so, employees are stimulated to increase their productivity and the quality of their work (Chesbrough, 2006). SMEs are more able to create new innovative products and services when they collaborate with innovation partners (Spithoven, et al., 2013). Moreover, some previous investigations demonstrated that the impact of innovation on SME performance is a positive effect (Rosenbusch et al., 2010). The innovation-performance relationship is greater in a collectivist culture as in Asian countries than in individualist culture like the USA (Rosenbusch et al., 2010). Firms pursuing inbound activities of the OI model are positively linked to innovative performance of SMEs (Parida et al., 2012). In addition direct effects on product manufacture, OI allows resource-scarce firms to benefit more from manufacturing expenditure and time saving as they can source available external resources. According to a self-reported data by entrepreneurs and managers, Massa and Testa (2008) found that more than 30% of turnover for about half of the surveyed SMEs comes from innovative activities. It is assumed that there is a positive influence of the OI model on firm performance. Another investigation showed that the share of turnover in SMEs

and large enterprises is nearly similar, 8.8% and 8.9% respectively, even though SMEs introduce fewer new products/services to the market than large counterparts (Spithoven, et al., 2013). These perspectives provide consistent real-life evidence to support two following hypothesis:

Hypothesis 1 (H1): OI is positively related to the degree of SMEs reverse knowledge sharing.

Hypothesis 2 (H2): OI is positively related to SMEs performance.

2.3.3 Relationship as an Enabler of both Open Innovation and Reverse Knowledge Sharing

External networking is one of the important practices of OI (Vrande et al., 2009). In external networking, relationships between firms and external sources of social capital, including individuals and organizations are very necessary (Vrande et al., 2009). External relations have been portrayed as forms of OI. Firms tend to open their boundaries to get closer to different external stakeholders, including suppliers (Li & Vanhaverbeke, 2009), customers (Gassmann et al., 2006), intermediary organizations (Lee et al., 2010), universities & research centers (Chiaroni et al., 2010; Buganza & Verganti, 2009) and even competitors (Lim et al., 2010). The relationship between firms and these stakeholders in a dense innovation network becomes more necessary in the knowledge-driven economy (Bullinger et al., 2004).

Chesbrough (2003a) showed MNCs should consider using open communities as a routine part of future development efforts. The practices of building relationship with external stakeholders become more important for SMEs because one of the major liabilities that SMEs have confronted is the lack of technical capability and financial resources (Vanhaverbeke et al., 2012). Therefore, the OI model should involve the relationships between firms and stakeholders.

When firms adopt the OI model, the advantages of building and maintaining relationships in MNCs’ context have been published. MNCs have been dependent on multiple external stakeholders through different kinds of relationship like collaborative relations or mutually beneficial ones. There are two examples illustrating the effectiveness of establishing external relationships in MNCs. First, IBM, a US multinational technology and consulting corporation, recognized that a lack of value-added activities is one of the reasons for losses, as a result, it held a meeting with one of its largest customers, Citicorp. Also, a corporate website allowed IBM to bring experts from different countries to gather in a common place in order to

share ideas about world problems and discuss solutions to these long-standing problems.

Second, the important role of external actors is seen in case of Japanese automotive manufacturer Toyota. The dense networks provided Toyota an important capability of knowledge acquisition, in conjunction with generating information required for monitoring and enforcement (Kogut, 2000). In terms of SMEs, external relationships can allow them to gain three main advantages, organizational development (e.g. ability of accessing available resources), completion and competitive advantages (e.g. enhancement of competitive ability) and performance (e.g. goal achievement) (Street & Cameron, 2007). According to a study of 137 Chinese manufacturing companies, Zeng et al., (2010) reported that cooperation of SMEs with customers, suppliers and other firms contribute to the innovation process, but one cannot underestimate other kinds of cooperation like research institutions, universities or intermediary institutions. This is because the relationship between knowledge partners (e.g.

universities, research organizations) and firms plays an essential role in driving the innovation process through research partnerships, contract research and consulting (Perkmann & Walsh, 2007). An example is the case of Portugal in which some government agencies are portrayed as external resources for small firms in order to access knowledge and experience about potential partners (Sousa & Bradley, 2009). It is clear that relationships between companies and external stakeholders play an important role in the success of the OI model.

A knowledge monopoly has been largely damaged because of the diffusion of knowledge to different external stakeholders, including companies, customers, suppliers, universities, start-ups (Chesbrough, 2003a). For this reason firms should build external relationships beyond their boundaries to access valuable knowledge. In MNCs, the relationship between headquarters and foreign subsidiaries can be changed to influence the level of reverse knowledge transfer (Rabbiosi, 2011). Reverse knowledge transfer depends on the relationship between the parent company and its subsidiaries (Borini & Fleury, 2011).

Based on the link between strength of ties and knowledge transfer, researchers have inferred

the network’s influences on knowledge transfer. Strong ties which are characterized by high trust and close relationships provide a foundation for successful sharing of tacit or complex knowledge (Fernie et al., 2003). Also, a strong connection rather than a weak one can help firms more easily exchange all kinds of knowledge (Reagan & McEvily, 2003). It can be agreed that the external relationship between SMEs with external stakeholders is very important to effective knowledge sharing.

Given the important role played by external relationships in the OI model as well as reverse knowledge sharing from external stakeholders to SMEs, provides the basic for this third hypothesis.

Hypothesis 3 (H3): Relationship can positively moderate the relationship between OI and reverse knowledge sharing.

2.3.4 Reverse knowledge sharing as an Enabler of both Open Innovation and SME performance

Reverse knowledge has been playing a critical role in both MNCs. The reverse knowledge flow from subsidiaries to headquarters is an essential source of competitive edge for multinational firms, whether from developed economies (Ambos et al., 2006; Piscitello &

Rabbiosi, 2006), or developing economies like Brazil (Borini et al., 2012). For example, reverse knowledge flow not only provides opportunities to evaluate products made in emerging markets but also allows for rethinking the assumptions underlying the units located in developed markets, thus multinational companies retain their competitive ability through knowledge flow from subsidiaries in developing markets (Govindarajan, 2012). If external knowledge is a factor that can generate competitive edge for MNCs, it seems even more important for SMEs that are characterized by resource constraint. This suggests the essential role of reverse knowledge sharing under SMEs context can be hypothesized as:

Hypothesis 4 (H4): Reverse knowledge sharing can positively moderate the relationship between OI and SME performance.

Chapter 3 METHODOLOGY

3.1 Research Design

The objective of this research is to examine the process of reverse knowledge sharing from different external stakeholders, and to clarify the approach of OI in SMEs’ context.

Specifically, the main aim of this research is to acquire knowledge about correlations between OI and reverse knowledge sharing in SMEs’ context.

The following research questions will be addressed in this study:

1. Does OI influence reverse knowledge sharing in SMEs?

2. What are the most popular external partners in OI approach of SMEs?

3. To what extent do external stakeholders strengthen the relationship between OI and reverse knowledge sharing in SMEs?

4. What conditions appear to enhance the possibility of reverse knowledge sharing under SMEs context?

This study employs a methodology of quantitative approaches to investigate these research quesitons. Quantitative approach that is well-known as the administration of questionnaires to a sample of respondents was conducted in my research because it greatly explores the relationship among two or more variables (Babbie, 2012).

3.2 Framework

H2

Figure 3.1 Illustration of Proposed Hypothesis

Figure 3.1 illustrates the model of the proposed hypotheses used for this paper. This paper intends to find out the relationship between one independent variable (OI) and two dependent variables (reverse knowledge sharing and SME performance). This study uses the moderator effect to find out how significant the contribution of moderators in this structure is.

The degree of relationship between SMEs and their stakeholders is regarded as a moderator effect in the relationship between OI and reverse knowledge sharing. Another moderator is the reverse knowledge sharing variable. This study aims to investigate whether reverse knowledge sharing can positively moderate the relationship between OI and SME performance.

3.3 Sampling Design

Despite the significant contribution of the research of corporations mainly based in developed countries, few studies have been observed to examine the relationship between OI

H3

H1

H4

Independent Variable Open Innovation

Dependent Variable - Moderator Reverse knowledge sharing Moderator

Relationship

Dependent Variable SME performance

and reverse knowledge sharing in developing regions, mainly the Asian countries. As a result, this study will be conducted in Vietnam. There are two main reasons why this research aims at Vietnam. Firstly, Vietnam has played an increasingly important role as a proactive member in international business activities such as joining negotiations to build up free trade frameworks, and through participating deeply and comprehensively in multi-lateral forums. Secondly, Vietnam is becoming a favoured manufacturing location for high-tech multinational enterprises such as Intel, LG Electronics, Nokia and Samsung because of its cost effective advantages. Thirdly, the majority of foreign companies in Vietnam usually set up partnerships with domestic firms so low-tech enterprises have more opportunity to access advanced technologies. The sample population for this research was taken from manufacturing and services companies in Ho Chi Minh City. The population was restricted to one city rather than the whole nation due to differences in geography, level of economic development, and presence of major industry between states. Ho Chi Minh City, located in the southern part of Vietnam, with a population of over nine million is a center of commerce, economy and finance in Vietnam. There were 58394 SMEs (23.3%) of the 250689 registered SMEs in Vietnam operating business in Ho Chi Minh in the year of 2008 (Table 3.1). In the same year, the number of small and medium-sized businesses accounted for 23.5% and 21% respectively.

According to the official statistics of Vietnam (2010), Ho Chi Minh City had the highest

number of SMEs in the country, making up 28.4% of nation’s enterprises in 1 January 2009.

Table 3.1 Number of enterprises by size of enterprise in Ho Chi Minh (2008)

Enterprises Total Micro Small Medium Large

Vietnam 250689 127180 68046 4484 5979

Ho Chi Minh 58394 40132 15983 933 1346

(23.3%) (31.6%) (23.5%) (21%) (22.5%) Source: GSO. (2010). Enterprises in Vietnam during the first nine years of 21th century

The definition of a SME is various in different contexts. Because this research is carried out in Vietnam, we define SMEs as firms with less than 300 employees (GSO, 2010).

The sample focuses on two size classes including small-sized with 10 – 49 employees and medium-sized enterprises with 50 – 299 employees (GSO, 2010). The number of SMEs is too large to survey all categories, so the survey excludes enterprises with less than 10 employees because such these enterprises belong to micro-sized ones (GSO, 2010) and are unlikely to engage in OI and knowledge sharing activities.

The study draws on a sample of SMEs in the manufacturing and services industries because both industries have increased the wide use of knowledge-intensive technologies for production processes (OECD, 2005). Using firms in manufacturing enterprises in Ho Chi Minh City as the basis for this research was appropriate for the following reason: in the manufacturing sector, small and medium firms comprised about 28% and 25% of SMEs in Vietnam (Table 3.2); the manufacturing sector in Vietnam attracted the largest amount of foreign investment capital (Jennings, 2012); and the business operation of eleven industrial zones and one of Vietnam’s only two national science parks (Saigon Hi-tech park) offers many opportunities for low-tech companies to access advanced manufacturing technologies. A target sample frame of 150 SMEs was identified from Vietnam Association of SMEs.

Table 3.2 Number of manufacturing industries by size of enterprise in Vietnam (2008)

Enterprises Total Micro Small Medium Large

Total 250689 127180 68046 4484 5979

Manufacturing 38384 15468 19302 1106 2508

(15%) (12%) (28%) (25%) (42%)

Source: GSO. (2010). Enterprises in Vietnam during the first nine years of 21th century

3.4 Data Collection

Based on Oslo Manual guidelines, questionnaire survey was conducted (OECD, 2005).

The questionnaire attached with a cover letter was divided into different sections including background information (demographic), OI activities, different kinds of knowledge inflows from stakeholders, relationships between SMEs and their stakeholders, and SME performance.

Both English and Vietnamese versions of the questionnaire were attached in case respondents are foreigners (For more details, see Appendices B and D). In order to increase the response rate, all enterprises that had received the questionnaire were promised to receive a summary report after this survey was completely finished. It is essential to help enterprises which have done few or no innovation activities to easily understand questions. The survey therefore started with a pre-test questionnaire. The draft survey was pre-tested during 1^st June to 1^st July, 2014. Based on the comprehensive evaluation of pre-test survey, the formal questionnaire came out two weeks later. Since this survey was used to gather data from target respondents who occupy high-ranking positions in SMEs, questionnaires were not conducted by email.

Data of questionnaires were collected by post and phone interview during 15^th July - 15^th October. Three weeks after the first delivery of 150 surveys, reminder letters were sent out to non-respondents and a total of 50 surveys were returned, resulting in a response rate of 33.34 percent (50/150). A total of five surveys were excluded because they belonged to large-sized enterprises, resulting in an acceptable response rate of 30 percent (45/150).

3.5 Measures

3.5.1 Open Innovation

This paper employs eight items that were used by many authors (Vrande et al., 2009;

Lichtenthaler, 2008) to measure OI variable (OI) (Table 3.4). A seven-point Likert-type scale is used to measure for these items, ranging from 1 (the lowest) to 7 (the highest). The respondents are asked to score the degree of each item according to their organization’s most typical situation.

collaboration (3 Items)

Technology sourcing (2 items)

-Involvement of present customers;

-Involvement of future potential customers;

-Involvement of end-users

-Regularly contact R & D institutes and universities to access new technology;

-Often buy and use new technology (IPRs) from other firms and institutions.

3.5.2 Reverse knowledge sharing

Following Mudambi et al., (2013), reverse knowledge sharing variable (RKS) data are divided into three categories including knowledge about products, knowledge about technologies, knowledge about primary activities of foreign subsidiaries (Table 3.4). In the third category, different kinds of foreign subsidiary in MNCs’ context are replaced by external stakeholders in the SMEs’ context. Based on a study of Zeng et al., (2010), this paper uses six separated stakeholders, including internal stakeholders (customers, suppliers, competitors) and external stakeholders (government agencies, intermediary institutions, and research organizations). One of the main reasons behind why I use this study is that paper is conducted to study in a developing Asian country (China). More specifically, thirteen items that are used to measure reverse knowledge sharing are presented in Table 3.6. A seven-point Likert scale is used to measure for these thirteen items, ranging from 1 (the lowest) to 7 (the highest).

Table 3.4 Surveyed knowledge transfer practices

Larissa Rabbiosi 2011 The transfer of technology;

The transfer of know-how;

The transfer of skill;

The transfer of capabilities from foreign subsidiaries to its parent company.

Mudambi,

Table 3.5 Measured items of reverse knowledge sharing

Different kinds of reverse knowledge sharing Items

3.5.3 Relationship

This paper employs business partners that were used by Zeng et al., (2010).

Relationship variable (RELAT) is measured by the extent of the relationship between their firms with six partners including customers (R_CUS), suppliers (R_SUP), competitors (R_COM) and government agencies (R_GOV), intermediary institutions (R_INTER), and universities (R_UNI). These items were assessed with a seven-point Likert type scale ranging from 1 (the lowest) to 7 (the highest).

3.5.4 SME performance

The SME performance variable (SME_PER) should refer to the overall firm achievements, not to single products or product lines. As a result, this paper considers

The SME performance variable (SME_PER) should refer to the overall firm achievements, not to single products or product lines. As a result, this paper considers