Journal of World Business xxx (xxxx) xxx–xxx

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Journal of World Business

journal homepage: www.elsevier.com/locate/jwb

When same is (not) the aim: A treatise on organizational cultural fit and

knowledge transfer☆
⁎
Sergey Morgulis-Yakusheva, , H. Emre Yildiza,b, Carl. F. Feyc,d
a
Stockholm School of Economics, Box 6501, 11383 Stockholm, Sweden
b
Uppsala University, Box 513, S-75120, Uppsala, Sweden
c
Aalto University School of Business, P. O Box 21210, 00076 Aalto, Finland
d
Chinese University of Hong Kong, Hong Kong

A R T I C L E I N F O A B S T R A C T

Keywords: Multinationals (MNCs) need to find the balance between developing a globally standardized organizational
Cultural distance culture and having multiple locally- adapted organizational cultures. Past literature embodies the bias that
Cultural differences and similarities differences between MNC units, unless managed, would lead to adverse consequences. To counter this negative
Cultural fit bias, we focus on cultural fit, which is the amount of difference yielding maximum benefit. We argue that
Knowledge transfer
depending on comparison criterion and desired outcome, fit could be achieved by establishing similarities or
Organizational culture
maintaining differences. Using evolutionary economics, we explore knowledge transfer within MNCs and test
our hypotheses on fit using a unique dyadic dataset from 186 MNCs.

1. Introduction maximum benefit, we hence argue that it would be too simplistic to

This paper explores the importance of the organizational cultural fit
between the headquarters (HQ) of a multinational corporation (MNC) and a
foreign subsidiary to facilitate knowledge transfer. Understanding what it is
that creates the ‘fit’ between different MNC units is critical; given that the
management of diversity and complexity is a key element that makes in-
ternational business (IB) a unique field of study (Roth & Kostova, 2003).
Compared to their purely domestic counterparts, MNCs are more likely to
incorporate different organizational sub-cultures and need to deal with the
resulting higher levels of complexity. Standard IB theories and approaches
tend to view this plurality as a potential problem and a barrier for the ef-
ficiency and success of MNCs (c.f., Stahl, Tung, Kostova, & Zellmer-Bruhn,
2016). In other words, cultural differences are implicitly associated with
negative outcomes. As Stahl and Tung (2014) systematically show, theo-
retical and empirical studies in the field of IB often make negative theore-
tical assumptions about the effects of cultural differences. Although this
trend has recently started to shift, a negative bias towards cultural differ-
ences remains dominant.
Thus, an implicit claim of extant literature is that cultural fit be-
tween two units could be achieved when differences are minimized
between these units. In this paper, we propose the alternative hypoth-
esis that fit could at times be achieved when two units remain different
from each other. Defining fit as the amount of difference that yields the
equate fit with sameness. In other words, we argue that organizational
culture fit works like personal attraction: many people are attracted to
and end up marrying someone who is similar in some aspects (e.g., likes
sports) and different in other aspects (e.g., enjoys gardening more than
doing internal home improvements) rather than someone who is the
same in all aspects.
Paralleling our personal attraction metaphor, organizations also
differ in terms of their cultural values and characteristics. Therefore,
understanding which aspects of organizational culture – the explicit
focus of this paper – should be similar vs. different to create the desired
outcomes is an important goal that motivates this paper. Knowledge
transfer – the other explicit focus of this paper – is one such desired
outcome since it has often been regarded as the main raison d'être of
firms in general, and of MNCs in particular (Kogut and Zander,
1993,Kogut and Zander,1996 1996). Despite the centrality and im-
portance of knowledge transfer across multiple cultural contexts, there
is still lack of empirical consensus on the role of cultural differences and
similarities in the ability of MNCs to transfer knowledge (Van Wijk,
Jansen, & Lyles, 2008). To complement earlier research focusing on
national culture (e.g., Ambos & Ambos, 2009) we focus on organiza-
tional culture and differ from earlier distance studies in several ways.
First, past research has operationalized distance as a unitary concept in
which different cultural dimensions are subsumed to calculate a

☆
The authors would like to thank the Wallander foundation for financial support. The foundation was not involved in the design or conducting the study and only provided financial
support.
⁎
Corresponding author.
E-mail addresses: Sergey.Morgulis-Yakushev@hhs.se (S. Morgulis-Yakushev), Emre.Yildiz@fek.uu.se (H.E. Yildiz).

http://dx.doi.org/10.1016/j.jwb.2017.09.002
Received 21 October 2016; Received in revised form 14 September 2017; Accepted 15 September 2017
1090-9516/ © 2017 Elsevier Inc. All rights reserved.

Please cite this article as: Morgulis-Yakushev, S., Journal of World Business (2017), http://dx.doi.org/10.1016/j.jwb.2017.09.002
S. Morgulis-Yakushev et al.
singular index of distance. Using these unified measures, existing re-
search often positions two entities vis-à-vis each other, and tests whe-
ther the cultural similarity between these two entities is able to explain
success of the firm. However, such an approach cannot completely
account for the distinct effect(s) of different cultural dimensions on a
given outcome. Thus, despite its methodological convenience, the
unification of culture/cultural distance under a singular index measure
hides important sources of variation stemming from specific cultural
dimensions and attributes. We will address this problem by keeping
cultural dimensions separate in our analysis, so that we can identify
those aspects of organizational culture for which achieving fit requires
attaining similarities or maintaining differences.
Second, as a result of using index-based measures to calculate cul-
tural distance, past studies can account only for the degree of difference
without explaining the direction with which these differences affect
cross-cultural phenomena. Aggregating culture to a unified index
means that cultural distance must be an absolute measure that always
has positive values. As a result, it has to be assumed that the effects of
cultural differences are symmetrical, but there is no reason to assume
that the effect of differences in organizational culture between two
units has symmetrical effects on these units. Our approach in this paper
relaxes this assumption, which helps us probe into both degree and
direction of differences.
In our attempt to contribute to a more balanced and nuanced un-
derstanding of cultural differences (Stahl et al., 2016), we examine two
well-established dimensions of organizational culture (i.e. internal in-
tegration and external adaptation), two distinct components of the
knowledge transfer process (i.e. knowledge flows and knowledge im-
plementation), and two directions of knowledge flow (i.e., inward
knowledge flow and outward knowledge flow). Theoretically, we build
our reasoning on evolutionary theories of organizational learning
(Aldrich & Reuf, 2006; Zollo & Winter, 2002), and argue that for
knowledge to flow between two units different degrees of variation are
required. Accordingly, we argue that the direction of these knowledge
flows depends on which of the two units has a higher level of external
adaptation in its organizational culture. We show that knowledge flows
from the unit with stronger external adaptation (generating higher
variation) into the unit with weaker external adaptation (generating
more limited variation). Further, we propose that the implementation
of knowledge necessitates similar selection mechanisms, and therefore,
benefits from higher similarity in terms of internal integration. In sum,
we hypothesize that fit between two interacting units can be achieved
by establishing similarities or maintaining differences, depending (a) on
the criterion used to compare the two units (i.e., which dimension of
organizational culture), and (b) the intended outcomes of the interac-
tion (i.e., direction and component of knowledge transfer process).
The paper is organized as follows. In the next section, we define our
key terms and concepts. We then develop our hypotheses drawing on
evolutionary economics. Next, we explain our general research design,
data collection procedure and methodological details. We will then
present our empirical analyses and results, and conclude by positioning
them against previous research.
2. Key terms and definitions
2.1. Knowledge transfer
The transfer of knowledge-based resources across different subunits
has been a popular topic for IB studies. There is a stream of research
that looks mainly at subsidiaries and examines the direction (e.g. in-
ward vs. outward, vertical vs. horizontal) and amount of the knowledge
flows within MNCs (Ghoshal & Bartlett, 1988; Gupta & Govindarajan,
1991, 2000; Harzing & Noorderhaven, 2006; Minbaeva, 2007;
Monteiro, Arvidsson, & Birkinshaw, 2008). Focusing specifically on the
effectiveness of knowledge transfer into subsidiaries, there is another
stream of work which is concerned primarily with the drivers of
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Journal of World Business xxx (xxxx) xxx–xxx
successful organizational knowledge transfer across different subunits
(Fey & Furu, 2008; Kostova & Roth, 2002; Kostova, 1999; Minbaeva,
Pedersen, Björkman, Fey, & Park, 2003; Szulanski, 1996). While some
studies define the success of the transfer process as the extent to which
the knowledge is replicated by the recipient unit (Nelson & Winter,
1982; Szulanski, 1996), some others extend the scope of transfer suc-
cess by measuring employees’ ownership of, commitment to, and sa-
tisfaction with the transferred knowledge (Kostova & Roth, 2002;
Kostova, 1999; Lervik, 2005). Thus, studies of knowledge flows look
mainly at the amount of knowledge transferred into and/or from sub-
sidiaries, whereas the studies on transfer success explore the extent to
which the incoming knowledge is implemented by the recipient units.
In this paper, we regard knowledge transfer as a two-stage process
consisting of both knowledge inflows and knowledge implementation.
We also look at both directions of knowledge flow—knowledge inflow
and knowledge outflow. In line with our general research design, we
take the subsidiary as the main/focal unit of analysis. Accordingly, we
define the degree of outward knowledge flows as the extent to which a
subsidiary sends knowledge to the HQ, whereas the degree of inward
knowledge flows is defined as the extent to which the subsidiary receives
knowledge from its HQ. Thus, outward and inward knowledge flows
capture the frequency of bidirectional communication between the
subsidiary and the HQ. Knowledge implementation goes beyond mere
exposure to new knowledge and refers to the degree to which sub-
sidiary employees learn from the HQ and put HQ’s knowledge into
practice.
2.2. Organizational culture
Before proceeding further, it is important to clarify the level at
which we examine culture. An MNC is normally comprised of a HQ and
a number of subsidiaries in different countries. The organizational
culture of an MNC subunit might be influenced by the national culture
within which it operates (Hofstede, Neuijen, Ohayv, & Sanders, 1990)
because of the need to adapt the organizational culture to the local
environment. Previous research shows that national culture affects the
type of organizational culture that is more effective in a particular
country (Fey & Denison, 2003). Therefore, national culture to some
extent is diffused into the firm’s organizational culture. Diverse national
cultures create pluralities and different organizational sub-cultures
within MNCs. As a result, there is a need for globally standardizing a
company’s organizational in order to create consistency and coherence
within the entire organization. In this regard, the MNC’s home country
culture also influences its (meta) organizational culture, which partly
gives rise to an inherent tension between standardization and adapta-
tion within an MNC. Balancing this tension is a key challenge for MNC
management and parallels the need to balance the MNCs’ strategic
and organizational tensions as discussed in the classic work of
Bartlett & Ghoshal (1988b).
Although some studies consider the role of organizational cultural
differences (e.g. Fey & Beamish, 2001; Pothukuchi, Damanpour, Choi,
Chen, & Park, 2002; Weber, Shenkar, & Raveh, 1996), extant IB litera-
ture focuses primarily on national cultural differences. As such, despite
our focus on organizational cultural differences in this paper, we draw
on work focusing on culture at the national level. Further, while it is
beyond the immediate scope of this paper, our balanced interest in both
positive and negative aspects of cultural similarities/differences is re-
levant to studies exploring the role of national culture differences and
would be a useful topic for future empirical study.
We adopt Schein’s (1992, p. 12) popular definition of organizational
culture as the “pattern of shared basic assumptions that the group learned as
it solved its problems of external adaptation and internal integration.” We
decided to adopt this definition, since (1) Schein’s work is widely used (it
has over 35,000 citations); (2) many of the major models of organizational
culture are built upon the tension between external adaption and internal
integration (e.g., Denison & Mishra, 1995; O'Reilly, Chatman, & Caldwell,
S. Morgulis-Yakushev et al.
1991; Quinn & Rohrbaugh, 1983); and (3) this definition of organizational
culture is consistent with evolutionary theory which we use to develop our
hypotheses. In this paper we focus on those practices and routines that re-
flect MNC units’ degree of external adaptation and internal integration.
External adaptation is the degree to which an organization is re-
sponsive to its external environment and the changing conditions, de-
mands and pressures it entails. Thus, organizations with adaptable
cultures are able to sense and seize opportunities in their external en-
vironment, are willing to take risks associated with constant learning
and improvement, and have sets of values that encourage and support
change (Calori & Sarnin, 1991). In other words, external adaptation
entails normative support for organizational members to take risks re-
lated to learning from and adapting to their environment
(Denison & Mishra, 1995). It stands to reason that external adaptation is
conducive to engaging in ‘institutionalized experimentation’, which
endorses playfulness, inquisitiveness and curiosity. External adaptation
is especially important in dynamic and fast changing contexts where the
ability to monitor, adapt to, and learn from the environment is a pre-
requisite to avoid the risks of obsolescence and loss of competitive edge
(Wu, 2010).
While external adaptation determines the types of action and
practices needed for the organization to survive in its environment,
internal integration defines the courses of action that could facilitate
coordinated interaction among different parts/units within an organi-
zation. Consequently, organizations with strong internal integration are
able to maintain internal coherence and reach agreement whenever
differences of opinion arise (Denison, 1990). When basic assumptions
and core values are widely shared within an organization, interaction
between different groups of individuals within an organization becomes
more efficient, productive, and smooth (Meglino & Ravlin, 1998). As
noted by Denison, Haaland, and Goelzer (2004:p. 100), “this type of
consistency is a powerful source of stability and internal integration
that results from a common mindset and a high degree of conformity.”
Similarly, Tsui et al. (2006) argues that internal integration explains the
extent to which organizations are able to establish a common vision and
shared values among members and/or subunits, which eventually will
foster strong identification with and commitment to the organization.
It is important to note that external adaptation and internal in-
tegration can often be at odds creating a tension that needs to be ba-
lanced. Thus, the values and assumptions required for external adap-
tation might be different from those required for maximizing internal
integration and consistency. This inherent tradeoff has important im-
plications for understanding the role of organizational culture in inter-
organizational knowledge transfer, and underscores the importance of
separate examination of different cultural dimensions. Since external
adaptation and internal integration are distinct dimensions that gen-
erate different outcomes (i.e. flexibility/adaptability vs. consistency/
uniformity), it would be erroneous to cluster these two dimensions
under the single construct of ‘organizational culture’. In the next sec-
tion, we develop separate hypotheses concerning the role of external
adaptation and internal integration in facilitating different knowledge
transfer outcomes.
3. Theory and hypothesis development
In this paper, we adopt the evolutionary perspective on organiza-
tions to guide our theoretical reasoning (Nelson & Winter, 1982;
Zollo & Winter,2002). With intellectual roots in biology, evolutionary
theory was developed to explain the necessary and sufficient conditions
under which incremental changes occur in systems with scarce re-
sources (Campbell, 1969). The evolutionary perspective provides a
useful analytical tool to examine the mechanisms with which organi-
zations search and process information, and the selection rules they
employ when adopting practices from their environment (Dosi, 1982).
At the most fundamental level, the evolutionary perspective argues that
organizations need to evolve in order to better adapt to (fit with) their
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Journal of World Business xxx (xxxx) xxx–xxx
environment and increase their chances of survival (Burgelman, 1990).
An important advantage of applying an evolutionary perspective in
organization studies is that it enables the development of a set of clear,
theoretically founded and testable predictions (Dosi & Marengo, 2007).
The mechanisms of variation, selection and retention lay at the heart of
this perspective, and are used to explain how organizations engage with
their environment and identify, develop, use and replicate routines and
practices as a result of this engagement (Nelson & Winter, 2002). In-
tegrating these mechanisms within the framework of knowledge
transfer in a MNC context is useful for theory development for several
reasons.
First, variation, selection and retention mechanisms are likely to
significantly differ across diverse organizational environments.
Therefore, HQs and subsidiaries are likely to face different forces and
opportunities emerging from these mechanisms due to operating in
different environments. The evolutionary perspective can provide a
parsimonious explanation for the complex processes through which
these organizations generate varying degrees/types of routines and
capabilities, which they then can exchange with each other. Second,
there are inherently asymmetric dependence relationships within
MNCs, which are complex given their dual dependence on their local/
external and MNC-wide organizational/internal environments (Ambos,
Andersson, & Birkinshaw, 2010). As a result, understanding the me-
chanisms of variation, selection and retention might explain how or-
ganizational culture of the HQ and subsidiaries can shape the way this
dual dependence is managed via different types and degrees of resource
exchange. The evolutionary perspective can shed light on the condi-
tions under which subsidiaries are able to learn from their immediate
environment (i.e. host country) or are dependent mostly on the
knowledge provided by their corporate HQ. In sum, by considering
organizational cultural dimensions as a manifestation of the MNC units’
responses to evolutionary mechanisms, we can develop a set of theo-
retical predications about how (1) exploratory learning in subsidiaries
might exceed (fall short of) that in the HQ and might result in outward
(inward) knowledge flows, and (2) the relative characteristics of the HQ
and the subsidiary’s selection mechanisms jointly determine the like-
lihood of knowledge transfer success (i.e. incoming knowledge being
implemented by the subsidiary). Thus, the evolutionary perspective is
useful and well suited to theorize about the knowledge transfer pro-
cesses.
There are three evolutionary processes (i.e., variation, selection, and
retention), which can explain why and how organizations need new
routines to adapt better to their environment (Ziman, 2000). Variation
refers to changes in organizational forms and existing routines and
competencies. Variation can be intentional (i.e., when individuals or
organizations purposefully act to find new alternatives to problems), or
blind (i.e., when change occurs in the absence of formal plans or de-
liberate actions). The second evolutionary process is selection, which
refers to selective elimination of certain kinds of variation. Selection
can be based on factors external (e.g., market conditions, competitive
pressures, institutionalized norms, etc.) or internal (e.g., administrative
heritage, dominant logics, corporate culture, etc.) to the organization.
Lastly, retention is the process through which selected variations are
preserved, replicated and reproduced in order to benefit from new al-
ternatives over time (Aldrich & Reuf, 2006).
Our model focuses in particular on variation and selection me-
chanisms.1 The starting point of our theoretical model is that firms need
to upgrade their practices in order to deal more effectively with con-
stant changes to the technological and competitive conditions and to
avoid the risks of obsolescence and loss of competitive advantage. In
1
Due to the cross-sectional nature of our empirical design, retention is beyond the
scope of the present investigation. However, an integrated examination of all three
evolutionary mechanisms would be a fruitful direction for future research using long-
itudinal designs.
S. Morgulis-Yakushev et al.
this context, organizations with different emphasis on external adap-
tation and internal integration react to internal or external stimuli
differently. Firms with a stronger emphasis on external adaptation will
be more likely to pay attention to changing external stimuli (e.g.
competitors’ behavior, changes to the institutional landscape, emerging
technological trends, etc.). This, in turn, will contribute to the gen-
eration of higher variation. In this generative variation stage of the
knowledge evolution cycle, those organizations that emphasize external
adaptation are likely to generate more diverse ideas to handle existing
and/or new problems, and use values/beliefs related to internal in-
tegration when selecting among this increased variation.
Our model is bilateral in the sense that it specifies how the relative
characteristics of the HQ’s and subsidiary’s (S) organizational cultural
dimensions affect patterns of knowledge transfer between these two
entities. Accordingly, for external adaption, we focus on the HQ’s score
for external adaptation (HQE), the subsidiary’s score for external
adaptation (SE) and the difference (DE) between HQE and SE, where
DE = 0 when SE = HQE, DE (i.e., HQE-SE) is positive when HQE > SE
and DE is negative when HQE < SE. As noted in the previous section,
external adaptation determines the degree to which organizational
culture encourages and supports responsiveness to changing conditions,
demands and pressures external to the organization. Thus, we expect to
see a greater degree of variation in units where the external adaption
dimension of organizational culture is strong. This argument is corro-
borated by earlier empirical studies that report positive effects of
market orientation (e.g., Hurley & Hult, 1998), learning orientation
(e.g., Calantone, Cavusgil, & Zhao, 2002; Hult, Hurley, & Knight, 2004)
and openness to and receptivity to new ideas (Laursen & Salter, 2006)
on the innovativeness of the firm.
Based on the above reasoning, we argue that inward knowledge
flows to the subsidiary will be limited if DE attains negative values (e.g.,
when SE is high compared to HQE). This is because, negative levels of
DE mean that the degree of external adaptation is stronger in the sub-
sidiary compared to the HQ, which increases the subsidiary’s ability to
generate the necessary variation on its own and reduces its dependence
on the HQ for new ideas and solutions. On the other hand, when DE
attains highly positive values (i.e., when SE is very low compared to
HQE), inward knowledge flows from the HQ to the subsidiary will also
be limited. This is because; a subsidiary with low levels of external
adaptation would not have the norms and values that are conducive to
learning from external sources including the HQ (Tsui, Wang, & Xin,
2006). This means that higher levels of inward knowledge flows can be
achieved when (a) HQE is sufficiently high so that HQ has a strong
ability to generate higher variation and become a source of novel
knowledge, and (b) SE is above a certain threshold so that the subsidiary
has the need and the ability to engage in external knowledge search.
Thus, we expect knowledge inflows to be highest when the HQ and
subsidiary are moderately different from each other in terms of the
external adaptation dimension of their organizational culture.
In sum, we postulate that the extent of inward knowledge flows
would be minimum at extremely low (i.e., subsidiary is self-sufficient
and has little or no need for HQ’s knowledge) and high (i.e., subsidiary
is inert and has a weak culture to support learning from HQ) values of
DE. Further, we expect inward knowledge flows to be highest when the
sending unit (i.e., HQ) has a slightly higher level of external adaptation,
and therefore is able to generate a higher degree of variation compared
to the recipient (i.e., subsidiary). The recipient unit, on the other hand,
should have a certain degree of external adaptation such that it has both
the need for and interest in learning from the sending unit. This sug-
gests that an optimum level of knowledge inflows will happen when DE
takes on a moderate non-zero (positive) value. In other words, we ex-
pect that the point at which knowledge inflows into a given subsidiary
are maximized when DE is moderately skewed to the right of perfect
similarity (DE = 0) line.
Based on the above, we hypothesize that:
4
Journal of World Business xxx (xxxx) xxx–xxx
H1a. For any given level of HQE, there is an inverted U-shaped relationship
between DE and inward knowledge flows into the subsidiary from the HQ.
H1b. For any given level of HQE, the highest degree of inward knowledge
flow into the subsidiary will be achieved when DE is positive (i.e.,
SE < HQE).
Our first set of hypotheses are concerned primarily with inward
flows of knowledge from the HQ to the subsidiary. An analogous – yet
reverse – line of reasoning can also be applied to develop our hy-
potheses about outward knowledge flows from the subsidiary to the
HQ. Accordingly, we expect higher levels of outward knowledge flows
(i.e., knowledge flow from subsidiary to HQ) when the level of SE
generates higher level of variation at the subsidiary and HQE is high
enough to induce a sufficient level of HQ willingness to learn from its
subsidiary. Unlike inward knowledge flows where optimum fit is
achieved for moderately positive values of DE, the highest level of
outward knowledge flows is observed when the subsidiary has stronger
external adaptation focus in its culture compared to HQ (i.e., when
SE > HQE, hence DE is negative and skewed to left with respect to the
SE = HQE line). In other words, we expect the optimum point for
knowledge outflows (i.e., the maximum point on the inverted-U curve)
will be achieved on the left hand side of the perfect similarity line.
Taken together with our preceding hypotheses, we claim that different
types of knowledge flows will be optimized at different signs of distance. In
other words, whether or not cultural differences generate cultural fit
depends on the specific outcome intended within the cross-cultural
interaction. Accordingly, we hypothesize that:
H2a. For any given level of HQE, there is an inverted U-shaped relationship
between DE and outward knowledge flows from subsidiary into HQ.
H2b. For any given level of HQE, the highest degree of outward knowledge
flow from the subsidiary will be achieved when DE is negative (i.e.,
SE > HQE).
Whereas external adaptation affects the degree of variation to which
the organization is exposed, internal integration determines the selec-
tion processes by determining what will be adopted from the pool of
alternative ideas and solutions (Dosi & Marengo, 1994). Put differently,
external adaption fosters increased variation and helps organizations to
expand their opportunities for learning while internal integration
functions as a ‘filter’ which determines what should be considered
technically and normatively appropriate, acceptable and useable from
the new external knowledge made available by other units
(Aldrich & Reuf, 2006). If two units do not use the same selection me-
chanisms, one (i.e., recipient) cannot benefit effectively from the
knowledge stock of the other (i.e., sender). In the case of dyadic
knowledge transfer between HQ and subsidiary, this reasoning suggests
that effective inter-organizational learning will be higher when both
sender and recipient units use similar rules, procedures, policies, logics
and schemas (Argote, McEvily, & Reagans., 2003). This is predicated
upon the idea that inter-organizational similarities in terms of internal
working principles create relevant and overlapping assumptions and
values that guide action and interpretation in both sending and re-
cipient units. This is consistent with earlier findings that a high level of
overlap between source and recipient units’ knowledge bases is con-
ducive to relative absorptive capacity and mutual learning
(Lane & Lubatkin, 1998).
In line with the above intuition, we argue that the implementation
of knowledge in the subsidiary will be higher for low degrees of dif-
ference (DI = HQI − SI) between the internal integration scores of the
subsidiary (SI) and the HQ (HQI). That is, when SI is very different from
HQI, we will observe either a high level of rigidity and inertia (as in the
case of strong SI and highly negative DI) or lack of clear guidelines and
internal rules (as in the case of weak SI and highly positive DI). Hence,
we argue that subsidiaries will more likely implement the knowledge
transferred from the HQ if all parties have similar levels of internal
S. Morgulis-Yakushev et al.
integration. Furthermore, we expect a maximum level of knowledge
implementation if subsidiary and HQ use the same filters and action
logics. In other words, an optimum degree of knowledge implementa-
tion will be achieved if SI and HQI are identical. Put differently, unlike
outward and inward knowledge flows where the best fit requires a
certain level and type of differences between sending and recipient
units, knowledge implementation will be maximized if the two entities
have the same levels of internal integration. Thus, we propose the fol-
lowing hypotheses:
H3a. For any given level of HQI, there is an inverted U-shaped relationship
between DI and the extent of the subsidiary’s implementation of knowledge
coming from the HQ.
H3b. For any given level of HQI, the highest level of knowledge
implementation in the subsidiary will be achieved when DI converges to
zero (i.e., HQI = SI).
Our hypotheses concerning the curvilinear effects of DE and DI and
the different conditions under which optimum outcomes for knowledge
flows (inward and outward) and knowledge implementation are de-
picted in Fig. 1.
4. Methodology
4.1. Sample
To construct our sample, we used the Bureau van Dijk research
database to obtain lists of firms in Belgium, Denmark, Finland,
Germany, Netherlands, Norway, Sweden, Switzerland, and the United
Kingdom with wholly owned subsidiaries (WOS) in Russia. We ex-
cluded very young (i.e. < 4 years) firms and very small (i.e. < 20 em-
ployees) firms in order to obtain a meaningful unit of analysis.2 Finally,
for each home country, 90 firms were randomly selected from among
the remaining cases.
We used two different sets of questionnaires separately addressed to
HQ and subsidiaries (see below for further details). The questionnaires
were administered in January–March 2012 in the form of an electronic
survey sent to the parent firms’ offices. Two reminders were sent to non-
responders at two-week intervals in order to increase the response rate.
Due to difficulties related to data collection and achieving a sufficient
response rate from Russian companies, we made follow-up phone calls
to ask subsidiary managers to complete the questionnaires. In total, we
received 372 completed questionnaires (186 responses from HQ and
186 responses from subsidiaries) a response rate of 23% (ranging from
16% in the Netherlands to 38% in Finland). On average, the sub-
sidiaries in our final sample are 7 years old, employ 430 people, and
operate in 7 countries. The number of firms from each home country,
the number of firms fulfilling sample selection criteria, and the eventual
number of sampled firms are shown in Table 1.
4.2. Questionnaires
Unlike the majority of knowledge transfer studies in the IB literature
(see Michailova & Mustaffa, 2012; Minbaeva, 2007), we collected data from
both parent company HQ and subsidiary via two questionnaires: one filled
by representatives of HQ (Q1), and one filled by representatives of the
Russian subsidiaries (Q2). Q1 was used to collect data on the organizational
culture of HQs while items in Q2 covered the subsidiary’s organizational
culture, knowledge transfer outcomes (inward and outward flows, knowl-
edge implementation), and control variables. We collected data from two
informants in each HQ (two employee representatives) and two informants
2
We assume that age is an important selection criterion since subsidiaries need to be
established long enough to experience different knowledge transfer episodes. Similarly,
we assume that small subsidiaries are too peripheral to be targets or sources of knowledge
transfer.
5
Journal of World Business xxx (xxxx) xxx–xxx
from each subsidiary (a member of the executive team and a subsidiary
employee). This resulted in four sets of responses for each HQ-subsidiary
pair. This multi-respondent strategy enabled us to avoid, ex ante, potential
biases resulting from common rater effects (Podsakoff, MacKenzie,
Lee, & Podsakoff, 2003). In addition, we took a number of post-hoc statis-
tical measures, which we explain before presenting our findings.
In this study the level of measurement (individual) differed from the
level of analysis (firm) for the organizational culture dimensions
(Rousseau, 1985). Since we are interested in the firm level measure-
ments of organizational culture, data collected from multiple re-
spondents were aggregated to the firm level. Thus, each firm’s scores
were based on the mean of the responses provided by two raters within
the firm. Three complementary indicators, RWG, ICC(1), and ICC(2) are
usually used to assess the appropriateness of the aggregation of in-
dividual level measures to the firm level (Bliese, 2000; Seibert,
Silver, & Randolph, 2004; Vogus & Sutcliffe, 2007; Zohar & Luria,
2004). Within-group inter-rater agreement (RWG) measures the degree
to which individual responses within a group are interchangeable. The
RWG values for the organizational culture dimensions reached the
conventionally acceptable level of 0.70 (George, 1990), suggesting
good within-group agreement and justifying the aggregation of in-
dividual responses to firm level. For further justification of the ag-
gregation, ICC(1) statistics (i.e., inter-rater reliability index), and IC-
C(2) values (i.e., t reliability of group means) were used (Chen & Bliese,
2002; Liao & Rupp, 2005). For all variables, F values for ICC(1) statistics
were significant, and the ICC(2) statistics were higher than 0.75, which
meets the usual suggested guidelines (Klein et al., 2000). These results
confirm that multiple measures for each subsidiary and HQ could be
meaningfully aggregated to the corresponding firm level.
4.3. Measures
4.3.1. Knowledge flow and knowledge implementation
Our measures for outward and inward knowledge flows were adapted
from Gupta and Govindarajan (2000). We asked the subsidiary re-
spondents to indicate the degree to which they had sent and received
knowledge to/from the parent company HQ over the preceding three
years related to the following items: management systems and prac-
tices, manufacturing know-how, marketing know-how, distribution
know-how, and R & D know-how. For each of these items, subsidiary
respondents were asked to evaluate on a seven-point scale (1 = not at
all, 7 = to a great extent) the degree to which the subsidiary was in-
volved in outward and inward knowledge transfer flows with the HQ.
Cronbach alphas for our outward and inward knowledge transfer
measures were 0.83 and 0.79 respectively.
The measure for knowledge implementation was adopted from Lyles
and Salk (1996). Using a seven-point scale (1 = not at all to 7 = to a
great extent), subsidiary respondents were asked to rate to what extent
they had learned from the parent corporation over the previous three
years, in the following dimensions: management systems and practices,
manufacturing know-how, marketing know-how, distribution know-
how, and R & D know-how. Cronbach’s alpha for our knowledge im-
plementation construct was 0.81.
4.3.2. Organizational culture
Organizational culture was measured by focusing on two main di-
mensions: internal integration and external adaptation. This measure is
guided theoretically by the definition of organizational culture as a
system of shared assumptions developed in the organization over time
to solve problems of internal integration and external adaptation
(Schein, 1985). Thus, our basic assumption here is that, as a latent
construct, organizational culture entails largely tacit assumptions and
beliefs which can be observed/measured only by looking at how its
different dimensions are reflected in the use of specific organizational
policies and routines (Ravasi & Schultz, 2006). Below, we discuss how
we decided how to measure organizational culture.
S. Morgulis-Yakushev et al. Journal of World Business xxx (xxxx) xxx–xxx

Fig. 1. Hypothesized Relationships.

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S. Morgulis-Yakushev et al. Journal of World Business xxx (xxxx) xxx–xxx

Table 1 dimension (internal and external) in our model, which was helpful to
Sample characteristics. keep our questionnaire at a manageable length. For the internal in-
tegration dimension, we examined team orientation, employee devel-
Location of Number or Meeting Randomly Responded Response rate
parent firm firms in the selected opment, coordination, rules orientation, and centralization dimensions
population criteriaa (Alpha values for HQ and subsidiary were 0.74 and 0.79, respectively).
For external adaptation we considered market orientation, organiza-
Belgium 230 96 90 16 18%
tional learning, goal orientation, future orientation, and change or-
Denmark 387 128 90 18 20%
Finland 1193 471 90 34 38% ientation dimensions (Alpha values were 0.79 for HQ and 0.87 for
Germany 2089 749 90 27 30% subsidiary).
Netherlands 1277 511 90 14 16% To verify the two-factor structure of organizational culture, we used
Norway 219 87 87 16 18% exploratory factor analysis (EFA) to the 10 organizational culture items.
Sweden 583 214 90 17 19%
The results yielded a two-factor solution (only two factors with eigen-
Switzerland 866 679 90 17 19%
United 1892 1398 90 27 30% values greater than one) where Factor 1 (Internal Integration) explains
Kingdom 38.2% of all variation, Factor 2 (External Adaptation) explains 31.6% of
Total 807 188 23% variation. Taken together, these results suggest that the indicators ac-
a
count for a large proportion of the variance (69.8%) in the hypothesized
The criteria are that the subsidiary should be at least four years old and have a: at
construct, and provide strong support for the validity of the measure.
least 20 employees and older than 4 years.
We found that the factor loadings were all above 0.4. Correlations be-
tween our two factors ranged from 0.01 to 0.21, which indicates the
absence of, cross-correlation between factors. Results for the EFA are
The macro dimensions of organizational culture, external adapta- summarized in Table 2. We also conducted a confirmatory factor ana-
tion and internal integration are reflected in most of the well-known lysis, which confirmed that a three or four factor solution was not
models of organizational culture (e.g. Denison & Mishra, 1995; O'Reilly significantly better than a two-factor solution.
et al., 1991; Quinn & Rohrbaugh, 1983). In this study we use dimen- We conducted a non-parametric analysis to test whether sub-sam-
sions/items from the widely used Denison organizational culture survey ples from different MNC home countries originated from the same
(Denison, Haaland, & Goelzer, 2003) to measure organizational culture. distribution. We conducted this test to check whether there is a statis-
The Denison organizational culture model is comprised of 12 dimen- tical need to include the HQ’s national culture as a control variable in
sions, six related to external elements and the other six related to in- the subsequent analyses. A series of Kruskal–Wallis tests with multiple
ternal elements. In addition to grouping the dimensions according to comparisons (Siegel & Castellan, 1988) were performed to determine
internal vs. external focus, the Denison model also differentiates be- whether there were differences in the MNC home country means for the
tween dimensions related to flexibility or stability. This yields a 2 × 2 Internal Integration and External Adaptation indices across the nine
matrix with four quadrants, each related to three sub-dimensions. subsamples representing different HQ locations. Using MNC home
Specifically, the Denison model first divides all 12 sub-dimensions into country as the grouping variable, the Kruskal–Wallis tests showed that
two groups – internal vs. external focus of organizational culture (6 there were no significant differences in the subgroup means of our or-
dimensions each). Next, the sub-dimensions in each of these two groups ganizational cultural dimensions (see Table 3). This shows that the
are further subdivided into a further two sub-groups – flexible vs. organizational culture measures in our data already incorporate var-
stable. However, in our study, for simplicity we do not use the flexible iation originating from home country-level variations. Thus, the hy-
vs. stable focus, the rationale for which will be explained in more detail pothesized relationships among the variables are free from any sys-
in the following three paragraphs. Thus, we performed only the first tematic variation due to different home country HQ locations.
step in the model, dividing the dimensions into two groups—internal Therefore, we decided not to include home country dummies in our
vs. external focus. Considering that Schein’s (1992) definition of orga- regression models to control for national culture.
nizational culture makes explicit reference to these two dimensions,
and since this two-dimensional model is strongly supported by our 4.3.3. Controls
factor analysis (our exploratory factor analysis of the organizational Since host country experience may affect knowledge transfer out-
culture items in the Russian subsidiaries produced only two factors with comes (Birkinshaw, Nobel, & Ridderstråle 2002; Hansen, 2002), we
eigenvalues greater than one), we deduce that omitting the second step controlled for the number of years each MNC has been operating in
of Denison model is not an over-simplification.
We conducted a pilot study to determine how to best measure or- Table 2
ganizational culture in the Russian context since one side of the mea- Exploratory factor analysis results for items of organizational culture.
surement in this study is in Russia (Morgulis-Yakushev, 2015). The pilot
study consisted of asking 200 managers from different firms in Russia to Items Factor 1 Factor 2

list the five words which best describe their organizational culture. The Team Orientation 0.89 −0.03
data was then broken into two sub-groups of 100 firms and the words Empowerment 0.82 0.18
suggested by the respondents were sorted into groups of related words Employee Development 0.93 0.07
by two research assistants resulting in five groups of similar words re- Agreement 0.78 0.21
Coordination 0.77 −0.04
lated to internal and five groups related to external. The results were
Customer Orientation −0.04 0.92
similar for the two sub-samples. The 10 resulting groups closely related Learning Orientation 0.03 0.87
to 10 of the 12 sub-dimensions of organizational culture suggested by Openness to Change −0.13 0.74
Denison—five for external and five for internal. Thus, we decided to use Goal Orientation 0.12 0.76
already tested items/sub-dimensions from the Denison Organizational Vision Orientation −0.01 0.71

Culture Survey. We only used the above-mentioned 10 sub-dimensions Eigenvalue 6.34 4.92
in our study (instead of all 12 sub-dimensions from the Denison model) Percent variance explained 38.2 31.6
Cumulative percent variance explained 38.2 69.8
since it is difficult to measure something that does not have any cor-
respondence in a country. Note: Extraction method: Principal Component Analysis. Rotation method: Varimax.
One seven-point likert-type indicator represented each sub-dimen- a
Marked loadings are higher than 0.40.
sion of organizational culture. Thus, we had five indicators per Bold value denotes the loading values that are higher than 0.40.

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Table 3
Kruskal–Wallis tests using MNC home country as the grouping variable.
Variable Statistics p-value Difference
Internal Integration in HQ 7.275 0.507 no
External Adaptation in HQ 6.262 0.618 no
Notes: N = 186.
Russia. Furthermore, we controlled for MNCs’ international experience
by looking at the number of the MNC’s subsidiaries in different coun-
tries. Since larger firms may have more slack resources for knowledge
creation and transfer, we controlled also for subsidiary size using the
natural log of the number of employees in the subsidiary. The percen-
tage of a subsidiary’s activities in manufacturing was included as an
industry control.
Table 4 provides means, standard deviations, correlations, and in-
ternal consistency coefficients (Cronbach's alpha) of the measures used
in our models. The size of the correlation coefficients suggests that
multicollinearity was not a problem.
5. Findings
5.1. Analysis
Although using multiple respondents was an effective way to alleviate
potential problems associated with common rater effects, we also used ad-
ditional post-hoc statistical diagnostics to ensure that our data were not
confounded by common method bias. We conducted several steps to control
and to account for common method bias. First, we conducted Harman’s one-
factor tests on all of the items consecutively for Q1 (questionnaire answered
by respondents from HQ) and Q2 (questionnaire answered by respondents
from Russian subsidiaries). We ran different diagnostic tests for different re-
spondent types (Podsakoff & Organ, 1986). Our test for Q1 extracted two
distinct factors that accounted for 72.3% of the total variance, with the first
factor explaining 41.6%. Our test for Q2, extracted three distinct factors that
accounted for 81.5% of the total variance, with the first factor explaining
39.1%. This suggests that no single factor accounted for a large proportion of
the variance in our data. Second, using confirmatory factor analysis, we
compared three measurement models: (1) a model where each item is loaded
onto its theoretically assigned latent variable, (2) a model loading where all
items are linked to a common method factor (CMF), and (3) a combined
model where items are loaded to both their theoretically relevant latent
variables and to the CMF. Our first model for Q1 showed a good fit with the
data (RMSEA 0.062, SRMR 0.058, CFI 0.961). The second model for Q1 with
a single CMF showed a worse fit (RMSEA 0.128, SRMR 0.183, CFI 0.931)
compared to the first model. Combining the first and second models, the third
model for Q1 also showed a relatively good fit (RMSEA 0.060, SRMR 0.053,
CFI 0.961) but the improvement in the fit indices was not significant, and
accounted for only a small portion of variance (p = 0.17). Turning to our
tests for Q2, our first model showed good fit with the data (RMSEA 0.071,
SRMR 0.053, CFI 0.956). Compared to this, the second model with single
CMF showed a poorer fit (RMSEA 0.148, SRMR 0.177, CFI 0.902). Although
our third model for Q2 also fitted well with data (RMSEA 0.068, SRMR
0.051, CFI 0.955), the improvement again was not significant (p = 0.21).
Collectively, these results confirm that neither group of respondents used a
common method when responding to the questionnaires. Therefore, we can
safely to conclude that our data are not confounded by common method bias.
Past studies (e.g., Fey & Beamish, 2001; Pothukuchi et al., 2002) have
used unitary/aggregate scores for organizational culture difference. Instead of
running our estimations based on such conventional index-based measures, in
this paper we used appropriate statistical techniques to identify how specific
organizational culture dimensions of HQ and subsidiaries fit together and
optimize knowledge transfer between these two units. To be more specific,
without reducing the difference between two entities (e.g., S and HQ) to a
single value (distance between S and HQ, which is D), our technique derives
the effects of differences by keeping cultural scores of these two entities as
separate parameters while making the estimations. This way, we were able to
derive our estimations and test our hypotheses without any loss of di-
mensionality. For this purpose, we first ran traditional regression with two
independent variables, their interactions and second order variants (X, Y, X2,
Y2, XY). This was complemented by additional transformations that allowed
us to test hypotheses not regarding the variables from the equation (X and Y),
but regarding the difference between these two variables (D = X − Y). Si-
milar techniques have been used in past exploratory studies (e.g., Cafri, van
den Berg, & Brannick, 2010; Harris, Anseel, & Lievens, 2008; Shanock, Baran,
Gentry, Pattison, & Heggestad, 2010), but not in IB or management research
or for confirmatory purposes. Here we extend this technique for confirmatory
purposes to predict cultural fit, i.e., when relative cultural characteristics of
two entities are combined in such a way that the dependent variable under
investigation achieves its maximum possible value. This way we identified
the conditions under which cultural differences and similarities might max-
imize specific outcomes of interest. We suggest further that this technique
would be useful for future IB studies which aim to study other organizational
phenomena where fit is an issue.
We run different analyses for each of the three dependent variables
(Knowledge Outward Flow, Knowledge Inward Flow, and Knowledge
Implementation) to test the hypotheses about the conditions under which the
optimum organizational culture fit between HQ and subsidiary is achieved.
As we explain further below, we performed analysis in two steps. The first
step is a traditional second-order regression model. The second step is a
transformation of the coefficients of X and Y to D = X − Y, and the formal
test of our hypotheses. This second step is done in order to estimate fit
without reducing the cultural values/profiles of two entities to a singular/
unified distance measure. In our analysis, the unique aspect is that instead of
using differences scores (e.g., DE = HQE-SE) like most extant approaches use,
we use original culture levels (HQE and SE). Proceeding this way, we do not
lose information about the levels (i.e., about HQE and SE), and thus do not
consider all HQ-S pairings identical as long as they produce to the same DE.

Table 4
Descriptive statistics, correlations, and reliabilities.

Variables Mean SD Alpha HQI SI HQE SE IKF OKF

Internal Integration in Headquarter (HQI) 4.51 1.39 0.87

Internal Integration in Subsidiary (SI) 4.59 1.48 0.79 0.18
External Adaptation in Headquarter (HQE) 4.37 1.29 0.79 0.24 0.27
External Adaptation in Subsidiary (SE) 4.45 1.31 0.74 0.17 0.19 0.28
Inward Knowledge Flow (IKF) 5.42 1.52 0.72 0.09 0.06 0.17 0.23
Outward KnowledgeFlow (OKF) 5.12 1.84 0.76 0.13 0.10 0.24 0.26 0.19
Knowledge Implementation (KI) 4.92 1.47 0.80 0.23 0.27 0.12 0.14 0.17 0.14

Notes: N = 186.
Bold value denotes the loading values that are higher than 0.40.
*
p < 0.05.
**
p < 0.01.
***
p < 0.001.

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S. Morgulis-Yakushev et al. Journal of World Business xxx (xxxx) xxx–xxx

Instead, the approach keeps individual cultural values/profiles of HQ and S Table 6

while examining the point at which this pair would achieve fit. However, in a) Regression models for outward and inward knowledge flow. b) Regression model for
knowledge implementation.
order to follow this procedure, we had to estimate regression based on the
coefficients of levels (i.e., HQE and SE), rather than differences (i.e., DE). Since a)
our hypotheses are formulated in terms of DE, our eventual estimation
transforms from HQE and SE so that we can arrive at accurate conclusions Variables Inward Knowledge Outward Knowledge
about DE (substantial details of how this is done are provided in Appendix B Flow Flow

of Supplementary material). Subsidiary age 0.003 0.002

In order to avoid multicollinearity between the first-order terms and Subsidiary size 0.000 0.000
the product terms in the second order regression, we centered the Industry 0.000 0.000
measures of internal integration and external adaptation dimensions of MNC international experience 0.003 0.001
External Adaptation in 0.407*** −0.194***
organizational culture by subtracting the scale midpoint (4); this yields
Headquarter (HQE)
scores ranging from −3 to +3. (Kristof, 1996; Tinsley, 2000). To en- External Adaptation in Subsidiary −0.229*** 0.428***
sure multicollinearity is not affecting the results of the analyses sig- (SE)
nificantly, variance inflation factors (VIF) are calculated for all the in- (HQE)2 −0.144*** −0.113***
HQE x SE 0.241*** 0.231***
dependent variables including the second-order and interaction terms
(SE)2 −0.123** −0.109***
of the internal integration and external adaptation dimensions of or-
ganizational culture. The rule of thumb is that VIFs greater than 4.0 R-Squared 0.311 0.361

indicate that multicollinearity is a problem. As shown in Table 5, the

largest VIF is 3.725, which suggests that multicollinearity is not a b)
problem in our case (Hair, Anderson, Tatham, & Black, 1995).
Variables Knowledge Implementation
As noted earlier, we tested our model in two steps. In the first step, in
order to derive the coefficients of individual cultural dimensions, we run Subsidiary age 0.003
second order regression using Maximum Likelihood Estimation (Table 6a Subsidiary size 0.000
Industry 0.000
and b). In the second step, we test our hypothesis by using the coefficients
MNC international experience 0.000
we estimate in the first step. In order to test H1a, we look at the coefficient Internal Integration in Headquarter (HQI) 0.391***
of SE2 (squared term of subsidiary’s score on external adaptation dimension) Internal Integration in Subsidiary (SI) 0.421***
in Table 6a. The coefficient at SE2 for Inward Knowledge Flow (IKF) is (HQI)2 −0.188***
negative and significant (−0.123, p < 0.01). This suggests that for any HQI x SI 0.049***
(SI)2 −0.183**
given level of HQE (HQ’s score on external adaptation dimension), there is
an inverted U-shaped relationship between SE (and, thereby, DE, which is R-Squared 0.214
FC 0.397
defined as the difference between HQE and SE) and Inward Knowledge Flow
into the subsidiary from the HQ. Thus, we find support for H1a. We follow a Table 6a) *p < 0.05. **p < 0.01. ***p < 0.001, N = 186.
similar procedure to test H2a. Given that the coefficient of SE2 for Outward Notes: 1) Inward Knowledge Flow is knowledge flow from HQ to subsidiary, 2) Outward
Knowledge Flow (OKF) is negative and significant (−0.109, p < 0.001), Knowledge Flow is knowledge flow from subsidiary to HQ.
we can deduce that for any given level of HQE there is an inverted U-shaped Table 6b *p < 0.05. **p < 0.01. ***p < 0.001, N = 186.
Notes: 1) Knowledge Implementation is subsidiary’s implementation of knowledge coming
relationship between SE (hence DE) and Outward Knowledge Flow from the
from HQ. 2) The row labeled FC contains F-ratios for the test of constraints imposed by the
subsidiary into the HQ. Thus, H2a is also supported. Lastly, as shown in
squared difference score, which is equivalent to the test of difference in R2 values for the
Table 6b, we find that the coefficient of SI2 for Knowledge Implementation constrained and unconstrained equations. This condition provides support for the perfect
(KI) is negative and significant (−0.183, p < 0.01). This suggests that, fit approach when their associated statistical test is significant.
there is an inverted U-shaped relationship between SI (and DI, which is
defined as the difference between HQI and SI) and the subsidiary’s im-
plementation of knowledge coming from the HQ. Thus, we find support for to zero. Using the formulae in Appendix A of Supplementary material, and
H3a. Details of the underlying computations for our hypotheses testing are the results in Table 6a, we show that DE that maximizes IKF falls within the
provided in Appendix A of Supplementary material. range 0.870 (when HQE = −3) to 0.992 (when HQE = +3). Using a si-
Our second set of hypotheses requires the identification of DE and DI milar procedure, we find also that DE which would maximize OKF ranges
that would yield the maximum values for IKF, OKF and KI. We need to from −1.784 (when HQE = −3) and −2.142 (when HQE = +3). To
check whether or not IKF reaches its maximum value when DE is positive conduct a more formal statistical test of H1b and H2b requires us to ensure
(H1b), and whether OKF reaches its maximum value when DE is negative that the confidence intervals for DE values maximizing IIKF and OKF do not
(H2b). On the other hand, H3b predicts that KI is highest when DI converges include zero (i.e. best outcomes for IKF and OKF are never achieved if SE
and HQE are identical). Using the bootstrap estimation technique, we show
that zero is not included for DE values maximizing IKF nor OKF. Our results
Table 5 for confidence interval tests which lend support to both H1b and H2b, are
Variance Inflation Factor (VIF) of independent variables. presented in Table 7 and schematically shown in Figs. 2 and 3. 3
Variables VIF

3
External Adaptation in Headquarter (HQE) 2.355 As an alternative to our main hypotheses, it is also possible to consider a model where
External Adaptation in Subsidiary (SE) 3.572 the relationship between the degree of DE and knowledge flows is moderated by SE (for
(HQE)2 2.268 H1b) and HQE (for H2b). That is; the degree of DE represents the extent to which there is a
HQE x SE 3.080 knowledge gap between two units, and thereby the opportunity to realize knowledge
(SE)2 2.150 transfer. Yet, realization of this opportunity hinges on the extent to which recipient unit
Internal Integration in Headquarter (HQI) 2.544 (i.e., subsidiary in case of inward knowledge flows and headquarters in the context of
Internal Integration in Subsidiary (SI) 3.725 outward knowledge flows) is oriented for learning from its external environment. To
(HQI)2 3.101 check if our results remain robust in this alternative model, we ran additional analyses to
HQI x SI 2.193 account for moderation effects. Our additional findings are in line with those we report in
(SI)2 1.745 the paper. For the sake of brevity, these results are not reported here but they are
available from the first author upon request. We would also like to thank one of the
Notes: N = 186. anonymous reviewers for encouraging us to conduct these additional tests.

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Table 7
Confidence Intervals for Maximum Points.

Variables Coefficients Confidence Intervals

lower limit upper limit

DEmax
for the inward knowledge flow into 0.871** 0.692 1.048
subsidiary coming from HQ
DEmax
for the outward knowledge flow from −1.784*** −1.978 −1.590
subsidiary to HQ
DImax
for the subsidiary’s implementation of 1.448 −0.301 3.197
knowledge coming from HQ

Notes: Significance levels are based on confidence intervals constructed from coefficients
from 10,000 bootstrap samples, using the percentile method to determine critical values.
*
p < 0.05.
**
p < 0.01.
***
p < 0.001.

Fig. 3. The Relationship Between DE and Outward Knowledge Flow coming From the
Subsidiary into Headquarters.

Fig. 2. The Relationship Between DE and Inward Knowledge Flow into the Subsidiary
Coming from Headquarters.
To test H3b, we need to check whether or not KI is highest when
HQI = SI. In order to see if that is the case, we need to examine the FC
value presented in Table 6b, which contains F-ratios for the test of
constraints imposed by the squared difference score. Since FC (0.397) is
not significant, we can conclude that a perfect fit for KI is achieved
when DI equals zero. In other words, our results show that the degree of
KI is maximized when HQI and SI are identical (see Fig. 4). Therefore,
we find support for H3b. Appendix B of Supplementary material pro-
vides the calculations and estimation procedures used to test H1b, H2b
and H3b in detail.
6. Conclusion and discussion
Barney (1986) argues that organizational culture can be a basis for
firms’ competitive advantage because it generates intangible resources
that are difficult for other firms to imitate. MNCs are large and complex
entities, which operate in multiple locations and cultural/institutional
contexts (Zellmer-Bruhn & Gibson, 2006). This multiplicity can be both
a blessing and a curse for the MNC. However, the IB literature assumes
that cultural differences are prone to risks and problems (Stahl et al.,
2016). Furthermore, most work in IB assumes that all dimensions of
culture difference will have the same effect. However, there is no
reason to assume that this is the case. In this paper, we theoretically
motivate and empirically show that different dimensions of organiza-
tional culture create the optimum fit when there are different degrees of
dissimilarity between the HQ and its subsidiaries. We also showed that
the optimal amount of similarity varied depending on the stage or di-
rection of knowledge transfer (outcome variable) one considered. We
used evolutionary theory to develop hypotheses about how the relative
cultural characteristics of these two entities affect patterns of inward
and outward knowledge flows and the degree to which knowledge
transfer leads to effective learning in subsidiaries. In contrast to earlier
research, we do not consider cultural differences as an aggregate index-
based measure, but instead showed that different dimension of orga-
nizational culture behave differently. In addition, for each particular
knowledge transfer outcome, our hypotheses made specific predictions
about the optimum degree and direction of distance between HQs and
subsidiaries.
We used a unique dataset of matched pairs of HQs located in Europe
and subsidiaries established in Russia. Data were collected from both
HQs and subsidiaries. We used this dyadic dataset to test our hy-
potheses. Our results reveal some interesting patterns. First, we found
that extreme degrees of distance between HQs and subsidiaries are
detrimental to all knowledge transfer outcomes (HQ-to-subsidiary in-
flows, subsidiary-to-HQ outflows and knowledge implementation at the
subsidiary) considered in this study. Thus, in line with past theoretical
predictions (Björkman, Stahl, & Vaara, 2007), we show that moderate
degrees of organizational cultural differences between the HQ and a
subsidiary are more conducive to knowledge transfer. However, our

10
S. Morgulis-Yakushev et al.
Fig. 4. The Relationship Between DI and Subsidiary Knowledge Implementation.
model’s results also confirm that depending on the specific knowledge
transfer outcome of interest, a different degree of organizational cul-
tural difference between HQ and a subsidiary is optimal. In particular,
we found that the highest level of inward knowledge flow from HQ to
subsidiary is achieved if the sender (HQ) has higher external adaptation
focus compared to the recipient (subsidiary). On the other hand, in the
case of outward knowledge flows from subsidiary to HQ, the direction
of the distance between the two entities needs to be reversed to achieve
optimum results. In other words, the best fit for different types of
knowledge flow might require different directions of distance. These dif-
ferent directions would not have been picked up with most techniques
used to analyze cultural differences in the IB literature. Our results
confirm also that the highest levels of knowledge implementation are
realized if there is no distance between the HQ and the subsidiary in
terms of the internal integration dimension of organizational culture.
Overall, the findings of our empirical study show that different types
of knowledge transfer outcomes are maximized under different con-
figurations of organizational cultural dimensions. The general intuition
behind our theoretical framework and our empirical results is in line
with the contention in Stahl and Tung (2014) that cultural diversity can
be both an asset and a liability depending on the type of learning
process the MNCs are dealing with. The authors claim in particular that
diversity has positive effects on exploration while it can be detrimental
to exploitation. Our findings support this suggestion and show that the
best cultural fit to generate variation and realize flows of (new)
knowledge will be achieved if the HQ and the subsidiary have asym-
metric cultural profiles. On the other hand, we show that the im-
plementation (i.e., exploitation) of knowledge requires similar selection
mechanisms to maximize subsidiary exploitative learning. This shows
that it is too simplistic to argue that cultural differences, per se, are a
source of problems or a panacea for learning. Instead, it is important to
account for multiple dimensions of culture and different stages/direc-
tions of knowledge transfer within MNCs. In other words, research and
11
Journal of World Business xxx (xxxx) xxx–xxx
practice should pay attention to these nuances instead of looking at
culture and knowledge transfer as unitary phenomena.
While this study focuses on organizational cultural differences, our
findings have important implications for future research on national
culture differences, which is one of the most used constructs in inter-
national business research and is normally operationalized using the
unitary measure Kogut and Singh (1988). Thus, future studies exploring
national culture difference should scrutinize if using a unitary measure
of national culture difference and focusing on similarity rather than fit
is a good approach. This is especially needed, since past research has
also suggested and shown that national culture distance/psychic dis-
tance are not symmetrical (e.g., Håkanson & Ambos, 2010; Shenkar,
2001; Yildiz & Fey, 2016) and symmetry is a basic assumption of the
Kogut and Singh (1988) measure of national culture difference. Indeed,
the analytical method demonstrated in this study may prove useful for
scholars exploring national culture difference as well as a variety of
other organizational phenomena scholars where scholars really want to
explore fit.
In the process of this research, we identified several interesting
avenues for future research. For example, it would be useful to conduct
a longitudinal study that would allow exploration of the third compo-
nent of evolutionary theory (i.e. retention), which the cross-sectional
design of our study did not allow us to explore. Further, the research for
this paper suggests that cultural fit between two units in an organiza-
tion might be achieved by their cultural convergence or divergence.
However, changing a unit’s organizational culture requires effort. It
would be interesting in future research to explore in detail how best to
facilitate change to a unit’s organizational culture to facilitate a better
fit. Finally, our study highlights the benefits of considering organiza-
tional culture difference in terms of fit rather than distance, and pro-
poses a unique analytical approach (confirmatory polynomial regres-
sion) to facilitate such analysis and to the best of our knowledge has not
been used in IB or organization studies previously. IB and organization
studies explore many types of differences between two organizational
units (e.g. national culture, unit managers’ leadership styles, etc.) which
could benefit from considering fit rather than difference and using the
innovative analytic approach we demonstrate in this article to measure
fit. The approach we use in the present paper could be useful to explore
fit between other organizational phenomena (e.g. joint venture success,
merger integration, etc.). Thus, we would encourage future studies to
explore the utility of a fit approach in other settings, and for other
dependent variables such as unit performance, innovation, inter-unit
conflict, etc.
The findings from this study could be of use to managers who have
to deal with the difficult question of finding a balance between global
standardization and local adaptation. Our study develops a contingency
view, and shows that there is no one-way to achieve such a balance
which is probably a key reason many managers struggle with this im-
portant issue. Thus, fit and balance depend on what one is trying to
achieve—inward knowledge flow, outward knowledge flow, practice
implantation, or something else. Most importantly the study highlights
that it is too simplistic to ask whether or not the organizational culture
between different units of an MNC should be standardized. Instead, this
study shows that managers need to recognize that they need to evaluate
each dimension separately. For example, to facilitate knowledge im-
plementation, it is best that the level of internal integration is stan-
dardized across different MNC units. However, to facilitate the flow of
new knowledge and ideas from one unit to another, it is better that the
level of external integration differs moderately between sending and
recipient units in an MNC. The study highlights also the benefits of
moving away from thinking with the logic of differences to a using the
logic of fit. This is just like people tending to be attracted to be attracted
to a spouse who is similar in some dimensions (e.g., loves music) and
different in other dimensions (e.g., likes cooking more than repairing
cars).
S. Morgulis-Yakushev et al. Journal of World Business xxx (xxxx) xxx–xxx

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