How Does Geographic Distance Impact the Relevance of HQ Knowledge? The Mediating Role of Shared Context

With this chapter, we seek to shed light on the question how headquarters (HQ) can cope with geographic distance and effectively transfer relevant knowledge to their subsidiaries. By constructing a mediating model, we aim at disentangling the effects of geographic distance on the relevance of HQ knowledge to their subsidiaries, via the creation of a shared context between HQ and their subsidiaries. We tested our hypotheses using partial least squares based structural equation modelling on a sample of 124 European subsidiaries. We did not find a significant direct relationship between geographic distance and HQ knowledge relevance. Yet, we found support for our mediation hypotheses that geographic distance makes it more difficult for HQ to establish a shared normative and operational context, but that both dimensions of shared context can help HQ to transfer relevant knowledge to their subsidiaries. We contribute to the research on knowledge flows in multinational corporations (MNC) by investigating knowledge relevance directly rather than knowledge flows as such. We also advance our understanding of shared context in HQ-subsidiary relationships by showing that shared context comprises an operational and a normative dimension. Moreover, we contribute to social learning theory in basing our reasoning on the idea that shared practices and social relationships help overcoming distance to manage knowledge transfer more effectively. Finally, we add to the research of distance in international business by conceptualizing space, organizational context and knowledge transfer in one comprehensive model.