RIETI Report January 2006

Harnessing Global Knowledge for Metanational Innovation

This month's featured article

Harnessing Global Knowledge for Metanational Innovation

Yves DOZTimken Chaired Professor, Global Technology and Innovation, INSEAD

Greetings from RIETI

In an increasingly globalized and knowledge-based economy, the survival of Japanese corporations is being seen to hinge upon how well they apply global management. Construction of innovation and supply chains in global corporate management is crucially important in determining the international competitiveness of enterprises. Where should globalizing firms seek optimal locations for their innovation and supply chains, and how should they combine their optimal resources in global corporate management to achieve and maintain dynamic competitiveness on a global scale? The RIETI policy symposium, "Global Management and Innovation of Japanese Enterprises - The Strengths of Global Management and Further Challenges," on January 26 will discuss the issues and challenges Japanese firms face in global corporate management. The symposium will further look into the policy implications as they relate to economic partnership agreements (EPAs) in the Asian region. In advance of the symposium, RIETI interviewed Dr. Yves DOZ about his term "metanational," startups' virtues in global expansion, and the role of governments in the knowledge economy.

Yves Doz is Timken Chaired Professor of Global Technology and Innovation at INSEAD. He previously served as Dean of Executive Education (1999-2002) and Associate Dean for Research and Development (1990-1995). At INSEAD, he was also Director of the Management of Technology and Innovation program, a multi-disciplinary effort involving about 20 faculty members and researchers that ran from 1987-1994. Professor Doz has taught at the Stanford Graduate School of Business, Harvard Business School, the Helsinki School of Economics and Aoyama Gakuin University in Tokyo. His business experience includes work on multinational aircraft programs and consulting for many multinational corporations on the development of business strategies. Professor Doz has won several awards, most recently (2003) a Distinguished Scholar Award from the Academy of Management and was appointed as Inaugural Fellow of the Strategic Management Society (2005). His research on the strategy of multinational companies has led to numerous publications including Government Control and Multinational Management (1979), The Multinational Mission: Balancing Local Demands and Global Vision (1987), and From Global to Metanational: How Companies Win in the Knowledge Economy (Harvard Business School Press 2001, co-authored with Jose Santos and Peter Williamson). He received his Ph.D. from Harvard University and is a graduate of the Ecole des Hautes Etudes Commerciales (HEC), Jouy-en-Josas, France.

Special Interview

RIETI: While some leading global companies seem to be operating according to the logic of your book, From Global to Metanational: How Companies Win in the Knowledge Economy (2001), most companies have not yet coined themselves "metanational." Why do you think your ideas have spread, but not the terminology?

Doz: In all fairness this should not be a surprise! The reality of knowledge dispersion and differentiation among more and more locations around the world, as well as the convergence between hitherto separate knowledge domains, combine to lead companies to tap the world for distinctive sources of knowledge. This is true in pharmaceuticals, electronics, aerospace, information and communication technologies, entertainment, chemicals, and a growing number of other sectors. So what we observed a few years ago as a missed opportunity for most companies -- with only a few metanational companies, such as IBM or Nestle among traditional MNCs, or STMicroelectronics and Essilor among new global competitors -- is becoming a wider trend. For instance a recent survey of nearly 200 global companies we conducted together with Booz Allen Hamilton shows that over the past 30 years the number of foreign R&D sites has grown from less than half to over two thirds of all R&D centers in these companies. Their participation in global innovation projects has also increased significantly. So the metanational hypothesis is becoming reality.

Terminology follows only slowly, if at all. After all, it took a decade, or more for the term "transnational" to take hold, following the research of Bartlett and Ghoshal in the 1980s. And this was a simpler, and perhaps more obvious term than "metanational." We chose the term metanational because it denotes what we mean: This Greek prefix suggests beyond, but not above, which is the relationship of companies which tap the world for new knowledge with nation states. They capitalize on the diversity of rooted knowledge sources in the world's various countries (or more accurately knowledge clusters in towns and regions, such as Silicon Valley) and connect them horizontally into global innovation processes. If reading our book or subsequent articles helped the management of some companies become metanational in their approach to innovation, our work is done, no matter what terminology they adopt.

RIETI: In your book, you argue that winning in the global knowledge economy requires three activities, prospecting for and accessing new knowledge (sensing), mobilizing that knowledge to create innovation, and operationalizing. How could a startup (with limited internal resources) commence these activities in order to rapidly become a metanational?

Doz: In a paradoxical way, startups may actually enjoy an advantage here! Let me explain. We observed in our research that traditional multinationals have the hardest time adopting, and even more implementing, a metanational innovation logic, except perhaps when they result from the consolidation of many acquisitions in various countries each bringing its own local market understanding and local R&D activities. Most MNCs fall in either of two camps: very globally integrated companies where the knowledge flows are strongly one-way, from the center to the periphery, or nationally responsive (or, if you wish, multi-domestic [another term which is slow in taking hold]) where knowledge flows are weak, the company typically having fragmented into a series of independent national units. Neither approach offers much hope for metanational innovation. In startups there is no such organizational and cognitive legacy. Resource scarcity may also create the need for more creative approaches, such as research collaborations. We have observed that success with metanational innovation is a matter of mindset, humility and patience to learn new knowledge, not so much size and resources. When the founder and startup team are themselves internationally experienced and cosmopolitan, rather than inexperienced and parochial, becoming metanational becomes easier.

RIETI: India, particularly Bangalore, has been attracting many global companies as a business process outsourcing (BPO) destination in recent years. Although cost-effective quality services are available there, to quote your book: "information technology and information networks do not address the problem of managing complex knowledge globally." Against this backdrop, what are the most pressing needs for companies heavily relying on overseas BPO?

Doz: The critical point is to understand the limits of such an approach, and as I argue in the paper prepared for this symposium, not to confuse accessing relatively standardized, mid-range skills at a distance for cost and efficiency reasons, in a static fashion, with investing in knowledge creation and accessing. The experience of software, or back-office processes, or call centers in India has very little to do with innovation, and certainly does not require that much complex knowledge.

RIETI: How has the role of government changed in the knowledge economy? If metanationals are searching globally for untapped pockets of knowledge, are government efforts (for example, increase R&D investment to make their countries breeding grounds for innovation) no longer relevant to the success of metanationals?

Doz: In fact they are relevant, more now than ever. Governments know they are in a race between countries, or cities, around the world for knowledge creation and for attracting high value-added knowledge creating MNC investments. Israel, Singapore, or Finland and Ireland in Europe, provide excellent examples of countries that are running this race very intelligently. The point though for governments is not to succumb to the attraction of glamorous but already overcrowded scientific sectors, such as biotechnology and genomics. The game is already played out. At most a dozen cities will win, most in the U.S., so why waste public money on that? In other words, selectivity and specialization, building on pre-existing strengths in areas of tacit collective knowledge, for instance transportation in Singapore, are more important than ever. Science investment results in knowledge that is often too mobile to guarantee that downstream benefits will accrue locally. A multinational will take advantage of government subsidies, but then perform development, commercialization and manufacturing elsewhere. The likelihood to result in deeply rooted immobile knowledge should be a guiding principle for government investment.

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The program for the RIETI Policy Symposium "Global Management and Innovation of Japanese Enterprises - The Strengths of Global Management and Further Challenges" is available at:
http://www.rieti.go.jp/en/events/06012601/info.html

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