Absorptive Capacity, Value Creation and New Service Development in Multinational Enterprises: The Role of Knowledge Flows Between Customers, Subsidiaries and Headquarters

Absorptive capacity has been widely used in management and international business (IB) studies to explain the way organisations use external information to their benefit in commercial exchanges. This chapter attempts to extend the concept by applying it to the relationships between customer-subsidiary-headquarter (HQ) of multinational enterprises (MNEs), where the subsidiary acts as the focal unit for knowledge flows. We further use absorptive capacity concept to explain the knowledge inflows, in terms of new service development and knowledge outflows, leading to value creation. Based on in-depth theoretical discussions, we present propositions addressing the organisational and social dynamics in the four phases of absorptive capacity, from acquisition and assimilation, to transformation and exploitation.