Relational Mechanisms, Formal Contracts, and Local Knowledge Acquisition by International Subsidiaries

Using survey data from 168 foreign subsidiaries operating in China, we examine the impact of relational and contractual mechanisms on foreign subsidiaries’ acquisition of tacit and explicit local knowledge from their suppliers. We hypothesize that supplier ties are associated with greater levels of explicit knowledge acquisition and that shared goals positively affect the acquisition of both explicit and tacit knowledge, whereas trust has a stronger impact on the acquisition of tacit than explicit knowledge. Moreover, formal contracts improve the acquisition of explicit knowledge. Further, we explore whether the joint use of contracts and relational mechanisms has a synergic effect on the acquisition of both tacit and explicit knowledge. Our results inform foreign subsidiaries hoping to acquire local knowledge in host countries.