The Link Between Learning Capability and Business Performance in MNEs: The Role of Intellectual Capital

The Link Between Learning Capability and Business Performance in MNEs: The Role of Intellectual Capital

Isabel M. Prieto, Elena Revilla
DOI: 10.4018/978-1-60566-679-2.ch010
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It is widely recognized that the development of learning capability is key to achieve a durable competitive advantage. This is especially true in the context of MNEs. When MNEs operate in disparate host countries, they enhance their knowledge bases, capabilities, and competitiveness through learning processes. The analysis of the relevance of learning capability to improve business performance and, thus, the organizational competence has been an important issue developed in literature. This chapter explains the link between learning capability and the improvement of business performance by comparing how the main dimensions of learning capability –knowledge resources and learning processesimpacts on performance, in terms of both non-financial and financial performance. It is argued that those MNEs with the highest levels in both their knowledge resources and learning processes obtain a superior performance.
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In the present competitive environment, characterized by continuous changes and profound dynamism, companies widely identify learning capability as a critical attribute for achieving and retaining competitive success. Firms need to transform and refine their knowledge resources in accordance with the environmental conditions, and this is possible through learning processes. In essence, it is often recognized that organizations learn for two basic purposes: to explore new opportunities and to exploit existing ones (March, 1991). Literature has shown a growing interest about learning capability (Easterby-Smith, 1997) and, specially, on the consequences of learning capability on business performance and competitiveness.

The importance of learning capability for MNEs’ survival and effective performance has been emphasized widely in the literature (Bartlett & Ghoshal, 1987; Huber, 1991; Barkema & Vermeulen, 1998). International expansion can promote learning capability, which facilitates the development of knowledge and competences that help MNEs achieve competitive advantage. The diversity of a MNEs international business environment enhances its knowledge resources through the learning processes developed through interactions with local knowledge bases and through exposure to different foreign markets (Hsu & Pereira, 2008).

Given that learning capability is recognized as a critical practice in MNEs, a deeper understanding of the learning capacity-performance link offers substantial value and importance to MNEs managers and researchers. But the absence of good conceptual models about the MNEs’ learning makes difficult the understanding of the effectiveness of learning capability in MNEs. In light of this situation, MNEs increasingly demand frameworks able to explain how learning capability influences the scope and deployment of internationalization and thereby differentiates firm performance. The main objective of the present chapter is to explain the link between learning capability in MNEs and business performance and, ultimately, to determine how learning capability is associated with a better performance of the MNEs. The key concern is to characterize how organizations differ in their learning capability to analyze the consequences for business performance and, specifically, to address the differences that lead to superior performance. The differences are characterized on the basis of both knowledge resources and its associated learning processes as main dimensions of learning capability. With this aim, the chapter first characterizes learning capability and the concerns relative to business performance in MNEs. Then, the chapter gives a snapshot of where differences exist and how learning capability in MNEs may thus relate to business performance.

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