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Absorptive capacity, the “ability to recognize the value of new external information, assimilate it, and apply it to commercial ends” (Cohen & Levinthal, 1990, p. 128), is argued to contribute to the competitive advantage in organizations (Cohen & Levinthal, 1990; Lenox & King, 2004; Volberda, Foss, & Lynes, 2010). Since its introduction by Cohen and Levinthal (1989, 1990), scholarly interest in the absorptive capacity theory has accelerated (Volberda et al., 2010). In contrast to abundant research on absorptive capacity in various types of organizations, less about it is known in multinational corporations (MNCs) (Schleimer & Pedersen, 2013). In particular, scholars have paid little attention to the important question of whether MNCs are able to enhance the creation and development of absorptive capacity in their foreign subsidiaries (Schleimer & Pedersen, 2013). Are MNCs able to enhance the development of absorptive capacity in foreign subsidiaries through language-oriented HRM practices? Taking into account that a shared language enhances absorptive capacity (Cohen & Levinthal, 1990) and that many MNCs are multilingual entities (Luo & Shenkar, 2006), this question is relevant but given little focused attention in international business (IB) research. In this paper, we examine the effects of two commonly used language-oriented HRM practices, (1) languagesensitive recruitment and (2) language training, on absorptive capacity development in foreign subsidiaries. In line with previous research (Chang, Gong, & Peng, 2012; Schleimer & Pedersen, 2013), we conceptualize absorptive capacity as the employee ability in foreign subsidiaries to absorb MNC internal (but foreign subsidiary external) new information. In MNCs, language-oriented HRM practices are used as a concrete means to improve employees’ foreign language proficiency and to develop a “shared language” or lingua franca for corporate communication (Marschan-Piekkari, Welch, & Welch, 1999b). Although a shared language can also be understood as professional or technical language, and company jargon (Welch & Welch, 2008), we focus in this paper on natural language, such as English or Japanese. In MNCs, English is used predominately as a lingua franca (Piekkari, Welch, & Welch, 2014). Natural language (hereinafter “language”), in turn, can be defined as a purely human and non-instinctive method of communicating ideas, emotions, and desires by means of a system of voluntary produced symbols (Sapir, 1921). Since knowledge transfer-related learning processes further influence which new knowledge and practices transferred are likely to be absorbed (Cohen & Levinthal, 1990; Lenox & King, 2004), we expect that language-sensitive recruitment and language training can enhance HCN employee ability to transfer knowledge across language boundaries, which in turn contributes to absorptive capacity in foreign subsidiaries. In line with the absorptive capacity theory (Cohen & Levinthal, 1990), this suggests that interunit knowledge transfer (i.e., knowledge transfer from one MNC unit to another) examined in this paper precedes absorptive capacity
This study examined whether MNCs are able to use languagesensitive recruitment and language training to enhance the development of absorptive capacity in foreign subsidiaries. The findings indicate that interunit knowledge transfer partially mediates the relationship between two language-oriented HRM practices language-sensitive recruitment and language training and absorptive capacity. By doing so, the findings suggest that language-sensitive recruitment and language training enhance HCN employee ability to transfer knowledge through language boundaries. This ability to transfer knowledge provides HCN employees a greater exposure to external new knowledge, which in turn contributes to MNC subsidiary absorptive capacity. These findings contribute to theory, research, and practice on absorptive capacity, knowledge transfer, and language in MNCs.