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Previous studies have contributed to understand the determinants of MNC’s internal knowledge flows. However, the critical role played by internalization-specific factors in determining the knowledge flows has attracted relatively little attention. The present study aims to fill this gap by investigating the relationship between an MNC’s motivation to acquire internalization advantages (MIA) and the level of knowledge inflows to its foreign subsidiaries; including both the vertical knowledge inflows (VKF) from the headquarters and the horizontal knowledge inflows (HKF) from other subsidiaries. Furthermore, it is asserted that the relationship between the MIA of the MNC and the knowledge inflows is contingent on two specific subsidiary characteristics, namely the subsidiary importance and the subsidiary local experience. An analysis of 100 Taiwanese MNCs’ foreign subsidiaries demonstrates that the MIA is indeed an important determinant of knowledge inflows to subsidiaries. Moreover, the effects of MIA on the VKF and HKF vary with the subsidiary-specific characteristics. This study supports the validity of internalization factors on explaining the internal knowledge flows of the MNC and the necessity of incorporating the subsidiary-specific characteristics to comprehend the complex phenomenon of knowledge flows.
