Cultural Intelligence, Firm Capabilities, and Performance: The Case of German Subsidiaries in Malaysia

Abstract

The extant literature shows that firm capabilities such as knowledge transfer and innovation are highly related to firm performance. How these relationships express themselves for foreign-based firms operating in global environments is less understood. The objectives of this study are as follows: (1) to examine the differential effects of knowledge transfer and innovation on the performance of German-based companies operating in Malaysia; (2) to determine if these relationships and effects operate via an “intervening variable” or mediator, in this case, competitive advantage; and (3) to determine if another latent variable (cultural intelligence) has an altering or “moderating” influence on the effects of innovation and knowledge transfer on competitive advantage. Analyses of the causal relationships are tested using a sample of 475 respondents working in German subsidiaries in Malaysia and applying a structural equation model. The empirical findings indicate that innovation and knowledge transfer are positively and significantly related to German companies’ overall performance, that these effects are mediated by competitive advantage, and that cultural intelligence interacts with innovation and knowledge transfer to affect the strength of the relationships between innovation (knowledge transfer) and competitive advantage.