In general, flexible nonbureaucratic and nonhierarchical structures and approaches are expected to foster rapid information and knowledge diffusion and, hence, are expected to be positively associated with a high absorpt- ive capacity (Cohen and Levinthal 1990; Dodgson 1993). Whereas hierarchical processes in the home-based MNC tend to dampen local absorptive capacities, decentralized initiatives, and innovation, the heterarchical model is designed to promote opportunities for acquir- ing knowledge provided by an established network of subsidiaries. Such networks, or heterarchies, which are characterized by dis- persed assets, specialized operations of sub- units, and interdependent relationships between virtually all units, are exemplified by Philips Electrics N.V. and Matsushita Electrics Industrial Co. Ltd. (Bartlett and Ghoshal 1989)