Cultural Variations and Business Performance: Contemporary Globalism

September 19, 2017 | Autor: Bryan Christiansen | Categoria: Cultural Studies, Globalization
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Cultural Variations and Business Performance: Contemporary Globalism

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Bryan Christiansen PryMarke, LLC; USA

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Managing Director: Senior Editorial Director: Book Production Manager: Development Manager: Development Editor: Acquisitions Editor: Typesetter: Cover Design:

Lindsay Johnston Heather A. Probst Sean Woznicki Joel Gamon Michael Killian Erika Gallagher Jennifer Romanchak Nick Newcomer, Lisandro Gonzalez

Published in the United States of America by Business Science Reference (an imprint of IGI Global) 701 E. Chocolate Avenue Hershey PA 17033 Tel: 717-533-8845 Fax: 717-533-8661 E-mail: [email protected] Web site: http://www.igi-global.com

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Copyright © 2012 by IGI Global. All rights reserved. No part of this publication may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher. Product or company names used in this set are for identification purposes only. Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI Global of the trademark or registered trademark.

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Library of Congress Cataloging-in-Publication Data

Cultural variations and business performance: contemporary globalism / Bryan Christiansen, editor. p. cm. Includes bibliographical references and index. Summary: “This book offers the latest research in the field of Business Performance Management in the global economic environment of present conditions while looking at business as a whole entity instead of only at the divisional level”--Provided by publisher. ISBN 978-1-4666-0306-6 (hbk.) -- ISBN 978-1-4666-0307-3 (ebook) -- ISBN 978-1-4666-0308-0 (print & perpetual access) 1. International business enterprises--Management--Social aspects. 2. Management--Cross-cultural studies. I. Christiansen, Bryan, 1960HD62.4.C853 2012 658’.049--dc23 2011044964

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British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. All work contributed to this book is new, previously-unpublished material. The views expressed in this book are those of the authors, but not necessarily of the publisher.

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For Nicole, Tanya, Tuğba, Mark, and Darlene

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List of Reviewers Russell Radford, Ellis University, USA Mona Chung, Deakin University, Australia Andreas Hartmann, TEC de Monterrey, Mexico Susan Scott, St. George’s University, Grenada Paul Selinger, Igos Consulting, USA Jeremy Graves, University of Florida, USA Omar Khan, Morgan State University, USA Ekaterina Turkina, HEC Montreal, Canada Diana Bank Weinberg, Universidad de las Americas, Mexico Julianne Seely, Grantham University, USA Nigel L. Williams, University of Bedfordshire, UK Mohammad Ayub Khan, TEC de Monterrey, Mexico Julia Lewis Spann, Nova Southeastern University, USA Nigel L. Williams, University of Bedfordshire, UK Pamela Lirio, EDHEC Business School, France Suzanne Gagnon, McGill University, Canada Maud Oortwijn, Warwick Business School, UK

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Table of Contents

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Foreword............................................................................................................................................... xv Preface................................................................................................................................................. xvii

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Chapter 1 The Theory of Cultural Dimensions........................................................................................................ 1 Andreas Michael Hartmann, TEC Monterrey, Mexico Chapter 2 Follow the Experts Follow the Experts: Intercultural Competence as Knowing-in-Practice................ 23 Suzanne Gagnon, McGill University, Canada Pamela Lirio, EDHEC Business School, France

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Chapter 3 Bicultural Managers and their Role in Multinational Corporations: An Exploratory Study in Japan...................................................................................................................................................... 43 Kathrin Kiesel, University Eichstätt-Ingolstadt, Germany Parissa Haghirian, Sophia University, Japan

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Chapter 4 Organizational Culture and Organizational Effectiveness in a Global Context.................................... 56 Andrea Banto, Argosy University, USA

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Chapter 5 Cross-Border Inter-Firm Networks in Contemporary Europe: The Effects of Structural and Cultural Embeddedness on Firm Performance.................................................................................................... 72 Ekaterina Turkina, HEC Montreal, Canada Chapter 6 Understanding the Realities of Contemporary Internationalization of the MNE: Regionalization vs. Globalization.......................................................................................................................................... 90 Omar J. Khan, Morgan State University, USA

Chapter 7 Resource Based Internationalization from Small Developing Countries: Towards a Phase Model of Internationalization.............................................................................................................................. 102 Nigel L Williams, University of Bedfordshire, UK Tom Ridgman, Institute for Manufacturing, University of Cambridge, UK Y S Shi, Institute for Manufacturing, University of Cambridge, UK

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Chapter 8 Internationalization of Business in Emerging Countries and National Culture: The Brazilian Case...................................................................................................................................................... 117 Fabrício Fernando Foganhole dos Santos, Universidade Corporativa do Banco do Brasil, Brazil Irene Kazumi Miura, Universidade de São Paulo, Brazil

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Chapter 9 Foreign Business Environments and Entry Mode Choice: Organize Activities Internal within or External to the Firm?........................................................................................................................... 165 Maud Oortwijn, Warwick Business School, UK

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Chapter 10 China’s “Harmonious Society” Challenges Corporate Japan: Towards a Dual Vision of Profitability and Social Responsibility..................................................................................................................... 182 Keikoh Ryu, Waseda University, Japan

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Chapter 11 Globalism, Culture, and Business Environment: A Middle Eastern Perspective................................ 197 Diana Bank, Universidad de las Américas, Mexico Mohammad Ayub Khan, Tecnológico de Monterrey, Mexico

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Chapter 12 Globalism, Culture and Business Environment: A Latin American Perspective................................. 206 Mohammad Ayub Khan, Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM), Mexico Diana Bank, Universidad de las Américas Puebla (UDLAP), Mexico

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Chapter 13 Performance Management Systems in Mexico.................................................................................... 219 Anabella Davila, Tecnologico de Monterrey, Mexico Marta M. Elvira, IESE Business School, Spain Chapter 14 Business Performance Management from the Systemic Communicative and Linguistic Side........... 230 Magdalena Bielenia-Grajewska, University of Gdansk, Poland

Chapter 15 Strategic Entrepreneurship: Competitive Advantages Amidst Globalization and Technological Change................................................................................................................................................. 245 Gang Yang, Tongji University Shanghai, China Hans-Christian Pfohl, Technische Universität Darmstadt, Germany Sasa Saric, Technische Universität Darmstadt, Germany & Tongji University Shanghai, China

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Chapter 16 A Social Capital Approach to Inter-Cultural Differences: Empirical Evidence from a Global Tour Operator............................................................................................................................................... 262 Manuela Presutti, University of Bologna, Italy Lucrezia Zambelli, University of Bologna, Italy

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Chapter 17 Cultural Models and Variations........................................................................................................... 278 Yongjiang Shi, Institute for Manufacturing, University of Cambridge, UK Zheng Liu, University of Cambridge, UK

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Chapter 18 The Impact of Culture on Workplace Conflict in the Caribbean......................................................... 292 Susan Scott, St. George’s University, Grenada

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Chapter 19 Immigrant Effect in International Expansion...................................................................................... 307 Maud Oortwijn, Warwick Business School, UK

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Chapter 20 Human Resource Management for the 21st Century Global Economy............................................... 322 Julianne Seely, Grantham University, USA

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Compilation of References................................................................................................................ 336

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About the Contributors..................................................................................................................... 385 Index.................................................................................................................................................... 393

Detailed Table of Contents

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Foreword............................................................................................................................................... xv Preface................................................................................................................................................. xvii

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Chapter 1 The Theory of Cultural Dimensions........................................................................................................ 1 Andreas Michael Hartmann, TEC Monterrey, Mexico The theory of cultural dimensions constitutes the foundation of a significant portion of comparative cross-cultural business research. Even though the theory of cultural dimensions can be criticized from several points of view, it has shown its usefulness for both research and as a teaching tool. Opportunities exist both in a more rigorous application and in the further development of cultural dimensions.

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Chapter 2 Follow the Experts Follow the Experts: Intercultural Competence as Knowing-in-Practice................ 23 Suzanne Gagnon, McGill University, Canada Pamela Lirio, EDHEC Business School, France

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Drawing on emerging literature on biculturalism, this chapter introduces an approach to researching intercultural knowing-in-practice through a focus on one type of experts, in this case, a group of young, bicultural Canadians. The authors found emotion- and behavioral-based themes that informed these experts’ responses to intercultural scenarios, their responses to proposed in-situ practice. From the findings, the chapter suggests that management can learn about intercultural competence from such experts’ approaches to navigating intercultural conflicts.

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Chapter 3 Bicultural Managers and their Role in Multinational Corporations: An Exploratory Study in Japan...................................................................................................................................................... 43 Kathrin Kiesel, University Eichstätt-Ingolstadt, Germany Parissa Haghirian, Sophia University, Japan In this chapter, the authors investigate individuals with a bicultural family background and investigate how this biculturality reflects on their role in business. The survey presented in this paper investigates the relevance of bicultural skills and consequently the roles that bicultural managers play in multinational corporations. To investigate this issue the survey was conducted among managers who had one Japanese and a Non-Japanese parent and worked in a multinational corporation in Japan. Japan was chosen, because it is a more controversial issue in Japan than in other industrialized countries.

Chapter 4 Organizational Culture and Organizational Effectiveness in a Global Context.................................... 56 Andrea Banto, Argosy University, USA Globalization increased the expansion of multinational corporations to countries on all continents leading to growth. Companies like Wal-Mart, Southwest, and Apple survived and prospered when other similar companies failed. What made them so successful? It might be a combination of many things, but the most important piece in this mix is their organizational culture. From the global perspective, the organizational culture of a subsidiary is influenced by the home and host-country’s national culture. This is reflected in all its operations and influences the leadership style, decision-making process, team interaction, and the communication style. The inability to master the cultural factors may have a negative influence on the subsidiary’s effectiveness. The organizational culture can be measured through four cultural traits: mission, involvement, adaptability, and consistency. The organizational effectiveness can be measured through the sales growth, market share growth, return on assets, quality improvements, new product development capability, employee satisfaction, and the overall firm performance. This chapter is a review of the applications of Denison’s model of organizational culture and effectiveness in a variety of countries.

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Chapter 5 Cross-Border Inter-Firm Networks in Contemporary Europe: The Effects of Structural and Cultural Embeddedness on Firm Performance.................................................................................................... 72 Ekaterina Turkina, HEC Montreal, Canada

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Globalization and regionalization in the contemporary world transform inter-state relationships and intensify economic, social, and political exchanges across borders, thereby creating favorable conditions for cross-border inter-firm networking. The purpose of this chapter is to contribute to the emerging literature on cross-border inter-firm networks by providing both theoretical insights on the causal mechanisms of network-related effects on firm performance and empirical analysis of existing cross-border partnerships in the domain of European integration, as well as their effects on firm performance. The chapter also examines the differences in the structure of European cross-border networks and explores factors that determine network structure such as regional integration and cultural variations.

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Chapter 6 Understanding the Realities of Contemporary Internationalization of the MNE: Regionalization vs. Globalization.......................................................................................................................................... 90 Omar J. Khan, Morgan State University, USA

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While the idea of regio-centric firm behavior had been expounded, research in international strategy and marketing since has mainly gone from a multidomestic focus to a global focus. Reality seems to indicate that more and more multinational enterprises (MNEs) have been implementing regional strategies as opposed to either global or multi-domestic ones. Debate has been active over the last two decades on the reality of globalization and regionalization. This chapter reviews the debate, distills major themes, and offers a structured understanding of the phenonemenon of regionalization vs. globalization as seen in contemporary internationalization.

Chapter 7 Resource Based Internationalization from Small Developing Countries: Towards a Phase Model of Internationalization.............................................................................................................................. 102 Nigel L Williams, University of Bedfordshire, UK Tom Ridgman, Institute for Manufacturing, University of Cambridge, UK Y S Shi, Institute for Manufacturing, University of Cambridge, UK

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Small developing countries, in contrast to their developed counterparts, are characterized by a narrow resource base, (relatively) weak institutions, and a high degree of openness. For organizations from these states, internationalization is an imperative rather than a choice due to the small home market. However, they face severe resource constraints. When compared to developed countries, the level of formal support is relatively low, and firms need to build capabilities under resource constrained conditions. Further, as open economies, firms face intense competition from imports. Internationalization has largely remained unexplored in firms from these countries. Therefore, the objective of this chapter is to build a framework to explain internationalization of SMEs from small states. First, the various modes of international activity are discussed along with market entry strategies. The historical development of internationalization theory is then examined, identifying the major research paradigms and their underlying theoretical basis. Applicable theories are then assessed using an epistemological framework. The resulting research gap of resource development during internationalization was then examined using case studies of firms from a small state, Trinidad and Tobago.

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Chapter 8 Internationalization of Business in Emerging Countries and National Culture: The Brazilian Case...................................................................................................................................................... 117 Fabrício Fernando Foganhole dos Santos, Universidade Corporativa do Banco do Brasil, Brazil Irene Kazumi Miura, Universidade de São Paulo, Brazil

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This chapter provides a framework for understanding the business challenges facing Brazilian companies. Based on the symbolic school of interpretive anthropology, two lines of ethnographic research were conducted on a Brazilian banking institution to identify, connect, and analyze the characteristic traits of Brazilian culture and their impact on organizational culture and administrative practices. The characteristic traits of the national culture are present in the ideals of an organization located in a country, and these traits influence management models and practices. This view rejects the hypothesis of universal management principles. In other words, management should be coherent with the country’s cultural expression, and international businesses should pay attention to the institutional and cultural realities of the countries in which they are located. The identity of an organization is linked to the local cultural context, and this aspect is important in business performance, the management of companies, and the internationalization of organizations in a globalized world.

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Chapter 9 Foreign Business Environments and Entry Mode Choice: Organize Activities Internal within or External to the Firm?........................................................................................................................... 165 Maud Oortwijn, Warwick Business School, UK IB research concerns the organization of firm activities across country borders and thus across different cultures and business contexts. These host country differences impact the firm’s way of working internally within the organization and in interaction with the external environment in the host country. Companies can consider a broad range of entry modes to organize across country borders, including partnership, trade, joint venture (JV), and wholly owned enterprise (WOE). The entry mode defines what activities are internalized within the firm and how the firm interacts with the external environment in different host countries.

Chapter 10 China’s “Harmonious Society” Challenges Corporate Japan: Towards a Dual Vision of Profitability and Social Responsibility..................................................................................................................... 182 Keikoh Ryu, Waseda University, Japan Anti-Japanese sentiment in China since the Second World War has been exacerbated by recent territorial disputes involving the Senkaku Islands and the natural resources of the East China Sea. The widespread dissemination of anti-Japanese propaganda by the Chinese media has further contributed to this negative image of Japanese corporations. This pervasive climate of anti-Japanese sentiment has forced Japanese companies seeking to expand their businesses abroad to grapple with the unique challenges of navigating the highly politicized environment of Chinese harmonious society. Still, the success of any foreign companies in China fundamentally depends on whether China’s market economy continues to develop in the face of harsh political conditions and growing social unrest. To date, only a handful of studies have addressed the effects of Chinese harmonious society on the performance of Japanese corporations operating in China. This study is an attempt to fill that gap.

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Chapter 11 Globalism, Culture, and Business Environment: A Middle Eastern Perspective................................ 197 Diana Bank, Universidad de las Américas, Mexico Mohammad Ayub Khan, Tecnológico de Monterrey, Mexico

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As the international business environment becomes increasingly global and competitive, a manager’s job becomes more challenging and diverse. The recent trends of globalization and competition are attributed to several triggering factors such as technological development, new emerging and investment-friendly markets, and the availability of globally-scaled logistics. Companies increasingly seek a variety of growth options including cross-border mergers, joint ventures, direct investments, and strategic alliances. Similarly, markets are integrating via a variety of mechanisms ranging from a simple trade level integration (witness the growth of free trade agreements) to a more complex political unification, such as the European Union (EU).

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Chapter 12 Globalism, Culture and Business Environment: A Latin American Perspective................................. 206 Mohammad Ayub Khan, Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM), Mexico Diana Bank, Universidad de las Américas Puebla (UDLAP), Mexico

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In contemporary globalization, companies need to be entrepreneurial, innovative, creative, and dynamic since the life cycle of products is shortening and competition is stiffening; hence companies need to increase investment in research and development (R&D) to remain competitive or even just to survive. Global sourcing and evolving markets demand that companies become proactive in their business approaches. Considering all these changes and challenges facing business organizations, this chapter focuses on how Latin American companies cope with globalization, cultural differences and diverse business environments. The authors start with a discussion on culture, globalization, and business performance of Latin American companies, followed by solutions to their shortcomings, and conclusions. A case study of business performance in Brazil and Mexico will be presented at the end of the chapter. The authors believe there is enough reason why foreign businessmen and women should seriously consider the Latin American option when making their business decisions. The authors hope this chapter will convince them that, without a shadow of doubt, cultural differences can be understood and overcome for the benefit of everyone.

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Chapter 13 Performance Management Systems in Mexico.................................................................................... 219 Anabella Davila, Tecnologico de Monterrey, Mexico Marta M. Elvira, IESE Business School, Spain The purpose of this chapter is to understand the strategic role performance management systems play in organizations, and to identify the evolution process and the organizational factors involved in the implementation of those systems in Mexico. The authors identify the best-known appraisal tools in Mexico, the issues related to organizational performance, and those linked to the superior-subordinate relationship. They discuss those topics in terms of macro-organizational and micro-organizational levels and we draw lessons for developing best practices for performance management systems in Mexico.

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Chapter 14 Business Performance Management from the Systemic Communicative and Linguistic Side........... 230 Magdalena Bielenia-Grajewska, University of Gdansk, Poland

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The purpose of this chapter is to discuss Business Performance Management (BPM) by taking into account its communicative and linguistic aspects. To narrow the scope of the research, the author concentrates on the systemic approaches to highlight the role of communication and language in BPM. To discuss this issue in greater detail, two concepts have been created, namely, the corporate linguistic allostasis and the calibrated corporate linguistic identity, which are used to show the role of corporate identity and communication in business performance management and their implications for creating and sustaining competitive advantage.

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Chapter 15 Strategic Entrepreneurship: Competitive Advantages Amidst Globalization and Technological Change................................................................................................................................................. 245 Gang Yang, Tongji University Shanghai, China Hans-Christian Pfohl, Technische Universität Darmstadt, Germany Sasa Saric, Technische Universität Darmstadt, Germany & Tongji University Shanghai, China

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Entrepreneurship deals with how firms explore new short-lived economic opportunities, while strategic management explains how firms create and defend competitive advantages. Traditionally, both fields have existed independent of one another implying that firms can act either entrepreneurial or strategic to be successful. Recent research, however, suggests that in contemporary globalism, entrepreneurial firms are often unable to turn opportunities into competitive advantages due to a lack of strategic resources and capabilities. Similarly, firms lacking entrepreneurship see their competitive advantages erode over time as new emerging market competitors challenge their established rivals and disruptive technologies shake up industry structure more frequently. Strategic Entrepreneurship is the concept that has arisen from this insight. The aim in this chapter is to synthesize prior work on Strategic Entrepreneurship and elaborate on it by proposing a generalized model of the entrepreneurial strategy making process as it has become necessary in today’s competitive landscape.

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Chapter 16 A Social Capital Approach to Inter-Cultural Differences: Empirical Evidence from a Global Tour Operator............................................................................................................................................... 262 Manuela Presutti, University of Bologna, Italy Lucrezia Zambelli, University of Bologna, Italy

This work examines to what extent cultural differences at a level both of intra-organizational multinational network and inter-organizational multinational network are associated with liability of foreignness. The authors propose a conceptual framework where the different dimensions of social capital improve the exchange and combination of resources and knowledge in different subsidiaries localized in dissimilar cultural contexts, by mitigating the inter and intra organizational cultural differences. This in turn reduces the liability of foreignness. The chapter empirically applies this conceptual framework to Globus Family of Brands, which is one of the world’s largest tour operators. It focuses on different moments of foreign growth of Globus, performing an exploratory longitudinal case study. The findings presented have important implications for research in multinational literature because the chapter proposes to originally study the liability of foreignness and cultural differences topics according to a social network perspective of analysis.

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Chapter 17 Cultural Models and Variations........................................................................................................... 278 Yongjiang Shi, Institute for Manufacturing, University of Cambridge, UK Zheng Liu, University of Cambridge, UK

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This chapter provides the models and variation of culture. Specifically, the following concepts will be introduced: an understanding of the original of culture and how culture is studies in the academic field; the most influential culture theories which are adapted in business and management research. A detailed exploration on the methodology, dimensions, and implications of each model will be provided. An understanding of culture’s impact on manufacturing systems which stems from traditional factory-based model to inter-firm network with the increase of collaboration in globalization is given Some understanding of culture’s variation in the fast growing inter-firm collaboration with case observations are also elucidated.

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Chapter 18 The Impact of Culture on Workplace Conflict in the Caribbean......................................................... 292 Susan Scott, St. George’s University, Grenada

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There are many subtleties within a culture that affect decision-making. Lack of understanding of these nuances enhances the mystique of cross-cultural business. Global managers need to better understand trans-cultural decision-making to maximize the benefits of alliances and business relationships abroad. One of these subtleties, often discussed in relation to business in the Orient, is conflict management. The notion of “face” and the importance of individual honor pervade cultural briefing materials on countries such as Japan. It is a defining difference in human relationship management between East and West. Yet when dealing with employees in nations speaking the same language, as a U.S. manager to a Caribbean manager, one often fails to account for equally significant differences in managing conflict. This chapter discusses the impact of culture-specific attitudes concerning workplace conflict on business performance in the Caribbean, using examples specifically from Grenada.

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Chapter 19 Immigrant Effect in International Expansion...................................................................................... 307 Maud Oortwijn, Warwick Business School, UK This chapter adds a new angle to research on the immigrant effect. Two years’ internationalization plans of Dutch firms for China are followed in time even before final decisions on entry are made. This longitudinal study allows for unique insight in how entry plans evolve, or do not evolve. The contribution lies partly in the fact that some of the firms decide not to continue operating in China, while others cancel, alter, or postpone plans. Of the 54 plans under consideration, only 33 continue in a manner similar to what was intended.

Chapter 20 Human Resource Management for the 21st Century Global Economy............................................... 322 Julianne Seely, Grantham University, USA The purpose of this chapter is to concentrate on Global Human Resource Management (GHRM) by demonstrating how the functional areas of Human Resource Management, such as talent acquisition, leadership capacity, training/development, and compensation/benefits, need to be fused with a higher level of strategic endeavor through cultural intelligence (CQ), system thinking, and the applications of related system archetypes. Understanding the role cultural intelligence plays in the global business community, knowledge of how systems and subsystems operate, and how variables impact the immediate landscape, as well as overall business performance, are the key drivers for competing successfully in the global marketplace.

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Compilation of References................................................................................................................ 336

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About the Contributors..................................................................................................................... 385 Index.................................................................................................................................................... 393

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Foreword

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This publication covers much material on various cultural issues impacting Foreign Direct Investments (FDIs) in contemporary globalism. Some of the issues that have become subjects of debates include: How can multinational organizations survive the multi-cultural differences brought about by the different cultures of the mother and the host country? How should practices of regionalization be adopted amidst the quest for globalization? How much of the national culture (host-country) could impact an organization’s culture? Should Multinational Corporations (MNC) or Multinational Enterprises (MNEs) stick to the universal application of management principles, thus continuing to perform on its mothercountry bred organizational culture—or continuously try to fine tune themselves towards localization? What cultural competencies should managers and other MNC actors possess to ensure the MNC brings the necessary revenues? The authors do not pretend to have all the answers to the above questions. However, they have presented case studies and sufficient literature for the reader to reach his or her own conclusions and courses of action. The commonality of the studies presented in this scholarly endeavour rests on FDIs represented in the various studies as MNCs or MNEs. These large amounts of investments are the major sources of revenues not only for big businesses, but also for the mother- and host- nations. The success of the MNCs or MNEs could have great impact on national economies; thus, it is imperative that FDI’s be supported or managed well. The compilation engages the reader into an international business mindset, and it weaves throughout the various chapters of the book implicating organizational culture as directly affecting business performance of the biggest MNCs, as well as the cross-border small and medium enterprises (SME’s) which also must consider the cultural differences with their neighbouring nation(s). The results of studies from various business niches in Latin America, Asia, Middle East, Canada, and other areas mostly geared towards the regionalization or localization of the MNCs. This is contrary to the more popular belief that MNCs bring their organizational culture to their host country. The recipes for success of any FDI are to be global, to remain competitive, and eventually to succeed is not the universal application of management principles; rather, they are to continuously consider emphasizing organizational culture and social relationships. There are some attempts to offer some approaches in handling the cultural issues. Studies on the impact of biculturalism and localization are revealed, and the book comes close to recommending biculturals (those individuals who practically have been exposed to two cultures) as the MNCs savior. Two studies highlight expert trade bridges, cross-cultural experts and advisers, and conflict mediators, all of which positively make a difference for the team, thereby ensuring team effectiveness. In contrast, another study recognizes that certain combination of cultural traits with, “…high levels of collectivism,

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uncertainty avoidance, power distance and Confucian dynamism tend to breed people who are more participative, creative, and spontaneous….” The findings and conclusions of these cases act as a guide to business venturers in maintaining MNC/ MNE operations to secure their businesses’ success. Most of these case studies highlight the impact of culture—especially organizational culture to the effectiveness of organizational performance. As could be gleaned from most of their findings, the proper approach to organizational effectiveness is through the management of cultural differences. Thus, this concerted effort shall serve as a very important reference guide to the management of multinational firms how national or regional values and the cultural competencies of managers and other human resources shall influence corporate values and affect business success. Wherever they are located, MNCs and MNEs must survive; therefore, these entities will do whatever necessary to achieve their goals. Even if sacrificing their globalization gains by adopting more and more local values and incorporating them to their own organizational culture, it is their way to globalization.

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Dr. Ghassan Al-Qaimari Fujairah College, United Arab Emirates

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Ghassan Al-Qaimari is a Professor of Computer Science and Information Technology and the founding President of Fujairah College which was established in 2006 in the United Arab Emirates (UAE). From 2004 to 2006, he served as the Head of the Faculty of Information Technology, and Head of the Faculty of Postgraduate Studies at the University of Wollongong in Dubai. Dr. Al-Qaimari taught at RMIT University in Melbourne, Australia for a total of eight years between 1995-2003. He was also a visiting Professor at a number of universities including the Australian National University, Birzeit University, and Jerusalem (Al-Quds) University. Dr. Al-Qaimari is an active researcher who established and led the Human-Computer Communication research group at RMIT University for several years. He received a number of research grants and supervised approximately 50 Master- and PhD-level theses. His research publications and accomplishments in the area of Human-Computer Interaction, Usability Engineering, Object-Oriented Analysis and Design, Software Project Management and Globalization of E-Commerce Applications are widely recognized. He has published extensively in refereed journals and international conferences, and served as member of different program committees in various capacities for a number of international forums and conferences. Dr. AlQaimari has over 20 years of experience in public and private sector organizations in the Middle East, Europe and Australia, and he is been actively involved, with major industry players, such as IBM, Telstra and Mercedes-Benz. Born in Jerusalem, he holds a Bachelor Degree in Electrical Engineering and a Master’s Degree in Computer Engineering from University of Detroit Mercy, and received his PhD in Computer Science from Heriot-Watt University in Scotland.

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Preface

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The primary purpose of this book is that of a reference publication for business scholars that addresses the need for more culturally responsive decision-making within a global context in the executive boardrooms and managerial offices around the world. There is no doubt the globalization of the 21st century has changed economic realities far beyond anyone’s expectations; the global financial meltdown of 2008 serves as a particularly poignant example. To address the most critical issues involved, this book covers a multitude of issues ranging from bilingual and Third Culture Kid (TCK) managers to strategic entrepreneurship from both cultural and global business perspectives. This book was conceived during the mixed qualitative grounded theory and quantitative method study of the author’s PhD field research in Costa Rica, Nicaragua, and Panama during the period 2004-06. The book is also based on the extensive and practical international business experience of the author in 35 countries since 1985 with Global 500 firms and smaller organizations. The content includes the very extensive work of the Dutch anthropologist, Geert Hofstede, and others in the same field. It also incorporates the work of major business theorists and practitioners such as Drucker, Ohmae, and Porter for further authoritative foundation. The desired result of this book is to provide a foundation for business and other scholars from which to pursue further applied research in the fields discussed in the book, such as intercultural competence or workplace conflict. It is also desired the same material shall provide thought-provoking material from which business executives can work to develop responsible and sustainable corporate profitability in contemporary globalism, while simultaneously decreasing waste during an age of global warming and increasingly scarce resources available to a growing world population. Although there are some circles of scholars and lay persons who believe we are now experiencing the demise of capitalism some 20 years after the passing of Communism when the Soviet Union collapsed in late 1991, the reality is that we are actually witnessing the modern restructuring of capitalism, with its “command center” in a different part of the world than in the past. Therefore, it is important to emphasize the concept of responsible sustainability in the economic system that has proven over the ages to be much more aligned with the true realities of long-term human behavior than any other economic foundation. Even the “Communist” regimes of China and Cuba have embraced at least some aspects of free market enterprise as a way in which to enhance the livelihoods of their citizenry, despite the financial turmoil since 2008. However, perhaps their “hybrid economic approach” is one that is worthy of more extensive research and potential application for long-term sustainability today. The reader should bear in mind the tumultuous world events of 2008 are still being evaluated by experts to restructure global and national systems from education, finance, government, and beyond to work truly effectively today. It is hoped this book will contribute something positive as a part of that

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massive effort. As mentioned earlier, today the world is witnessing a fundamental, long-term change of economic (and political) power from Europe and North America to Asia, particularly to China and India where it is forecast that up to 45% of the World Gross Domestic Product will originate by 2050. These factors will require a major paradigm shift in expectations and thinking on multiple levels in both developed and developing nations around the world. This publication provides a number of examples towards realizing this necessity. Before his passing in 2005, Peter Drucker, who was considered the world’s first authority on the field of business management, viewed contemporary globalism as one of profound transition—potentially even more influential than the structural changes triggered by the Great Depression or the Second World War (Drucker, 2002). Drucker contended there are “Five Certainties” that would shape 21st century business strategy: 1) the collapsing birthrate in the developed world; 2) major shifts in the distribution of disposable income; 3) global competitiveness; 4) the growing incongruence between economic and political reality; and, 5) a redefinition of corporate performance (Drucker, 2002). These issues are transforming the global economic and workplace landscapes very quickly in ways very few people today yet completely understand (Greenspan, 2008; Tyson, 2009). It is important to note that although globalization has actually existed since the beginning of humankind, what makes contemporary globalism so different from the globalization of the past is the speed of change due primarily to the development and use of technology (Gates & Hemingway, 1999; Nye, 2003). The current global recession is one unfortunate manifestation of that reality, and the primary lesson to be learned from the situation is that systems of all types—not only financial ones—must be updated to reflect the demands of today’s globalization (Tyson, 2009). The future implications for workers around the globe are serious ones, particularly since today’s economic realities require even more education, skills, and training than ever before due to the growing complexity of our world. Many of those individuals around the world who do not grasp this reality shall most likely be subjugated to a more humble, long-term existence than desired or expected in the 21st century. Chapter 1 concerns the foundations of cultural theory that sets much of the tone for the remainder of the book. The theory of cultural dimensions constitutes the foundation of a significant portion of comparative cross-cultural business research. From Kluckhohn and Strodtbeck (1961) to the GLOBE study (2004), researchers have refined its conceptualization and empirical methods. Even though the theory of cultural dimensions can be criticized from several points of view, it has shown its usefulness for both research and as a teaching tool. Opportunities exist both in a more rigorous application and in the further development of cultural dimensions. Chapter 2 explores individual intercultural competence as an enacted capability developed through social interaction and experience with dominant local cultures and minority cultures. The authors employ a “knowing-as-practice” perspective to suggest that the study of intercultural experts has potential to inform this area of knowledge. From this perspective, examining practice repertoires used by expert actors can provide a useful complement to cultural intelligence (CQ) frameworks for understanding individual intercultural competence. Chapter 3 provides another example of intercultural competence by examining the role of bicultural managers in multinational corporations in Japan. The authors provide results from a research study conducted in Japan among managers who had one Japanese and one non-Japanese parent, and who worked in a multinational corporation in the country. This arrangement was chosen because the issue at-hand is more controversial in Japan than in other industrialized countries. The main questions investigated include:

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How can or should bicultural skills be defined? Which aspects of bicultural skills are most important for multinational organizations? How can bicultural skills be identified and leveraged not only in people with a bicultural upbringing, but also in other staff? Are bicultural managers able to change their roles in the corporation, or are they limited to the role of cultural experts and mediators?

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Chapter 4 focuses on applications of Denison’s model of organizational culture and effectiveness in a variety of countries. The model and the survey conducted by the chapter’s author can be applied in individual cases to illustrate the strengths and weaknesses of organizations. They can be a useful tool for managers worldwide in the continuous quest for performance. Chapter 5 contributes to the emerging literature on cross-border inter-firm networks by providing both theoretical insights on the causal mechanisms of network-related effects on firm performance, and empirical analysis of existing cross-border partnerships in the domain of European integration and their effects on firm performance. The chapter also examines the differences in the structure of European cross-border networks and explores factors that determine network structure such as regional integration and cultural variations. Chapter 6 concerns research in international strategy and marketing which has mainly gone from a multidomestic focus to a global focus. Reality seems to indicate that more and more multinational enterprises (MNEs) have been implementing regional strategies as opposed to either global or multi-domestic ones. Debate has been active over the last two decades on the reality of globalization and regionalization. This chapter reviews the debate, distills major themes, and offers a structured understanding of the phenomenon of regionalization vs. globalization as seen in contemporary internationalization. Chapter 7 focuses on the resource-based internationalization of small developing countries. In contrast to their developed counterparts, small developing countries are characterized by a narrow resource base, relatively weak institutions, and a high degree of openness. Therefore, the objective of this chapter is to build a framework to explain internationalization of Small and Medium Enterprises (SMEs) from small states. Chapter 8 provides a framework for understanding the business challenges facing Brazilian companies. Based on the symbolic school of interpretive anthropology, two lines of ethnographic research were conducted on a Brazilian banking institution to identify, connect, and analyze the characteristic traits of Brazilian culture and their impact on organizational culture and administrative practices. This view rejects the hypothesis of universal management principles. In other words, management should be coherent with the country’s cultural expression, and international businesses should pay attention to the institutional and cultural realities of the countries in which they are located. Chapter 9 discusses the entry mode choice as a means to manage home and host country differences. The entry mode defines what activities are internalized within the firm and how the firm interacts with the external environment in different host countries. Chapter 10 highlights a dual vision of profitability and social responsibility using China and Japan as an example. Only a few studies have addressed the effects of Chinese harmonious society on the performance of Japanese corporations operating in China. This study is an attempt to fill that gap. Chapters 11 and 12 are a joint effort to showcase the perspectives of globalism, culture, and business environment in Latin America and the Middle East. These chapters include issues such as organizational culture, leadership style, communication, motivation, and people’s expectations of work design and reward.

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Chapter 13 concerns performance management systems specifically in Mexico. The purpose of the chapter is to understand the strategic role performance management systems play in organizations, and to identify the evolution process and the organizational factors involved in the implementation of those systems in Mexico. The authors identify the best-known appraisal tools in Mexico, the issues related to organizational performance, and those linked to the superior-subordinate relationship. Chapter 14 discusses Business Performance Management (BPM) from the systemic communicative and linguistic side of BPM. The chapter’s author concentrates on the systemic approaches to highlight the role of communication and language in BPM. To discuss this issue in greater detail, two concepts have been created; namely, the corporate linguistic allostasis and the calibrated corporate linguistic identity. The goal is to show their implications for creating and sustaining competitive advantage today. Chapter 15 synthesizes prior research on strategic entrepreneurship and elaborates on the subject by proposing a generalized model of the entrepreneurial strategy-making process for today’s competitive landscape. Chapter 16 provides a social capital approach to intercultural differences using the empirical evidence from the global tour operator, Globus. The authors propose a conceptual framework where the different dimensions of social capital improve the exchange and combination of resources and knowledge in different subsidiaries localized in dissimilar cultural contexts, by mitigating the inter- and intra-organizational cultural differences. The findings have important implications for research in multinational literature. Chapter 17 provides models regarding variations of culture and their impact on manufacturing systems which stems from traditional factory-based models to inter-firm networks for effective collaboration in globalization. Chapter 18 examines the impact of culture-specific attitudes concerning workplace conflict on business performance in the Caribbean, using examples specifically from Grenada. The author contends global managers need to better understand trans-cultural decision-making to maximize the benefits of alliances and business relationships abroad. Chapter 19 examines the role immigrants fulfill in foreign entry plans, and how their involvement relates to the outcome of the foreign entry go/no-go decision. Chapter 20 concentrates on Global Human Resource Management by demonstrating how the functional areas of Human Resource Management need to be fused with a higher level of strategic endeavor through cultural intelligence, systems thinking, and applications of related system archetypes. Specific areas covered include: talent acquisition, leadership capacity, training/development, and compensation/ benefits. The reader should remember the following material is meant to be a foundation for further exploration of the areas covered by scholars and business executives alike. Despite the diversity of the topics discussed, we must realize the true focus of this book is the individual contributor and consumer—the human being. It is her or him on which all business or social activity is ultimately dependent, regardless of the economic system employed or the size of the organization involved. Therefore, careful attention should be paid to the human factor in all circumstances, be they economic, organizational, political, or social. The recent “Arab Awakening” is a stark reminder to all of those who fail to recognize this reality.

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REFERENCES Drucker, P. (2002). Management challenges for the 21st century. New York, NY: Butterworth-Heinemann. Gates, B., & Hemingway, C. (1999). Business @ the speed of thought. New York, NY: Warner.

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Greenspan, A. (2008). The age of turbulence: Adventures in a new world. London, UK: Penguin.

House, R. J., Hanges, P. J., Javidan, M., Dorfman, P. W., & Gupta, V. (Eds.). (2004). Culture, leadership, and organizations: The GLOBE study of 62 societies. Thousand Oaks, CA: Sage. Kluckhohn, F. R., & Strodtbeck, F. L. (1961). Variations in value orientations. New York, NY: HarperCollins.

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Nye, J. (2003). The paradox of American power: Why the world’s only superpower can’t go it alone. Cambridge, UK: Oxford University Press.

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Tyson, L. (2009). World economic forum. Switzerland: Davos.

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Chapter 1

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The Theory of Cultural Dimensions

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Andreas Michael Hartmann TEC Monterrey, Mexico

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ABSTRACT

The theory of cultural dimensions constitutes the foundation of a significant portion of comparative cross-cultural business research. From Kluckhohn and Strodtbeck (1961) to the GLOBE study (2004), researchers have refined its conceptualization and empirical methods. Even though the theory of cultural dimensions can be criticized from several points of view, it has shown its usefulness for both research and as a teaching tool. Opportunities exist both in a more rigorous application and in the further development of cultural dimensions.

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In the increasingly globalized business world, being exposed to cultures different from one’s own is a common experience. Sometimes, foreign people who behave in strange ways are perceived as charming or at least as interesting, but often, cultural differences lead to frictions. Consequently, it has become widely accepted that management practices should be adapted to national cultures (e.g., Newman & Nollen, 1996). Any businessperson who deals with foreigners individually or in an organizational context, therefore, has an interest in knowing about other cultures in

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order to anticipate possible miscommunications and different appreciations. Those who work in a strictly bicultural environment (such as a sales engineer permanently stationed in a specific foreign country) can frame all relevant knowledge about culturally acceptable and functional norms and behaviors in terms of a direct comparison between two cultures. However, in the context of changing business partners and multicultural work groups, such information becomes overwhelming. This requires guide posts as to where and how cultures might differ significantly. This systematic approach to intercultural differences is the topic of the present chapter.

DOI: 10.4018/978-1-4666-0306-6.ch001

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

The Theory of Cultural Dimensions

Culture is a concept that includes many different elements; due to its inherently fuzzy boundaries, there is no consensus on a shared definition. As an example, Spradley defines culture as “the acquired knowledge that people use to interpret experience and to generate social behavior. Culture is shared by members of a group, organization or society. Through culture, we form values and attitudes that shape our individual and group behavior. Culture is learned through both education and experience” (1980, p.6). Within this very broad description, the theory of cultural dimension focuses on values and attitudes and offers a tool for thinking about cultures and conceptualizing the similarities and differences between them, as a way of overcoming the dependence on common stereotypes and personal anecdotes. Theories of culture (notably Schein, 1992) hold that observable behaviors and artifacts are the exterior manifestations of underlying values. In turn, these rely on mostly tacit assumptions and beliefs. These levels of culture are usually hidden from the observer, such as the inner layers of an onion (Hofstede, 1980) or the submerged parts of an iceberg (Berthoin, Antal, & Friedman, 2005). However, values are key elements for comparing cultures, as “the values and beliefs by members of cultures influence the degree to which the behaviors of individuals, groups, and institutions within cultures are enacted, and the degree to which they are viewed as legitimate, acceptable, and effective” (House & Javidan, 2004, p. 17). Values are conceptual in nature and in the absence of a priori definitions at the intercultural level, comparative researchers need to work with constructs, which need to be checked for their usefulness and refined, when found lacking. In the field of management and organizations, the term culture has been applied to both organizations and nations, where distinct dimensions should be applied for measuring the two types of cultures (Hofstede, Neuijen, Ohayv, & Sanders,

1990). Denison and Mishra (1995), for example, have presented a model relating organizational effectiveness to the four dimensions of involvement, consistency, adaptability, and mission. However, researchers concentrating on national cultures have made efforts to show how national tendencies relate to organizational archetypes. For example, Stevens (quoted from Hofstede & Hofstede, 2005) relates preferred models of organizational cultures (market, family, machine, and pyramid) to specific combinations of the national-culture dimensions of power distance and uncertainty avoidance. This chapter, however, concentrates on the studies of national cultures, to which there are two basic approaches: One consists of looking at each culture as a unique phenomenon, which can only be understood from the inside (the emic perspective). Each culture should be understood in its own terms, such as guanxi in the Chinese context or machismo in Latin America. A variation of the emic approach is the characterization through metaphors (cf. Gannon, 2001, 2009; Nielsen & Mariotto, 2005) or myths (cf. Kessler & Wong-MingJi, 2009) that allow for a singular conceptualization of each culture. The other approach (the etic perspective) employs universal categories or dimensions along which different cultures can be classified or measured. Both the emic and the etic approach have their merits and their limitations. This chapter presents an overview of the theory of cultural dimensions with a mostly quantitative etic approach to compare national cultures that has become a mainstay of the international business literature. The chapter commences with a description of the evolution of the theory of cultural dimensions by comparing the methods and dimensions used in its major contributions. The following section presents a critique of the cultural-dimensions approach, from where future research directions are inferred. The chapter concludes with a discussion of the usefulness of the theory of cultural dimensions.

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THE MAIN STUDIES OF CULTURAL DIMENSIONS This section presents the contributions to the theory of cultural dimensions made by Hall (1959, 1966, 1976), Kluckhohn and Strodtbeck (1961), Hofstede (1980), the World Values Survey (Inglehart et al., 1998, 2004), Hampden-Turner and Trompenaars (1993, 1998), Schwartz (1999), and the GLOBE project (House, Hanges, Javidan, Dorfman, & Gupta, 2004). The chronological order shows that while some strains seem to have been forgotten, most cultural dimensions have been developed from the foundations of earlier research. In this sense, the theory of cultural dimensions is presented here not as a “jungle” (Nardon & Steers, 2009), but rather as a collective effort towards a more comprehensive theory of cultural traits or syndromes (Triandis, 2002). The following section constitutes an effort to describe the continuity and refinement of approaches and constructs that different authors have used over time. This approach appears to be more constructive than a view that considers all studies as contemporary and equally valid, which would result in a situation where “the lack of consensus […] is evident, a cause for concern in terms of construct validity and accumulation of knowledge” (Tsui, Nifadkar, & Ou, 2007, p. 434). Although anthropologist Edward T. Hall belongs to the emic tradition in cross-cultural research and focused on describing and comparing only two or three cultures at a time, he contributed three aspects to the studies of cultural dimensions. In The Silent Language (1959), Hall introduced the distinction between polychronic and monochronic: People from polychronic cultures have no problem focusing on several issues and persons simultaneously, while people from monochronic cultures focus on one issue and one person at a time. In his 1966 book, The Hidden Dimension, Hall introduces the term proxemics to describe the spatial distance with which people are comfortable and how this distance varies between “touch” and “no-touch” cultures. Finally, Hall’s

book Beyond Culture (1976) contributed to the theory of cultural dimensions by elaborating on the distinction between low-context and highcontext communication, (i.e., whether intended meanings are expressed and understood literally or words may have significance according to the context in which they are uttered). Hall’s context dimension has been used in studies in the areas of marketing, communication, and negotiation, among others, but its empirical application suffers from inconsistent sample selection and measuring where several countries have being classified as either high-context or low-context according to the methodology used (Kittler, Rygl, & Mackinnon, 2011). American anthropologists Florence Kluckhohn and Fred Strodtbeck (1961) presented the earliest comprehensive framework of cultural dimensions that still plays a role in contemporary academic literature. They proposed five value orientations: human nature, man-nature, time, activity, and relational. For each of these orientations, Kluckhohn and Strodtbeck (1961) postulated a trichotomous range of variations: Human nature can be conceived of as either evil, neutral (or a mixture of good and evil), or good. Additionally, each of these views can be either mutable or immutable. People’s relation to the environment is conceived as varying between subjugation to nature, harmony with nature, and mastery over nature. Relations among human beings present the variations of collective, individual, and hierarchy. People’s orientation towards time can be focused on the past, the present or the future. A person’s mode of activity can vary between being, beingin-becoming, and doing, where being-in-becoming echoes philosopher Erich Fromm’s concept of “the acceptance of the total personality and the elimination of the split between reason and nature” (1941, quoted from Kluckhohn & Strodtbeck, 1961, p.16). Finally, Kluckhohn and Strodtbeck’s (1961) relational category varies between the two group orientations lineal and collateral, and the individual orientation.

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The difference between the two types of group orientation is that, while in lineally-oriented societies, “the most important of the group goals is continuity through time; […] collateral orientation calls for a primacy of the goals and the welfare of the laterally extended group” (p. 19), which is a larger than the community towards which lineally oriented persons direct their goals. Almost 40 years after Kluckhohn and Strodtbeck’s (1961) publication, a team of researchers developed a questionnaire to obtain numerical data for intercultural differences. First tested in five countries (Maznevski, DiStefano, Gomez, Noorderhaven, & Wu, 2002), the “Cultural Perspectives Questionnaire” has been answered by over 10,000 MBA students. The sixth edition of the corresponding textbook (Lane, Maznevski, DiStefano, & Dietz, 2009) indicates numerical scores for 37 countries, while the website (http:// www.imd.org/research/projects/CPQ.cfm) mentions an ongoing project of data collection. The Cultural Perspectives Questionnaire has been applied occasionally in empirical research by other researchers (e.g., Budhwar, Woldu, & Ogbonna, 2008). Dutch social psychologist Geert Hofstede departed from the anthropologists’ interpretive methodology for comparing cultures by presenting the first large-scale quantitative study of national cultural dimensions. In 1980, Hofstede published the book Culture’s Consequences (updated in 2001), which is based on a survey about the work attitudes of IBM employees in 50 countries and three multi-country regions1. Applying factor analysis to his survey data, he arrived at four dimensions of culture2: power distance (high vs. low), defined as “the extent to which a society accepts that power in institutions and organizations is distributed unequally”; individualism vs. collectivism, where the former refers to “societies in which the ties between individuals are loose” and the latter to “societies in which people from birth onward are integrated into strong, cohesive in-groups”; masculinity vs. femininity, defined as

“the extent to which dominant values in society are assertiveness, money and material things, as opposed to caring for others, quality of life, and people”; and uncertainty avoidance (high vs. low), defined as “the extent to which a society feels threatened by uncertain or ambiguous situations” (Hofstede & Hofstede, 2005). A later survey with college students led to the addition of a fifth dimension for 23 countries, first called Confucian dynamism and later long-term vs. short-term orientation (Hofstede & Bond, 1988), although many researchers have been ignoring this addition (cf. Fang, 2003). Based on data from the World Value Survey (see below), Minkov has enhanced Hofstede’s framework with a sixth dimension, called indulgence vs. restraint, which includes a measure for self-control and the importance of leisure (cf. Minkov & Hofstede, 2011). Hofstede’s country scores for the first five dimensions are available on his web site: http:// www.geert-hofstede.com. The scores range from 5 to 118 and are not normalized across dimensions. In his book, Hofstede (1980) engages into extensive discussions on how his four (or five) dimensions are related. Hofstede’s dimensions have been widely used in all areas of cross-cultural research. Schneider and Barsoux (2002) have reduced Hofstede’s four dimensions into just uncertainty avoidance and power distance, in order to present four archetypes of organizations: the village market in the Anglo and Nordic countries with low uncertainty avoidance and low power distance; the well-oiled machine in Germanic countries with high uncertainty avoidance and low power distance; the family or tribe in Asian countries with low uncertainty avoidance and high power distance; and the traditional bureaucracy or pyramid of people in Latin countries with high uncertainty avoidance and high power distance. In Harry C. Triandis’ (1995) conception, it is possible to reduce the classification of cultures to only two dimensions or syndromes, which are sufficient to explain people’s definition of the self, structure of goals, emphasis on norms versus

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attitudes, and emphasis on relatedness versus rationality. These dimensions are individualismcollectivism and horizontal-vertical, which are similar to Hofstede’s (1980) power distance. Triandis’ (1995) framework results in four archetypes of people’s relationship with their societies: horizontal individualists, vertical individualists, horizontal collectivists, and vertical collectivists. Earley and Gibson summarize these dimensions as follows: “Horizontal individualism reflects an independent/same self construal (people view themselves as equal but independent of one another) whereas vertical individualism reflects and independent/different self construal (people view themselves as unequal but independent). Horizontal collectivism reflects an interdependent/same self construal (people view themselves as equal but interconnected) whereas vertical collectivism reflects an interdependent/different self (meaning that people view themselves as unequal, but interconnected)” (1998, p.271). Triandis himself did not conduct any largescale surveys, but relied on Hofstede’s (1980) and other researchers’ data to exemplify his theory. Some scholars have applied Triandis’ (1995) approach in quantitative studies where they measure culture directly (e.g., Caligiuri, Colakoglu, Cerdin, & Kim, 2010). Since 1981, there has been an ongoing research effort to cover “all major areas of human concern, from religion to politics to economic and social life” (World Values Survey) through several waves of surveys that have measured the changes of attitudes in a large number of countries around the world. The data is available on the internet (http:// www.worldvaluessurvey.org), and have led to the publication of numerous articles and several books (Inglehart, Basáñez, & Moreno, 1998; Inglehart, Basáñez, Díez-Medrano, Halman, Luijkx, 2004; Inglehart & Welzel, 2005), with many interesting findings about generational change and the relationship between personal values and political systems in different countries. Between 1981 and 2008, there have been five waves of surveys,

which allow for comparing the changes in value orientation over several decades. The most recent wave (2005-2008) included 56 countries. Different from Hofstede’s (1980) focus on work-related values, the World Values Survey looks at societies’ values in general, such as the relationship between GDP per capita and subjective well-being (Inglehart, Foa, Peterson,& Welzel, 2008). The more than 300 variables contained in the World Value Survey have been condensed into the InglehartWelzel Cultural Map of the World, which is based on the fact that, among the items collected, “two dimensions dominate the picture: (1) Traditional/ Secular-rational and (2) Survival/Self-expression values. These two dimensions explain more than 70 percent of the cross-national variance in a factor analysis of ten indicators-and each of these dimensions is strongly correlated with scores of other important orientations” (World Values Survey). Building on the sociologist’s Talcott Parson’s five interpersonal orientations plus two orientations towards time and space, Trompenaars and Hampden-Turner (1993, 1998) collected over 30,000 data sets for a model of national cultures with seven dimensions: Universalism vs. particularism refers to the importance of relationships over abstract rules. Individualism vs. communitarianism is similar to Hofstede’s (1980) individualism vs. collectivism dimension. Neutral vs. affective refers to how much people display their emotions. Specific vs. diffuse refers to how much persons prefer to get involved with each other in a business setting. Achieved status vs. ascribed status refers to whether people’s privileges are accepted based on their performance or based on their family and connections. Finally, time orientation has two subdimensions: Past vs. present vs. future and sequential vs. synchronic, termed monochronic vs. polychronic by Hall (1959). Different from Hofstede (1980), Trompenaars and Hampden-Turner (1998) mostly do not publish scores for their dimensions, but rather percentages of answers given to specific questions. Although general scores for the dimensions have

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been calculated (Smith, Dugan, & Trompenaars, 1996; Wooliams, 2004), the general approach is one of “data mining” (i.e., looking at specific issues that are relevant within the managerial context of the intended public). The number of nations included for the different questions also varies; for example, 49 country percentages are given for “feeling upset at work” (Trompenaars & Hampden-Turner, 1998, p. 71). Social psychologist Shalom H. Schwartz has developed models of values and applied them to student and teacher samples in several countries. Based on the “three universal requirements of human existence: biological needs, requisites of coordinated social interaction, and demands of group functioning” (Schwartz & Sagiv, 1995, p. 94), a total of 10 values were measured: power, achievement, hedonism, stimulation, selfdirection, universalism, benevolence, tradition, conformity, and security, which are the bases of different types of motivation in general. For the specific case of work settings, Schwartz’s approach consists of three cultural dimensions named issues consisting of polar opposites: conservatism3 vs. intellectual autonomy or affective autonomy (the only issue where one pole has two opposite poles), hierarchy vs. egalitarianism (similar to Hofstede’s (1980) power distance), and mastery vs. harmony (similar to Kluckhohn and Strodtbeck’s (1961) relation to the environment). Schwartz (1999) used data from surveys applied to teachers and students from 49 national cultures. Interestingly, Schwartz claims that “because the value types form an integrated structure, it is possible to compare the similarity of national cultures on the whole profile of their seven value priorities without losing much of the information about single value types” (1999, p. 35). The mathematical procedure of smallest-space analysis allowed him to reduce the three-dimensional data to single positions of national cultures on a two-dimensional graph. The latest and most ambitious research project on cultural dimensions has been the GLOBE

project, published in two extensive volumes (House, Hanges, Javidan, Dorfman, & Gupta, 2004; Chhokar, Brodbeck, & House, 2007). Data collection extended over two years and used a coordinating team of 11 researchers as well as and as over 100 country co-investigators covering 62 countries. Although the project’s main focus is on culturally contingent leadership styles, it has made several important contributions to the field of cultural dimensions. The GLOBE project is based on an exhaustive review of the previous literature on cultural dimensions, which led to the definition of nine dimensions. The connections to all previous studies mentioned in this chapter and beyond are discussed explicitly and in detail. The GLOBE study introduced a distinction between values (“should be”) and practices (“as is”) scores, which looks like a promising basis for further research projects. GLOBE contains the following nine dimensions: Uncertainty avoidance and power distance are supposed to “reflect the same dimensions as Hofstede’s (2001)” (House & Javidan, 2004, p. 13), while Hofstede’s individualism-collectivism dimension was split up into two separate dimensions: institutional or societal collectivism and in-group collectivism. Hofstede’s masculinity-femininity dimension was disaggregated into gender egalitarianism and assertiveness. Future orientation is based on Kluckhohn and Strodtbeck’s (1961) time focus on either past, present or future. Performance orientation is based on McClelland’s (1961) need for achievement. Finally, humane orientation is a new dimension derived from several research frameworks, characterized as an expectation that people be “fair, altruistic, friendly, generous, caring, and kind to others” (House & Javidan, 2004, p. 13). The GLOBE values have been becoming increasingly popular in cross-cultural management research and begin to look like a possible replacement for Hofstede’s dominance in culturaldimensions based research.

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CULTURAL DIMENSIONS: USES The theory of cultural dimensions has had an enormous influence on the teaching of culture in business schools (Blasco, 2009) and on the preparation of individuals for overseas assignments (e.g., Bhawuk, 2001). Within international business research, the cultural dimensions of Hofstede (1980) and other authors have been applied to many topics within the field of international business, such as differences in economic growth (Minkov & Blagoev, 2009), foreign investment (e.g., Drogendijk & Slangen, 2006), dividend policy (Shao, Kwok, & Guedhami, 2010), managerial goals (Hofstede, Van Deusen, Mueller, & Charles, 2002), marketing (cf. Nakata & Izberg-Bilgin, 2009), corporate social responsibility (Waldman, Sully de Luque, Washburn, & House, 2006), ethically suspect behavior (Parboteeah, Bronson, & Cullen, 2005), different aspects of organizational behavior (for recent reviews, cf. Gelfand, Erez, & Aycan, 2007; Tsui, Nifkandar, & Ou, 2007), compensation levels (e.g., Greckhamer, 2011), leadership (notably the GLOBE study, see above), groups and teams (for a recent review, cf. Zhou, & Shi, 2011), extra-role behavior in organizations (Wollan, Sully de Luque, & Grünhagen, 2009), and learning styles (Holtbrügge & Mohr, 2010), among others (for a recent review of topical applications, cf. Bhagat & Steers, 2009). According to Amazon’s bestsellers ranking checked on December 25, 2010, Trompenaars and Hampden-Turner (1997) sells better than Hofstede, Hofstede, & Minkov (2010), Hall (1976), Inglehart and Welzel (2005), and the relatively expensive GLOBE study (House et al., 2004). Thus, it seems the more consultancy-oriented approach seems to have a greater appeal to the general book-purchasing public. Kirkman, Lowe, and Gibson (2006) identified 180 studies which used the Hofstede (1980) framework, published in 40 journals between 1980 and 2002. A search in the Proquest database for the years 2000-2010, using the names of the main

authors of cultural-dimension studies, the terms “cultur*” and “value OR dimension” as well as the subject restriction “management”, yielded the results in Table 1. Another metric is Harzing’s (2011) Publish or Perish citation index, based on Google Scholar. A search performed on May 18, 2011, using authors’s full names within the field of “Business, Administration, Finance, Economics” rendered the citation numbers shown in Table 2. Even if the methods used probably lead to some omissions, double counts, and erroneous classifications, the above numbers indicate Hofstede’s (1980) study accounts for more than half of the scholarly articles that at least mention cultural dimensions. Thus, Hofstede (1980) is still the dominating paradigm within the cross-cultural business literature (cf. Kirkman, Lowe, & Gibson, 2006), mostly because its quantitative and parsimonious nature fits well with the existing research paradigm. The (over)use of Hofstede’s (1980) approach has even been qualified as a “stampede” (Sivakumar, & Nakata, 2001), and his critiques claim there is a need to go “beyond Hofstede” (Nakata, 2009).

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CULTURAL DIMENSIONS: CRITIQUE The theory of cultural dimensions has been the object of extensive debates in the academic literature, especially concerning Hofstede’s (1980) Table 1. Results Hall + (proxemics OR polychronic)4

19

1.1%

Kluckhohn

75

4.2%

Hofstede

1,117

62.2%

Inglehart

40

2.2%

Schwartz

171

9.5%

255

14.2%

Trompenaars House + Javidan Total

5

119

6.6%

1,796

100.0%

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Table 2. Citation numbers Edward T Hall

106

0.6%

Clyde Kluckhohn

968

5.5%

Geert Hofstede

10,302

58.9%

Ronald Inglehart

834

4.8%

Shalom Schwartz

153

0.9%

Fons Trompenaars

3,000

17.2%

Mansour Javidan

2,228

12.7%

Total

17,485

100.0%

method and its uses by other researchers. However, in general Hofstede himself has demonstrated the replicability and validity of his scores. The following paragraphs present a summary of the different kinds of criticism that have been raised. The most general critique leveraged against the whole project of constructing and measuring cultural dimensions comes from ethnographic research: Under the premise that culture is only constructed within a specific context and can only be understood through the interaction between the observed and the observer, there cannot be such a thing as a stable, comparable culture or dimensions thereof (cf. Jabri, 2005). This is the controversy between the interpretive and the objectivist paradigms in social science, and it appears it cannot be resolved, although with some tolerance, it is possible to learn from both perspectives. The following paragraphs focus on criticism that parts from within the positivist tradition. The statistical procedures used by the main authors of cultural-dimension scores have been subjected to intense scrutiny and criticism in the literature. McSweeney’s (2002) article probably contains the most comprehensive (and scathing) critique of Hofstede’s (1980) method, and was really directed against the whole concept of constructing national-culture dimensions from survey data. With Hofstede’s (2002) rejoinder, a tradition of mutual criticism began, which has continued to Hofstede’s criticism of the GLOBE project (Hofstede, 2006, 2010) and the corresponding

counterreply (Javidan, House, Dorfman, Hanges, & Sully de Luque, 2006). More recent research indicates there might be both statistical and conceptual issues that remain –or at least partially remain–unresolved: The evident negative correlation between Hofstede’s and GLOBE’s uncertainty avoidance scores, for example, has been explained in two different ways: As a difference between absolute and marginal preferences (Maseland & van Hoorn, 2009, 2010) and as a difference in concepts underlying the pertaining dimension and its operationalization (Venaik & Brewer, 2010). Alternatively, Taras, Steel, and Kirkman (2010) offer at least than 10 possible explanations for the negative correlations between value and practice scores in the GLOBE study. On a related matter, Smith (2004) was able to demonstrate that the GLOBE concept of uncertainty avoidance was related to acquiescent bias in six different surveys of cultural dimensions. For the informed users of these studies, these unresolved questions imply that an uncritical use of these dimensions might lead to equivocal results; instead, researchers should take a look at items and re-measure them in their own samples. In the words of Maseland and Van Hoorn, “IB scholars interested in value differences should be very clear in their theorizing on the kind of question they are asking, and select the proper concept and approach accordingly” (2010, p. 1327). A specific case of criticism, however, refers to Hofstede’s (1991) fifth dimension of Confucian dynamism or long-term orientation (Fang, 2003), because the methodology from which this dimension was derived is inconsistent with the main survey, which was based on responses from IBM employees aggregated through factor analysis. Confucian dynamism also seems to be too highly correlated with Hofstede’s (1980) concept of individualism to be useful as an additional dimension (Yeh & Lawrence, 1995). An alternative explanation would be that Western value conceptions do not fit well with Oriental cultures (Lowe, 2001). Cheung, Leung, Fan, Song, Zhang, and Zhang

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have even developed an alternative scale, called the Chinese Personality Assessment Inventory (1996). The problem with the argument of cultural incommensurability is that, in principle, it cannot be falsified, so accepting or rejecting it becomes a question of intuition rather than science. Another point of critique refers to the unitof-analysis, because the major studies of cultural dimensions use “nation as a proxy for culture” (Reiche, Carr, & Pudelko, 2010, p. 132), even though there is no dispute most countries’ populations exhibit significant intra-cultural variation (cf. Au, 1999, 2000). For evidently different groups within one country, it should be common practice to survey them separately, as was done in the GLOBE study (House, et al., 2004) for Canada, Germany, South Africa, and Switzerland. Nonetheless, few studies have looked at regional differences in other countries, so the evidence is rather questionable: Dolan, Díez-Piñol, Fernández-Alles, Martín-Prius, and MartínezFierro (2004) found significant differences in values between students from the North-East and the South-West of Spain; Lenartowicz and Roth (2001) identified differences in motivation and business performance among regions of Brazil, while Robertson and Suárez Guerrero (2009) identified value differences among members of subcultural communities within Peru’s indigenous population. Even without such regional differences, some empirical studies show the general inadequacy of equating cultures and countries in the face of significant intra-country differences (e.g., Sawang, Oei, & Goh, 2006). One general criticism that can be launched against the whole line of cultural-dimension research is what we really need to know is not how cultures work in isolation from each other, but how their members deal with each other (i.e., how intercultural encounters are negotiated). In an interaction context, two cultures can be similar, complementary, unrelated, or conflictual (Yeganeh & Su, 2006). Cultural dimensions can help understand the other, but do not offer any guidance or

theory for how we might interact with foreigners. Instead, cultural dimensions – at least in the way they are presented in most classrooms (cf. Egan & Bendick, 2007) – tend to reinforce national stereotypes, which do not make multicultural business any easier. Recommendations to overcome this limitation include comparing country-level data with individual variations, focusing on rules for acceptable behaviors and what might happen when one transgresses these rules, and a general open-mindedness towards other cultures that has been called “cultural intelligence”, defined as “a system of interacting knowledge and skills, linked by cultural metacognition, that allows people to adapt to, select, and shape the cultural aspects of their environment” (Thomas et al., 2008, p. 127). So, instead of discarding the knowledge accumulated through cultural-dimension research, we could use the insights obtained for enhancing both our knowledge about specific cultures and our “cultural metacognition”. Regarding the general design of the studies of culture, it is by no means clear which number of cultural dimensions is the most appropriate, even though most studies vary between four and nine. d’Iribarne (1996) showed that compared to an ethnographic, interpretive approach, Hofstede’s (1980) scores of power distance and uncertainty avoidance were too coarse for a meaningful interpretation of the corresponding phenomena; therefore, “the precise meaning of the country rankings […] is far from clear” (d’Iribarne, 1996, p. 45). D’Iribarne (1996) explains how a single Hofstede (1980) dimension would need to be split up into power distance as factual influence and hierarchical distance on a symbolic and ceremonial level for a cogent comparison between organizational behavior in France and the USA. Furthermore, it is conceivable that other factors, which have not been conceptualized and captured directly, play an important role in international business. The literature contains at least two dimensions that would deserve to be added to the

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dominant frameworks: First, Fukuyama’s (1995) differentiation between high-trust and low-trust countries seems to be a fundamental category for comparing business conditions between countries (Knack & Keefer, 1997). For example, it proved to be an important factor for explaining differences of profitability of family firms operating in different countries (Carr & Bateman, 2010). Second, the difference of looseness vs. tightness (i.e., the degree to which a society imposes its rules on its members), (cf. Gelfand, Nishii, & Raver, 2006), has also been shown to have an impact on the degree of managerial discretion in different countries (Crossland & Hambrick, forthcoming), as well as on the strength of national cultures’s effects on individual behaviors within organizations (Taras, Kirkman, & Steel, 2010). Furthermore, Triandis (2002) has proposed additional syndromes deserving of further crosscultural research, notably active−passive, instrumental−expressive, and emotional expression or suppression. It should be noted that many of both the well-known and the under-researched dimensions could be framed as a distinction between more or less permeable boundaries between persons, spheres of life, and behaviors (Shamir & Melnik, 2002). Another argument against the theory of cultural dimensions is its inherent reductionism, which can be defined as the “reduction of all other identities such as class, ethnicity, gender, religion and political allegiances to one inclusive identity” (Atabaki, 2002, p. 13). In this sense, the exclusive focus on culture when comparing phenomena in different nations may result in a confound, as “culture is not the only differentiator of nations and may covary with other national characteristics” (Tsui, Nifkandar, & Ou, 2007, p. 460). Of course, reductionism is exacerbated when the description of a culture is boiled down to scores for a handful of dimensions, resulting in “sophisticated stereotyping” (Osland & Bird, 2000) instead of an in-depth understanding of the traits of any particular culture or variations within

that culture. From a mathematical perspective, Au (2000) found evidence that the reliance on sample means may hide important information about the dispersion of attitudes within societies, in the sense that “there are underlying cultural constructs that can only be captured by variance” (2000, p. 233). Thus, one of the pending tasks in the study of cultural dimensions is to take a closer look at variations, not only averages (cf. Gerhart, 2008). Another point of critique has been raised by Fang (2005), who asserts Hofstede’s (1980) dimensions suggest that citizens of any country tend to behave in a certain way that corresponds to their score on that dimension, whereas we have ample evidence those behaviors vary according to context. This would call for substituting the currently dominant mathematical model of high versus low values by a kind of dialectical thinking, where opposing values could coexist, similar to the yin-yang principle in Chinese philosophy (Fang, 2003, 2005). In general, however, even some ethnographic researchers in the interpretive tradition recognize the general validity of the concept of national cultures, as “a universe of figures and of historical or mythical narratives assures the link between the founding experiences related to the basic concern and the typical situations” (d’Iribarne, 2009, p. 319). The focus on culture might be considered as a form of reductionism per se, if the general goal is to elucidate conditions for doing business in different countries. The main studies of cultural dimensions exclude other factors, such as climate (cf. Van de Vliert, 2003), and especially regulatory and cognitive dimensions (e. g., Kostova, 1997). Kogut and Singh (1988) developed a score based on Hofstede’s (1980) four dimensions for measuring the difficulty of doing business in a foreign country. The underlying method for constructing such an index has been criticized by Shenkar (2001), mainly for being based on a series of unwarranted oversimplifications. Håkanson and Ambos’ (2010) empirical study shows Kogut and Singh’s (1988) cultural distance index, despite

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its popularly, correlates poorly with the psychic distance between countries (i.e., the perceived difficulty of doing business there). To include non-cultural factors, Busenitz, Gómez, and Spencer (2000) have developed country institutional profiles, based on Kostova’s (1997) distinction between regulatory, cognitive, and normative dimensions. Such dimensions allow for explaining differences between countries by relating to national institutions and behaviors encouraged and hindered by these institutions. Similarly, Berry, Guillén, and Zhou have developed Ghemawat’s (2001) CAGE framework – which categorizes the difficulty of international business as cultural, administrative, geographical, and economic – to a comprehensive method for measuring intercultural distance that considers “nine dimensions of distance: economic, financial, political, administrative, cultural, demographic, knowledge, connectedness, and geographic” (2010, p. 1477). These approaches fall into the general category of polycontextualization (cf. Tsui, Nifadkar, & Ou, 2007), i.e. the inclusion of other factors beyond culture for studying and explaining cross-cultural differences. Another challenge to the theory of cultural dimensions is the so-called convergence hypothesis (cf. Beugelsdijk, & Maseland, 2011), which points to the decreasing importance of national cultures in a world of global communication and increased migration. There is some empirical support for the thesis that at least in management, the worldwide dissemination of “Best Practices” has led to more similar business management practices (Carr & Pudelko, 2006). However, it does not seem reasonable to expect that differences between cultures will completely disappear: After all, Hofstede (1980) found significant differences even among national units of IBM, a company that revolves around the worldwide sharing of systems and their accompanying practices. A more nuanced approach has been dubbed crossvergence, deemed to occur “when an individual incorporates both national culture influences and

economic ideology influences synergistically to form a unique value system that is different from the value set supported by either national culture or economic ideology” (Ralston, Holt, Terpstra, & Yu, 2008, p. 12). The stability of national institutions also assures the persistence of cultural differences (Chevrier, 2009; Inglehart & Baker, 2000). From a sociological point of view, Tipton stated that for a country that has undergone so dramatic changes in mentality as (Western) Germany, “Hofstede’s results appear to contradict everything known about German history and German culture” (2009, p. 149), so the assumption that cultural values remain stable over time becomes difficult to uphold. In a meta-analysis built around Hofstede’s (1980) framework, Steel and Taras demonstrated empirically that “national indices and rankings from older studies (e.g., Hofstede, 1980) may be becoming increasingly misleading because their accuracy diminishes as characteristics of countries” (2010, p. 229). Furthermore, Tipton (2009) argued that individuals in liberal advanced countries, such as the USA, Western European nations, and Japan, are not bound to national cultures to the same extent as before, thus providing people the freedom to embrace values according to individual preferences. This increase in intracultural heterogeneity and concurrent globalization undermines the validity of national-culture dimensions, at least in parts of the world. Again, Steel and Taras’ longitudinal meta-analysis, which considered the time the original data were collected, confirmed this reasoning: “Countries and geographic regions as a unit of analysis are losing their meaning in cross-cultural research. At the group level, such entities as professional communities, socio-economic classes, age groups and generation cohorts are becoming more meaningful in terms of their ability to group individuals in cultural clusters” (2010, p. 229). Finally, dividing cultures into a set of dimensions makes them comparable, but does not

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provide a holistic picture. An alternative to this analytical approach is Fiske’s (1992) classification of cultures as based on communal sharing, authority ranking, equality matching, or market pricing. Unfortunately, the author could not identify any study that would validate Fiske’s (1992) approach for a large sample of countries. Despite the above criticisms, the theory of cultural dimensions remains the only coherent framework for cross-cultural comparisons. Although some studies of culture claim not to resort to any underlying theory, cultural dimensions are often implicit in researchers’ approaches. Rather than discarding the cultural-dimension approach as a flawed and useless overgeneralization, one should try to unearth the underlying dimensions to complexify our understanding.

As evidenced by mutual citations, cross-cultural researchers do read each others’ work and it can be assumed they use mutual criticism to improve their own. In this sense, and because of the large number of researchers that contributed to it, the GLOBE study (House, et al., 2004) may be considered as the current state of the art in the study of cultural dimensions, although it is notable that some of the promising aspects in earlier contributions to the theory of cultural dimensions (e. g., Hall’s (1976) concept of proxemics) have been lost along the way since Hofstede’s (1980) study and deserve to be reexamined. Furthermore, some of the more established dimensions require further clarification: While individualism appears to be a relatively clear construct, it seems difficult to conceive that its opposite collectivism really refers to a unified concept6. For tackling this conundrum, the GLOBE researchers (House et al., 2004) used a distinction between in-group collectivism and societal collectivism. However, the question is what exactly constitutes an in-group: For example, Japanese employ-

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ees tend to identify with the companies they work for much more than their Mexican counterparts, which demands “describing individualism-collectivism in terms of a specific reference group and context rather than society at large” (Earley & Gibson, 1998, pp. 295−296). From a metaanalysis of individualism-collectivism studies, Oyserman, Coon, and Kemmelmeier concluded that even native-born Americans, supposedly among the most individualistic nationalities in the world, “are individualists as defined by their responses to IND scales, the way they define themselves, and what evidence they find convincing and motivating, but it is equally clear that such Americans are relational and feel close to group members, seeking their advice” (2002, p. 45). If definitions are not refined, we may be constricted with the disheartening recognition that in spite of a huge literature on the individualism-collectivism dimension, there is “little empirical evidence that I-C is a useful explanatory mechanism” (Voronov & Singer, 2002, p. 462) for cultural variations. It would also be important to obtain a clearer understanding of how the cultural dimensions on the national level relate downwards to national groups, organizations, and individuals. For example, it is conceivable that national-level cultural dimensions vary systematically with gender, social classes, and professions. Within organizations, it would be important to have a clear theory and empirical data on how the “effect of national culture on work attitudes and behaviour is mediated by organizational practices” (Fischer, Ferreira, Leal Assmar, Redford, & Harb, 2005, p. 27). Finally, the cultural dimensions should be associated with individual traits, such as the five-factor model of personality. Although some groundwork has been completed (e.g., Hofstede & McCrae, 2004), the “field of cross-cultural research has a large gap in disentanglement of hypothesized cultural values from other moderating variables” (Migliore, 2011, p. 48), i.e., both the methods for analyzing empirical data and the underlying theoretical models are in need of further development.

The Theory of Cultural Dimensions

If we consider the original intent of crosscultural research should be to facilitate interaction, the theory of cultural dimensions has laid the foundations, but has failed to provide a systematic description of how foreigners do or do not adapt to each other, under what circumstances intercultural differences matter, and what can be done. It is time to develop theoretical frameworks for cross-cultural interaction (beyond such schematic approaches as Weiss’ (1994, 1994) Romans model) and to systematically observe such interactions in practice (cf. Jackson & Aycan, 2006). The cultural friction metaphor looks like a promising approach for “captur[ing] the nature and magnitude of interaction” (Luo & Shenkar, 2011, p. 1) but still needs to be refined and tested. The most immediately useful contribution for enhancing the practical value of the theory of cultural dimensions, however, would be a coherent connection to specific behavioral scripts, providing a more robust foundation for the recommendations given in handbooks of cross-cultural behavior (e.g., Morrison & Conaway, 2006). For example, Weiss’(1998) twelve negotiation variables connect cultural values to specific behaviors or scripts. A good starting point for delving into these issues could be the negative relationship between values and practices that have been detected in the GLOBE study (cf. Brewer & Venaik, 2010), which show the theory of cultural dimensions still offers lots of room for further development.

and interpretative frameworks (Leung, Bhagat, Buchan, Erez, & Gibson, 2011). Another consensus is emerging around the methodology of cultural-dimension research: In empirical studies, cultural orientations should be measured for each sample anew, instead of relying solely on published scores, while statistical analysis should discriminate between data on the national, organizational, and individual levels. However flawed one might view certain aspects of the theory of cultural dimensions, one cannot do research without constructs. In this sense, the authors cited in this chapter have provided powerful tools for thinking about cultures. They continue to inspire an ongoing stream of academic literature, including two specific journals on management issues − Cross Cultural Management and the International Journal of Cross Cultural Management − as well as journals with a wider thematic scope, such as Cross-Cultural Research. The author expects these and other outlets to provide many new insights into cultures in the years to come.

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CONCLUSION: THE USEFULNESS OF CULTURAL DIMENSIONS FOR INTERNATIONAL BUSINESS RESEARCH The preceding sections have shown the strengths and weaknesses of the cultural-dimensions approach, as well as the opportunities for putting it to good use. There seems to be an emerging consensus among researchers that national cultures should be studied from several perspectives, integrating positivist (mainly dimension-based)

ACKNOWLEDGMENT The author wishes to thank Juan Ignacio González, René Hernández, and three anonymous reviewers for their comments on earlier versions of this chapter.

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ENDNOTES 1



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The original (1980) edition included only 40 countries. Inkeles and Levinson (1954/1969) provided a theoretical justification for Hofstede’s four dimensions, but that theory was “detected after the dimensions had been empirically identified” (Hofstede &McCrae, 2004:63).

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Called embeddedness in a previous version (Schwartz, 1994) Two specific terms of Hall’s framework were added to avoid false counts due to the common-language word “hall”. Two main authors of the GLOBE project.

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Brewer and Venaik (2011) have shown that beyond this differentiation, Hofstede’s (1980) survey questions really target a difference between self-orientation and work-orientation, instead of individualismcollectivism.

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Intercultural Competence as Knowing-in-Practice Suzanne Gagnon McGill University, Canada

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Pamela Lirio EDHEC Business School, France

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ABSTRACT

This chapter explores individual intercultural competence as an enacted capability developed through social interaction and experience with dominant local cultures and minority cultures. The authors employ a knowing-as-practice perspective, following Nicolini et al. (2003), and notions of tacit knowledge within particular domains (Sternberg et al., 1995), to suggest that the study of intercultural experts has potential to inform this area of knowledge. From this perspective, examining practice repertoires used by expert actors can provide a useful complement to cultural intelligence frameworks (Thomas & Inkson, 2004, Earley, 2002) for understanding individual intercultural competence. Drawing on emerging literature on biculturalism, this chapter introduces an approach to researching intercultural knowing-in-practice through a focus on one type of experts, in this case, a group of young, bicultural Canadians. The authors found emotion- and behavioral-based themes that informed these experts’ responses to intercultural scenarios, their responses to proposed in-situ practice. From the findings, the chapter suggests that management can learn about intercultural competence from such experts’ approaches to navigating intercultural conflicts.

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INTRODUCTION Equipped with the language skills, cultural knowledge and contacts that so often elude native-born Canadians, new immigrants [and their families]

might be the missing link that could pave Canada’s way into hard-to-penetrate markets. With one foot in Canada and the other in their country of origin, these cultural double agents have the ability to act as (trade) bridges…. Andrea Mandel-Campbell (2007:219)

DOI: 10.4018/978-1-4666-0306-6.ch002

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

Follow the Experts

Management scholars have given considerable attention in recent years to the topic of individual cross-cultural effectiveness, pointing to its importance in a globalizing and culturally interconnected business world. Models of ‘cultural intelligence’ have been proposed (Thomas et al., 2008; Thomas & Inkson, 2004; Earley, 2002; Peterson, 2004), taking as their main premise that effectiveness in interacting with people from cultures other than one’s own rests on a discrete capability or skillset. Existing constructs from psychology-based studies of expatriate adjustment tend to form their foundation, with effectiveness viewed as dependent upon an individual’s personality traits and cognitive knowledge, and more recent theory proposing a behavioral dimension (Thomas, 2004; Earley, 2002; Peterson, 2004; see also Hammer et al., 2003; Leiba-O’Sullivan, 1999; Zakaria, 2000). This chapter proposes a perspective drawing on organizational knowledge theory and centering on intercultural effectiveness as an enacted capability may be an important complement to more traitsoriented, cognitive approaches. This perspective posits that knowledgeability or expertise, while often remaining implicit and unstated, is developed over time and constituted in situated practice and social interaction (Nicolini et al., 2003, Cook & Brown, 1999, Sternberg et al., 1995, Orlikowski, 2002). Capability and effectiveness are viewed as embedded in the actions of expert actors, and as observable through studying these actions and actors’ explanations of them. This is in contrast to a more traditional approach to competence as resulting from explicit, cognitive knowledge, relatively static dispositions, or discrete behavioral skills independent of context. Underlining the importance of practice and process-oriented aspects of intercultural competence (Friedman & Antal, 2005), the chapter explores the knowingin-practice (Nicolini et al., 2003) of experts in the intercultural domain. Citing the multicultural environment within Canada, the opening quotation suggests exploring bicultural individuals as potential intercultural

experts whose capabilities may represent an untapped resource for developing a competent global workforce. Increasingly, multinational organizations seek to identify and develop staff with highly effective intercultural and global skills (Claudio, 2007; Rossi, 2007). Bicultural individuals are exposed to two cultural value systems during their upbringing and likely identify with both (Luna et al., 2008). Scholars have suggested bicultural individuals may have a “sufficiently complex self-concept to reflect the flexibility needed for ‘CQ’ [cultural intelligence]” (Earley, 2002:275). The concept of biculturalism generally reflects an individual’s “ability to move back and forth between the minority community and the dominant culture” (Richard & Grimes, 1996) and can be related to bilingual capacities as well (Luna et al., 2008). While remaining to date largely within the anthropology and psychology literatures (cf. Berry, 1979; LaFromboise et al., 1993), in an era of globalization, the phenomenon of biculturalism has become more relevant to examine within international management (Berry, 2008). The objective of this chapter is to contribute to the literature on intercultural competence in two distinct ways. First, the authors propose that studying intercultural competence as knowingin-practice may be a fruitful complement to existing research, through exploring the expression of intercultural actions which are linked to experiences lived and embedded in participants’ personal practice repertoires. Second, we draw upon exploratory data from an ‘expert’ sample of bicultural individuals, a population assumed to engage in intercultural interaction on an ongoing basis. Here, we wish to address whether their knowledge can inform organizations which need employees who can cross multiple cultural boundaries. In pursuing these two themes, we set the following research questions for this study: 1) Will using our proposed approach and methods surface an understanding of intercultural competence that can be explored in future research, with other

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groups of ‘experts’ in workplace settings?; and 2) If bicultural individuals as experts in this domain, practice an important form of intercultural competence, what does their ‘knowing’ look like? The next section outlines in more detail the conceptual framework for the study, followed by the research design, findings and a discussion of implications. Limitations are addressed and areas for further research are identified.

A VIEW OF INTERCULTURAL COMPETENCE FROM INTERNATIONAL MANAGEMENT Scholars have worked to develop frameworks for understanding intercultural competence as it may apply across a multitude of intercultural situations and interactions, given today’s global business environment. As noted by Thomas, global interconnectedness and cultural complexity mean that “predicting and explaining the effectiveness of individuals in intercultural interactions has never been more important” (2006:93). Research has been conducted on competencies and skills for international managers, as well as ways in which these can be developed and assessed in individuals. Psychology-based by tradition, studies in this area have generated inventories and measures of competencies or skills as well as personality traits that these managers should possess, or be trained to acquire, in order to be effective working abroad (cf. Hammer et al., 2003, Selmer, 2001, Leiba-O’Sullivan, 1999, Zakaria, 2000, Morley et al., 2003, Matsumoto et al., 2003). One assumption within the international management literature has traditionally been that cross-culturally competent or effective individuals are those who leave one more or less unitary national culture to adapt and operate successfully within another. Thus cross-national adjustment and acculturation have been emphasized (Black et al., 1991), as reflected in the literature on cross-cultural training (Earley & Peterson, 2004,

Triandis, 1987). Such issues are clearly of ongoing importance; however, new ways of working globally and realities of intercultural exchange do not always reflect this model. Several authors point to clear differences in trends in working globally today, including new forms of work such as short-term assignments, commuter assignments, frequent international business travel and global virtual work (Collings et al., 2007; Harris & Kumra, 2000; Peiperl & Jonsen, 2007). Furthermore, in recognizing the dynamic and emerging nature of culture and cross-cultural phenomena, the ‘multiple cultures’ perspective emerging in the literature (Boyacigiller et al., 2004) has underlined the need for renewed and alternative thinking about intercultural competence. These scholars and others assert the shortcomings of conventional theory in managing across cultures, in which culture is viewed as relatively static, and instead emphasize global interconnectedness and fluidity (Sackmann & Phillips, 2004, Brannen, 2003, Appadurai, 1996, Hermans & Kempen, 1998, Alvesson et al., 2004). In view of such complexity, intercultural competence itself involves “theories of action” and “negotiated reality” (Friedman & Berthoin Antal, 2005), similar to the knowing-in-practice perspective, rather than cognition-led “adaptation” using generalized models of cultural difference. Intended to meet shortcomings of traditional approaches to bridging cultural differences based upon country-specific knowledge and exposure to different value systems, Earley and Peterson (2004) argue that “an awareness of (different cultures’) values is not a substitute for more direct knowledge of interpersonal interactions,” (Earley & Peterson, 2004:101). Their CQ (‘cultural quotient’) model includes: metacognition and cognition (thinking, learning, and strategizing); motivation (efficacy and confidence, persistence, value congruence and affect for the new culture); and behaviour (social mimicry and behavioral repertoire) (Earley & Peterson, 2004:106).

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In his work emphasizing the central importance of mindfulness, Thomas (2006) has taken the need to recognize and understand the dynamic and process-oriented aspects of cultural intelligence further than other authors. He proposes that mindfulness, defined as “heightened awareness of and enhanced attention to current experience and reality” constitutes a key linking process between knowledge and action in interculturally intelligent persons” (Thomas, 2006:84). He highlights the behavioral aspects of intercultural competence, departing significantly from earlier cognitive and traits-based frameworks. The ability to generate appropriate behaviour across situations is a key element of cultural intelligence: “culturally intelligent people develop a behavioral capability that allows them to become competent across a range of cultural situations” (Thomas, 2006:88).

Linking cultural complexity and its dynamic nature to intercultural competence in individuals, Weisinger and Salipante’s (2000) study of three Japanese-American joint venture groups found that effectiveness in intercultural situations may be understood as situation-based, fluid and emergent. Upon studying the practices of actors in the joint venture settings, the authors introduced the idea that more tacit or implicit knowing-in-practice may be of great importance in the intercultural domain, and gave empirical evidence of this through their study. In particular, they linked tacit and emergent knowledge to their observations comparing interpersonal effectiveness and success (or lack there-of) within the joint venture settings. Their approach reflects an understanding of cultural phenomena as “dynamic, interconnected, mutable and multi-layered” (Brannen, 2003:22). Weisinger and Salipante’s (2000) empirical findings support further investigation of a ‘knowing’ perspective for the intercultural domain which

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is practice-oriented and focused on repertoires of overarching behaviors. Exploring intercultural competence not from the perspective of actors’ cognitive knowledge of other cultures or from their personal dispositions, but from what they do in intercultural interactions, their findings suggest the value of understanding tacit knowledge and knowing-in-practice in this domain. Management scholars have argued for some time that tacit knowledge in addition to explicit, codifiable and cognitive knowledge can be critical to understanding what it means to be effective or competent in different spheres (Sternberg, et al, 1995, Castillo, 2002, Polanyi, 1966). Tacit knowledge cannot be easily shared or transmitted, as it is personal and deeply rooted in action, and in an individual’s involvement with specific contexts (Simonin, 1999). Some scholars emphasize the “essential ineffability” of tacit knowledge; however, others argue that such skilful knowing can be discussed (Tsoukas, 2003:426). Researchers can and should discuss masterful performances – that is, the actions and behaviors of domain ‘experts’ – so their features can be brought forward, even if the knowing itself cannot be ‘translated’ or converted in the same way as cognitive knowledge (Tsoukas, 2003). Building on such debates, Cook and Brown (1999) argue in their seminal paper that ‘knowing’ that is situated in and emerges from social practice is critical for understanding “the acquisition, maintenance and exercise of competencies by individuals and groups” (1999:382). Nicolini et al. (2003) argue that even when knowledge or knowing is viewed as individually-held, as in discussions of mastery, it is nonetheless produced through social interaction, rather than through cognitive processes residing only in the mind of the individual, as found in traditional, individualcentered social psychological perspectives on competence (Nicolini et al., 2003:22). In adapting such ideas about knowledge as a practice-based phenomenon, examining what experienced

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people do in practice in intercultural settings – their knowing-in-practice – may be a fruitful route to further an understanding of intercultural competence.

BICULTURAL CANADIANS AS INTERCULTURAL EXPERTS If there is one area in which Canada can truly be called a ‘global expert’, it is in managing diversity. Adams (2007:7)

A country of 33 million people comprising more than 200 different ethnic origins (Statistics Canada, 2008, 2006), Canada presents an interesting context within which to examine questions of intercultural knowledge. It is “the only place on earth that has a national minority group [the Québécois], an Aboriginal population, and a substantial immigrant population” (Adams, 2007:9). And while Canadians have long received and accepted immigrants into their society, they also value multiculturalism specifically as a matter of public policy. An outgrowth of this is a burgeoning population of bicultural and multilingual individuals, particularly among Canada’s younger generations today. Census data show that 13 percent of those under 25 are of visible minority (Statistics Canada, 2001 in Mata & Valentine, 1999); other research shows 45 percent of young children had at least one ethnic origin other than British, French, Canadian or Aboriginal (Mata & Valentine, 1999). While the study of biculturalism, defined as the degree to which an individual has internalized two cultures into his or her identity, has been evolving over time in the social sciences, empirical work in this area is nascent (cf. Benet-Martínez et al., 2002; Benet-Martínez & Haritatos, 2005, Luna et al., 2008). According to Stephan and Stephan (1991), people who have been ‘biculturally so-

cialized,’ have been exposed to a broader range of values, roles, norms and behaviors than those who experienced single-heritage socialization. Bicultural students in their study displayed less ethnocentricity than ‘monocultural’ students (those socialized through one culture only), and related better with monocultural groups than did monocultural individuals. Recent studies by Luna et al. (2008) link the use of multiple languages to bicultural identity. Their research showed that bilingual individuals who were also bicultural were able to ‘frame switch’ between cultures when speaking one language or another. This was not the case among multilingual, monocultural individuals. In Canada, a recent documentary that explores the first generation of Canadians growing up in the province of Quebec under mandatory French education (Godbout, 2007) shows these young people successfully navigating between multiple cultural worlds (that of their parents’ original country and that of Canada and the province of Quebec). However, while the influence of language is important to culture, biculturalism transcends bilingualism, as individuals can have divergent cultural influences yet speak the same language in both cultural contexts (e.g. English-speaking Filipino-Canadians). Biculturalism may foster ‘experts’ in the intercultural domain due to bicultural individuals’ early experiences of navigating and negotiating cultural differences in life. Their expertise is achieved, however, rather than a given (cf. Orlikowski, 2002). This draws upon Weisinger and Salipante’s (2000) call for attention to ‘knowledgeabilities’ at the level of social practices, that cross-culturally facile people employ, and the contexts in which they learned them. Similarly, Gudykunst (1997) refers to ‘intercultural persons’ as exemplars of cross-cultural bridging and understanding. The following section draws upon this theorizing to illustrate the methods used in our exploratory inquiry into intercultural experts and learning.

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METHOD To pursue these ideas, we adopted a two-part theoretical thesis (Orlikowski, 2002:256) in conducting this study. The first component involved the notion that capability in the intercultural domain may be embedded in expert actors’ actions and behaviors, as they enact this in particular situations. The second centered on the idea that this knowing can be studied by exploring the practices of such experts, in this case, young bicultural Canadians. The research design consisted of four elements: 1) purposeful sampling in the choice of participants or ‘experts’ (young bicultural Canadians); 2) the use of focus group discussions to identify critical incidents that would be meaningful and viewed as ‘intercultural’ to the participants; 3) interviews based on these incidents to enable rich descriptions by the participants; and 4) the emergent use of a comparator group of participants (monocultural, young Canadians). It is important to underline that this methodology was itself exploratory, and part of what was being examined in the study. All participants were Canadian undergraduate business students attending a major university in a diverse, metropolitan city in Canada. A student sample was appropriate at this stage, as sampling among employees in organizations based on ethnic or cultural background can sometimes prove prohibitive due to sensitivity issues or inaccessibility of data. Moreover, issues examined relate to fundamental experiences which could likely generalize to bicultural employees (Bello et al., 2009). The participants had completed one university course in cross-cultural management and so had experienced similar core-level formal training in this field. Participants responded to a short, voluntary email survey about their cultural background, asking whether or not more than one strong cultural influence had been significant in their upbringing (bicultural Canadians vs. monocultural Canadians). No current students of either author were invited to participate.

The overall sample (including focus group and interview participants) was comprised of 19 bicultural and 12 monocultural participants. All represented the first in their families born in Canada, likely making them more experienced in the distinct cultures of their ethnic or heritage group than later generations of Canadians. Both English and French speaking Canadians were represented. The participants were men and women between 19 and 23 years of age. Table 1 reflects the cultural backgrounds represented among the bicultural participants. A monocultural group was included to verify the authors’ assumptions about bicultural primary socialization informing intercultural effectiveness. While the purpose of the study was not to test the specific intercultural knowledge of the two groups of participants, the inclusion of the monocultural participants helped us counter-check our assumption that the knowing–in-practice of those we deemed ‘experts’ did not come primarily from training in the classroom.

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Stage 1: Focus Groups and Critical Incidents We elicited critical incidents in initial focus group discussions with small groups of participants in cooperative inquiry style (Reason, 1999). The purpose of these sessions was to surface situations Table 1. Description of bicultural cohort for the study (N=19) Cultural heritage in combination with Canadian: • East Asia: 5 • Africa: 3 • Middle East: 4 • South Asia: 1 • Europe: 4 • Latin America: 2

Number of languages spoken by bicultural participants: • 1 language: 3 • 2 languages: 3 • 3 languages: 10 • 4 or more languages: 3

Note: The table groups self-identified bicultural participants by region in order to protect anonymity. We did not distinguish responses as per their cultural groups.

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in which the participants perceived themselves to express or enact their intercultural knowledge. Both Sternberg et al. (1995) in their investigation of general managerial tacit knowledge, and Weisinger and Salipante (2000) in their examination of intercultural knowing-in-practice, used critical incidents as part of their study design. By definition, critical incidents refer to difficult or challenging situations. Thus, they are a useful way to study mastery and knowing. In deciding the content of these incidents, the focus group phase was deemed necessary to ensure that scenarios would be authentic, and not dependent upon our assumptions about what types of situations participants would perceive to be culturally challenging. ‘Intercultural’ was defined for the participants as involving interaction with others from different cultural backgrounds. Focus group meetings were organized in two groups and were videotaped. The first group consisted of five bicultural participants who met on two occasions with the authors. The second group consisted of six monocultural participants. Each focus group discussion lasted 1.5 hours and was conducted in English (the participants’ primary language of study). The protocol included a first step in which all participants were asked to describe in writing one or two intercultural interactions which they found challenged their own behaviour, attitudes or emotions. These examples were then shared among the group to spark further thinking and discussion. Focus group videotapes were transcribed for use in building scenarios for the next stage of research: individual interviews.

this second stage of the study. Scenario 1 situates the participant in a group of students discussing their group project. This is a routine meeting in which the group is discussing progress and planning future work. The group is multicultural in membership and an exchange takes place between two members from different cultural backgrounds. This type of situation is likely to occur in global organizations and was readily understood by the participants as intercultural. In Scenario 2, the participant is working at a community-based counseling service. He or she is visited by a middle-aged man from South America (to be varied if the participant had a South American background) who is concerned about his son’s behavior (the son has been a client of the service). The man expresses particular statements of values or beliefs that many young Canadians would likely not share (Adams, 2003). One scenario was read aloud at a time and the participant was asked to reflect upon what he or she would do in such a situation. When appropriate, participants were encouraged to expand on their thinking, to give examples from their own experience, to explain why they would take a particular action, and to explain how they would feel in the situation. Each interview lasted between 40 and 75 minutes and was conducted in English. All interviews were audio-taped and transcribed verbatim. Interview data were analyzed using a constant comparison method following Locke (2001). We used line-by-line coding or microanalysis (Strauss and Corbin, 1998) to ensure that the detail of responses was captured. The two authors independently coded seven initial interviews (five bicultural and two monocultural), then discussed and compared their results, and came to a coding scheme for subsequent interviews. As interviewing continued, framing categories were altered to account for new information, to add subtlety and specificity to the main themes emerging. The first author led the subsequent coding until the remaining 14 interviews were coded and discussed between

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Stage 2: Scenario Development and Interviews The authors formulated two scenarios using a composite of the critical incidents presented by the bicultural focus group participants. Scenarios 1 and 2 appear in Appendix A. These scenarios were used in interviews with an additional twenty participants (14 bicultural, 6 monocultural), during

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both authors. In developing framing categories, we looked for variation in the data expressing actions and feelings among the participants. We were mindful that in asking participants to say what they would do in these situations, we were approximating real, in-situ responses. However, the use of critical incidents permitted each respondent to consider a similar experience and is a chosen method in studies of tacit knowledge (e.g., Sternberg et al., 1995). The use of in-depth questioning and dialogue during the interviews facilitated the surfacing of the participants’ knowing-in-practice in these situations. Interviewing and analysis continued simultaneously until we were satisfied that theoretical saturation had been reached among bicultural participants. Both scenarios were coded within the set of framing categories.

In their accounts of how they would navigate both scenarios, bicultural participants’ responses reflected the following actions: (1) pursuing a resolution; (2) mediating among others; and (3) striving to make a difference. Within each action, evidence of the participants’ personal experience with intercultural interactions was informed by two overarching themes which we found to be embedded in their accounts: a ‘nonplussed’ but fully engaged way of reacting to perceived intercultural conflict; and a way of relating to others in the situation that can be interpreted as a combination of identifying and empathizing. This section details our findings with reference to the three action points above, and the two embedded themes. The patterns of responses among monocultural participants within each category are discussed as a matter of contrast, where relevant.

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First, it is noteworthy that bicultural participants almost universally seemed to believe the problem at hand was indeed resolvable, and they discussed working toward this end for both scenarios. Participants were positive about resolution and offered step-by-step, logical and thoughtful plans in this regard. Solutions were not viewed as desperately urgent – bicultural participants seemed to see approaching the issue with care as more important than jumping to an imposed solution. Interestingly, even those bicultural participants who deplored or did not appreciate the more controlling person’s behaviour in Scenario 1 viewed such conflicts generally as not out of the ordinary in multicultural groups, and therefore not prohibiting an acceptable resolution. The interview data for Scenario 2 also belied approaches expressed by the bicultural participants that resolution is possible in this matter. Participants seemed to believe in change for the man and aimed to influence him rather than solely to listen. Thus, despite a general suppression of their opinions at the outset (in order to listen), participants did not see their own views as irrelevant in the situation. Once the interaction gained momentum, the bicultural participants’ accounts suggested that would express themselves in a diplomatic but persuasive way. Thus, the strength of the man’s views was not seen as an insurmountable barrier to influencing him. Perhaps paradoxically, as compared with the bicultural participants, some monocultural participants seemed to see greater injustice and perceived more acute conflict in Scenario 2. They showed a greater tendency to be taken aback and seemed to struggle more to present a neutral outward demeanor. To this extent, the ease with the situation that seemed to exist for some bicultural participants was not evident among monocultural

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1. Pursuing a Resolution

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participants. Some appeared to want to solve ‘the problem’ quickly, perhaps imposing a solution and expressing a more confrontational stance, in Scenario 1. There was a tendency for people to say they would feel defensive or offended, especially among female participants for Scenario 2. Also, in relation to Scenario 2, several monocultural participants quickly became analytical and somewhat judgmental rather than attempting to engage the man in mutual understanding or a collaborative interaction: Well, he’s not really asking for advice. He is just venting. Well then I think I’d ask him up front what his intentions were or why he came to the agency.

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Some monocultural participants seemed perplexed particularly in Scenario 2; they did not speak very much when probed, ‘What would you do?’ Others said they would use listening and probing; however, they appeared more likely to slip into analysis, or speculation about the causes of the problem. The impression in some cases did not appear to be one of real connection to the man. One monocultural participant used the phrase ‘these people’ in referring to the man as a recent immigrant. Among monocultural participants, the use of analysis appeared less contextualized, more expedient, and solution-focused. Monocultural participants seemed to take a more highly analytical approach to the situations as problems to be solved. For example in Scenario 1, a more polarized view of the scenario was presented by monocultural participants; they strove to reduce the complexity of the situation and move past the conflict as quickly as possible. Some monocultural participants seemed to see more conflict in the situation in contrast to the ‘taking it in stride’ of most of the bicultural participants. At the same time, the monocultural participants’ accounts showed a higher desire to ‘take over’ in both scenarios and appeared to be less contemplative about resolution, in comparison to the bicultural participants.

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This is in contrast to the use of listening, paraphrasing and questioning which were evidence of this ‘working toward resolution’ as a theme in the bicultural participants’ accounts. Several bicultural participants spoke of the need to gain information and build trust to help build a relationship with the man in Scenario 2, which they saw as necessary in order to act further and decide a course of action. Some said they would draw upon particular experiences from their own their backgrounds, along with listening and questioning.

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I’d probably even tell him how my parents raised me and my parents didn’t come from the greatest background, but you kind of work with what you have so that you can make the best of it. Maybe that would be helpful to him, especially my parents coming from a Third World country. I think he would relate: their country was colonized by Spain; most of South America was colonized by Spain. There’s a similarity there. I would probably use that.

2. Mediating among Others Next, nearly all of the bicultural participants spoke of acting as a mediator in intercultural interactions. They saw themselves as the ones taking the initiative to improve the situation, rather than, for example, being put into any particular role by someone else. In expressing that trying to mediate was necessary, bicultural participants tended

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to say they would use probing and analysis to dissect the situation further, in recognition that it likely had cultural roots. However, in Scenario 1, while there was a strong theme of empathy and identification with the quiet exchange student, and some frustration with the more controlling student, bicultural participants did not tend to ‘take sides’ based on the evidence available. A strong theme in participants’ accounts was that playing this kind of mediator role was something they were known for among their friends and colleagues. In Scenario 1, participants generally said they would take this role for one, two, or in many cases, all three of the following reasons: first, because of the injustice they perceive in the situation and a need to equalize power among group members; second, because of their concern for getting the work done satisfactorily; and third, because they simply felt able to make a difference, as exemplified in one person’s comment: “I’d do it because I can.” Bicultural participants perceived themselves to have the skill and ability to improve the situation through acting as a mediator.

person. Finally, some identified a desire to allow the quieter person to save face as their reason for not confronting the more controlling person. I would offer my help to that person. It’s not because they don’t have ideas that they’re quiet, it might be the way things are done in their country, the way people behave.

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While some monocultural participants used the term ‘mediator’ as well, their interpretation of the role differed. In Scenario 1, they tended to perceive more conflict and aimed to directly ‘protect’ the minority member by perhaps implying that this person was not necessarily perceived as equal and able to defend him or herself.

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I think it’s important to actually become a mediator. I think I’d talk to the dominating individual and the quiet member on the side to see where they’re coming from…Not everyone is like the way you are and brought up here.

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On the other end of this ‘taking action as mediator’ spectrum, a handful of responses stand out in contrast to the general theme among bicultural participants. One participant referring to Scenario 1 said he would simply call for a break until everyone calms down. Others did not appear willing to confront the more direct, louder person either in front of the group or in private. Still, these participants found a way to intervene -- in both of these latter cases for example, the participant said they would work actively with the quieter

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You’d feel embarrassed for the person because she is obviously being put down in front of her group. I’d be in a position where I’d probably get very fidgety.

Monocultural Female This is in contrast to a theme of perceived equality expressed by some bicultural participants. As below, one participant said he would not ‘pity’ the person, implying this is an inappropriate emotion. Rather, the quieter student was an equal group member, with a contribution to make as well as an obligation to contribute to group consensusseeking: I wouldn’t be ‘oh, I pity you’ to the quiet person. I would just want to give him a chance, to hear him too. I wouldn’t say, ‘oh poor guy’. The other person’s approach might be unreasonable, but we would solve this with dialogue. You can help him but he is an equal like all the others; you have to find a way to allow him to speak.

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Bicultural Male Moreover, reasons for taking on a mediator or moderator role appeared to be different among the monocultural participants. For example, discomfort in the situation, in addition to a desire to keep the project ‘on track,’ prompted participants to act. There was also evidence of a certain paternalism in the monoculturals’ accounts, which was absent among bicultural participants, and contrasted with the latter’s intentions of addressing a possible injustice that warranted investigating. I think it’s important to just ‘keep the peace’ and ensure that your final work product, your team product, stays on track.

The foregoing suggests the ambiguity and uncertainty in Scenario 1 were not large issues for bicultural participants, unlike some monocultural participants who saw a potential argument. Also, among monocultural participants there seemed to be less empathy expressed with respect to putting oneself in the exchange student’s place. There appeared to be more emotional distance in the responses evidenced by what was not said, or in a small number of cases, feelings of resentment.

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I’ve really been in that situation a lot of times; this is definitely related to my own experiences – so I’m giving back in a way. We’re all equal. Everybody has their thing; everyone has something to deal with, something difficult…. My experience on exchange in Spain too is relevant; I welcome the exchange students here a lot; I know what it means to be someone who is foreign. I see each one as somebody else to get to know.

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and saying: ‘impossible’ or ‘too problematic’). For Scenario 1, bicultural participants saw themselves as able to have an impact, hoping to see the level of understanding among group members and the degree of fairness improved. They viewed the conflict as at least partly due to cultural differences. For example, one participant explained that she would concentrate more on the quieter person than the confrontational one to change the course of events:

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Finally, in both scenarios, the bicultural participants relayed that in navigating the intercultural interaction, they were intending to make a difference to those implicated. In Scenario 1, the majority of bicultural participants saw themselves as wanting to have an impact—whether it be through mediating or acting as a go-between for the two people directly involved in the conflict. ‘Pursuing a resolution’ as in ‘1’ above belied a view that the situation could be reconciled with intervention (as opposed to, for example, throwing up one’s hands

Bicultural Female In Scenario 2, bicultural participants also tended to see themselves as wanting to make a difference, and as able to do so. There was little expression of this among monocultural participants -- responses showed less hope for resolution, or participants did not appear to see their role in this way. While there was empathy in some monocultural participants’ responses, they tended to adopt a more confrontational stance in reporting their likely interchanges with the man. An example was through asking direct, probing questions about his views, or as one participant put it, working to “manipulate the situation” rather than understanding and then influencing. Embedded themes. Our analysis suggested further two themes which were embedded in bicultural participants’ responses, across the two scenarios. The first centered on reactions to the presence of “conflict” in general, while the second concerned how the biculturals related to

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others – their relational abilities in a dynamic intercultural context. Within the first theme, the bicultural participants responded to the intercultural conflict depicted in each scenario with a calm demeanor, while remaining engaged. They were not disturbed or made unduly anxious by the conflict but expressed views that conflict is a normal part of working in a multicultural environment. It’s the real world. You have to find a balance and make it work because not everybody is going to get along. You can’t take six very different people (Scenario 1) and expect that there won’t be conflict.

Bicultural Male Bicultural participants did not exaggerate the tension or drama of the situation. They generally validated the presence of an intercultural conflict, but did not evaluate it negatively. As one bicultural participant summed it up:

When I feel that somebody’s an outsider it bothers me, I can’t say, ‘Well, that person is just different and we’ll let them alone.’ I try to find something that brings them in.

For Scenario 2, bicultural participants related in a way demonstrating they would maintain their composure during the man’s visit. They were not disturbed by the situation and tended to view the conflict presented in the scenario as “pretty typical,” in one participant’s phrase. The situation and the man’s words were not so unfamiliar or disturbing as to cause them significant discomfort or to alter their own personal equilibrium. Rather, they seemed to keep a steady baseline state. The second theme entailed what we label the biculturals’ relational orientation. This appears to comprise both empathizing and an ability to identify with all players in the scenarios. With respect to the minority member in each scenario, bicultural participants spoke of suspending their own views and attitudes to draw out the other person. Participants’ accounts showed some identification with the minority member, based at times on their own personal experiences. In some cases, there was also an expression of aiming for fair and equal treatment of all individuals. For example, in response to Scenario 2, bicultural participants appeared to see the man’s views as culturally-based and having legitimacy, albeit perhaps differing from their own personal cultural values. Thus, there was an acceptance of his culture without agreeing with the beliefs he presented. Some participants seemed to maintain a moral stance against his views; however, this did not make communicating with the man and understanding him difficult or impossible. Rather,

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At the same time, bicultural participants’ accounts did not suggest a detachment or self-distancing from the situation. The calm acceptance of conflict as normal did not signify a lack of emotional involvement; on the contrary, many participants appeared to empathize quite deeply and indeed, used their emotions to help guide them in reacting to the scenario. For example, there was evidence of a high degree of empathy for the exchange student in Scenario 1.

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You know, when two cultures are brought together they could have opposing views but it’s not necessarily a bad thing-- it’s not wrong. It’s just a conflict.

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even in such cases, participants appeared to hold back and put the interaction into a broader context of divergent cultures, a context with which they could also identify: Maybe it could be because of the same thing with my parents coming here and passing on their beliefs...I may not necessarily agree with the things they do or the way they think but I know that this is what they grew up with, so it’s not necessarily bad. It might be different [but not]…necessarily bad when you carry your attitudes and values on to where you go next.

Bicultural Female Regarding Scenario 1, few if any bicultural participants automatically accepted a view that the quieter person’s work was necessarily ‘substandard.’ However, they equally did not jump to the conclusion that this was not the case. Rather, they assessed the situation and depending on the outcome, said they would make proposals. Several felt the likely cause of the problem was that the exchange student was taking on the wrong task for their skills or needed more time to adapt to local norms. The data also point to a strong theme of drawing on and learning from previous experience as a source of participants’ relational orientation, as illustrated here:

DISCUSSION While not purporting to give a full picture of intercultural knowing, these results lend support to the notion that studying what cultural ‘experts’ do in situations that they themselves consider to be cross-culturally challenging, may offer a promising approach to examining individual, intercultural competence. The practice repertoires were observable through the critical incident methodology, at least in part, and as such could form the basis of others’ learning. While this study included a small number of scenarios, certain patterns emerged in the bicultural participants’ responses based on recountable practice repertoires. The patterns confirm our initial assumption about the value of purposefully sampling individuals with deep experience of intercultural interaction. Outcomes concerning the distinctiveness of experts’ knowledge as compared to that of more monocultural participants, lend additional insight into this finding. The overarching themes of a calm reaction to conflict and a relational orientation towards cultural others were threaded throughout bicultural participants’ accounts. Given our findings, we would argue that in conjunction with the three actions they used to navigate the scenarios -- pursuing a resolution, mediating among others, and striving to make a difference – these can be seen as important elements of the bicultural participants’ practice repertoires. With respect to the extant literature, these findings lend empirical support to behavioral and process elements within frameworks of ‘cultural intelligence’, such as the importance of mindfulness that is central within Thomas’ (2006) conceptual model. The findings diverge from prominent cross-cultural literature, however, in suggesting that intercultural expertise can be understood as

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I myself am an ethnic minority, so I would see that part of other people, if they’re from different countries or cultures, less… if you are minority yourself then you don’t see other minorities as distinctly as maybe somebody who’s Caucasian.

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a more tacit and holistic form of knowing than is portrayed in traits-based perspectives (e.g. Hammer et al., 2003, Matsumoto et al., 2003). Their extensive and intricate experience in drawing on learning which is both local, or connected to the local dominant culture, and global or connected to different macro-cultural ways of doing and being, allowed bicultural participants a particular way of navigating the scenarios presented in this study. These participants were able to draw upon both of their cultural selves: the Canadian, which helps them relate to the dominant culture, and the ethnic/ cultural which assists them to deal with divergent cultural groups. The resulting repertoires learned over time helped them to navigate intercultural situations effectively. Expanding further the central elements of the biculturals’ practice repertoires, our findings suggest: (1) empathy is important – the bicultural participants’ approaches were underpinned by emotional engagement; (2) collaboration and working together in a context of cultural difference is sought and is seen as possible; and (3) the overall approach used by the experts rests on a neutral, inquisitive, but accepting ‘stable state’. Following Sternberg’s research into general managerial tacit knowledge, these emergent elements of good practice may be seen as heuristics or “rules of thumb” which others can emulate and thus learn or pursue in practice (Sternberg et al., 1995). The contrast with monocultural participants’ responses helps to underpin the mastery evident in these practices. As shown in our findings, differences between the two groups were evident. Other themes further characterizing the bicultural participants’ knowing-in-practice included a tendency to see oneself as a cultural being, while not being locked into a particular cultural script. The bicultural participants appeared to see themselves consciously as having a cultural identity, coinciding with their tendency to see others as cultural beings as well. While its salience was perhaps raised by the study, the authors would argue that cultural self-awareness appeared to be important

in the experts’ practice repertoire, in contrast to the monocultural participants. With reference to previous literature, this provides a fresh notion that future work in intercultural competence and cultural intelligence should emphasize. Elaborating the finding about the role of empathizing, experts’ responses included a propensity for paying attention to emotional cues and connecting to others on an emotional level, while not patronizing or pitying people on the basis of cultural difference. An ability to show community and connection seemed to be important in guiding actors in how to interact: the experts’ knowing-in-practice can be found partly in the empathetic responses which they used. Theorizing about human knowing going beyond cognitive and behavioral elements, into the emotional domain (Nicolini et al., 2003, Nussbaum, 2001) assists us in understanding and contextualizing this finding within broader scholarship on knowledge and knowing. Examined in the context of extant literature on intercultural competence, our analysis raises a question about an assumption that is often central within this literature. Our work calls into question a view that intercultural experts see cultural others initially as different from themselves, recommended within ‘adaptation’ models of intercultural effectiveness (cf. Adler, 2008). In contrast, our results strongly suggest that those with mastery in this domain employ an ‘essential similarity’ or common humanity approach, rather than an approach focusing on cultural difference first. This is evident looking more holistically at the bicultural individuals’ empathy, calm neutrality in an intercultural context, and readiness to collaborate. In the mainstream literature on managerial cross-cultural competence, effectiveness is viewed as dependent upon a first step of understanding that others are different from oneself, in order to avoid projecting similarity or responding in a parochial manner. Actors are counseled to start by assuming difference when interacting with people

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of different cultural backgrounds than one’s own (cf. Adler, 2008). Our findings challenge this notion and suggest that in counseling a more purely logical-deductive stance, the emotional dimension of intercultural knowing may be underplayed. Cognitive understanding of difference remains important, but it is perhaps not at the core of knowing or competence in this domain. Rather, identification despite difference may better characterize intercultural mastery. Thus, an implicit emphasis on ‘distance’ within competency models in the cross-cultural literature is called into question. Rather than distancing themselves, cognitively or emotionally, from people with different cultural backgrounds, our analysis suggests that experts may see a social closeness, a social equality based on a priori acceptance. The ability to see similarity first, to identify, appeared to make the bicultural participants come together with cultural others, rather than stand in initial opposition to them. More broadly, such an acceptance of what is common or shared may belie an essential inclusiveness, tied to notions of mutual belonging. Although global cultural interconnectedness and fluidity require an acceptance of shared geographical space and inclusion, this notion remains largely absent from conventional cross-cultural management literature. Several implications of this analysis are noteworthy. At a practical level, to the question, “What should someone do who is interested in becoming more expert in the intercultural domain?” we would answer: practice. More precisely, use experimentation and pushing of personal boundaries to connect at a human level with those whom you perceive to be different. As argued above, the practice repertoire elements explained above can be used as rules of thumb to guide one’s interactions in this direction. Developing empathy may not be easy or straightforward. However, recognizing that it plays a key role within knowing in this domain will assist with development of new abilities and practice repertoires.

An instrumental implication for employers and organizations is that young people with bicultural or multicultural backgrounds may be particularly well-placed to succeed in intercultural assignments. This supports the recent work by Lam and Selmer (2004) and Christiansen (2007) on ‘third country kids’ who have had broad experience of different cultural settings throughout their lives. While this population may or may not be bicultural in their own personal identities, their experience and practice have given them, according to these authors, a special kind of capability important in a globalizing business world. The approach to intercultural competence presented here can moreover inform future sourcing of talent by human resource professionals (Christiansen, 2007), as well as by individuals seeking to develop their core competencies for a global career. As with other exploratory studies, one limitation here was that the sample was limited in size, and therefore does not address the breadth of intercultural capabilities among bicultural individuals, or a comprehensive notion of intercultural competence. Moreover, participants were asked to reflect on composite scenarios rather than actual individual experiences, which would potentially provide a rich source of empirical material. However, the structured approach using critical incidents was important here to generate the possibility of comparability across responses. The scenario development process in the focus groups was designed to ensure that incidents were authentic and at least potentially meaningful to the participants. Another limitation may stem from the self-selection of participants. Those who felt more capable in intercultural interactions, perhaps receiving more positive reinforcement from others over time in this regard, may have been more willing to speak with us. The recruiting procedure followed was uniform across potential sources of participants and the final sample shows considerable diversity across cultural backgrounds. However, when recruiting, we did not specifically

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seek participants who may not enjoy operating in intercultural environments. There is a possibility that we would gain additional information to nuance the range of findings gathered in the study, if approached in this way in the future. To further explore a focus on knowing-inpractice as a promising approach in the intercultural domain, more research, possibly engaging other types of experts from other backgrounds in addition to bicultural individuals, could extend these findings. Critical incident data could be supplemented with observation of participants in their own settings. Such observations or scenarios in other milieux should again be drawn from participants’ own notions of interpersonal difficulty or challenge in the intercultural domain. For example, future studies could follow a multi-stage design in which experts were asked to write their own reflections on incidents which they saw as critical within their own recent practice. We see rich possibilities for future research using these types of methods, and drawing on a broader range of research to be done with bicultural individuals, as well as other groups of potential intercultural experts. These may include global managers with extensive experience in working interculturally on an international scale, or ‘third country kids’. Studying what these actors do in practice will assist in substantiating, for example, the importance within intercultural knowing of identification despite difference, that is, of ‘seeing’ human similarity in advance of, or simultaneously with, cultural difference. Further, a knowingin-practice approach can support a progressive research agenda following the multiple cultures’ perspective (Boyacigiller et al., 2004), recognizing the dynamic and emerging nature of culture and cross-cultural phenomena, reaching beyond cognition, and building understanding in this important area of global knowledge.

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ENDNOTE 1



As stated in the text, this term is used to denote a participant who has self-identified as having a single macro-cultural influence in her/his upbringing and socialization.

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APPENDIX A: SCENARIOS Scenario One In this scenario, you are a member of a project group with people of several cultural backgrounds. There is a variety of levels of English competency in the group, and several members speak a second or third language as well. Two group members in particular seemed more controlling in their behaviors; you noticed that they were the ones who perhaps spoke English best. One of the two often spoke of how he was from the Italian part of [city] and spoke excellent English and French, as well as Italian. He seemed a warm person despite his somewhat dominating tendencies, maybe because of his body language, which you found to be quite friendly in that he liked to stand close to people and was quite tactile, but not in an offensive way. One group member in particular was quieter than the others. He/she was an exchange student from Eastern Europe (or Southeast Asia, or elsewhere), and seemed to have less English proficiency than the others. During one meeting, one of the more controlling people, the person with the Italian background, was very direct in his feedback to other group members. He spoke loudly to everyone, complaining that the project deadline was coming soon, and then focused his attention on the quieter person. Standing closely to her (him), he said loudly directly to her that he was completely unsatisfied with her contributions so far. He said her work was not up to standard and he didnt see how she could submit it to the group. All group members were present. Everyone was quiet except the one controlling person. A third person who you had come to know in the group leaned over and whispered to you: why doesnt she speak up for herself?

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[Note: the sex and cultural origin of the quieter person in this scenario was altered randomly in the interviews.]

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You are involved in a community-based counseling service where you work part-time. The agency is on the south shore in [city]. Most of the clients are referred to your agency by other social groups in the community. Recently, a middle-aged father from South America came in and began explaining to you his frustrations and concerns about his son who is getting into trouble. The man talked a lot about his culture in his country of origin, which he had left six years previously; he talked about his family, his experiences, and his values from South America, but very little about his experiences in Canada. He used many phrases like the following: Im the man of the family so I should be in charge; my wife should listen to me; a man has to be the one to make decisions in the family; no matter what the children think, they have to listen to me, Im the father. This mans son has been your agencys client, although you dont know either the man or his son. • •

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An Exploratory Study in Japan

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Kathrin Kiesel University Eichstätt-Ingolstadt, Germany Parissa Haghirian Sophia University, Japan

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Exposure to other cultures is common through extensive travel, living in ethnically diverse environments, attending universities abroad, or having work assignments in other countries. In places like the US, more and more people cannot fit themselves into certain ethnic categories, thinking of themselves as being “mixed” (Goldstein & Morning, 2000) or bicultural. This phenomenon has been recognized and researched increasingly in recent years. One aspect is the question on how different societies deal with bicultural people. In this chapter, the authors investigate individuals with a bicultural family background and investigate how this biculturality reflects on their role in business. The survey presented in this paper investigates the relevance of bicultural skills and consequently the roles that bicultural managers play in multinational corporations. To investigate this issue the survey was conducted among managers who had one Japanese and a Non-Japanese parent and worked in a multinational corporation in Japan. Japan was chosen, because it is a more controversial issue in Japan than in other industrialized countries.

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INTRODUCTION Exposure to other cultures is common through extensive travel, living in ethnically diverse environments, attending universities abroad, or having work assignments in other countries. Even people who have not traveled abroad are exposed to other

cultures through TV, movies and class work. Some places in the world are highly multicultural, due to either historic mixture of cultures (e.g., Hong Kong or Singapore), or high levels of migration (e.g., New York). Moreover, cultural “diversity” has moved from just being a process of including different people from different countries to a team

DOI: 10.4018/978-1-4666-0306-6.ch003

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Bicultural Managers and their Role in Multinational Corporations

or a school classroom to being a process that occurs within an individual (Bunderson & Sutcliffe, 2002; LaFramboise, Coleman, & Gerton, 1993). In countries such as the USA, increasingly more people cannot fit themselves into certain ethnic categories, instead thinking of themselves as being “mixed” (Goldstein & Morning, 2000) or bicultural. This phenomenon has been recognized and increasingly researched in recent years (e.g., Hong, Morris, Chiu, & Benet-Martinez, 2000). The development of a new “global” culture with people who are distinctly international is being discussed by some scholars (e.g., Anthias, 2001). Early research on biculturals suggests that individuals must surrender their identity with one culture to identify with a new one (LaFramboise, 1993). Today, it is the prevailing opinion that individuals can internalize more than one culture without losing their original cultural identity. In other words, they can maintain multiple cultural systems within themselves. Bicultural individuals can identify with two distinct cultures and their values, attitudes, beliefs and behavioral assumptions. So they can easily operate within and between those cultures (Hong, 2000, LaFramboise, 1993, Phinney & Devich-Navarro, 1997). Hence, biculturals not only bring the knowledge of their dominant culture, but also the hidden abilities to understand and bridge between other cultures (Brannen, 2009).

From a psychological viewpoint, there is more than one definition of biculturalism. Loosely defined, a bicultural individual is somebody who labels himself e.g. ‘I am bicultural’ or ‘I am Japanese-American’ and this reflects their cultural dualism. More strictly defined, a bicultural individual can be described as having internalized two cultures and both cultures are alive inside of him or her. Accordingly, both of these cultures guide biculturals’ thoughts, feelings and behavior (Benet Martinez et al., 2002; Hong et al., 2000; LaFramboise et al., 1993). This implies that internalized cultures are not necessarily mixed, and adopting a second culture does not always mean replacing the original culture with the new one. Furthermore, it is believed bicultural individuals can combine cultural norms from two groups into one behavioral repertoire (Rotheram-Borus, 1993), or they are able to switch between cultural schemas, norms, and behaviors in response to cultural stimulus (Hong et al., 2000). It should be noted that bicultural competence is related to, but different from, cultural intelligence (Earley, 2002; Earley & Ang, 2003). Cultual intelligence is defined as “a person’s capability to adapt effectively to new cultural contexts” (Earley & Ang, 2003, p. 9). Biculturalism refers to the presence within an individual of two cultural systems (Benet-Martinez et al., 2002; Hong et al., 2000; LaFramboise et al., 1993). Although biculturalism may contribute to cultural intelligence, cultural intelligence does not necessarily require biculturalism. Additionally, whereas cultural intelligence focuses on one’s ability to work in a foreign culture, bicultural competence can have a bigger impact such as enhancing cognitive, emotional, and behavioral flexibility within the individual’s original culture as well, not just in the second culture (Friedman & Liu, 2009).

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Bicultural Competence Sundberg and his colleagues (1978) defined competence itself as the personal characteristics (knowledge, skills, and attitudes) leading to achievements which pay off in significant environments. “The notion of adaptation points to the need to assess both the motives of the person and the demands and resources of the environment” (Sundberg et al., 1978, p. 196). Therefore, defining bicultural competence relates to biculturals’ capabilities to respond to contextual and situational demands. Cross-cultural psychology and international management literature both have an impact on the concept of bicultural competence. The literature on cross-cultural psychology talks about the antecedents of biculturalism rather than measuring it in a current cross-cultural business context. For example, LaFramboise et al. (1993) concentrates on a bicultural’s psychological well-being when living in between two cultures (e.g. immigrants and Native Americans in the USA). BenetMartinez et al. (2006) discovered that biculturals are able to switch between dual cultural schemas and have a greater cognitive complexity than are monocultural individuals. Those researchers give some insights about the construct of bicultural competence, but their definitions are only culture-specific. Little research is available in the international management literature on bicultural competence. However, Friedman and Liu (2009) assume two main elements of bicultural competence: adaptability and boundary spanning. Their definition is quite narrow, but suggests biculturals have the ability to behave appropriately in cross-cultural business contexts by using their dual cultural schemas. Other researchers believe biculturals have higher levels of culture-general skills like cultural metacogniton (Brannen et al., 2009; Thomas et al., 2008). Hence, biculturals can manage complex interactions and act more effectively in multicultural context.

These skills seem to be of great importance for modern corporations, which often operate in more than one cultural environment, and are increasingly searching for employees with multilingual and intercultural skills. Whether biculturals have an influence on effectiveness in international organizations yet has to be explored. For example, abilities of biculturals such as operating across cultural contexts raise a number of questions for international management. Those questions and the lack of research in this area suggest exploring the role of biculturals for multinational corporations. As many multinational corporations face problems with culturally diverse subunits, the growing proportion of biculturals in the global workforce could provide companies with hidden skills in this area (Hong, 2010).

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BEING A BICULTURAL MANAGER IN JAPAN The survey presented in this chapter investigates the relevance of bicultural skills and, consequently, the roles that bicultural managers play in multinational corporations. To investigate this issue, the survey was conducted among managers who had one Japanese and one non-Japanese parent, and who worked in a multinational corporation in Japan. This arrangement was chosen because the issue at-hand is more controversial in Japan than in other industrialized countries. In Japan, an individual is only considered Japanese if he or she is ethnically 100% Japanese, and if the person was raised in Japan and learned how to act and think like other Japanese (Kanno, 2003). Japanese government statistics (as from 2006) state that 98% of the people in Japan are ethnically Japanese—a fact which makes the country very homogeneous (Creighton, 1997; Liddell, 2010). However, the number of international marriages and children with one foreign national parent is increasing in Japan. In 1980, there were only 5,545 recorded international marriages in Japan

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compared to 49,000 in 2006, which accounts for 6.6% of all marriages in Japan (Japan Times, 2008). Additionally, a survey by the Health, Labor and Welfare Ministry showed that one of every 30 babies born in Japan in 2006 had at least one parent originating from overseas (ibid.). The survey indicates there are an increasing number of foreign nationals who came to Japan to work or study and have now settled in the country. The number of multiracial individuals is, therefore, growing in Japan. Despite this, non-Japanese citizens and individuals with only one Japanese parent still stand out and are often stigmatized in Japanese society. One of the earliest terms describing halfJapanese people was “ainoko”. It describes a child with parents from two different races, and became common after World War II. However, this label implied social problems such as poverty, impurity, and discrimination. In the late 1950s, the word was slowly replaced by “konketsuji”, which literally means child of mixed blood. But this label also became taboo because of its negative connotations. One must note both labels emphasize blood impurity and that half-Japanese are separated from the majority of Japanese (Hafu Japanese, 2010). Today, people in Japan of mixed parentage are typically called “hafu”. This label comes from the English word “half” which indicates ethnically half-Japanese. “Hafu” has almost become an “ethnic group of some sort within Japan (…), it is not only a description but an entity in itself” (Hafu Japanese, 2010). However, the “hafu” image portrays an ideal type because most of the “hafus” are bilingual, have international cultural experience, and have western physical features which make them prominent, particularly because of their increased appearance in Japanese media (e.g. Betros, 2010). Some parents of half-Japanese children believe “half” implies that someone is not complete, seems diminishing, and is an epithet of “half-breed”. Therefore, the new term “daburu”, deriving from

the English word “double”, emerged in the 1990s. Some traditional Japanese views denote this “contradicts every convention of Japanese modesty in language, the most important being the tradition of placing yourself and your family in a humble position to others” (Kosaka, 2009, p. 1). So, the label “daburu” is rarely used by “Hafus” themselves due to its overemphasis (…) and many feel that “Hafu” is acceptable (Hafu Japanese, 2010). “Hafus” are still regarded as non-Japanese in Japan due to the collectivist and conformity thinking of the Japanese society. Nationality defines who belongs to which nation, but this is just considered from a legal viewpoint. On a social level, half-Japanese have to face ethnic and racial hurdles (Hafu Japanese, 2010). They are often “regarded as misfits who (…) [do] not know how to conform to the Japanese norms of behavior” (Kanno, 2003, p. 18). Therefore, many “half” Japanese are confronted with personal challenges concerning their identity and their family history from very early age. Since the number of bicultural marriages and the number of bicultural citizens is increasing, many of them do grow up in the more international environment of Japan`s bigger cities, attend international schools and universities in Japan, and after graduation enter multinational corporations where they are hired for their bilingual and multicultural skills. However, in many cases the unique situation of growing up biculturally in Japan has made them very sensitive regarding bicultural issues.

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EMPIRICAL STUDY For this study, ethnically half-Japanese individuals were interviewed. The interviews were conducted in June, 2010. In total, five bicultural individuals with half-Japanese and half-Western origins were interviewed in a one-hour interview. Table 1 lists the individuals who were interviewed during a time span of two weeks in June,

Bicultural Managers and their Role in Multinational Corporations

2010. The interviews were all conducted in Tokyo, Japan, in the districts of: Meguro, Marunouchi, Harajuku, Shibuya, and Yotsuya. Out of the five interviewees, two were female which results in an almost equal distribution between the sexes. The half-Japanese interviewees were between 24 and 33 years old, and they have all been working in Japan for at least one year. To diversify the sample, some of the interviewees have spent most of their lives in Japan, while others came to Japan only a few years earlier. Moreover, the environment in which the interviewees work differs from very Japanese to very international, from Japan’s biggest sogoshosha1, to a domestic English magazine. The interviewees work in business fields such as investing, IT and design, news, and recruiting. Most interviewees feel comfortable in between both cultures, they know and understand them, and they are able to adapt their behavior according to social contexts. In this manner, the interviewees can keep a positive, bidirectional relationship with their two internalized cultures. Although they have this positive relationship with both cultures, all of them mentioned they felt like foreigners in the homogeneous Japanese society, and sometimes they do not feel accepted. I-A and I-C spent many years in both cultures (at least 10 years). However, I-B, I-D and I-E mainly spent their lives in one culture (England, Germany, and Japan). Accordingly, I-A and I-C felt comfortable in both cultures and can effectively alternate

between them. I-B, who has spent most of his life in England, does consider himself to be “not that mixed”. I-E feels more attached to Japan where she grew up, but due to her international upbringing she can relate more to her international friends. All interviewees vary in their level of bicultural competence, but most of them know and appreciate culture-specific characteristics of social behavior well, and can therefore use appropriate behavior in cross-cultural interactions. Because they adapt their behavior to social contexts, they tend to be accepted and trusted by fellow individuals. It appears the length of time which was spent in both cultures is directly related to the level of bicultural competence. I-C and I-A, who have lived at least 10 years in both of their internalized cultures, confirm that it also appears the parents have a large impact on the level of cultural-specific knowledge and the level of language proficiency of the respective interviewees.. I-B and I-D both spent most of their lives in Europe, where I-B had little Japanese cultural influence from his father who also never talked with him in Japanese. However, I-D learned much about the Japanese culture such as food, rituals, and daily practices, and his mother spoke Japanese with him. It also became clear that bi- or multilingualism plays a central role in the concept of bicultural competence, which will be discussed in later chapters.

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Table 1. List of interviewees I- # A

IV- #

Date/Time

Place

Gender

Age

Origin

Company

Business Field

06/12/10 17:45

Meguro, Tokyo

Female

25

English/ Japanese

Finance News Network

news

2

06/14/10 17:30

Harajuku, Tokyo

Male

28

English/ Japanese

Recruitment company

recruiting

C

3

06/15/10 14:00

Marunouchi, Tokyo

Male

33

Spanish/ Japanese

Japanese Trading Corporation

investing

D

4

06/18/10 16:30

Shibuya, Toyko

Male

28

German/ Japanese

Japanese Design Company

IT/design

E

5

06/23/10 14:00

Yotsuya, Tokyo

Female

24

American/ Japanese

English Magazine based in Tokyo

editorial

B

1

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Experiencing Differences between East and West In the following section, we will provide an overview on the results of the survey conducted. Since the investigation is explorative, we will mainly discuss aspects of biculturalism, which seem most important to the participants of the survey.

“Everything is Different Here”: Comparisons The difference in management style between Japan and the West seemed to be an important topic for the interviewees. All of them strongly observe the work environment and mainly note cultural difference between their colleagues, superiors, or subordinates. All five respondents emphasize how “Japanese business (…) is very unique to the world”. They highlighted problems they faced and experiences they made working in Japan with Japanese and international coworkers, bosses, clients, etc. The main topics concerning them were direct and indirect communication, the holding of meetings, and prioritizing work over life. The statements of the interviewees about those topics will be summarized in the following. The difference in communication was a central topic for all the interviewees and they mention it is one of the main problems in the team. I-A describes her American boss as “really pushing and digging for (…) answers” and even “shouting (…) to get certain information”, whereas the Japanese are “more polite”. All the interviewees agreed that people from the West are more “straight forward” and Japanese have a difficult time to say their opinion and speak directly. This difference can cause problems in cross-cultural interaction:

Moreover, I-C highlights it is difficult for Japanese people to express their opinion, and there is a difference in what a Japanese person says and what he thinks. They are “very ambiguous people”. Another topic occupying the respondents was the number and the length of meetings they must attend. I-D stresses that “you go to meetings and (…) half of the people are almost sleeping and you (…) ask yourself what am I doing here”, everything “takes a long time”. He feels that sometimes “an email is just enough. We don’t have to have a meeting for every small (…) issue”. I-A agrees with him and explains there is always a long “line of communication, sometimes this creates confusion and everything is so slow”. So, sometimes they “wish there would be more direct communication and you could (…) get to the (…) final result” faster. However, the interviewees also see a positive point about the many meetings that they have to be present at: “You’re faster when you can decide more by yourself but there’s also more potential of mistakes” and “everybody kind of knows what’s going on and that’s important[as well]”. In addition, sometimes “really good ideas develop out of this just thoughts, that did not seem to be related at all”. In a similar sense, I-B explains:

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Americans, because they’re too direct, they’re too forceful and their way of doing business is not settle, it makes (…) [Japanese people] feel pressured

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you’ve got a central point in the Japanese meeting and people talk all around it with like vague references to it or sometimes not at all. Everyone knows where to stand for that matter from that without saying I think this, I think that. According to I-C and I-D, work is the “first priority in Japan” and Japanese are very “passionate” about it. I-D explains that “they take work very personal (…). [They do not work] for money,” it is what they are. Everyone does late hours “even though it’s not necessary”, “but it’s also a different way of working, (…) a whole different philosophy”. I-A regrets that work is the number one priority for many Japanese people. He thinks they should “respect the family” more, such as do the Spanish.

Bicultural Managers and their Role in Multinational Corporations

In other topics, the respondents narrated in the interviews the manner, for example, in which business cards are exchanged, or the fact that the “relationship [with a business partner] is very important” in Japan. I-A and I-C mentioned that Japanese people are more risk-averse compared to English or Spanish people. Japanese always try to shy away from responsibility. They always say ‘please refer to my superior’. (…) English people fix it on their own Most Japanese are very efficient when they get “clear instructions”, but cannot deal with solving a vague problem. An “English person is more (…) proactive” when it comes to such a situation.

“I Come up with Different Ideas”: Using Bicultural Skills in the Multinational Workplace

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Bicultural individuals can adapt their behavior to various social contexts because they understand culture-specific characteristics, such as the differences in communication between Japan and the USA. Even if bicultural skills are often not clearly defined, using and applying the language and cross-cultural communication skills seem to be an important part of bicultural managerial work. Regarding the question concerning their bicultural skills, most interviewees answered their bilingualism gives them a real advantage. Moreover, it is not only “speaking Japanese (…) [but] of course understanding what the other one wants to say. Communication is not only words”. I-A adds that “being bicultural is to be more understanding or more accepted of people” and I-E explains that “it helps if you’re more familiar to the people” to truly understand them. All interviewees agreed they have a real advantage compared to those who learned Japanese, but are not native speakers of the language. Therefore, they can understand the interlocutor in-depth and assist a company with cross-cultural interactions.

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I-C addresses the skill of bringing fresh air into a company, because in his opinion people with different points of view can make better decisions such as those concerning the implementation of an investment. Similarly, the literature states that biculturals are more likely to approach the same issues from different angles or perspectives (Benet-Martinez et al., 2006), are therefore more flexible in problem solving (Leung et al., 2006) and make more “fully-thought-out decisions” (Friedman & Liu, 2009, p. 342). Bicultural competent individuals have tacit knowledge about the culture which is learned through socializing and interacting with others and is deeply embedded in somebody’s consciousness (Brannen, 2009). Furthermore, Ng and Van Dyne (2001; also Torelli, 2006) explain that Asians tend to be influenced by the majority’s opinion, while Westerners are more likely to base decisions on their own preferences and needs. They suggest biculturals are likely to think about both sets of considerations when making a decision. I-C calls this his “bicultural imagination skill”. It is questionable if this is a skill special to bicultural individuals, but the other individual mentions that due to their different backgrounds, they are aware of more viewpoints, and can therefore develop new ideas. I-D narrates that “ideas are (…) based on experience. (…) I assume you can come up with different ideas, different results” when you have a bicultural background. “Sometimes I come up with an idea [my Japanese coworkers] did not have”. This is consistent with Bunderson and Sutcliffe (2002) who state that biculturalism should increase the range of ideas, because a bicultural individual already brings an intra-personal diversity of views to the team. That wider range of ideas and information is a fundamental ingredient to decision making. Additionally, some interviewees emphasize their skill to mediate in cross-cultural interactions and assist in cultural or linguistic misunderstandings to avoid major conflict. In a similar sense, I-C narrates:

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I am between the [foreign] customer and the [Japanese] engineer, so at that time I feel, oh, maybe this is my sort of skill or function

The German side [wanted] (…) this feature but [they] (…) don’t think it’s needed. (…) [So my co-workers] ask me for advice sometimes.

The definitions of bicultural skills are very diverse. Most noted are language skills, which are extremely important because Japanese is considered a very difficult language to learn. Being able to speak Japanese fluently leads to a competitive advantage in the firm. Other aspects such as bicultural skills are often very subjective. They range from “understanding both sides” to mediation when conflicts occur.

Hence, I-D feels like an important part of the group. I-C also highlights he assumes the role of a “cultural advisor”. His team members ask him how to confront culturally different clients, and what he thinks about problems, investment decisions, etc.:

Bicultural Managers and their Roles in Multinational Corporations “I’m the Cultural Advisor”: Bicultural as Cross-Cultural Experts and Advisors

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They expect me to give some new idea, some new opinion. So they always ask me what’s your opinion, what do you think?

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His Japanese coworkers asked him for advice after they could not improve the outcome in one of the Brazilian factories. They tried to pressure the Brazilian people to work faster, which resulted in their resistance to even go to work. I-C proposed an incentive system which ultimately worked best. Consequently, it can be said that people trust him, like to communicate with him and seek his advice. Biculturals’ impact on team effectiveness depend on how related they are to the team’s composition. They might work effectively in a team with members from both of their internalized cultures, but it is questionable whether they can impact upon the effectiveness of a multicultural team positively. I-C states that his bicultural flexibility not only facilitates him to build ties between Latin American or Japanese people, but also “between other countries”:

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Most of the interviewees mentioned it is easy for them to build up social ties with people from other cultures. One reason might be that other people are curious about bicultural individuals and their different backgrounds. Moreover, the cognitive, emotional and behavioral flexibility of biculturals makes it easier for others to connect with them. Throughout the interview, I-C highlights it is his flexibility that creates smooth interactions with a variety of people. Additionally, I-A mentions because she “can understand both sides better”, she can communicate without difficulty, and people trust her. Therefore, it is possible for her to close structural holes inside a team and bring the team members closer together. It is trust that makes knowledge transfer in a team possible. This can also be seen in the statements of the interviewees. Three participants accented their colleagues respect and trust them, and as a result consult them when they have questions regarding culture. I-E mentions she had to explain “Japanese niche stuff that [her colleagues] (…) couldn’t understand and that’s when [she] (…) would come in and try to explain it to them”. I-D exemplifies this in a similar sense:

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Even if I don’t have any relationship with Chinese, well maybe from my experience of my life, to be bicultural means very flexible. I-D articulates that “knowing that there are at least two sides, you know, then there is also the possibility of a third side, fourth side, and so many sides”. This makes him more open to communicate and connect with people from all over the world. According to I-A, she is also “naturally kind of curious about (…) [others and she] really

Bicultural Managers and their Role in Multinational Corporations

wants to know what they have experienced in their lives”. This helps the bicultural interviewees to build up relationships and create trust not only with the cultures they know. Finally we can say that, bicultural managers play and important role in cross-cultural communication and solution development within their teams which is critical for the team’s effective knowledge transfer and therefore its effectiveness.

“I’m the Buffer”: Bicultural as Conflict Mediators Biculturals often do not only find themselves in a role in which they explain other cultures, but often they are asked to solve conflicts and problems in the field. The role of cultural advisor mostly leads to another one: The role of a cross-cultural conflict mediator. I-A narrates that:

I-B and I-E work in a very international environment, and the Japanese employees as well as the Western employees have a certain amount of experience from both cultures. The companies deliberately chose employees who studied abroad and who are bilingual.

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Japanese people adapt really well in our company and they are really straightforward (…) and Americans (…) are not as blunt, (…) so both parties kind of come forward and adapt

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Hence, everyone is more lenient when it comes to problems or misunderstandings. As a result, conflicts do not arise that often. Nevertheless, there are many companies where the employees have only experienced their majority culture and it is difficult for them to understand another person’s way of communicating or solving problems. During the interview, I-A thought of a situation experienced by her half-Japanese boyfriend, who also works for Bloomberg. A Japanese employee working in sales could not sell a product to a regional bank in Japan. The American boss reacted uncomprehendingly because the product sold so well in other countries. I-A’s boyfriend tried to mediate between both parties, and explained the markets work differently. The boss just told his Japanese employee that he had not been selling it correctly, and he should therefore try harder. Subsequently the Japanese co-worker quit his job. In another example, I-A narrated the following story: The top sales manager in Japan presented the latest sales figures and explained recent activity in the market. The American global head of the company did not comprehend what was being said because he spoke with an accent and not very fluently. Due to the language problems, the global head underestimated the employee’s competence and told everybody: “I don’t understand what he’s saying, next!”. Most people who attended the meeting could have translated, but they were shocked and the conflict could not be solved. So, biculturals cannot necessarily mediate

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Communication (…) is the main problem (in my team) but I don’t think it’s a constant issue, it’s not a problem that escalades. (…) It can blow out to misunderstanding/ argument but most of the times it’s quite well contained

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The reason such problems do not escalate might be the biculturals’ ability to mediate between conflicting parties. Three interviewees mention they often stand between their Japanese client and their Western boss. I-A’s superior, for example, wanted her to pressure her client to get certain information, but she always stayed calm and polite so as not to offend anyone. Hence, she describes herself as being “the buffer” in such conflicting situations. She turned out to have “a huge argument” with her boss about how to talk and deal with clients. But, he finally acknowledged the fact that she has the cultural specific knowledge about Japan, and not he. He trusted her because of her bicultural competence. Like the ability to span boundaries, it requires a kind of emotional and cognitive flexibility to adjust oneself to the way the disputing parties think and to mediate a conflict.

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in all situations of conflict. They would need to have culture-specific and culture-general skills to built up trust, or rather “bicultural competent”. It also might be difficult to speak out against someone on a higher hierarchical level. Consequently, it can be said biculturals can only play the role of conflict mediators with a high bicultural competence, and the hierarchical level of the conflicting parties has a great impact on the outcome of the conflict. This can influence the effectiveness of the team positively, but the bicultural individuals are not always satisfied with such roles. It might be difficult for some to be placed between two conflicting parties. Similarly, I-A points out it was “really, really difficult” to act as a “buffer” between her shouting American boss and her intimidated Japanese client with whom she wanted to keep a good relationship. Furthermore, some interviewees are not fond of some of their duties such as translating for their colleagues. I-D mentions because of his well-developed English skills, he is required to do translation work sometimes instead of working on his project. Another interviewee expresses the same concern:

ANALYSIS The origin of this research project was to define biculturalism and provide a summary on previous research regarding biculturalism. Hong’s (2010) work is central to this study, and suggests only the combination of culture-specific and culturegeneral skills lead to bicultural competence. Furthermore, she proposes a bicultural competent individual can assist a multicultural team to be more effective by playing roles such as “boundary spanner” or “conflict mediator”. In this chapter, the authors attempted to investigate this aspect in greater detail analyzing qualitative interviews with ethnically half-Japanese individuals, working in Tokyo, Japan. In the interviews, the bicultural managers were asked about their experiences working in a multinational firm in Japan. The analysis of the interviews led to new insights about roles of bicultural managers in a modern workplace.

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It tended to be my responsibility to get those Japanese stories, translate them into English (…) to raise awareness of [Japanese] reporters to New York. So basically I helped them to get a pay raise. So that was really, really difficult

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Therefore, being engaged in translation work bothered some of the respondents because it did not develop their careers. However, I-E knows and appreciates that she is “a great translator and interpreter”. This is one reason why she got hired for the job, and enjoys her tasks. These examples show the role of biculturals in multinational organizations are not only limited to cross-cultural mediator and communicators, but that they also play an important role in mediating cross-cultural conflicts.

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Positive Effects of Being Bicultural All interviewees describe positive effects about being bicultural and felt comfortable living inbetween two cultures. This echoes the prevailing opinion in literature about biculturalism today (e.g. Benet-Martinez et al., 2002; Hong et al., 2000; LaFramboise et al., 1993). Some of them merely experienced some difficulties when they were teenagers, asking themselves where they really belong, and sometimes struggled dealing with bullying schoolmates. Everyone copes differently with growing up between two cultures, so there is no universal answer on how biculturalism affects an individual’s well-being. However, the level of bicultural competence is crucial for having a positive relationship with both of one’s internalized cultures and being able to adopt one’s behavior according to social context (e.g. Hong, 2010; LaFramboise et al., 1993).

Bicultural Managers and their Role in Multinational Corporations

Similarly, the bicultural competent participants of this study saw their heritage as a great gift compared to the participants with a lower level of bicultural competency, who pointed out some disadvantages about being from two cultures. Nevertheless, all interviewees regretted they will never be completely accepted in Japanese society even if they have spent all of their lives in Japan. Therefore, it is very difficult for them to get a job in a domestic Japanese company, and some of the bicultural individuals suggested it is a greater advantage to be bilingual and not necessarily bicultural. The respondents did view the dual language proficiency as a primary skill in contrast to monocultural individuals, and this skill gave them a competitive advantage in the job market. However, in Multinational Corporations (MNCs), they can also utilize their other bicultural skills and help communicate in cross-cultural negotiations. Hence, they can act as the missing link between culturally diverse corporate subdivisions. This is possible by playing roles such as boundary spanner or conflict mediator (Friedman & Liu, 2009; Hong, 2010). The interviewees mentioned they can build ties with others easily, and therefore they tend to be respected and trusted more. They are able to span boundaries and therefore improve the knowledge transfer within the team. From the narratives of the participants of this study, one could learn that biculturals are able to enhance team processes with their cognitive, emotional, and behavioral flexibility.

they are in a better position to empathize with and understand disputants, and therefore help resolve those disputes (Friedman & Liu, 2009). The evidence given, based on the narratives of the interviews, suggest even the bicultural competent participants of this study sometimes experienced problems resolving such conflicts. Because of their culture-specific and culturegeneral knowledge, some misunderstandings are prevented from escalating, but there are some conflicts they cannot solve. This is due to the different hierarchy levels of the disputing parties. Speaking out against a superior is more difficult than against a coworker who is on the same level of the company’s hierarchy. Another aspect is the bicultural competency of the individual. Being bicultural refers to growing up in a bicultural environment. Whether a bicultural individual develops a deeper understanding of the cultures in which he or she grew up, and how this knowledge is applied in a professional context, is a very subjective matter. Often, the interviewees felt it is difficult to be in between two parties, and that it is their task to mediate conflicts. Bicultural skills do not automatically include mediations and conflict solutions skills. Not being able to cope with expectations in this field, can cause a lot of stress for bicultural managers. By analyzing the results, we can assume biculturally competent individuals obtain and retain certain roles that positively impact the effectiveness of a team; however, it is questionable if the biculturals appreciate playing those roles. From an organizational perspective, we can conclude biculturals provide obvious advantages in a diverse workplace, and can therefore enhance team effectiveness. In turn, this eventually contributes to an organization’s overall success. However, for the bicultural manager, the roles provided by the organization often involve situations perceived as emotionally stressful.

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Stressful Effects of Being Bicultural The role as cross-cultural expert and advisor has a one major liability. Biculturals are very often also consulted when cross-cultural conflicts of communication problems occur. One solution is to mediate between conflicting parties because

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OUTLOOK AND FUTURE RESEARCH AVENUES These initial, exploratory results indicate the topic of bicultural managers in multinational corporations requires further research. The main questions investigated include: • • •

How can or should bicultural skills be defined? Which aspects of bicultural skills are most important for multinational organizations? How can bicultural skills be identified and leveraged not only in people with a bicultural upbringing, but also in other staff?

Another aspect which should be investigated in the future is the question of whether bicultural managers are able to change their roles in the corporation, or whether they are limited to the role of cultural experts and mediators. Therefore, long-term studies on these issues are required.

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Kanno, Y. (2003). Negotiating bilingual and bicultural identities: Japanese returnees betwixt two worlds. Mahwah, NJ: Lawrence Erlbaum Associates.

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Kosaka, K. (2009, January 27). Half, bi or double? One family’s trouble. Japan Times. Retrieved July 9, 2010, from http://search.japantimes.co.jp/cgibin/fl20090127zg.html

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LaFramboise, T., Coleman, H., & Gerton, J. (1993). Psychological impact of biculturalism. Psychological Bulletin, 114(3), 395–412. doi:10.1037/0033-2909.114.3.395

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Leung, A. K.-Y., & Chiu, C. Y. (2006). Multicultural experience, idea receptiveness, and creativity. Journal of Cross-Cultural Psychology, 41(5-6). Retrieved August 2, 2010, from http://jcc.sagepub.com/content/ early/2010/03/03/0022022110361707.full.pdf

Sundberg, N. D., Snowden, L. R., & Reynolds, W. M. (1978). Toward assessment of personal competence and incompetence in life situations. Annual Review of Psychology, 29, 179–221. doi:10.1146/annurev.ps.29.020178.001143

Thomas, D. C. (2008). Cultural intelligence: Domain and assessment. International Journal of Cross Cultural Management, 8(123), 124–143.

Torelli, C. J. (2006). Individuality or conformity? The effect of independent and interdependent selfconcepts. Journal of Consumer Psychology, 16(3), 240–248. doi:10.1207/s15327663jcp1603_6

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Sogo Shosha (総合商社) is a general trading company. It is unique to Japan and handling a wide range of products and materials (Haghirian, 2010).

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Organizational Culture and Organizational Effectiveness in a Global Context Andrea Banto Argosy University, USA

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Globalization increased the expansion of multinational corporations to countries on all continents leading to growth. Companies like Wal-Mart, Southwest, and Apple survived and prospered when other similar companies failed. What made them so successful? It might be a combination of many things, but the most important piece in this mix is their organizational culture. From the global perspective, the organizational culture of a subsidiary is influenced by the home and host-country’s national culture. This is reflected in all its operations and influences the leadership style, decision-making process, team interaction, and the communication style. The inability to master the cultural factors may have a negative influence on the subsidiary’s effectiveness. The organizational culture can be measured through four cultural traits: mission, involvement, adaptability, and consistency. The organizational effectiveness can be measured through the sales growth, market share growth, return on assets, quality improvements, new product development capability, employee satisfaction, and the overall firm performance. This chapter is a review of the applications of Denison’s model of organizational culture and effectiveness in a variety of countries.

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There are few models with a focus on the relationship between organizational culture and organizational effectiveness. This chapter focuses on applications of Denison’s model of organizational culture and effectiveness in a variety of countries.

Considering globalization and increased or changing competition, researching the relationship between corporate culture and effectiveness gains even more importance. The theoretical background and the results of a few empirical studies focusing on the relationship between organizational culture and effectiveness are presented. These studies use

DOI: 10.4018/978-1-4666-0306-6.ch004

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the same theoretical framework (Denison), and the same instrument (Denison’s Survey). The model and survey can be applied in individual cases to illustrate the strengths and weaknesses of organizations. They can be a useful tool for managers worldwide in the continuous quest for performance. Multinational corporations have an organizational culture that is considered successful in their home countries. How do you determine which aspects to change or adapt in a different cultural setting? How much do you need to change?

INTRODUCTION Technological advancement is responsible for the rapidity of changes in societies and economies worldwide. This increases the pressure on leaders to make timely, effective decisions and focus on vision and goals. That organizational culture influences firm effectiveness is assumed by managers and researchers. More research studies are required to gain deeper insights into this relationship. Globalization has led to a tremendous growth in the multinational corporations (MNCs) and determined an expansion to countries on all continents. Two-thirds of the world’s exports of goods and services are made through operations of an MNC (Dunning, 2003). Globalization opens many opportunities for companies, but at the same time creates challenges. One of these challenges is to understand and appreciate cultural values and practices where they do business around the world. Concepts and constructs that guide business activities are different across countries (Tung, 1999). The companies must focus on their organization’s objectives and values. Globalization has enhanced the need to understand national culture and organizational culture and their effects on the performance of these companies. A company that is too focused on the home country’s work style or culture and fail to adapt will not be effective in the global business arena. At the same time, the consistency

of cultural values in worldwide company locations is essential for the well-functioning and success of the corporation (Champy, 2008). Host-country experience, blended with the global company’s culture, assists the subsidiary to contend with global standards and local conditions and requirements. As a result of market saturation in the developed markets and thus creating less opportunity for growth, multinational corporations turned towards developing countries that showed a great potential and an increased demand for goods and services (Mahajan et al., 2005). Developing markets are low-income economies in transition from a centralized system towards a free market, and are expected to maintain high levels of economic growth in the future (Jacek et al., 2007). They offer reduced taxes, cheap labor, and fewer restrictions overall, determined by the developing countries’ effort to be attractive for Foreign Direct Investments (FDI). FDI is crucial for the maturation of developing markets. While they do present great opportunities, they are also unpredictable and difficult to model (Sevic, 2005). The key is they have the potential to become developed markets in the future with extensive growth perspectives and diversification possibilities for global investors. Wholly- or partially-owned subsidiaries become one of the most practiced entry modes for MNCs in such countries. The underlying values and beliefs represent an organization’s philosophy to achieve success, as people rely on these values to guide them in their decisions and behaviors. The MNC developed an organizational culture that emerged from their national culture. Therefore, a simple transfer of a successful model in a different national context is questionable, and it can impact the company’s performance. Companies in the USA have invested heavily in developing markets, and have been among the top countries to provide FDI. An impressive number of companies claim the USA as their home country, and many have subsidiaries on every continent.

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Some of them hesitate to expand in these areas because of the unstable environment. Most of the theories centered on organizational culture were developed as a result of research which focused on American firms operating in the USA. Few studies focus on other countries and cultural contexts (Denison, 1990; Kotter & Heskett, 1992). Following this general introduction of the MNC’s activities in the global context, we continue with an overview of the terminology relevant to this chapter’s topic: Culture, national culture, and organizational culture. Next, we will introduce the theoretical framework, a method and an instrument for researching the relationship between organizational culture and effectiveness. The results of a study can be used to initiate cultural change. No organization will retain the same organizational culture as 10 or 20 years ago. As society changes, organizational culture needs to change as well. How would you determine what to change for the benefit of the organization? How can you change and increase organizational effectiveness? What makes an organization tick? Additionally, when a corporation adventures in other cultural context, the challenge is even greater.

Culture can operate at national or company level and affects the progress at the economic level within a society. Ralston et al. (1993) view culture as the ensemble of values and beliefs that are shared in a particular area in a determined time. A culture is defined by the following elements: religion, history, education, and influences (Ronen & Shenkar, 1985). Hofstede (1994) defines culture as collective features representing the members of a group and differentiate them from other groups; the group can be as big as a region or as little as a family.

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The concept of “national culture” eventually changes over time due to the multitude of influences to which each culture is exposed. The national culture is represented by the “cultural memory” up to a certain point—the present (Van Elteren, 1996). This is never a “pure product” as such—it is always the result of the previous “cultural borrowings and influences that have been assimilated over the years (Van Elteren, 1996)”. Globalization is a factor which accelerates this assimilation, and there are studies discussing their uniformity on a global level. The West (in this study, represented by the USA) has been one of the strongest sources of influences in the past decades and a model that attracted “copycats”. The question is if American companies operate in their host country just as they would operate in their home country? An important aspect of this study is the research of Geert Hofstede on national cultures (1980), an effort which draws the attention of global companies about the cultural differences between countries. If the companies extend their business in a different cultural setting and make their business decisions based on the way they operate in their home country, the most likely outcome will not be the expected one. Hofstede argued no formula exists for developing successful businesses or managers that is valid in all differ-

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Tellis et al (2009) agrees with Hofstede (2003) and Smircich (1983) that culture refers to a core set of attitudes and practices that are common to members of a collective entity like a nation or a company. Triandis (1996) states culture represent all the information, procedures shared by the members of a country or a company. Many researchers discussed the invisible and visible aspects of organizational culture represented by values, rituals and codes of conduct (Denison, 1996; Desphande & Webster, 1989; Gregory, 1983; Jones, Jimmieson, & Griffiths, 2005; Miles & Snow, 1978; Rokeach 1973; Triandis, 1994).

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ent cultures. National culture is defined as the ensemble of values, beliefs, norms, and behavioral patterns of a national group (Leung et al., 2005). Studies have discussed the national culture’s influence on all major business activities, from capital structure to group performance (Leung et al., 2005). Hofstede’s study revealed a structure of “four independent dimensions of differences among national value systems” (Hofstede, 1990). These four dimensions are “power distance,” (large vs. small), “uncertainty avoidance” (strong vs. weak), individualism vs. collectivism, and masculinity vs. feminity. Hofstede developed this study while working for IBM Corporation between 1967 and 1973, analyzing over 116,000 responses to a survey that has been applied in 66 countries (McCoy et al., 2005). Hofstede’s work has been cited in numerous researches and articles, and retains a strong impact in business. A fifth dimension was later added: the long-term orientation / short-term orientation. This fifth dimension was discovered in a study among students in 23 countries, using a questionnaire designed by Chinese scholars. As a result of these studies, researchers discussed that national culture differences have a significant influence on the behavior of consumers and companies. The dimensions are described below as found on Geert Hofstede’s personal website (www.geert-hofstede.com). The uncertainty avoidance (UA) dimension indicates the members of a culture feel either comfortable or uncomfortable in unstructured situations, uncertain, or unpredictable. The members of these cultures try to minimize the effects of an unexpected event by adopting certain codes of behavior. The cultures scoring high at this dimension (e.g., Greece, 112) are those who would minimize the uncertain situations through laws and rules, safety and security; they show more anxious energy, are more concerned with reducing stress. The countries scoring low (e.g., Singapore, 8) are more easy-going and flexible, more tolerant to differences, and are inclined to have fewer rules and constraints.

The power distance dimension (PDI) measures the social stratification in the country, the extent to which the members of a culture accept that power is distributed unequally. There are no absolute equal societies, but some are more equal than others. Those scoring high on this dimension (e.g., Philippines, 94) are members of those countries who unquestionably follow orders originating from individuals in higher positions. Citizens of countries which score low (e.g., Australia, 9) would not perform an order if they disagree with it, or they would at least question the order. The perceptions of people about social equality are carried in the business relations. The USA has low power distance, and therefore inequalities among people are not well-tolerated; as such, efforts are made to minimize the gaps. The masculinity/feminity (MAS) dimension focuses on the distribution of roles between the genders, and different societies approach it in different ways. Hofstede’s study revealed women’s cultural values differed less between societies than men’s values. A culture ranking high on masculinity (e.g., Japan, 95) is focused on work goals materialized in earning and promotions; it focuses more on “quantity” in life, which is characteristic of men. It revealed tendencies for achievement, challenge and performance (Hofstede, 1980). Countries scoring low on masculinity (e.g., Norway, 5) focus on personal goals and friendly environment, are less competitive, modest and caring, and concentrate more on the quality of life and relationship with people. The individualism/collectivism (IDV) dimension describes the interactions between individuals and a group (McCoy et al., 2005). It actually defines the degree to which personal interests are more important than the group’s. In the cultures ranking low in individualism (e.g., Mexico), the group identity is predominant, and the individual follows the decision of the group. The cultures ranking high in individualism (e.g., the USA) promote individual initiatives and maintain more

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independence in relationships; as such, everyone is expected to care for him or herself and family. As mentioned earlier, another dimension was later added: long-term orientation/ short-term orientation (LTO). Long-term orientation is associated with perseverance. Respect for tradition and social obligation are associated with shortterm orientation (geert-hofstede.com). Hofstede’s dimensions of culture are used by researchers and in this study because they are cited in numerous studies, and also because they are a result of a research performed on an extensive sample. The concept of “national culture” is bound to change over time due to the multitude of influences to which each culture is exposed. The national culture is represented by the “cultural memory” up to a certain point—the present (Van Elteren, 1996). This is never a pure product, it is always the result of the previous “cultural borrowings and influences that have been assimilated over the years (Van Elteren, 1996)”. Globalization is obviously a factor that accelerates this assimilation, and there are even studies that talk about uniformization at a global level.

Denison (1990) defined organizational culture as “the underlying values, beliefs, and principles that serve as a foundation for an organization’s management system, as well as the set of management practices and behaviors that both exemplify and reinforce those basic principles” and are found at the core of the organization’s system (Denison, 1996). Schein (1992) defined organizational culture as “shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration”. Ylmaz and Ergun (2008) have researched various definitions of organizational culture and they presented a more extensive definition. Organizational culture is viewed as an ensemble of shared beliefs, assumptions, values, attitudes, and behaviors of the organization’s members, shaping organizational

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procedures and capabilities into whole, providing solutions to the problems faced by the organization, and facilitating the achievement of goals in the organization. The organizational culture of a company is influenced by the environment in which it operates. This influence occurs on two levels: formal and informal. The formal influences refer to legal constraints, economical and political influences, while the informal level refers to cultural elements within a society (Li et al., 2001). There are several authors mentioned by Li et al. (2001) such as Puffer (1993), House, Hanges, et al. (1999) that consider a company’s management practices, leadership styles, etc., can be influenced by the national culture in which they developed. Corporate culture defines an organization, and it is one of the primary drivers of radical innovation (Tellis et al., 2009). There are multiple aspects of organizational culture for managers, researchers, and other practitioners. Organizational culture can take multiple forms within an organization. Departments, subsidiaries, units might develop their own organizational culture, although derived from the general one. Sometimes, there are clashes and problems between these subunits which can fragment an organization and negatively impact its effectiveness. The focus of this chapter is the relationship between organizational culture and effectiveness.

COMPANY CULTURE AND PERFORMANCE Corporate culture was examined as a source of competitive advantage by different authors (Barney, 1986; Ott, 1989) but as Denison and Mishra (1995) observe, the empirical evidences are limited and few theories have emerged. Those few theories that have been formulated were mainly applied in the context of American companies operating in the USA (Denison, 1990). There are also few studies exploring the applicability of

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the theories in foreign countries and the impact of the foreign national culture on organizational culture (Adler, 1991; Boyacigiller & Adler, 1991; Hofstede, 1980, 1993). Ralston et al. (2008) researched the impact of national culture on work values. In the study, they observed many MNCs going global strive to have a universal corporate culture where all the members of an organization from anywhere share the same values and beliefs in business transactions. Simultaneously, national culture has a strong influence on work values and therefore has an impact on the corporate culture. An effective organization is one that successfully converts all the differences in advantages. Successful companies such as Coca-Cola, McDonalds, Wal-Mart, and others developed a unique organizational culture which allowed them to be successful worldwide. Academic research brought the knowledge that a strong organizational culture is a key ingredient for performance. Culture is a complex phenomenon, and there are different theories regarding organizational culture. The empirical research performed by Denison (1984, 1990, and 2000) Denison and Mishra (1995), Kotter and Heskett (1992), Fey and Denison (2003) supports the idea there is a link between organizational culture and performance. Their work, and that of Denison (1984, 1996) and Fisher (1997), indicates that culture influences organizational effectiveness in companies of every size, from every sector, industry, and age of business (Fisher & Alford, 2000). Research has shown there is a relationship between different cultural traits and different criteria of effectiveness (Fey & Denison, 2003; Denison & Mishra, 1995; Cameron & Whetten, 1983; Pennings, 1976). There are different impacts in different national cultures due to their unique characteristics. Studies have been published on issues of global companies expanding in foreign countries and having problems because they were not prepared

for the differences they encountered (Hofstede et al., 2002). Researchers have suggested that to be truly successful, MNCs must rethink their business models when operating abroad; minor cultural adaptation or some cost reductions are inadequate (Prahalad & Lieberthal, 2003).What is the effect on organizational culture? There are few studies that suggested the influence of national culture on firm performance, decision-making, leadership, and human resources. An article published in 2000 (Fisher & Alford) presents the Denison model applied to culture in business. The results of that study show “there is a link between culture and bottom-line results within a company”, and that a company’s culture affects its performance in every way. What happens to a company that operates in another country? Researchers have studied and concluded that national culture influence the application of management theory outside the USA. The Denison model links different cultural traits to different criteria of effectiveness. Extensive research is required for a better understanding of this relationship in various cultural contexts.

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THEORETICAL FRAMEWORK Various theories in the literature discuss aspects of organizational culture (Allaire & Firsirotu, 1984; Hatch, 1993; Martin, 1992; Ott, 1989; Schein, 1985, 1990), as well as its relation to effectiveness, but there are still unanswered questions. Organizational culture is simply defined as a core set of attitudes and practices shared by the members of the firm (Denison, 1996). This is actually a very complex notion which determines the disagreements and the discussion on the subject. Since the early 1980’s, some researchers have concentrated their attention on organizational culture as part of the company strategy, while others have expanded on the topic and explored the influence of the environment and the company’s adaptability to it.

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A company which develops in a particular environment is heavily influenced by that environment, and a resource that proved itself as being valuable within determined boundaries might not be as effective in another place (Li et al., 2001). Companies tend to focus on their home cultures and sometimes this can lead to contradictions with the culture from the country in which they operate. Li et al. (2001) brings to attention there are few studies that suggested the influence of national culture on firm performance, from decision-making to leadership, and human resources, such as the studies of Puffer, 1993; House, Hanges et al. (1999). The researchers discuss the feasibility of this built theory about organizational culture in the context of a foreign national culture. Li et al. (2001) also present the findings of Porter (1991) who highlighted that cultural aspects could represent a competitive advantage for that company. Recent studies have approached the “influence of national culture on value perceptions (Overby et al., 2004; Furrer et al., 2000, quoted by Blocker & Flint, 2007)” and their findings resume to the fact that national culture has a strong influence on consumer’s perceptions of different products of different companies. Several frameworks are used by researchers to understand cultural differences in general, but there are still relatively few studies concentrating on cultures that operate in different national contexts (Denison et al., 2004). Culture is a complex phenomenon and there are different theories regarding organizational culture. The most extensive and replicated studies used the Denison model of organizational culture and effectiveness, that has validated method of measurement. Denison’s model of organizational culture and effectiveness constitutes the framework for this study. The empirical research performed by Denison (1984, 1990, and 2000), Denison and Mishra (1995), Kotter and Heskett (1992), Fey and Denison (2003), Gillespie et al. (2008) support the idea there is a link between organizational culture and performance.

Another popular study that discusses this relationship is The Competing Values Framework which explains the underlying value orientations that characterize organizations. The value orientations are usually competing with each other. The instrument associated with this framework is OCAI—The Organizational Culture Assessment Instrument—which produces an overall organizational culture profile (Cameron & Quinn, 1999). This framework focuses on two dimensions of effectiveness. The first dimension refers to the organizational focus, both internal and external. The second dimension represents the contrast between stability and control and flexibility and change. The framework has four quadrants. The first, the Internal Process Model, is based on hierarchies, which seem to function best when there is a clear understanding of the task to be done. The second, the Open Systems Model, has an emphasis on adaptability, innovation and creativity. The third, the Rational Goal Model, is focusing on the rational action. Planning and a clear definition of the goals results in productivity and efficiency. The fourth, the Human Relations Model, focuses on people seen as cooperating members of the firm (Quinn & Rohrbaugh, 1983). Gordon and DiTomaso (1992) performed a study revealing the influence of culture strength and adaptability on company performance. The study performed by Denison Consulting in 2005 disclosed there is a link between the traits of adaptability and mission, and market share and sales growth. The same study implied the cultural traits of involvement and consistency have a positive impact on the effectiveness criteria of quality, return on assets, and employee satisfaction. In conclusion, it is possible to measure and compare cultural traits of organizations and their impact on business performance across nations. This view is based on the assumption that all organizations face contradictory challenges in their operations, and that a balance between the stability and flexibility, internal integration and external adaptation is desirable.

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The four culture traits are briefly described below. More detail is included later.

Mission Effective organizations are cognizant of their existence and direction. They have clear goals and definitions of purpose; they have a clear vision of the future (Mintzberg, 1987, 1994; Hamel & Prahalad, 1994)

Involvement Effective organizations stimulate teamwork and the accent is placed on developing human capital. Involvement represents the degree to which individuals at all levels of the company are engaged, and hold that direction as their own from managers to all employees. All employees at all levels believe their input is taken into consideration and it matters to reach the goals on which they are focused.

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The Denison model’s roots lies in the Schein’s theory of organizational culture (1992). He divides organizational culture into three levels. The underlying assumptions are represented by feelings, perceptions, thoughts, etc., and lie at the base of culture within an organization, naturally accepted by the members. The second level is occupied by the exposed values, the justification of goals and strategies that derive from the assumptions and beliefs. The artifacts are at the top level and are represented by the visible organizational structures and processes. The best approach is the one that links the underlying assumptions with the visible manifestations of the culture. The culture of an organization can be seen as the response and strategy of a company as a result of a multiple demands, internal and external. Schein’s theory claims that the organizational culture of a company can be analyzed based on the basic assumptions (Hatch, 1993). Organizational culture is a factor that has an influence on competitive advantage but it is much less obvious than others. According to Fisher and Alford (2000), the culture of an organization can present itself in visible forms or invisible forms. The visible forms are languages, behaviors, rituals, codes of conduct, slogans, and so forth. The invisible forms are the underlying elements, core values, beliefs, and assumptions (Mobley et al., 2005). The Denison Organizational Culture Survey was developed in 1996 by Denison to measure specific dimensions

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with adaptability. The authors chose the four elements of Adaptability, Involvement, Mission, and Consistency because they are proven by research to be representative of observable organizational practices, and are based on underlying assumptions and beliefs. The study performed by Denison and Mishra (1995) suggests an effective organization must balance internal integration with external adaptation, stability with flexibility.

Effective organizations have systems and processes that support efficiency and effectiveness in reaching goals. They are highly consistent, well-coordinated, and integrated (Saffold, 1988). Researchers agree organizational culture is a broad construct, and therefore they have developed a set of limited cultural traits that are identified and understood in all cultures. This model reviews the contradictions involved in simultaneously achieving internal integration and external adaptation (Hatch, 1993; Schein, 1990). Very integrated organizations usually have challenges

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of organizational culture in order to determine the strengths and weaknesses of the organizations. The survey measures employees’ perceptions on 60 items that determine scores on 12 cultural attributes, and scores on four characteristics of organizational culture called by Denison “culture traits”. This survey was developed based on 20plus years of research performed by Dr. Daniel R. Denison. The Denison model links organizational culture to bottom-line performance indicators as sales growth, market share growth, return on assets (ROA), quality improvements, new product development capability, employee satisfaction, and overall firm performance. Some other studies accentuate different aspects such as innovation, customer satisfaction, return on investments, return on equity, etc. (denisonconsulting.com). The survey offers validity and reliability, and is the result of extensive research, providing results compared to a normative, benchmarking database, applies to a variety of organizations, has a strong research foundation, and was used in more than 20 countries across the globe (Denison Consulting, 2006). The model focuses on comparative generalizations about culture at the values level, also advancing the idea that the deeper levels of culture can be revealed through qualitative studies. The results of the study show, “there is a link between culture and bottom-line results within a company”, and a company’s culture affects its performance. Denison’s model measures four business culture traits: Mission, Involvement, Adaptability, and Consistency Denison’s research has determined these are traits found in any organization. Each of these traits is composed of three sub-elements. The conclusion is that the highest performing companies are those which show strength in all areas at the same time. The main four traits are presented in different colors in a model that is called “the circumplex.” At the center of the model lie the organization’s basic

beliefs and assumptions that are usually hidden under the daily activity in a company. Mission refers to the degree in which a company has clear goals and vision in the long-term. Successful organizations have a clear sense of purpose and direction that are reflected in the company’s goals and strategy and it expresses a vision of the future. When the company’s mission changes, the strategy, culture, and behavior also needs to change. The Mission’s sub-elements are Vision, Strategic Direction and Intent, and Goals and Objectives. The Vision index refers to the organization’s view of how it would like to be in the future. The Strategic Direction and Intent refers to the strategic intentions that define the company in its industry. The Goals and Objectives index refers to the goals and objectives of the organization that are linked to the mission, vision, and strategy, and guide the employees in their work. Involvement refers to the degree in which the company is interested in persuading its employees to be involved and informed, and to share the same direction with the company. The three sub-elements that support involvement are Empowerment, Team Orientation, and Capability Development. The Empowerment index refers to the ability of the individuals to exert authority, to have initiative, and to have a sense of ownership and responsibility. The Team Orientation index refers to the importance of cooperation and common goals within the organization. The final outcome is the result of the team effort. The Capability Development index refers to the interest of the company to develop the skills of the employees in order to keep them current with the changes in society, their field, and business. People at all levels in organizations feel they are committed to their work, their opinion is considered in the decision-making process, and their work is directly related to the goals of the organization. Effective organizations create a work environment of teamwork, empowerment, and human resource development.

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Adaptability refers to the company’s ability to respond quickly and efficient to the external stimuli, and consumer demands. The sub elements that support ability are Creating Change, Customer Focus, and Organizational Learning. The Creating Change index refers to the ability of the company to react to current changes, trends, and anticipate future ones in creative ways that allows the company to remain competitive. The Customer Focus index refers to the capacity and rapidity of the company to react to consumer needs or to anticipate future ones. It reveals the degree of focus on the customers. The Organizational Learning index refers to the capacity of the organization to respond to signals form external or internal environment and translate them into opportunities to encourage innovation and develop new capabilities and knowledge. Well-integrated companies are those which have problems changing and adapting. Adaptable companies are driven by customers, they learn from their mistakes, and rethink their actions and decisions considering the outcomes; they have the capability and experience at creating change. Such firms continuously change with the core values in mind to provide value to customers at the present time. Consistency refers to the company’s systems and processes that are engaged in and focused on reaching the goals and they are efficiency and effectiveness oriented (Fisher, 2000); basically, Consistency is about the strength of internal culture. The sub-elements supporting Consistency are Core Values, Agreement, and Coordination and Integration. The Core Values index refers to the shared set of values that the members of an organization share and expect. The Agreement index refers to the capacity of the organization’s members to reach a common decision when differences occur. The Coordination and Integration index refers to the efficient collaboration between different units or functions of the organization to achieve common goals. Company behavior is determined by the core values, and decisions are made because of a common mindset.

This model of organizational culture and effectiveness was chosen for the study because it focuses on the balance companies try to achieve between internal integration and external adaptation. At the core of this model are the underlying beliefs and assumptions. The organizational culture’s most refined characteristics are hard to measure and discuss and a qualitative approach is more desirable. Denison’s model of organizational culture is used also to profile some organizations and reveal their strengths and weaknesses, and the areas that influence its effectiveness. The adaptability is assumed to be the most important trait in this case because it defines the ability to “provide customers with what they want, and having flexibility in learning and changing to meet new demands” (Fisher, C.J., 2000). Showing strength in two of the elements can provide information about the orientation of a company. Adaptability and Mission are related to an organization’s external focus. This means a company exhibiting strength in these two elements, and responds quickly to the external influences knows its direction and it is focusing on the market. A strong external focus is influencing revenues, sales growth, and market share. Involvement and Consistency are related to the organization’s internal focus. This means the company is focusing on internal integration of systems, processes and structures; it values its employees, and the quality of the products and services. The internal focus is influencing quality, the utilization of resources, and employee satisfaction. Adaptability and Involvement are related to the company’s flexibility, openness, its responsiveness to the external influences. They are linked to the quality of products and innovation, creativity, and employee needs. They are strong predictors of growth. Mission and Consistency are related to the stability of the organization, its capacity to maintain focus on its values. They are indicators of integration, direction, and vision. Mission

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and Consistency are linked to return on assets, investment and sales, being better predictors of profitability. Denison and other researchers (1995) applied this framework to top executives in 764 organizations in the USA, and it showed these four elements were the most related to criteria of effectiveness. Mission and Consistency were correlated with profitability. Involvement and Adaptability were correlated with innovation. Adaptability and Mission were correlated with sales growth. The model presents the poles between which every company seeks balance: internal focus vs. external focus, and stability vs. flexibility. Denison’s research also found that Mission and Consistency are the best predictors of profitability, Involvement and Adaptability are the best predictors for innovation, and Adaptability and Mission are the best predictors of sales growth. All four traits are significant predictors of other criteria of effectiveness like quality, employee satisfaction, and overall performance. Denison applied the survey on more than 1,500 companies from every part of the globe (North America, South America, Australia, Asia, Europe) staring in the 1980’s. The conclusions were that the external perspective of a company (mission and adaptability) greatly influences market share and sales growth, while external focus (consistency and involvement) has a greater influence on the

employee satisfaction and return on investment. The flexibility is strongly related to innovation and the stability is contributing to financial performance like return on assets, return on investment and return on sales.

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THEORY APPLICATIONS

The results of the studies seen in Table 1 suggest the Denison model and survey can be used across countries and regions to measure and compare the organizational culture traits and their impact on the effectiveness of these companies.

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In the USA, Denison (2002) collected data from 94 US-based companies with activity in the USA, and includes 36,542 respondents, with a minimum of 25 respondents per company. The surveys were completed between 1997 and 1999. The companies operate in various industries. Mission was the organizational cultural trait most highly associated with effectiveness (five out of eight effectiveness measures), followed by involvement, which is significantly associated with employee satisfaction and overall effectiveness.

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Table 1. Results Country USA

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Sample

Results (the strongest determinants)

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94 (US companies in the USA)

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Europe, North America & Asia

Denison, Haaland, & Goelzer, 2003

230 organizations

Similarities

Canada, Australia, Brazil, US, Japan, Jamaica, South Africa

Denison, Haaland, & Goelzer, 2003

218 supermarkets

Similarities

Russia

Fey & Denison, 2003

179 (foreign-owned companies in Russia)

Adaptability

Turkey

Yilmaz & Ergun, 2008

100 (manufacturing companies, 25% have various levels of foreign ownership in Turkey)

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Europe, North America, and Asia Denison, Haaland, & Goelzer (2003) compared results from 230 organizations from Europe, North America and Asia. They observed similarities in results in these regions. The sample included organizations from different industries, sizes, and stages of growth. There were at least 25 respondents from each company. Eight companies were based in Asia, and 34 were in Europe, Middle East, and Africa (the EMEA countries). None of the correlations between organizational culture traits and the measures of organizational effectiveness were significant for Asian companies. All correlations between overall performance and culture indices were significant for North America. The three regions did not differ significantly from each other in any of the four organizational culture traits measured in this study. The largest difference the authors noted was between EMEA and Asia in all four traits. The Asian companies scored lower than the EMEA countries on involvement and consistency traits. EMEA-based organizations scored lower than Asian firms on mission and adaptability. The observed differences were insignificant.

countries except the USA regarding the cultural trait mission. The overall conclusions indicated the correlations between organizational culture traits and organizational effectiveness traits show a strong and consistent pattern in Brazil, South Africa, and the USA. Australia and Canada showed a weaker but similar pattern. Japan and Jamaica showed a different pattern, with a few strong correlations for the first and low correlations in the second case.

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Fey and Denison (2003) examined the link between organizational culture and effectiveness, using the Denison model, in Russia on 179 foreign-owned organizations, and compared them with results obtained in the USA in a previous study which included 94 organizations. The population for this study included all foreign firms operating in Russia in October, 1997 (Fey and Denison, 2003). The companies were headquartered in Canada, Germany, Finland, France, Sweden, and the USA. Russia is an economy in transition, and the Foreign Direct Investment (FDI) is extremely important for the development of the country Additionally, the historical political and economic relations between the two countries made this research even more interesting. Foreign companies are interested in operating in Russia because of the country’s potential, but they encounter an unstable economic and political environment. The conclusions were that adaptability and involvement are the most important determinants of effectiveness in the Russian context, compared to the USA where mission was the cultural trait most highly associated with effectiveness. Being a former Communist nation might explain why Russia has a group-orientation. Involvement appears to be important in creating effective organizations in both countries. Adaptability is the most useful dimension in understanding the impact on effectiveness because the economic and social environment in Russia is unpredictable.

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Denison, Haaland, & Goelzer (2003) presented results from a sample of 218 supermarkets. The results show divergences in Jamaica and Japan and similarities in the other five countries. The participating supermarkets are part of one company, International Grocers Alliance (IGA) operating in the same manner in each country. The US-based stores rated involvement indices significantly lower than the South African, Canadian, Jamaican, and Australian stores. Japanese stores rated the consistency trait significantly lower than did all the other stores. Japanese stores gave lower adaptability ratings than did any other country except in the USA and Canada. Japanese stores gave significantly lower ratings than other

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Turkey Yilmaz and Ergun (2008) studied the effects of the four cultural traits on effectiveness for a sample of 100 manufacturing firms in Turkey. Managers and employees of the participating firms responded to the questionnaire. The study surveyed managers and employees, employing a total of 1,176 questionnaires. The results showed all four cultural traits correlated significantly with the measures of effectiveness. Mission was found to be the strongest determinant of sales growth, market share growth, and financial profitability. Adaptability and consistency were found to predict the ability of a company to develop new products and involvement was strongly linked to employee satisfaction. The results are in line with previous research that the cultural traits of consistency, involvement, adaptability, and mission influence the effectiveness of firms. The results suggest leaders should focus on all cultural traits to improve effectiveness.

SUMMARY

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Conflicting demands are one of the many issues with which effective organizations are confronted. The need for flexibility can conflict with the need for stability. From a globalization and increased competition perspective, studying the relationship between corporate culture and economic effectiveness gains even more importance. Companies tend to focus on their home cultures, and sometimes this can lead to contradictions with the host-country national culture. Culture and expectation that people have affect all business transaction and inability to master basic cultural factors may lead to failure. US-based multinational corporations developed an organizational culture and history believed to be successful in their home country and in their global operations. Ideas and theories are sometimes taken into a different culture without considering the context that created them, and which

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might contradict in some areas with the cultural background. Cultural orientation can influence the interpretation of situations, and decisions, as well as different approaches that the companies will make. Denison’s model is one method that managers can use to understand the impact of organizational culture for the performance of the firms and to determine the changes needed to enhance this relationship. It can help organizations diagnose their existing organizational culture in relationship with the desired organizational culture. It can also be used to determine the gaps within an organization. Organizational culture and the changes that a company makes are related to the effectiveness of these companies. Measuring organizational culture can provide valuable information for companies in the process of developing competitive advantage.

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Hofstede, G., Neuijen, B., Ohayv, D., & Sanders, G. (1990). Measuring organizational cultures: A quantitative and qualitative study across twenty cases. Administrative Science Quarterly, 35.

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Senge, P. (1990). The fifth discipline: The art and practice of learning organizations. New York, NY: Doubleday/Currency. Sevic, Z. (2005). Emerging markets: Preferences, risks, performance. Economic Change and Restructuring, 38, 1–10. doi:10.1007/s10644-0054520-8

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Tung, R. (1999). Culture and international business. Burnaby, Canada: Simon Fraser University. Yilmaz, C., & Ergun, E. (2008). Organizational culture and firm effectiveness: An examination of relative effects of cultural traits and the balanced culture hypothesis in an emerging economy. Journal of World Business, 43.

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Chapter 5

Cross-Border InterFirm Networks in Contemporary Europe:

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The Effects of Structural and Cultural Embeddedness on Firm Performance

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Ekaterina Turkina HEC Montreal, Canada

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ABSTRACT

Globalization and regionalization in the contemporary world transform inter-state relationships and intensify economic, social, and political exchanges across borders, thereby creating favorable conditions for cross-border inter-firm networking. The purpose of this chapter is to contribute to the emerging literature on cross-border inter-firm networks by providing both theoretical insights on the causal mechanisms of network-related effects on firm performance and empirical analysis of existing cross-border partnerships in the domain of European integration, as well as their effects on firm performance. The chapter also examines the differences in the structure of European cross-border networks and explores factors that determine network structure such as regional integration and cultural variations.

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The forces of globalization in the modern world generate the rapid growth of international linkages and foster economic interdependence by enhancing the flows of capital, labor, goods and technology across the boundaries of nation-states. Simultaneously, there is evidence such flows occur most intensely across the borders of countries that belong to an effective regional grouping based

upon location in a given geographical area—a phenomenon called regionalism or regional integration (Berrgsten, 1993; Ohmae, 1995; Gamble & Payne, 1996; Grugel & Hout, 1999; Rosamond, 2000; Breslin & Higgot, 2000; Beeson, 2003). Policy-driven harmonization of economic regulations, norms and standards and intensified cross-border exchanges in the integrated areas provide a solid foundation for cross-border inter-firm networking. Inter-firm networking is

DOI: 10.4018/978-1-4666-0306-6.ch005

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Cross-Border Inter-Firm Networks in Contemporary Europe

increasingly important in economic life, as it represents a mode of regulating complex transactional interdependence as well as cooperative interdependence among firms, “which is different from the aggregation of these units within a single firm and from coordination through market signals (prices, strategic moves, tacit collusion, etc.) and which is based on a cooperative game with partner-specific communication” (Grandori & Soda, 1995, p. 1). Different studies revealed positive effects of inter-firm networking on firm learning, performance, and innovation (Powell et al., 2002; Chepalla & Saraf, 2010; De Vaan, 2010). Crossborder inter-firm networking is especially important for firms in less-developed localities, as in the process of collaboration, such firms often change their organizational culture and practices to mimic their more successful counterparts from more developed localities (Galaskiewicz & Wasserman, 1998; Joiner, 2001). Therefore, crossborder inter-firm collaboration is crucial for the economic development on both sides of the border and helps to manage common regional economic problems that transcend the competencies of single national governments and provincial authorities (Wattanapruttipaisan, 2001; Joas et al., 2007). While there have been several theoretical studies of the general aspects of inter-firm networking, empirical research on inter-firm networks and especially on cross-border inter-firm networking and its embeddedness in the regional socio-cultural and politico-economic context is somewhat limited. This chapter contributes to the emerging literature on cross-border inter-firm networks by providing theoretical insights on the causal mechanisms of network-related effects on firm performance, as well as an empirical analysis of cross-border partnerships in their regional contexts in the domain of European integration. The chapter consists of three major parts. The first part summarizes approaches to studying interfirm networks and analyzes existing research on the network-related effects on firm performance.

The second part discusses the peculiarities of the European Union (EU) enlargement and the impact of European integration on cross-border inter-firm networking. The third part provides an empirical analysis of cross-border inter-firm networks, examines their effects on firm performance in contemporary Europe, and evaluates the effects of European integration and regional socio-cultural and politico-economic contexts on the network parameters and inter-firm cooperation. The chapter concludes with the discussion of prospects for cross-border inter-firm networking in the context of regional integration and globalization in contemporary world.

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THEORETICAL APPROACHES TO INTER-FIRM NETWORKS AND FIRM PERFORMANCE IN INTER-FIRM NETWORKS

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Inter-firm networks are considered to be an organizational form with distinct structural properties. They are usually defined as structures consisting of companies linked together through some form of sustained interaction and pursue common objectives, or work towards solving common problems (Huggins, 2001). The number of interfirm co-operation initiatives has rapidly increased during the past decade (Harbison & Prekar 1998; Borwn, 1999; Duysters et al., 1999), and recent studies investigate a variety of issues about interfirm cooperation such as how and why inter-firm networks are formed (Sydow, 1998), their optimal configuration (Jackson & Wolinsky, 1996), and how they operate (Jones et al, 1997). The review of the literature on inter-firm networks presented in this section aspires to extract from existing studies, and systematize in a comprehensive theoretical framework, the following five aspects of knowledge on inter-firm networks: the main modes of inter-firm cooperation, or network structural forms governing inter-firm relationships:

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• •





The main advantages and risks associated with inter-firm networks The main network-related factors that have been shown to influence inter-firm cooperation The main attributes of structural position of a firm in a network favorable for firm performance The main factors that have been indicated to determine network formation

Network Modes As far as the modes of inter-firm cooperation are concerned, scholars identify the formation of inter-firm alliances and differentiate between equity arrangements such as joint-ventures (Killing, 1983; Harrigan, 1985; Turati, 1990; Gulati et al., 2000) and contractual modes of cooperation such as strategic partnerships or franchising (Pilotti & Pozzana, 1990). Resource dependence studies on networks (Evan, 1966; Jacobs, 1974; Benson 1975; Pfeffer & Salancik, 1978; Aldrich, 1979) consider such inter-firm network forms as joint ventures, interlocking directorates, associations, consortia and cartels, and also networks of social and personal relationships linking firms together. Porter and Fuller (1986), Garrette and Dussage (1995), Cooper (1997), and Klimov and Merkuryev (2008) classify inter-firm cooperation as either vertical or horizontal networks. Vertical networks are ones formed between companies engaged in different activities in the same value chain, whereas partners in horizontal networks perform the same activity in the value chain. Additionally, Bronder and Pritzl (1992) present a third variety of partnership type—a diagonal alliance—which applies to the co-operative activity between companies in different industries. Rosenfeld (1996) differentiates between formal ‘hard’ networks involving firms joining together to co-produce, co-market, co-purchase, or cooperate in product or market development, and more informal ‘soft’ networks of firms joining together

to solve common problems, share information or resources, or acquire new skills. Figure 1 summarizes existing modes of interfirm networking (adapted from Urban et al, 2000).

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Main Advantages and Weaknesses of Inter-Firm Networks

Inter-firm networks are generally considered to be efficient modes of organization. The tightest forms of inter-firm network, such as those of joint ventures, have been shown to be resistant to negative external influences and failure prone (Harrigan, 1985; Miles & Snow, 1992). The interorganizational network is also viewed as a strategic mechanism to improve a firm’s competitive advantage through cost minimization and shared learning while maintaining flexibility (Ho Park, 1996). Flexibility in this context does not only imply capacity to change firm’s output according to contingencies, but also capacity to change the organizational arrangement itself (Grandori & Soda, 1995). In this sense, networks are hypothesized to entail lower transition costs with respect to internal organization (Pfeffer & Salancik, 1978; Gadde & Mattsson, 1987). Flexibility and adaptability have become key management concepts to develop a sustainable competitive advantage (Nagellen et al., 2004). Inter-firm networks are also characterized as organizational modes favorable for efficient information exchange and creation of common knowledge (Grant, 1996; Joiner, 2001). To recognize, assimilate, and apply valuable knowledge of its partners, a firm must share some common knowledge with them (Grant 1996; Mowery et al.. 1996). The development of common knowledge allows the parties to develop and integrate those aspects of knowledge that are not shared between them. Moreover, when properly organized and used, inter-firm cooperation can provide numerous advantages such as faster market penetration (Gomes-Casseres, 1989), sharing of financial risks

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Figure 1. Inter-firm linkages

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(Jorde & Teece, 1989), knowledge and technology transfer opportunities (Lei & Slocum, 1992) and increased production efficiencies (Child & Faulkner, 1988). The main risks associated with inter-firm networks mainly concern the loss of strategic autonomy and competence and potential underperformance of partner companies, which entails the problem of “free-riding” (Nagellen et al, 2004). However, these weaknesses can be reduced by lesser degree of mutual focalization and integration (Nagellen et al., 2004). Another weakness of inter-firm networking is related to the fact that sometimes some members of the network can be overly competitive and can even engage in rivalry, thereby negatively affecting overall cooperative effort of the network. However, it is argued that over time, network characteristics like reciprocity and interdependence temper power asymmetries and reduce rivalries and conflicts between network actors (Burt, 2000). According to Huggins (2001), inter-firm cooperation can be significantly hindered when the majority of the network actors believe cooperation is not the best route of action, due to one or a mix of factors: (1) companies have not prioritized cooperation as a corporate strategy; (2) the benefits

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of cooperation are not transparent; (3) there is a lack of information concerning potential network partners; (4) there is a lack of existing social connectivity between potential network members; and (5) there is a lack of compatibility in terms of needs, problems, and goals. Therefore, by their own calculations, firms consider the potential outcomes of co-operation are not strong enough for them to forgo the commitments needed to be made in resources of time and effort (Huggins, 2001). Another potentials risk is associated with the structural forms of networks that can inhibit cooperation. Such structural forms are usually argued to be heavily centralized and sparsely connected networks (Irwin & Huges, 1992; Scott, 2000).

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Network-Related Structural Factors Influencing Inter-Firm Cooperation It is generally argued the effectiveness and efficiency of cooperation in interorganizational networks depends on the degree of network decentralization and cohesion (Putnam, 1993; Putnam et al., 1995; Tanjasiri et al., 2007; Joas et al., 2007). Decentralization is associated with more efficient information flows, greater knowledge, and advance intelligence of possible changes in

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cooperation structures (Zmerli & Newton, 2007). Centralization negatively affects the spread of information, ideas and practices in networks, because central actors have more influence and control over how information, resources and practices spread to others and in some cases, given the position of control and power, can act as bottlenecks and slow diffusion (Valente, 1995; Tanjasiri et al., 2007). Additionally, highly central actors can hurt the network if they are pursuing their own agenda different from the goals of the inter-firm cooperation. Another important negative feature of centralization is overreliance on central actors. If central actors in a centralized network are removed or damaged, the network quickly fragments into unconnected sub-networks (Krebs, 2008). Therefore, a less centralized network is considered a much better structure for cooperative effort, since it has no single point of failure and it is “resilient in the face of many intentional attacks or random failures… as… many nodes or links can fail while allowing the remaining nodes to still reach each other over other network paths” (Krebs, 2008). Network cohesion is associated with the level of interconnectedness and embeddedness of network actors in a networking structure. High network cohesion is important in interorganizational networks, as the degree of network cohesion correlates with the level of trust in the system (Hanneman & Riddle, 2005). There are different approaches to characterizing network cohesion, or the extent of interconnectedness. The most popular approaches are density, transitivity, and compactness. Density is usually defined by the extent that all actors in the network are connected. It shows the general level of connectedness among network actors and measures the ratio of the number of existing links in the network to the number of possible links, if each network actor had linkages to all the other actors (Scott, 2000). Network density is usually argued to reflect the intensity of inter-firm cooperation (Granovetter, 2005). For effective and efficient cooperation,

both intra-cluster and inter-cluster densities in an inter-firm network are claimed to be important (Scott, 2000; Granovetter, 2005). Transitivity is associated with the existence of all the possible connections in triads. The concept of compactness is based on the ‘distance’ between actors. More compact, or cohesive networks, have shorter distances between network actors (Scott, 2000). Interorganizational networks with a high level of transitivity and compactness are considered to be more stable, resilient, balanced, and harmonious (Hanneman & Riddle, 2005).

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Inter-firm networks are complex adaptive systems and the inability of each firm to have complete control over all the network activities may limit its capacity to influence network processes. It may even lead to its alienation from the place in the network where cooperation and information exchanges occur most intensely. However, complexity does not mean chaos, because chaos presumes disorder, whereas network complexity has structure and provides room for intervention and improvement (Edmonds, 1999). Complexity in networks cannot be eliminated nor it can be absolutely controlled; it can only be understood, influenced and improved. Therefore, complexity can be an asset if we can understand its structure and dynamics (Holland, 1995; Watts, 2003). A structuralist perspective assumes the structural position of agents in their relational set explains the constraints and the opportunities emerging for them and influences the probability of their achieving some goals (Jackson, 2008; Semitiel García, 2006; Burt, 2000). Network analysis scholars argue that complex interactions among network agents create structural interdependences among them, and agents have a capacity to impact each other through these interdependencies (Wasserman & Faust, 1994; Granovetter, 2005).

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Structural Position of a Firm and Firm Performance

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Structural position of an actor in an inter-firm network is argued to have important consequences for its commercial and innovative capabilities (Huggins, 2001). Different studies of interorganizational networks provide convincing evidence that structural embeddedness shapes firm-level outcomes such as firm performance (Granovetter, 1985; Kogut & Zander, 1992; Powell et al., 2002). It is generally argued that closeness (as measured by the number and the quality of linkages) to the high performing companies allows a firm to improve its performance due to the phenomenon of monitoring and mimicry, in which firms look at other more successful firms in their industry when formulating their strategies (Geletkanycz & Hambrick, 1997; White, 1981), and also the phenomenon of network transfer processes (technology, information, knowledge, resources, etc.). Empirical studies of inter-firm networks demonstrate that access to elite partners may have considerable economic benefits, measured by the rates of growth, profitability or survival (Baum & Oliver, 1992; Podolny, 1993; Koput et al., 1998). Another important structural characteristic affecting firm performance is network centrality. Being central in a network allows firms to collect relevant information, insights, and knowledge, and the situation also allows firms to exert influence over other firms in the network (Madhavan et al., 1998). According to de Vaan (2010), the centrality argument is both quantitative and qualitative in nature. First, being connected to many different firms provides the focal firm with qualitatively different pieces of information. Each firm in the network is qualitatively different and centrality does, therefore, foster variety in access to relevant information, insights and knowledge. In particular, under high levels of uncertainty, firms benefit from variety among the spectrum of solutions (Beckman & Haunschild, 2002). Second, being connected to many others allows firms to compare amongst the different pieces of information and develop alternative solutions to the existing problems (de Vaan, 2010). In other words, centrality fosters

variety of solutions and variety of solutions may provide guidance in making the best informed decision. Therefore, moving to a central position can be associated with significant improvement in firm performance. Indeed, Powell’s (Powell et al., 2002) empirical analysis of inter-firm networks in biotech industry confirms that once firms move to a central position, they not only obtain more patents, but also bring in more non-operating income, grow in size more rapidly, and generate greater sales revenue.

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Factors Determining InterFirm Network Formation

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The literature on inter-firm network formation identifies several factors that condition the emergence, evolution and development of interfirm networks. The resource-based model has its focus on the individual firm and the way it engages in relationships. The basic assumption here is the firm uses the relationships to gain access to resources which are vital for its continued existence. Concurrently, some scholars consider the complementarity (and hence, diversity) of the resources controlled by different firms to be a predictor of network formation, especially for purposes of innovation (Richardson, 1971; Teece, 1986; Camagni, 1991). Olivier (1993) provides a general set of reasons for interorganizational network and relationship formation: necessity, when linkages are established to meet necessary legal or regulatory requirements or to supplement internal resource deficits; assymetry, when ties are formed to exercise control over other organizations and their resources; reciprocity, when linkages are established with the purpose to cooperate and pursue mutual beneficial goals or interests; efficiency, or desire to improve internal input-output ratios; stability to achieve stable and predictable resource flows and exchanges; and legitimacy, or desire to improve reputation or image, or show congruence with dominant norms in its institutional environment.

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Cross-Border Inter-Firm Networks in Contemporary Europe

Johannisson, B., 1995. Paradigms and entrepreneurial networks — some methodological challenges. Entrepreneurship and Regional Development 7, pp. 215–231.Inter-firm interdependence is claimed to be a particularly good predictor of the integration mechanisms effectively adopted by organizational units (Van de Ven, Walker & Liston, 1979; Oliver, 1990). In inter-firm relationships, interdependence may well arise due to a number of factors already analyzed in other perspectives mentioned above. Therefore, this variable may be considered an intermediate variable on which many network antecedents have an impact, and which might then be able to explain a particularly high part of variance in the emerging network forms (Grandori & Soda, 1995). Johannison (1995) found that most organically formed networks have emerged as a result of social rationality based on complementarities, and also moral resources, culture, habits and customs. Cultural proximity is argued to be a significant external factor highly important for the development of interorganizational networks due to its ability to facilitate trust and social capital in relationships (Putnam, 1993; Johannison, 1995). In the inter-firm relational exchanges, trust and social capital play the crucial role of interlocking the actors into a long-term relationship. Another important external factor is favorable politico-economic climate and policies tailored to foster interorganizational cooperation (Joas et al., 2007). Such policies include governmental programs to promote inter-firm networks and inter-firm linkages. Particularly important type of policies that facilitate inter-firm networking across boundaries of nation states is regional integration. Harmonization of economic regulations, norms and standards intensify cross-border exchanges in the integrated areas and provides a good basis for enhanced cross-border inter-firm networking. Cross-border inter-firm collaboration is crucial for the economic integration and economic development on both sides of the border and helps to manage complex socio-economic problems

that transcend the competencies of single national governments (Scornn-Frise, 2000; Wattanapruttipaisan, 2001; Joas, Kern, & Sandberg, 2007). Table 1 summarizes and systematizes theoretical aspects related to inter-firm cooperation discussed above.

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EUROPEAN INTEGRATION AND CROSS-BODER INTER-FIRM NETWORKING

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Cross border inter-firm networking is particularly relevant in contemporary Europe in the perspective of the enlargement of the European Union (EU) and European integration (Grandori & Soda, 1995). There have been several studies of the effects of European integration on cross-border inter-firm cooperation and firm performance within the European Union (e.g. Urban et al., 2000; Hudson, 2002; Radu & Constantin, 2007). These studies usually indicate that cross-border strategic alliances constitute both a vector for and indicator of European integration and also show that portfolio of crossborder linkages determines to a large extent a firm’s developmental directions, competitiveness and financial performance (Urban et al., 2000). At the same time, the research on cross-border networking with the newly acceded, candidate, and neighboring non-EU countries has been very limited. Moreover, there have been almost no studies of cross-border inter-firm networking across the EU’s external borders—between the EU firms and firms from the neighboring countries. Meanwhile, the EU has had intense economic interactions with its neighbors in the wider Europe and included its immediate neighbors in the European Neighborhood Policy (ENP), an external framework which is compatible with economic integration, approximation to EU norms and standards, interdependence and common needs of a wider Europe, yet short of EU membership. Within the ENP, the EU launched specific Cross-Border Cooperation programs (CBS) with legal support

Cross-Border Inter-Firm Networks in Contemporary Europe

Table 1. Inter-firm cooperation Inter-firm network modes

Advantages of inter-firm networks

Network structural properties favorable for inter-firm cooperation

Structural properties favorable for firm performance

Factors conditioning the emergence of inter-firm networks necessity, reciprocity, efficiency, stability, legitimacy

vertical/horizontal/ diagonal arrangements

efficient information exchange

decentralization

closeness to high-performing firms

contractual arrangements

cost minimization and shared financial risks

cohesion (overall density, transitivity, compactness)

centrality

equity arrangements

resistance to failure

high inter-cluster and intracluster density

social and personal relationships linking firms together

flexibility and adaptability opportunities for knowledge and technology transfer

faster market penetration and increased production efficiencies

I

interdependence

cultural proximity

trust

favorable politicoeconomic climate regional integration

A B

of the neighboring countries and their regions bordering the EU by land or by sea. Among the most important goals of such programs include: strengthening the incentives for small and medium-sized enterprise development in the border areas, supporting cross-border links between firms, promotion of joint cooperative initiatives, and developing cross-border networking alliances. Therefore, there is a specific policy framework for inter-firm cooperation across external borders of the EU. Moreover, inter-firm cross-border cooperation is enhanced by significant financial support for the networking initiatives that comes from multiple sources including the budgets of individual countries and regions of participating countries, EU financial instruments, international financial institutions such as European Bank for Reconstruction and Development, European Investment Bank, and Nordic Investment Bank. Additionally, EU external borders encompass an interesting phenomenon, the so-called

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creation of common knowledge

F O resource deficit/ complementarity

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‘Euroregions’ representing special politically and economically integrated cross-border zones between the EU and its neighbors. The concept of the Euroregion was first applied to the DutchGerman border in the 1960s, and later became a common model for enhancing regional crossborder cooperation along the internal borders of the EU (Liikanen, 2005). With the enlargement of the EU and the development of European integration, the concept of Euroregions was extended to the EU external borders and became an important instrument for the facilitation of European integration and coordination of cross-border programs, activities, and partnerships. The main goals of the Euroregions have been improving life conditions for their inhabitants, promoting bonds and contacts among local communities, facilitating cross-border business networking, and providing measures for more sustainable development within the region. Euroregions “constitute an operational network of substantial and effective links across the borders,

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Cross-Border Inter-Firm Networks in Contemporary Europe

facilitating the promotion of political dialogue and reform, as well as sustainable economic, social and environmental development.”1 Administratively speaking, Euroregions have different organizational structures, but usually they include some sort of steering committee composed of regional and local authorities (Liikanen, 2005). In addition to solving specific social, political, and economic problems within their geographical boundaries, Euroregions also play an important role in the implementation of the broader regional integration policies. Regional integration and cross-border cooperation frameworks create opportunity structures that provide economic, social, and cultural benefits and geographical mobility for companies on both sides of the border. Therefore, different firms voluntarily enter these structures and deliberately choose to use the resources offered by them: additional financial support, an opportunity to make partners and get access to facilitated information exchange and knowledge transfer; an opportunity to manage uncertainty in a more efficient way; and an opportunity to reduce production and transaction costs, and learn more about the regional environment by establishing contacts of different kinds and socializing with diverse actors. It is important to note that despite intense integration, the European area is not homogeneous; cultures across politically and economically integrated borders remain varied, each marked by history, specific norms and values, and diverse social philosophies. These variations should have an impact on the structure, intensity and effectiveness of cross-border inter-firm networking, and consequently affect firm performance. In particular, researchers find big socio-cultural differences between the older members of the EU and the newer members from Central and Eastern Europe. For instance, countries from Central and Eastern Europe are acknowledged to have significant difference in scores on the individualism/ collectivism, power distance, uncertainly avoidance, masculinity/femininity, and time orientation

dimensions (Hofstede, 1980; House et al., 2004). According to Bond and Leung’s (2009) social axioms, Western European and Central/Eastern European countries have different orientations on the fate control, religiosity, social cynicism, social complexity, and reward for application dimensions. Western European and Eastern/ Central European regions also exhibit significant differences in value orientations on modernity/traditionalism and survival/serf-expression continua identified by Ingelhart and Welzel (2005) through the analysis of World Value Survey. In general, modernized Western Europe is argued to have shorter power distance and to be more individualistic, socially cynical and complex, short-term oriented, and uncomfortable about uncertainty than more traditional Eastern and Central Europe. Given the central location of Poland and its fairly recent accession to the EU (2004), it is interesting to explore its cross-border inter-firm networks with the neighboring “old” EU countries and also external non-EU neighbors. The case of Poland is a good foundation to explore the effects of regional integration, as well as socio-cultural variations, on inter-firm networking and firm performance. Therefore, the next section of the chapter will present an empirical longitudinal analysis of cross-border inter-firm networks between Poland and Germany (two of the oldest EU members), and Poland and Ukraine (non-EU and even non-candidate country, however aspiring for EU membership in the long term). Of course, the abundance of resources and the strength of politico-economic and legal support offered by European integration to Poland for cross-border networking within the EU are not compatible with those which exist for the facilitation of inter-firm cooperation across the EU’s external borders under the ENP framework. However, as mentioned above, the ENP framework and CBS programs do create favorable conditions and offer substantial assistance for interform cross-border networking. Moreover,

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Cross-Border Inter-Firm Networks in Contemporary Europe

the Ukraine actively participates in the Bug and Carpathian Euroregions together with Poland and other neighbors, which also fosters the development of cross-border interorganizational linkages.

ANALYSIS OF CROSS-BORDER INTER-FIRM NETWORKS The food and beverage industry was chosen for the analysis of cross-border networks. There is a significant evidence for regionalization of the food and beverage industry in the EU and rapid growth of numerous alliances, partnerships and joint-ventures across the border of the EU member states (Fearne, 1994; Cante et al., 2003). According to Fearne (1994), inter-firm cross-border cooperation is instigated by a series of factors such as regional integration and the desire of firms to reduce production and transaction costs, to maintain their strength in the market, to minimize the risks associated with entering new markets, and to improve marketing and organizational management. In this study, cross-border inter-firm network is defined as a structure consisting of agents (or nodes/actors) represented by firms and linkages (or ties) among those agents. Consideration of the structural properties of Polish-German and Polish-Ukrainian cross-border networks and structural positions of network actors is important for understanding the strength, effectiveness and development of cross-border inter-firm cooperation and its effects on firm performance. Therefore, the main questions for the network analysis of the cross-border inter-firm networks are:

Does structural position of a firm in the cross-border inter-firm network affect its performance?



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It is hypothesized there are differences in the structural properties of the cross-border networks, which have important consequences for inter-firm cooperation and can partially be explained by differences in the politico-economic and cultural contexts in which networks emerge and develop. It is also hypothesized the structural position of an actor in the network has a significant effect on its performance.

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Representative samples of 50 companies in each case were selected from the bigger sample of companies in the process of elimination of disconnected clusters. Therefore, in both cases there is no fragmentation in the network. The strength of the network tie was measured by the strength of the relationship between two actors based on a four-point scale, where the highest number corresponds to the strongest relationship. The strongest relationship (3) was considered to be equity inter-firm linkage such as joint venture. Moderate relationship (2) corresponds to a contractual inter-firm linkage such as formal strategic partnership. If two actors had any minor joint activity or cooperation, their relationship was estimated as ‘1’. The absence of relationship was coded as ‘0’. The data on the firm linkages were taken from multiple sources including company reports, EU, ENP, and CBC reports, Euroregions’ resources, and a brief survey that was sent to all the companies to identify their relationships with other companies in the network. Three square matrixes were constructed for each case of cross-border cooperation: one for 2000, the second for 2005, and the third for 2009. The data were symmetrized due to reciprocity. The resulting matrixes were then converted into UCINET files and analyzed with UCINET and NETDRAW tools and techniques.

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Are there any differences in the structure of Polish-German and Polish-Ukrainian cross-border inter-firm networks? What effects do these differences have on inter-firm cooperation? What factors can explain these differences?

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First, network overall cohesion scores and the density of cross-border linkages indicators, as well as network diagrams were obtained by the network analysis. In the diagrams, the network actors are placed according to the principle of their weight in the system: more powerful actors (with the heaviest weight of relationships) appear in the center of the clusters, less important actors are closer to the periphery, respectively. Figure 2 provides network diagrams, while Table 2 reports overall network cohesion indexes (density, transitivity and compactness), as well as the density of cross-border linkages. The analysis reveals interesting differences in the structural properties of the networks. In 2000, prior to Poland’s accession to the EU, the overall cohesion of the network and especially the density of cross-border linkages were significantly higher in the Polish-Ukrainian cross-border network than in the Polish-German network. Even visually, it is noticeable that inter-firm cooperation occurred more intensely across Polish-Ukrainian than Polish-German border. Simultaneously, while Polish-Ukrainian network remained more or less same and developed just a few linkages in 2005, German-Polish network made big progress compared to 2000 indicating that the intensity of cross-border inter-firm networking significantly increased. However, the rate of the development of linkages across Polish-German border slowed down in 2009 and the evolution of the network

more or less stabilized as it developed just a few more ties by 2009. At the same time, Polish-Ukrainian network continued to evolve at the same rate as in 20002005 and by 2009 made a small but steady improvement with the cross-border linkages. These results indicate that regional integration does have a very strong positive effect on the development of cross-border inter-firm cooperation; however, this effect is non-linear and it tends to decrease over time. Higher intensity of cooperation over PolishUkrainian border can be explained by the common past starting from cooperation between the Kingdom of Poland and Ruthenian Kingdom in the 13th-14th centuries and ending with being in the same politico-economic system for nearly half of the 20th century- COMECON (Council for Mutual Economic Assistance). Additionally, a strong relationship with the Ukraine has always been the key priority of Polish foreign policy, and Poland has always been a crucial actor and a strategic partner for the Ukraine. Moreover, Polish and Ukrainian people belong to the same ethnic and linguistic group, which significantly reduces mental and language barriers. Ukrainians usually understand Polish and Poles understand the Ukrainian language. On all the cultural and socio-psychological scales discussed above, Poland and the Ukraine tend to have similar scores,

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Figure 2. Network diagrams

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Table 2. Overall network cohesion indexes and density of cross-border linkages NETWORK COHESION (N = 50)a

Density

Transitivity

Compactness

Cross-border linkage density

Polish-German Network 2000

7.12%

4.2%

0.29

0.9%

Polish-German Network 2005

15.58%

12.8%

0.32

9.2%

Polish-German Network 2009

16.72%

16.97%

0.35

10.1%

Polish-Ukrainian Network 2000

6.29%

4.28%

0.11

6.3%

Polish-Ukrainian Network 2005

14.9%

8.1%

0.34

9.4%

Polish-Ukrainian Network 2009

15.22%

12.4%

0.38

9.8%

a

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The closer the density is to 100%, the denser the network Compactness range from 0 to 1; larger values indicate greater cohesiveness.

while Germany exhibits different orientations on all the dimensions. Another interesting finding of the network analysis concerns the phenomenon that in the Ukrainian-Polish network, Ukrainian companies seem to be slightly more oriented towards cooperation with Polish companies than Polish companies with the Ukrainian, and the same tendency can be observed in the Polish-German network where Polish companies are more inclined to cooperate with German companies than vice versa. This can be explained by the fact that, as discussed in the theoretical part of this paper, in inter-firm cooperation networks firms from less developed localities try to establish contacts with higher performing firms from more developed localities and often change their organizational culture and practices to mimic their more successful counterparts. Next, centralization analysis was conducted to evaluate the effectiveness of cross-border cooperation. According to Bonacich (1987, 2007), the measure of centrality by eigenvector is more rigorous than other centrality measures (degree centrality, closeness, betweenness) as unlike other measures that weigh every contact equally, the eigenvector weighs links to others according to their centralities. “Eigenvector centrality can also be seen as a weighted sum of not only direct connections but indirect connections of every length” (Bonacich, 2007). Therefore, the eigenvector approach was used in the centralization analysis

as it takes into account the entire pattern of connections in the network. Tables 3 reports networks centralization indexes calculated by the eigenvector routine. The analysis indicates both networks have rather low level of centralization implying interfirm cooperation is effective and efficient. However, the German-Polish network has lower centralization indexes (especially in 2005 and 2009), implying more equitable distribution of resources in the network, and as a result, higher effectiveness of cooperation processes. Last, the effect of a firm’s structural position (centrality) on its performance is evaluated using fixed effects regression model while controlling for firm size and age. Due to limitations related to

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Table 3. Centralization indexes NETWORK CENTRALIZATION (N = 50)a

Centralization

Polish-German Network 2000

15.12%

Polish-German Network 2005

9.58%

Polish-German Network 2009

8.66%

Polish-Ukrainian Network 2000

18.17%

Polish-Ukrainian Network 2005

17.9%

Polish-Ukrainian Network 2009

16.22%

a The closer the centralization is to 100%, the more centralized the network.

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Table 4. Results of the analysis Independent and control variables

Firm performance

centrality

0.17*** (0.012)

size

0.21* (0.100)

age

0.26** (0.08)

N=100 Adjusted R-squared 0.14 *p 75% of the total revenues

Number of Years The number of years in international business is a relevant measure for international business experience, though it is a dimension less often discussed (Erramilli, 1991). The number of years a firm is active abroad is measured as follows: •

Number of years in international business < 5 years

Foreign Business Environments and Entry Mode Choice

• • •

Number of years in international business 6-15 years Number of years in international business 16-25 years Number of years in international business < 25 years

ies of the firm (Blankenburg, 1992). An existing network in a host country facilitates business activities, especially in the decision making phase, the start-up phase and in case of any subsequent disputes (Jensen, 2003; Chen, 2009). The firms are categorized as follows:

Highest Commitment Entry Mode



Firms also grow experience with regard to a specific entry mode. Firms prefer to enter new markets with the mode(s) in which they have already gained experience (Yiu, 2002). The cases are analyzed on the highest commitment entry mode overseas so far (e.g., WOE, JV, trade, contract modes, etc.).



Experience Host Country

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Yes, access to an existing firm network in China (+) No, no existing local firm network in China (-)

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Local partners are a success factor for entry into transition economies (Meyer, 2001). In the analysis firms are categorized in two groups:

A B

Experience in a host country or in neighbouring countries helps understand the foreign opportunity. It enables better judgements for entry and supports success of management of operations abroad (Barkema, 1996). Firms with prior experience in the host country are more likely to choose FDI modes instead of export (Johanson, 1977; Chung, 2001; Brouthers, 2004; Wei, 2005). Firms with previous experience in a country are often also more successful in terms of performance of new activities (Luo, 1999). Host country experience is grouped in four categories: • • •

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No, no activities in China (-) Yes, trade activities with China (0) Yes, a presence in China (+)

Existing Network in China Foreign firms need to interpret and assess an unknown host country environment to make entry decisions. Network ties increase foreign firms’ expansion and profitability of activities abroad (Johanson, 1988; Li, 2009). Firms are embedded in wider business networks far beyond the boundar-

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Preferred Partner in China

• •

Yes, a preferred local partner selected (+) No, no preferred local partner selected, e.g. still searching or prefer no local partner (-)

The above factors are studied for all entry case studies to gain insight in how in foreign cultural distant countries some firms opt for low commitment modes, while others prefer JVs or decide on a WOE mode.

5. RESULTS Previous work finds isomorphic effects in the relationship between cultural distance and entry mode choice. The present research studies 38 foreign entrance decisions more closely and confirms an isomorphic effect. An analysis across all 38 entry plans into China, results in a grouping of cases into four different groups with different characteristics and behaviours (Table 4.1). The firms opt for low or high commitment, low or high control, with or without a local partner. Below the four groups will be discussed.

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Group 1: High Control The first group of firms is rather inexperienced with regard to international business in general and with China specifically. Despite their lack of international experience, most of these firms are still very determined to succeed in China. They opt for a WOE or direct import mode. These firms often expect the process towards success will be a matter of “trial-and-error”. They are aware of how little they know and that the firm thus needs to take the time to learn about conducting business in China. The decision makers are prepared to invest in success. A high control mode is a means to realize their strategic objectives and to learn about conducting business in China. A senior manager of a young, high growth firm comments:

group of firms, the difference between these two entry mode preferences is related to the objective of the business activity itself, more or less as would be the case for decisions in the home country. It is directly related to the size of the opportunity (e.g., does it justify developing production facilities by the firm in the foreign country or not?).

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Group 2: Trade as Usual

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The second group of firms already conducts business in or with China. These firms conduct international business activities in many different countries, mostly through trade. Many of the firms in this group presently trade with China and learned already about the business culture and business environment. The firms and decision makers are reasonably experienced in international business in general and in China specifically. The founder who has never visited China personally comments:

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Yes, we want our own legal entity locally. Do it ourselves. Even though we feel the Chinese customer base is small and it might take a while, we trust it will be fine in some years. We want to be involved early on, learn about the market, develop market sensitivity, get an idea how people think, and how they do business. When we decide to move forward, we prefer to do it ourselves. We just want to be in control. (Senior manager, Services firm)

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Another decision maker explains:

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When I heard the price levels, I thought, I should do business with them. Still, in my mind I was thinking: a Chinese product? Is it the same quality? How does it work in practice?... …Then I just ordered for €1000,- to test the quality. If you don’t just try, nothing changes. And I can afford to lose €1000,-. Some say the best thing to do is assess the quality of the delivery and discuss deficiencies with the manufacturer. That’s what I do. (Owner, small Trading company) These firms opt for WOE or a lower commitment, high control direct import mode. Within this

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We export. To traders. To end-users. In some countries we have local agents in others we don’t. It all depends on where we can find an agent with sufficient knowledge. If we don’t, we export. In China we have a focused portfolio and deliver directly to six customers, which is fine for now. I learned to keep control in the beginning. (Managing Director, Technology trading company) The business activities intended in China are considered similar to business activities in other countries. The entry mode choice relates highly to the entry mode choice elsewhere and, where preferred, on availability of suitable partners in China. These firms are comfortable doing trade through partner-modes. Others trade directly with China without any hesitation. This group of firms decide on a mode choice, with or without a local partner, in a modus similar to what they apply in most other countries. For them, the business opportunity considered for China is business as usual.

Foreign Business Environments and Entry Mode Choice

Case Study Companies Entry Mode Choice

These firms decide to partner up to meet their objectives for conducting business in China.

Group 3: Partner Trade Mode

Group 4: High Commitment

The third group of companies is reasonably experienced in international business worldwide, though mostly in trade. All these firms have some WOE experience in another country (except one), but the WOE mode is not their main mode of entrance in realizing sales abroad. The firms are most often involved in international trade. The percentage of sales realized abroad is significant, which they realize through local partners and direct trade modes. The firms in the third group have no international business experience in China and also lack an existing network in China. Most of them perceive a need to learn more about the business environment in China in order to be able to conduct business efficiently. A co-founder of a small trading company comments:

The fourth group of firms is the most optimistic about China. These are mature firms with extensive international business experience worldwide, including significant experience in China. They already have an existing network available in China. The decision makers thus do not need a local partner to help them understand how business is conducted locally. They work in a WOE mode or decide to partner with a local partner for strategic reasons (e.g., focus on core business, share capital required, or obtain access to local assets). One senior manager comments:

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You just learn. I am never afraid to just try. You know fairly quickly. I send an email with a request. Do I get an answer? Is it an answer that meets my needs? Do I get the information I want. Is it correct? And the samples we receive. Is it in time? Are they any good?... …Production costs, that is important. It is why we now consider other countries, as cost levels have risen in Pakistan... …In China it is more common to work with an agent in between the manufacturer and the buyer. Because the people over there, it is more difficult, communication is an issue. In Pakistan [where they do business directly with a manufacturer] it evolved already, everyone speaks English. Manufacturers can find us in Europe. In China this is not the case yet. I believe in ten years time, it is over for agents in China (Owner, small trading company).

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Through this structure [JV], we invest once in an organization. People overthere, work hard with our money, when they are involved financially. They canrealize all sorts of projects. If we would work ourselves on the underlyingprojects from here [the Netherlands], we have too much on our plate. Localparties are a better option. (Manager, Financial service provider) Another senior manager comments: It is our strategy to enter a new market through a Joint Venture. We always work with local partners. Preferable with minority shares. Our risk is limited and we invest less financially [the organization has limited capital available]. We donot work from a position in which we are the leading party, telling them what to do. Our role is to offer knowledge, to help optimize manufacturing facilities. (Senior manager responsible for Foreign Operations in FMCG) The decision makers know how they prefer to conduct business in China. They decide deliberately on WOE, JV, or some sort of Partnership. The firms are very experienced in working across

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Table 1. Cases overview Firm size

% Sales abroad

# years abroad

High mode before

IB China experience

Network China

Preferred partner

1. Limited International business experience & No experience in China: HIGH CONTROL MODES

Entry mode choice

Small

75%

15-25

WOE

No

No

Yes

Indirect import

>75%

15-25

WOE

No

No

Yes

Partnership

>75%

15-25

WOE

No

No

Yes

Direct import

>75%

>25

WOE

No

No

No

Indirect import

25

WOE

No

No

No

Indirect import

25

WOE

No

No

No

Indirect import

4. Extensive international business experience & Experience in China: HIGH COMMITMENT WOE OR JV Corporate

25

WOE

Presence

Yes

Yes

JV

Corporate

25

WOE

Presence

Yes

Yes

JV

Corporate

25

WOE

Presence

Yes

Yes

WOE

Medium

50-75%

15-25

WOE

Presence

Yes

Yes

WOE

continued on following page

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Table 1. Continued Firm size

% Sales abroad

# years abroad

High mode before

IB China experience

Network China

Preferred partner

Entry mode choice

Corporate

50-75%

>25

WOE

Presence

Yes

Yes

JV

Medium

50-75%

15-25

WOE

Presence

Yes

Yes

JV

Corporate

>75%

>25

WOE

Presence

Yes

No

Corporate

>75%

>25

WOE

Presence

Yes

No

Large

>75%

>25

JV

Presence

Yes

Yes

Large

>75%

>25

JV

Presence

Yes

Yes

Large

>75%

>25

JV

Presence

Yes

Yes

country borders, and most of them do not consider a partnership or JV complicated. They are confident about managing the additional complexity of a Partnership or JV (Oortwijn, 2010b). The above firms all concern Dutch firms starting activities in or with China, which is a considerable cultural distance between home and host country. The firms respond differently to cultural distance, depending on the worldwide experience in international business, the experience in China and the strategic motivation of the entry objectives.

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Interesting is the notion that especially the more experienced firms opt for a JV entry mode. The firms in Group 4 are very experienced in international business and in China, but often prefer to partner-up in a high commitment JV entry mode. The firms in Group 3 are also very experienced in international business, yet not in China. They do partner up, but not in a high commitment mode. From this we learn how firms with more experience are more comfortable to partner up in an unknown foreign business environment.

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The above analysis reveals how in a cultural distant environment the international business experience and the entry mode choice are related in a complex way. The present study partly explains the isomorphic results in existing work. Some firms with limited or no international business experience opt for the WOE mode to allow the firm to learn in the host country with ‘trial and error’ while maintaining high control over local operations. The firms in group 4 are most experienced in international business and China, but some of them also opt for a WOE entry mode. Both aim for high commitment and high control over activities in China.

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Barkema, H. G., Bell, H. J., & Pennings, J. M. (1996). Foreign entry, cultural barriers, and learning. Strategic Management Journal, 17(2), 151–166. doi:10.1002/ (SICI)1097-0266(199602)17:23.0.CO;2-Z Barkema, H. G., & Vermeulen, F. (1997). What differences in the cultural backgrounds of partners are detrimental for international joint ventures? Journal of International Business Studies, 28(4), 845–864. doi:10.1057/palgrave.jibs.8490122 Barkema, H. G., & Vermeulen, F. (1998). International expansion through start-up or acquistion: A learning perspective. Academy of Management Journal, 41(1), 7–26. doi:10.2307/256894 Bell, J., & Young, D. (2004). Small firm internationalization and business strategy. International Small Business Journal, 22(1), 23–56. doi:10.1177/0266242604039479

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Hennart, J.-F. (1982). A theory of multinational enterprise. Ann Arbor, MI: The University of Michigan Press. Hennart, J.-F. (1989). Can the “new forms of investment” substitute for the “old forms? A transaction costs perspective. Journal of International Business Studies, 20(Summer), 211–234. doi:10.1057/palgrave.jibs.8490358 Hofstede, G. (1980). Culture consequences: International differences in work-related values. Beverly Hills, CA: Sage Publications, Inc. Hohenthal, J., Johanson, J., & Johanson, M. (2003). Market discovery and the international expansion of the firm. International Business Review, 12(6), 659–672. doi:10.1016/j.ibusrev.2003.06.001

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Kumar, V., & Subramaniam, V. (1997). A contingency framework for the mode of entry decision. Journal of World Business, 32(1), 53–72. doi:10.1016/S1090-9516(97)90025-0

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Thompson, J. D. (1967). Organizations in action: Social Science bases of administrative theory. New York, NY: McGraw-Hill. Tihanyi, L., Griffith, D., & Russell, C. (2005). The effect of cultural distance on entry mode choice, international diversification, and MNE performance: A meta-analysis. Journal of International Business Studies, 36(3), 270–283. doi:10.1057/ palgrave.jibs.8400136

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Tung, R. L., & Van Witteloostuijn, A. (2008). From the editors: What makes a study sufficiently international? Journal of International Business Studies, 39(2), 180-183.

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Slangen, A. H. L., & Van Tulder, R. J. M. (2009). Cultural distance, political risk, or governance quality? Towards a more accurate conceptualization and measurement of external uncertainty in foreign entry mode research. International Business Review, 18(3), 276–291. doi:10.1016/j. ibusrev.2009.02.014

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Wei, Y., Liu, X., & Liu, B. (2005). Entry mode of foreign direct investment in China: A multinomial logit approach. Journal of Business Research, 58(11), 1495–1505. doi:10.1016/j. jbusres.2004.10.002

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China’s “Harmonious Society” Challenges Corporate Japan:

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Towards a Dual Vision of Profitability and Social Responsibility

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Keikoh Ryu Waseda University, Japan

ABSTRACT

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Anti-Japanese sentiment in China since the Second World War has been exacerbated by recent territorial disputes involving the Senkaku Islands and the natural resources of the East China Sea. The widespread dissemination of anti-Japanese propaganda by the Chinese media has further contributed to this negative image of Japanese corporations. This pervasive climate of anti-Japanese sentiment has forced Japanese companies seeking to expand their businesses abroad to grapple with the unique challenges of navigating the highly politicized environment of Chinese harmonious society. Still, the success of any foreign companies in China fundamentally depends on whether China’s market economy continues to develop in the face of harsh political conditions and growing social unrest. To date, only a handful of studies have addressed the effects of Chinese harmonious society on the performance of Japanese corporations operating in China. This study is an attempt to fill that gap.

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The People’s Republic of China is an important market for a wide range of Japanese industries, many of which remain the most prominent supporters of China’s economic and technological de-

velopment. Japanese corporations have increased their presence in China significantly over the past decade as China has developed into more than simply an inexpensive place for production. Despite deteriorating political ties, the development of economic relations between China and Japan

DOI: 10.4018/978-1-4666-0306-6.ch010

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China’s “Harmonious Society” Challenges Corporate Japan

has been vigorous. From 1990 to 2003, Japan was China’s number one trading partner, and in 2007 it emerged as China’s top export customer, with bilateral trade between the two countries reaching an estimated US$236.6 billion, or 17.7% of total Japanese external trade. For the first time in history, Sino-Japanese bilateral trade has now exceeded that of American-Japanese trade, though the size of China’s economy remains less than a quarter of that of the United States.1 Since 1989, Japan has also been extremely active in investing in China’s nascent economy, and is currently the second largest source of Foreign Direct Investment (FDI) in China. From 1990 to 2007, cumulative Japanese FDI in China amounted to $64 billion, or about 10% of its total FDI for the period. While China’s exports to Japan grew an average of 14.9% annually from 1990 to 2007, Japanese exports to China rose at an even faster annual rate of 18.5%. Despite the fact the Japanese economy shrank 0.6% in the second quarter of 2008, Japan’s exports to China grew 24.5% in the first five months alone.2 Clearly, the robust demand for goods and technology emanating from China is crucial to preventing the Japanese economy from slumping into another recession. Yet the economic ties between the two countries have formed against a historical backdrop characterized by complex and thorny political issues that have proven resistant to resolution through negotiation and compromise. In some respects, the difficulties facing Japanese corporations are emblematic of those facing all multinational enterprises (MNEs) seeking to take advantage of China’s emerging market. To the extent their interests differ from the policies of the state in which they conduct business, MNEs often find themselves in conflict with local government, with which they must learn to collaborate as both a means of fostering economic development and as a strategy for corporate survivability. In the case of Japan, the growth of the Chinese economy has

been instrumental to the development of its own mature economy since as early as 2002. Through a combination of outsourcing and FDI, Japanese MNEs have fostered mutually beneficial relations with Chinese firms by gradually integrating them into their global production networks. At the same time, while Japanese MNEs have utilized China’s cheap and productive labor force to strengthen their global competitiveness, Chinese firms have used Japan’s global marketing networks and world-renown brands to sell “made-in-China” products around the world. Nonetheless, improved economic ties have not led to better political relations, which is why analysts have continued to refer to the Sino-Japanese dynamic as “cold in politics but hot in economics.”3 Because mutual misunderstandings and historical grudges are difficult to eradicate, anti-Japanese sentiment is likely to dictate Sino-Japanese relations in both the public and private sector for some time to come. This begs the question: how should Japanese corporations respond in a country fraught with cross-cultural hostility and subject to dramatic economic change? The following is an attempt to provide a preliminary answer to this question.

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CHINA’S EMPHASIS ON CORPORATE RESPONSIBILITY Based on the discussion above, this section provides a critical assessment of prior research and how it helps to illuminate the unique challenges facing Japanese corporations in China. Recent developments suggest the emergence of the notion of a “harmonious society” in China has led to greater emphasis on social engagement, forcing Japanese corporations to live up to various corporate responsibilities imposed by the Chinese government.

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1. The Emergence of the “Harmonious Society” From its establishment in 1949 until the emergence of the so-called “socialist market economy” in 1978, China had been run as a planned socialist economy for almost 30 years. The economic reform policy of 1978 resulted in a dramatic shift characterized by unprecedented growth which only accelerated following China’s acceptance into the World Trade Organization (WTO) in 2001. Under this unique framework, rapid economic development has been achieved through the widespread introduction of foreign capital. Yet while China’s economy continues to grow at an annual rate of around 10%, the last 30 years have also witnessed their fair share of social problems, including economic inequality and rampant pollution on an unprecedented scale. One of the most significant shifts in policy to come about since economic reforms began, the “harmonious society” envisioned by President Hu Jintao represents an effort to address these problems by laying out a national vision geared toward “continuous stable development,” as opposed to rapid and unrestrained growth. Underlying this vision is a growing awareness of how economic development is inextricably linked to various social and environmental issues. The severity of these issues has been welldocumented. Data provided by the National Bureau of Statistics in the China Statistical Yearbook (2007), for example, reflects the growing disparity of wealth that is a direct result of China’s unrestrained economic growth.4 As shown in Figure 2 below, this growth has also resulted in a fundamental geographic imbalance in which the development of the eastern portion of the country has far surpassed that of the western regions. This imbalance is almost certainly a result of the preferential policies adopted by the central government to foster economic development in eastern and coastal areas by drawing from the natural resources of the western provinces.5

Other documented problems include the failure to pay salaries, hazardous working conditions, child labor, and human rights violations involving migrant workers. More recently, there has been a series of scandals reflecting unprecedented levels of corporate depravity: babies sickened by tainted powdered milk in Fuyang;6 accidental deaths caused by counterfeit medicine sold by pharmacies in Qiqihar;7 workers trapped in a coal mine in Shanxi; and a young engineer dead from overwork at a major IT firm in Beijing. The wasteful and inefficient use of resources has also led to a vicious cycle in which rapid growth is invariably followed by environmental destruction. In 2007, for instance, China’s energy consumption per 10,000 RMB (1,292 U.S. dollars) of gross domestic product amounted to 1.21 tons of coal equivalent, which is about nine times as great as that of Japan and about six-and-a-half times that of Germany. China’s total energy consumption in 2006 included 2.37 billion tons of coal, up 9.6 percent from the year before; 320 million tons of crude oil, up 7.1 percent; 55.6 billion cubic meters of natural gas, up 19.9 percent; 416.7 billion kilowatt-hours of hydropower, up 5 percent; and 54.3 billion kilowatt-hours of nuclear power, up 2.4 percent. In response, and as evident in the various policies enacted as part of its “eleventh five-year plan” (2006-2010), the Communist Party has sought to build a greener economy designed to improve the standard of living by prioritizing energy-saving and recycling.8 This is why the government has shifted from establishing a definite benchmark for GDP growth rate each year to promising a GDP growth rate per capita that is twice as high as it was in 2000 – a policy which has met with a favorable response from the populace. While the underlying policy shift behind the China’s government espousal of a “harmonious society” was no doubt an attempt to deal with these social and environmental problems, it also represents, to some extent, a disenchantment with Western capitalism and the idea that the introduc-

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tion of foreign investment and technology has come at too great a cost to both local industry and the population at large.

2. “Scientific Development” as a Means to a “Harmonious Society” It has been 30 years since the end of the Cultural Revolution and the “prioritization of economic growth.” As. As the need to identify and address the unintended consequences of economic growth has become self-evident, however, President Hu and Premier Wen Jiabao have sought to develop a strategy designed to balance such growth against the need for social stability and environmental protection. Hence, the emergence of “scientific development perspective,” which envisions a shift in national priorities from pure economic growth to social balance, and is said to encompass the “comprehensive, coordinated and sustainable development” touted by the Third Plenum. Specifically, the policy has three distinct aims: (1) to build closer relations between cities and regions; (2) to promote energy conservation and environmental awareness; and (3) to bridge the economic gap among different regions.9 It is also part of President Hu’s larger agenda to foster a “post-revolutionary” society in which law, the government, and the market ostensibly dictate the parameters of political life. This fundamental shift in socio-economic policy is illustrated in Figure 3 below. The left side of the horizontal axis indicates an inclination to prioritize equity over efficiency, while the lower portion of the vertical axis indicates a tendency to strengthen regulation. The notion of “scientific development” thereby represents a shift from decades of unfettered economic growth towards a more regulated model in which the importance of maintaining social equity is gaining ground over the pursuit of economic efficiency. In light of this increased regulation, an understanding of the Chinese government’s regulatory

policies as well as an ability to predict changes in such policies is essential for MNCs to formulate appropriate localization strategies. Generally speaking, those better able to acclimate to changes in regulatory policy can expect to garner political support which they can then rely on to do business more effectively. They must understand, for example, that relations between cities and regions have an enormous influence on supply-chain management within Chinese transportation infrastructure; that environmental awareness necessarily gives rise to energy-saving regulations which can have an impact on production and risk management; and that bridging economic disparities requires close attention to personnel management. Hence, while the inconveniences caused by such policy shifts may be seen as risky for many Japanese enterprises, they also represent opportunities for them to grow and cultivate their corporate image. Dealing with these changes strategically, i.e. by keeping track of their timing and gauging their effects, will determine which companies achieve the most success.

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3. The Rise of Corporate Responsibility in China The notion of corporate responsibility has been garnering a great deal of attention in China, which has itself been drawing the attention of the world. The reasons for this are two-fold. First, the ratio of Chinese products in Western markets is increasing as China has reinvented itself as the workshop of the world. This in turn has subjected it to Western standards of production, which require trading nations to disclose manufacturing processes and methods as well as quality control systems for their products. Second, China’s entry into the WTO has meant that Chinese companies seeking to import goods into Western markets are now subject to various rules and regulations governing international trade and investment. However, even prior to China’s entrance into the

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WTO, Chinese companies had already begun to crack under the pressure of achieving economic growth at all costs, a state of affairs which had contributed to low corporate morale and decreased productivity. Thus, apart from the need to comply with international standards, the popularity of corporate responsibility and its distinctly Chinese manifestation in the ideology of a “harmonious society” also reflects an effort to adapt to the social and economic conditions of China itself. According to the State Council Information Office of the People’s Republic of China,10 the concept of corporate responsibility as regulated by the Chinese government requires that companies adhere to the following agenda:

Protection of Worker’s Rights

Continuous Economic Development Supported by Environmental Protection and Energy-Saving Technology

Greater focus has been placed on the need to transfer technology and technical expertise from small and mid-sized global corporations to local suppliers in China.

The Chinese government has taken steps to ensure that improvements be made to working conditions and the welfare system by enacting legislation setting standards for the amendment and termination of employment contracts, and establishing medical insurance providing healthcare to the unemployed. In this respect, the “harmonious society” has become a “buzzword” symbolizing the need for corporations and the government to improve the treatment of workers and cultivate a healthy and productive workplace environment.

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Support for Supplier Activities

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The Ministry of Environmental Protection has been strengthening legal regulations concerning the management of toxic substances and the standards and requirements for recycling. It has also been promoting efficient production and development through energy-saving techniques; the adoption of ISO-9000 standards of quality management systems and ISO-14000 certification; the adoption of standard procedures for the disposal of toxic waste and air and water pollutants; and a greater awareness of environmental protection initiatives.

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Public Interest Activities.11 Given the growing gap between rich and poor, China has sought to emulate corporations from developed countries that offer programs to support the poor. Local and regional governments have focused on two fields in particular: (i) educational support for financially disadvantaged regions; and (ii) the development of industries through higher education and technological expertise.

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Compliance

The government has also recognized the need for domestic corporations to comply with recentlyenacted labor laws and tax requirements. Hence, participation in corporate activities involving social contributions has become synonymous with the notion of a “harmonious society.” On the most basic level, it is manifest in such projects as the construction of schools for uneducated children and donation initiatives like “The Hope Project.”12 Yet it also touches upon concerns over the workplace, including ethical standards, organizational compliance, the management of client and third-party supply chains, customer satisfaction, and employee appreciation. Since these are all issues that companies tend to take for granted, working to improve them may prove to be difficult. They are particularly important in China, however, where rapid economic growth has contributed to an enormous disparity in wealth that is the cause of increasing unrest among migrant

China’s “Harmonious Society” Challenges Corporate Japan

Figure 1. 2007 legislation on corporate responsibility

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workers. The Chinese government knows all too well that failing to address such inequality could lead to even greater social instability.

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4. Corporate Responsibility Legislation and Initiatives

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In 2007, the Chinese government promulgated a number of important laws geared towards the regulation of such fundamental social issues as labor relations, social security and environmental protection. These laws include the Emergency Response Law, the Anti-monopoly Law, and the Employment Contract Law (Figure 1). Nonetheless, problems of enforcement remain, the content of these laws and regulations tend to change, and their interpretation more often than not depends on the discretion of local government agencies. Amended in January 2006, the Company Law of the People’s Republic of China also imposes certain standards of corporate responsibility on domestic and multinational corporations operating

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within its jurisdiction, including the assumption of “corporate responsibility when committing to management activities as corporations.”13 This is a provision unique to China, and reflects an underlying effort to address the rampant abuses by corporations in China’s largely unregulated marketplace. In addition to addressing issues of corporate responsibility, the Chinese government – as well as NGOs and the media – have also been concerned with regulating product quality and customer service as well as corporate ethics and culture. While the danger of fraudulent reporting remains, the very existence of these reports suggests China has begun to regulate those companies that make up the main constituents of its fledgling market economy. In an effort to promote corporate responsibility, they have begun to provide official recognition to domestic and foreign companies taking part in corporate responsibility initiatives. Some of the many awards offered include the “Guang Ming Public Benefit Award,” the “Most

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Valuable Responsibility Corporation Award” and the “Best Corporate Image Award” (Table 1). In this way, corporations are incentivized to make valuable contributions to society in addition to the skills and capital they would otherwise bring. Companies that actively participate in such activities have also seen improvements in brand recognition and therefore greater revenue.

RESEARCH ON JAPANESE-STYLE MANAGEMENT AND LOCALIZATION TACTICS As issues of justice and fairness have garnered increasing attention among the Chinese populace, expectations for corporations to act in accordance with a sense of social responsibility have only increased. It is therefore essential that any theoretical approach to the conditions of localization as they exist today take into account the importance of social responsibility for economic success.

Though China’s economic reform began as early as 1978, it was not until 1992, with the introduction of foreign direct investment, that the tangible

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effects of the economic restructuring began to be felt. Since both Western and Asian companies have competed with one another to penetrate her market, China is often referred to as the site of the world’s “Corporate Olympics.” Yet while such competitive diversity has created ideal conditions for a comparative analysis of regional management styles, the amount of research actually conducted in China over the years has been negligible. One of the few to conduct a comparative study of Japanese corporations in China, Seki (2005) has observed that Japanese companies that made inroads into China had higher costs than similarly situated corporations from the United States, Taiwan and Korea. Seki attributed this discrepancy to various factors, one of which was the relatively slow pace of localization for Japanese corporations in terms of client development and product supply. He also observed that Japanese subsidiaries in China tended to be overstaffed while those of Western companies were much smaller and more efficient. Japanese employees stationed abroad also tended to be less experienced than their Taiwanese and Korean counterparts. To compensate for these deficiencies, Seki concluded that Japanese corporations must learn to transform themselves into “Asian corporations” by networking with firms that have already made inroads into China and by opening lines of com-

Table 1. The promotion of corporate responsibility in China

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Initiative

Ministry of Civil Affairs (gov.)

Guang Ming Daily

To recognize the promotion of social activities

“Guang Ming Public Benefit Award” (since 2004)

Nan Fang Daily (media)

The 21st Century Business Report

To recognize outstanding corporate social initiatives

“Best Corporate Image Award” (since 2001)

China News Corp. (media)

China Weekly News

To introduce notions of corporate social responsibility into China

International symposium on corporate responsibility in China (since 2006)

The Union of Corporate Responsibility Development (NGO)

Public Report

To recognize outstanding corporate social initiatives

“Most Valuable Responsibility Corporation Award” (since 2005)

Source: Edited by the author based on the data provided by the State Council Information Office of the People’s Republic of China (available at www.gapp.gov.cn).

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munication with domestic Chinese companies. Unlike Japan, where inter-company relations are few and far between, Seki reasoned that the possibility of such collaboration is much greater in China, which is no doubt one of the reasons for its evolution into the world’s “factory floor.”14 Seki’s research is useful insofar as it clearly identified the operational deficiencies of Japanese corporations in China, yet it neglected to offer a comparative analysis of management styles. Another helpful study was conducted by Matsushige (1999), who compared the wages of employees at Japanese and American companies in the Dalian Economic and Technical Development Zone in China, while analyzing the ability of their respective employees to adapt to local conditions. Conducted from 1998 to 1999, Matsushige’s research focused on three Japanese corporations and one American company engaged in the manufacture of electric appliances and replacement parts. While his results indicated that the localization of Japanese employees was never far behind that of their American counterparts, they did not provide any insight into the motivations behind such localization, the types of companies prone to localization, or the benefits of localization for the bottom line. More recently, Furuta (2004) has conducted a series of surveys and interviews in an attempt to explain the trend in which Japanese companies have begun to sell Chinese-made products in China. Focusing on the reasons behind management’s decision to pursue a business strategy centered exclusively on the sale of Chinese products, Furuta concluded that “the expansion of sales in the Chinese market can only be accomplished by the Chinese CEOs.” Though lacking in theoretical analysis, Furuta’s research represents one of the few creative empirical analyses geared towards understanding the ways in which Japanese companies are currently approaching localization in China.

Other studies on corporations making inroads into China have also focused exclusively on Japanese-style management. In 2006, the Japan Institute for Labour Policy and Training conducted surveys of 19 Japanese companies operating in China in an attempt to get a better understanding of such issues as wages, hiring and promotion standards, employee training and development, manufacturing methods, and localization techniques. In a similar vein, Takagaki (2003) conducted surveys of 104 Japanese companies operating in Dalian in an effort to understand the circumstances informing the decision-making structure of the local managers and directors. Again, while both of these studies analyzed the effectiveness of applying Japanese-style management to subsidiaries operating in China, the theoretical implications of the results are limited insofar as they do not offer a comparative analysis of corporations from other countries. Generally speaking, it is important to note that comparative research on Japanese companies in the early 1980’s adopted Western-style management as the standard, while research in the latter half of the decade adopted Japanese-style management as the standard. The basis of comparison has also changed over the years, depending on where Japanese corporations have chosen to expand. In the 1980’s, the localization efforts of Japanese firms were directed almost entirely at the United States, though these efforts later shifted to Southeast Asia in the 1990’s, and China at the turn of the century.

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2. Localization as a Business Strategy in China Studies of Japanese-style management have tended to emphasize the exceptionalism of Japanese corporations in contrast to their Western counterparts. Yet in their efforts to draw these admittedly important distinctions, they have failed to account for the similarities – the hidden

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and potentially useful connections between the management techniques of different countries. At the risk of oversimplification, this oversight may be likened to paying undue attention to the differences between Japanese and Chinese cuisine. By failing to account for similarities in the management styles of different countries, prior research on the subject has therefore ignored a potential source of insight into the ideal conditions for the localization of Japanese corporations in China. Another deficiency in the research conducted thus far is its lack of empirical analysis. Based on individual and potentially atypical cases, the results of two of the studies discussed above, for example, led to conflicting conclusions: that the pace of localization for Japanese companies in China is relatively slow, and that the ability of Japanese companies to localize may not be so weak after all. Whether or not the pace of localization is too sluggish cannot be convincingly determined without a comparison to corporations from other countries, and yet prior research has generally failed to draw such comparisons. Much of this section has been concerned with identifying the nexus between the corporation’s pursuit of its economic mandate and the fulfillment of its social responsibilities. Entrusted by society with various expectations, corporations must now aim to be good citizens in addition to profitable organizations. The following section offers an analysis of how profitability and social responsibility in China can be put into practice in light of the restrictions imposed by the “harmonious society” discussed above.

media. Such recognition is not only beneficial for localization insofar as it fosters good relations with the local community, but is also an effective means of attracting the interest of potential investors and expanding the number of corporate stakeholders. Assuming Japanese corporations will be unwilling to engage in social responsibility initiatives unless there is an underlying economic incentive, this section discusses corporate responsibility in China in terms of its impact on market share.

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In the 1990s, when the business model was to import components to be assembled in China and exported to foreign markets, foreign enterprises had little connection with Chinese society. Japanese enterprises relied on superior product quality and advanced technology to compete in the Chinese marketplace. As China’s economy developed, however, Japanese enterprises from the manufacturing industry up began to attach greater importance to the Chinese market itself, as opposed to simply viewing it as a convenient and low-cost production base. As a result, these bases have now become “self-completion companies” equipped to handle production and sales simultaneously. However, in this pursuit of the Chinese consumer, Japanese companies have faced an array of challenges. As the product quality and technical expertise of Chinese companies have improved, Japanese products no longer constitute the same competitive threat they once did.15 Japanese corporations have also had to contend with opacity of laws and ordinances, difficulty in getting accounts receivable, and the risks of unwanted disclosure of proprietary information. Moreover, managing both manufacturing and sales has placed a greater emphasis on the need to maintain good relations with the local community so as to attract labor and capital. Positive brand recognition is therefore essential, yet recognition and respect for Japa-

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AN ANALYSIS OF PROFITABILITY AND SOCIAL RESPONSIBILITY IN CHINA Given the aim of “constructing a harmonious society” espoused by the Chinese Communist Party, it is increasingly important that corporations be recognized as socially active by the national

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nese brands in the Chinese marketplace has been tempered by political tension and public relations failure. In a market where competition is fierce and technology readily available, brand recognition represents one of the few domains in which Japanese corporations must learn to distinguish themselves from their competitors. The anti-Japanese demonstrations of 2005 made it clear the traditional approach adopted by Japanese corporations to build brand recognition in China have been ineffective to the extent that they have not take into account the importance of business-society relations in the Chinese marketplace. In effect, they have failed to recognize that the role of corporate responsibility has grown from an additional cost of market entry to a competitive advantage based on the internalization of costs.16 In this respect, it may be helpful to learn from some of the strategies adopted by Western and Korean corporations, which have managed to make substantial gains in market share by providing such benefits as expanded training and promotional opportunities for their employees. Others have burnished their image as purveyors of high-tech electronics by focusing almost exclusively on investment in more complex products. Over the next decade, as the Communist Party pursues its ideological aim of constructing a “harmonious society” while attempting to adapt to the current financial crisis, the conditions of the Chinese market will no doubt undergo drastic changes. Yet, if Japanese corporations continue to rely on conventional strategies for pursuing profit while ignoring these social and regulatory changes, they will continue to stagnate. Accordingly, they must learn to focus, not only on developing their customer base, but also on addressing the complex social issues implicit in the construction of China’s “harmonious society.” Hence, the potential for sustainable development in China will be most effectively realized by incorporating corporate responsibility initiatives into their economic strategies for doing business in China.

2. Strategies for Profitability and Social Responsibility Any strategy for maintaining profitability in China necessarily requires the ability to adapt quickly to social and political contingencies while at the same time navigating the changing contours of China’s ideological landscape. Japanese corporations must therefore strive to rebuild the trust and confidence of the Chinese populace by focusing on social initiatives. They should also seek to understand and predict changes in China’s increasingly complex regulatory framework by attempting to grasp the underlying intentions of the government before pursuing a given strategy. There are at least three ways to accomplish this, each of which is discussed below.

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Strengthening Local Business Expertise Studies have shown that an essential requirement for improving the ability to navigate the risks of doing business in China is to equip an organization with the ability to respond to sudden changes in the market. For example, the diversification of production methods could be used to deal with the shortening of a product’s lifecycle. Specifically, this could include increasing the operating rate of production facilities to recoup the initial investment as quickly as possible, reducing such investment as much as possible, and/or utilizing outside enterprises to provide Original Equipment Manufacturer (OEM) components. To strengthen the ability to respond to changes in distribution channels, corporations could also adopt measures designed to strengthen a company’s commitment to such channels while increasing control of the information flowing to them. Japanese corporations with operations in China are also faced with considerable obstacles to hiring and retaining skilled personnel. Although there is more than enough labor to go around due to the influx of migrant laborers to China’s coastal cities, individuals with the necessary level of expertise

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and technical know-how remain few and far between. Given the current state of the market, competition among corporations to identify and retain skilled labor will only become more intense. In order to improve the ability to respond and adapt to such changes, it is necessary to strengthen local business expertise, which would in turn enable rapid and effective decision-making based on local intelligence. Essentially, this requires the integration of the various management functions covering development, manufacturing and sales, as well as the localization of management strategies through the cultivation of Chinese managers. This is an inherent feature of contemporary globalization: localize management, which implies increased trust. Even though there are the barriers to Japanese firms doing this, there can be no doubt that bolstering local business expertise is the best way for Japanese enterprises to respond to the unexpected changes that inevitably occur in China’s dynamic marketplace.

Enhancing Local Crisis Management

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In addition to dealing with crises on an organizational level, it is also important to cultivate a positive corporate image by communicating with the Chinese consumer through the media. With more than 300 television stations broadcasting on 3,000 channels, more than 2,000 newspapers, 9,000 magazines and countless websites, China’s mass media network is extremely powerful. While circulation of government-sponsored media such as The People’s Daily is on the decline, the number of evening papers, tabloids and entertainment magazines is only increasing. With the accessibility of computers no longer limited to the young and/or wealthy, the Internet has also begun to play a vital role in influencing public opinion. China currently has more than 100 million online users, many of whom are from the inner provinces. While the government continues to control the media and the independent tabloids are given only limited access to information, the inherent anonymity of the Internet has enabled the free flow of “unofficial” information throughout China. Hence, any negative information about a company that is posted online may be disseminated instantly to millions of consumers. There have already been several cases in which an individual consumer’s complaint about a company has become public knowledge in a matter of hours.17 While maintaining constant contact with the media is undoubtedly costly, the potential costs of dealing with the widespread dissemination of negative publicity can be considerably more

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Given the commercial impact of the 2005 demonstrations as well as the outbreak of SARS in 2004, it is also important to establish a “crisis management structure” to manage the myriad risks unique to doing business in China. The success of crisis management ultimately depends on a corporation’s ability to collect accurate information which can then be used to make rapid decisions based on local conditions, all of which necessarily requires greater localization. An instruction manual that can be systematically disseminated throughout the corporation should also be prepared, indicating the actions to be taken by individual departments in case of an emergency. Generally speaking, studies indicate there is a real need to increase organizational sensitivity to potential social and political crises while developing appropriate measures to deal with their inevitable impact on production, distribution, and market demand. Some Japanese corporations have

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already attempted to do so by forming so-called “crisis management committees,” which are comprised of management from both headquarters and local offices and designed to detect potential problems before they arise. The involvement of top management in risk assessment activities should effectively enhance organizational sensitivity to the risks of doing business in China.

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expensive. It is therefore imperative the public relations departments of Japanese corporations establish lasting relationships with the media to ensure that any articles or programs about them, particularly those disseminated online, are based on accurate information. At the very least, information regarding management policies, business activities, as well as social and environmental contributions should be posted on the company’s official website in an effort to promote the brand and cultivate a positive corporate image. Finally, it is important to note that none of the measures discussed above will be effective if the corporation adopting them does not remain proactive and secure the assistance of headquarters in Japan. Accordingly, executives from both the head and local offices must work together to develop appropriate strategies to mitigate risk and improve corporate image as soon as possible.

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The above summarizes the key findings as well as the potential for future research on the phenomenon of economic nationalism in China, as informed by President Hu’s ideology of “constructing a harmonious society.” Generally speaking, the evidence suggests that Japanese corporations cannot afford to forego taking the plunge into the Chinese market. With its large labor force and low cost of doing business, China is ripe with opportunities for enterprising companies seeking to expand on the international stage. The amount of Japanese trade with China has already surpassed that between Japan and the United States, and the economic ties between the two countries will only continue to strengthen as China assimilates international rules established by the WTO. Accordingly, Japanese corporations must learn to embrace the emerging emphasis on social responsibility reflected in China’s unique brand of capitalism by working toward rebuilding the trust

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Farquharson, D. (2010, 19 August). China’s technological catch up is not the end of Japan’s competitiveness. Investment Week.

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Ohmae, K. (2001, July 30). Asia’s next crisis: Made in China. Rapid evolution of Chinese economy threatens regional status quo. The Japan Times.

Hooper, B. (2005). The consumer citizen in contemporary China. Working Paper No. 12, Centre for East and South-East Asian Studies: Lund University. Hughes, L., & He, Y. (2006, Mar. 22). Hot economy and cold politics? Commerce and nationalism in Sino-Japanese relations. Meeting of the International Studies Association. Kelman, S. (1990). Regulation that works. In Hoffman, W., & Moore, J. (Eds.), Business ethics: Readings and cases in corporate morality (pp. 19–34). New York, NY: McGraw Hill.

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Konomoto, S. (2000). Problems of Japanese companies in East and Southeast Asia. Nomura Research Institute Papers, No. 18.

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Kwan, C. H. (1997). The rise of Asia and Japan’s hollowing out problem. Nomura Research Institute Quarterly, 6(1), 58–75.

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Wittbecker, A. (1992). The corporation in the community. Plant Ecology, 7(4), 1–11. Xinhua News Agency. (2006, Oct. 9). SinoJapanese trade volume to top $200b. China Daily. Yoda, N. (2001, Jun. 28). Relocation and reorganization of Japanese industries: Textiles. FRI-MITSOFI Conference: Can Japan be a Global Player?

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See Xing, Y. (2008), “Japan’s Unique Economic Relations with China: Economic Integration under Political Uncertainty,” EAI Background Brief No. 410, Oct. 23, 2008. The total value of Sino-Japanese trade for fiscal year 2007 was over US $200 billion. See Xinhua, “Sino-Japanese Trade Volume to Top $200b,” China Daily, Oct. 9, 2006. See Xing, “Japan’s Unique Economic Relations with China,” at pp. 1-4. See, e.g., Hughes, L. and Y. He, “Hot Economy and Cold Politics? Commerce and Nationalism in Sino-Japanese Relations,” Meeting of the International Studies Association, Mar. 22, 2006. See National Bureau of Statistics of China, China Statistical Yearbook (2007), available at www.stats.gov.cn. This imbalance in economic policy has also contributed to the environmental devastation of China’s western provinces. See Niu, C., “Wealth Gap Issue and Countermeasures in China,” Focusire Journal of International Relations, June 27, 2010. In April 2004, at least 13 babies in Fuyang and 50 more in the rural areas of Anhui province died of malnourishment from ingesting fake milk powder; 100 to 200 others suffered malnutrition but survived. Local officials in Fuyang arrested 47 people responsible for making and selling the fake formula,

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and investigators discovered 45 varieties of substandard formula in Fuyang markets. Over 141 factories were responsible for the production of the formula, Chinese officials seized 2,540 bags of fake formula, and the State Food and Drug Administration ordered an investigation in May 2004. The use of tainted drugs manufactured by Qiqihar No. 2 Pharmaceutical Company left 11 people dead. An important element of China’s energy policy is to reduce energy consumption per capita, thereby offsetting the growth in energy supply needed to keep up with population growth. This in turn should reduce energy costs as well as the need for additional power plants, and offer flexibility in choosing preferred methods of energy production. See “Scientific Concept of Development and Harmonious Society,” 17th National Congress of the Communist Party of China, Oct. 8, 2007, available at www.china.org. cn. See General Administration of Press and Publication of the People’s Republic of China, available at http://www.gapp.gov. cn/cms/html/21/367/List-1.html. Such activities include community service, environmental protection, education, welfare assistance, charities, cultural activities, and generally anything involving individuals or organizations donating materials, time, energy and knowledge for the benefit of the community. Founded on October 30 1989, “The Hope Project” is a Chinese public service project organized by the China Youth Development Foundation and the Communist Youth League Central Committee to bring schools into poverty-stricken rural areas of China and give poor children access to an elementary school education. Through Project Hope, the China Youth Development Foundation has

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also sought to improve educational facilities and improve teaching quality in poorer regions. The Company Law of the People’s Republic of China was adopted at the 18th meeting of the Standing Committee of the Tenth National People’s Congress on October 27, 2005 and went into force on January 1, 2006. The rise of China as a manufacturing powerhouse has had a dramatic effect on the way the world does business: lower prices on everything from sneakers to flat-screen televisions, an exodus of manufacturing jobs from the United States and Europe, and Beijing’s emergence as a political force to be reckoned with. One of the most dramatic shifts for China itself has been the rise of a new class of migrant workers, as tens of

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millions of people have moved from China’s remote rural provinces to burgeoning coastal cities. Japanese brands rarely make it into the top echelon of corporate rankings by the Chinese media. See also Farquharson, D., “China’s Technological Catch Up is Not the End of Japan’s Competitiveness,” Investment Week, Aug., 19, 2010 (“Japanese firms remain technological leaders, but the Chinese are catching up”). See Wittbecker, A., “The Corporation in the Community,” Pan Ecology 7(4):1-11, 1992. See generally Hooper, B., “The Consumer Citizen in Contemporary China,” Working Paper No. 12, Centre for East and SouthEast Asian Studies, Lund University, 2005.

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Globalism, Culture, and Business Environment:

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A Middle Eastern Perspective Diana Bank Universidad de las Américas, Mexico

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Mohammad Ayub Khan Tecnológico de Monterrey, Mexico

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As the international business environment becomes increasingly global and competitive, a manager’s job becomes more challenging and diverse. The recent trends of globalization and competition are attributed to several triggering factors such as technological development, new emerging and investment-friendly markets, and the availability of globally-scaled logistics. Companies increasingly seek a variety of growth options including cross-border mergers, joint ventures, direct investments, and strategic alliances. Similarly, markets are integrating via a variety of mechanisms ranging from a simple trade level integration (witness the growth of free trade agreements) to a more complex political unification, such as the European Union (EU).

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INTRODUCTION Globalization has completely reshaped the flow of information, goods, and services; therefore, it is crucial to view the business world differently. Considering that globalization processes are taking place worldwide, business managers are required to:

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Learn about different markets, Foresee the possible scenarios ahead, Identify opportunities and threats, Design comprehensive business plans, Prepare for the challenges presented by variations in cultures

DOI: 10.4018/978-1-4666-0306-6.ch011

Copyright © 2012, IGI Global. Copying or distributing in print or electronic forms without written permission of IGI Global is prohibited.

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Managers should think and plan globally to sustain their business operations in the ever changing environment of today’s business. In the current context, regional studies become imperative for all stakeholders. This chapter will focus on the business environment of the traditional Middle East, which includes Israel and the Arab countries of Egypt, Syria, Lebanon, Jordan, Iraq, Saudi Arabia, Kuwait, Bahrain, Qatar, and the United Arab Emirates (UAE). In particular, this chapter will include the following parts: 1. 2. 3. 4.

Cultural characteristics of the Middle East The Middle East in a globalized world A corporate cultural analysis Managing business operations in the Middle East: Some guidelines for success 5. Conclusion

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Very particular to the Middle East, religion plays an important role in the culture of the region. Without exception, all countries in this area are ruled by religious law, sometimes in parallel to state law or sometimes on its own, giving rise to similar yet different cultural characteristics. In general, Middle Eastern culture can be divided into Muslim, Christian/Catholic, and Jewish cultures. Nonetheless, with the exception of Lebanon which has more influence of Christianity/Catholicism, most countries are ruled by Islam and Islamic culture. However, Israel, the only Jewish state in the world, is ruled by Jewish and civil laws. This chapter covers Israel in parallel, since Judaism and the history of Israel make its culture more akin to Western culture than any other country in the Middle East. Nonetheless, it is important to note that, although the strong majority of Israelis are of the Jewish faith, there is a small majority of Muslims and Christians/Catholics in the country. For simplicity´s sake, we will not include them.

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The Arab Middle East (“Arabs”) is a relationship-driven culture where personal relationship and social interaction are important before doing business. Arabs tend to be collectivist, familyoriented, and hierarchical. Honor, shame, face, and social networks play important roles. Longterm trust, built on past experience and personal understanding must be established before any business can start. They are hospitable, friendly, emotional, and proud of their culture, if somewhat rude, based on more Western ideals of proper behavior. The proper connections are central for successful business in the region, as mutual trust is the pillar of such relations. Offering and accepting favors, what could be considered to be corruption or in the Western world, are common business practices in the Middle East. Non-verbal and body languages are also highly indicative of the “high context” culture in the Middle East. For example, it is not strange for two men to hug and kiss as they meet, something which would not be encountered in a Western country. As culture is highly influenced by religion, what could be considered normal practice in the West will not be so in the Middle East. Religion influences the way people think and act. For example, dietary laws forbid the eating of meat which is not “halal” (butchered in a certain way by a person allowed to kill the cow; pork is forbidden), and alcohol is not even sold in many countries. Dancing places, or “discos”, are also not to be found anywhere. Smoking is not encouraged, although many do smoke the water pipe, which is more traditional than cigarettes. Muslims pray five times a day, interrupting work activities, and the month of Ramadan (which varies in the Gregorian calendar, as the Muslim calendar is not solar) is a month of fasting, and hence of reduced economic activity. Therefore, potential cultural misunderstanding may be encountered by anyone doing business in the Middle East. These could include the following:

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What should come first? Business or rapport/trust-building? An Arab will want to “get to know” the person before doing business. Trust will be the first brick for any relationship or business deal. How physically close should one get in a face-to-face meeting? Physical closeness is considered normal in the Middle East. The distance of the personal space is much smaller by Western standards. Are meetings private or public? When in business meetings, the boss may interrupt the meeting, receive guests, telephone calls, may come late or may disband the meeting early. Mixing business and pleasure in the Middle East is a very well known cultural characteristic, which for a Westerner may not only appear strange but also “wrong”. How and when to disagree with an Arab partner? Straightforward disagreements are not welcome, particularly in public or in the presence of others. These can lead to relationship breakup and loss of trust. One must learn how to disagree with an Arab business partner by not being so direct when one disagrees. How should one approach a transaction negotiation? One should be cooperative and conciliatory, appeasing and avoiding conflict. Conflict is dysfunctional and may distort the whole process. How are agreements made? Since telling the truth and fully accomplishing commitments made are religious deeds, agreements can be made verbally. The practice of documentation, litigation, involving lawyer and contracts can influence negatively the process of relationship building.

so small that Israelis behave like one big family. Similarly, physical distance between people is almost non-existent. On the other hand, as opposed to the Arab counterparts, hierarchy does not exist. According to Senor and Singer (2009), “The IDF´s [Israel Defense Forces] lack of hierarchy pervades civilian life. It can even break down civilian hierarchies (p.51).” Because every male and female Israeli must serve in the army, and make decisions in the field at any point in time, flexibility and quick response to events have made Israelis “jump over” their superiors, let it be in the army or in business. The Israeli “chutzpah”, or audacity, knows no bounds. There is a definite rudeness to the Israeli personality that does not exist among Arabs for whom respect to the elders, the parents, and the bosses is an important part of the culture. Because the origins of Israelis are wide and varied, it is hard to pinpoint an “Israeli” personality. Since the 19th Century, the area has been showered with Jewish immigrants from many countries, including India, Syria, the USA, Australia, and even Thailand, each bringing its own cultural identity and behaviors. Although a Jew will be considered Jewish outside of Israel, when immigrating to Israel, he or she will be called “Indian, Syrian, American, Australian, or Thai”. This is what makes them different than others. An India may eat Indian as well as Israeli food and have stronger ties with his or her family, whereas an American will show more American cultural traits. A Syrian will dance to Arab music and eat Arab food, whereas an Australian will dance to to pop music and eat American fast food. But they are all Jewish, and will mix both cultures without even noticing. Although the country´s culture is very homogeneous because of religion, it is also very heterogeneous. The strong religious and historical past links the Israelis like no other people. Nonetheless, there are country characteristics, which are vastly different to Arab culture. According to INSEAD´s Israel Research Center (2010), these would include:

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Israelies shows similar, yet also different characteristics than do Arabs in the Middle East. Relationship and trust building are similar to that of Arab countries, not only because of the location of Israel, but also because the country is

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Entrepreneurial spirit Informal environment Intimate social networking Easy access to the highest levels of decision makers Risk-taking mentality Extensive international academic and business ties

It is clear that although the Middle East consists mainly of Arab nations, Israel stands out in the midst, with a radically different culture, more akin to the Western values with which Westerners are more familiar. These discrepancies have been increasing the economic and social breach between Israel and her neighbors, where Israel is the most entrepreneurial and economically advanced country in the area.

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The Middle East has changed and evolved throughout the centuries. We will concentrate on the early 20th Century onwards, when the Turkish Ottoman Empire dissolved, and the Europeans divided the area among themselves. This would come to have historical, economic, and social repercussions in the latter part of the century. The emerging nationalistic movements of the late 19th Century experienced the rise of modern political Zionism, and the emergence of the state of Israel, a Jewish state in the middle of Muslim Arab nations. The differences in the political and economic systems of the countries would only exacerbate the constant state of war in the area between the Arab nations and the state of Israel. Although of recent the Arab nations of the Middle East have been doing relatively well, mainly due to its petroleum resources and to more recent economic changes, Klieman (2008) forwards the following indicators of poor economic show by Middle East region over the last several

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Thirty to 40 years ago, key Middle Eastern nations were on par economically with Asian countries. Today, Egypt’s per capita income is less than one-fifth of South Korea’s, while the two nations’ incomes were equivalent in the 1950s. Nonetheless, Egypt is now a “hot” country with investors due to its growth potential. Saudi Arabia used to have a higher GDP than Taiwan; today, its GDP is only half of Taiwan’s, even though it has some of the most important oil fields in the world. Costa Rica, with a population roughly five percent that of Egypt, exports more than twice as many manufactured goods as Egypt. Many countries in the region show low or even negative real GDP per capita growth rates over the last three decades. Illiteracy runs at close to 40 percent across the region, triple that of Latin America and East Asia. Only 1.6 percent of the population has Internet access. The world´s average in computerization is 78.3 computers per 1,000 persons, while the level in the Arab countries is 18 computers per 1,000. As many as 25 percent of Arabs live below the poverty line; one of every five lives on less than $2 a day. Based upon current trends, unemployment in the region could rise from 15 to 50 million in the coming decade. Only approximately 11 percent of the labor force works in manufacturing.

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years. Again, Israel will be excluded from this list and will be detailed later.















Mengoni (2008) has identified several reasons for the poor business performance by Arab nations. As all Arab nations in the Middle East are not democracies, they have a very strong hold

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over all that affects their country, including the economy. The rulers have kept inward looking and protectionist economic policies, such as high tariff barriers to exports, a controlling interest in specific sectors of the economy, most notably, energy, and delayed entry to the World Trade Organization (WTO). More recently, the business environment in the Middle East is encouraging for international business operations in their continuous search for new markets and opportunities abroad. “Increasingly, these companies are looking East for business development, with China leading the rankings as the first international market of choice for the UAE, Saudi Arabia, and Qatar; and third highest market for Egyptian SMEs [Small and Medium Enterprises] (HSBC, 2010).” This latest report (HSBC, 2010) showed about 61% of SMEs in the UAE are confident enough in the economic outlook to raise their capital spending, while 46% want to increase the strength of their workforce. Some 63% of SMEs have a positive outlook about the growth of local economy. SMEs and other companies in the UAE are confident about the future of business and thus continue to make investments and creating more job opportunities. As previously mentioned, the case of Israel should be considered separately, not only because its religion is more akin to Western values (remembering there are one million Arabs in the country, the majority who are Muslim, the remainder being Christian), but it is also the only democracy in the region. Its economy is market-based, where a high rate of literacy, of higher education (24 percent of the workforce has concluded higher education, according to INSEAD´s Israel´s Research Center (2010) and of entrepreneurship, mainly in science and engineering (according to de Fontenay & Carmel (2004), there are 135 such professionals per 10,000 members in the labor force, followed only the USA with 80 and Japan with 75, that sharply contrasts with the country´s Arab neighbors. Since the beginnings of the country in 1947 to the present, Israel has passed through many phases

of economic development. Today, Israel is one of the most important hi-tech hubs in the world, referred to as “Silicon Wadi”, name mirrored on California´s “Silicon Valley” (de Fontenay, C. & Carmel, 2004), second in world importance, along with others, to California´s technology clusters. This has created a vibrant and growing economy, which continues to contrast ever more with that of Israel´s Arab neighbors. One exception would be the UAE, in particular Dubai and Abu Dhabi. In 2000, Dubai launched “Internet City”, one of the largest information and communications technology clusters in the Middle East, where over 600 Information Technology (IT) companies operate. Although it does not rival Israel as a high tech center, Dubai is quickly becoming a popular place to do business in the Middle East, along with Abu Dhabi which is the richest area within the Emirates. It also has one of the highest GDP´s in the world due primarily to its wealth in oil and gas. One should always remember knowledge about the Middle East is incomplete without a deeper study of Islam as well as Judaism, the other important religion of the Middle East. Islam as a religion of the Muslim majority in the Middle East, and influences all aspects of life, including society, economy, politics, and law, something unknown in the Western world. It establishes standards and guidance for how to behave as an individual, how to manage one’s finances, social protocols and the overall business environment. Islam is Arabic for “peace, purity, acceptance, and commitment.” As a religion, Islam calls for complete acceptance of, and submission to the teaching and guidance of God. A Muslim is one who freely and willingly accepts the supreme power of God and strives to organize his life in total accord with the teachings of God. Islam is not a new religion. It is, in essence, the same message and guidance provided to humanity by God through His prophets. There are different interpretation of Islamic teaching and practices.

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In the contemporary world, there are two major forms of Islam: • •

Fundamentalist Islam: Taliban and AlQaida type Islam Modern Islam: Indonesia, Malaysia, Turkey, UAE, where a balance between religion and economics is to be found.

Modern Islam is a progressive religion, based on the Holy Kor´an. Books such as The Battle for God by K. Armstrong (2000) or The Oxford History of Islam edited by J. Esposito, (1999), show Islam has brought dramatic changes in the social organization, the political governance, and the legal and economic systems of Islamic countries. In the Holy Kor´an, Holy War, defined as “a struggle by a common man or woman to defend or protect oneself against all bad things and evils”, is an integral part of Islam. To defend one´s dignity, honor, property and blood is not (at all) about aggression, physical war, abuse of power, discrimination, imposition of one’s will or ideology over others. It is about a human effort or struggle to bring about justice, fairness, equality and progress in a society. Obviously, this has often been interpreted subjectively based on current circumstances. For centuries, the area has had foreign influences that have not always been constructive. The Arab nations are thus trying to build their own identity marrying religion with globalization. Many are not receptive to outside influences, and yet, know they must be somewhat open in order to integrate to the world economy. This causes a discrepancy, where culturally, the countries tend to be more closed to outside influences. Contrarily, Israel is a wide open country in numerous ways. Immigration is the pillar of the country, so tolerance to different cultures (mainly Jewish cultures of different nationalities) is a cultural mainstream. Paradoxically, within Judaism, religious tolerance has become less present than in the past, where the breach between Orthodox

and non-observant Israelis is widening. The ultra-Orthodox, for instance, do not even accept the State of Israel, which they believe will only be established when the Messiah comes. Nonobservant Israelis tend to be very American in their worldview. An interesting joke in Israel goes like this: “What is the dream of every Israeli?” Answer: “To fulfill the American dream.” Hence the country´s culture welcomes American and Western civilization, culture and even, money from venture capitalists who are investing in various technological ventures. As the Middle East tends to be an Arab Middle East, the small island of democracy called Israel has developed in a hostile area, due to cultural differences in religion, history, politics and economics. Whereas Arab countries tend to look and find an identity in religion, which permeate people´s lives and beliefs, Israelis are totally open to the world. It is a truly “born global” country, established by immigrants and developed by its relations with the Western world, unlike the Arab world which has mostly been closed to the West. Doing international business in Israel is much easier than any Arab country of the area, although most of these have not been able to stop the globalization processes going on around them.

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A CORPORATE CULTURAL ANALYSIS The basic concept of any negotiating process is cooperation and synergy. Conflict is dysfunctional, and business is best done in a cooperative rather than in a confrontational manner. Win-win and collaborative approaches are best used in Middle East. The selection of the right criteria of negotiators, such as age, which is a sign of a responsibility and experience, and gender, mostly men, is of prime importance. Social status and family networks are also important criteria for selection. Concern for protocol is high in Middle East. People dress conservatively, and seniority

Globalism, Culture, and Business Environment

is important. To develop trust, a foreign business person should avoid too many formalities and have more pre-negotiation gatherings in which trust will be developed. When it comes to taking risk, most Middle Easterners, except for Israelis, are low risk takers, but at the same time, they are ready to accept some risk, since everything comes from God. Decision making is centralized, and the implementation of decisions is not quick. What an Arab will say or promises will be kept and that counts more than the written document or contract. Islamic financing and the banking system differ from the Western idea of banking, where charging interest is at the center of transactions. For Islam, money is only a medium of exchange and thus, money has no intrinsic value in and of itself. Financing in Islam means a participation in business for profit or value, or to create something tangible such as assets or inventory. Hence, any speculative or hedging business, such as the derivatives market, futures and options contracts, is not allowed. Muslims believes that interest charging or gambling tend to concentrate wealth in the hands of the few, and that there is no trust in God, no divine guidance is considered. It involves the following:



with men. He does not hold the right to destroy his life and property. Islamic economics is not only an analysis of law. It comprises as well the Divine economic endeavor.

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Hence, different methods of Islamic finance will include “musharaka” (equity financing); “mudaraba” (co-financing); direct investment (to build up equity and value) and interest free deposits; “murabah” (cost-plus financing); “istisna’a (forward purchasing); leasing (financing for rental of equipment and bank transfer ownership at the end of the contract considered a gift); installment sale (similar to leasing, but here, ownership is transferred with the transfer of goods), and finally, “qarzee hasana” (pure loan, no interest applies). Although physically a part of the Middle East, Israel is quite different from its Arab counterparts. From the 19th Century, Israel was settled by people from as many as 70 nationalities, ranging from Americans and Europeans to Arabs (such as the Maghreb, Iran, Iraq, Northern Africa, and Turkey). Therefore, the Israeli culture is not one easily “packaged”. It consists of a mixture of the original culture of the area of Palestine (more akin to Arab culture) with the mentalities of all the Jews that poured in. In their recent book StartUp Nation, Senor and Singer (2009) describe the culture in Israel as:

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Production and consumption are both to be regulated by moral values and universal benefits to mankind. Hence, producing morally and socially injurious goods is not allowed. In Islamic economics, man is not driven by purely economic motives. Criterion of investment include a mix of moral values, social aspirations and concerns, and emotions. All economic activity must have ethical and moral dimensions. Life and property are gifts given by Allah (God). Absolute ownership does not rest

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Audacious Undisciplined Creative Challenging Assertive Informal Persistent Highly argumentative Innovative Driven Having “chutzpah” (presumption plus arrogance)

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MANAGING BUSINESS OPERATIONS IN THE MIDDLE EAST: SOME GUIDELINES FOR SUCCESS To maximize taking advantage of all that the Middle East has to offer in terms of business, researchers on Middle East suggest the following specific actions: • •





Designing effective R&D strategies to maximize comparative advantages. Emphasizing on the growth options through joint ventures and other strategic partnerships. Promoting consulting firms specialized in serving small- and medium-sized enterprises, as well as high tech firms. Promoting international awareness among local firms.

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Improving product and service quality Improving information, production and marketing technologies Investing in global R&D Improving economic competitive factors (labor costs, interest rates, exchange rates and economies of scale) Developing a global business orientation Thinking and planning globally, instead of locally Hiring internationally experienced managers Becoming a “business friendly” company by changing work attitudes Improving trade regulations (via trade and other related agreements) Emphasizing a closer relationship between industry and government Increasing the existence of business, political or economic associations

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The health and flexibility of an economic system is shown by the rapidity of response to needs and speed of penetration of new ideas. These will require special attention if the distance between the Middle Eastern and Western countries is to diminish. A clear case for a university-based R&D policy to stimulate entrepreneurship, job creation and renewal of traditional sectors of both countries is to be promoted. It is advisable that priority allocation of resources be targeted to R&D together with the necessary policy changes to achieve an open socio-economic climate conducive to innovation and the birth of new ventures (Ruscoe, 2008). Companies incorporating cross-cultural competencies into their core values have an advantage over those which do not. Not only do such firms lower their risk of lost revenues, but they also gain a new set of strategies and a clear perspective of what is offered by other cultures. Rather than view successful cultural skills only as a means to prevent lost revenue, smart decision makers and employers emphasize the personal benefits of cross-cultural competencies. Culture can no longer

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be taken lightly by businesses. Today, no one is truly exempt from dealing with other countries. The first step to creating cross-cultural competencies is to rid oneself of assumptions, prejudices, and stereotypes. Modern business calls for modern thinking, where different people have differing priorities and values, and yet, are accepting of others. The authors propose a variety of ways for Arab Middle Eastern countries, both governments and their multinationals, or small and medium businesses, to attract international business and investment. Israel already meets some of the following suggestions, but there is always room for improvement. Some of the areas of improvement would include, but not be confined to:

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CONCLUSION The Middle East presents enormous opportunities for business since the region´s economies are growing faster than the world average. Ad-

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ditionally, local consumers are more demanding of quality and novel products. Foreigners doing business in the Middle East should not forget the following critical elements: •





Cultural misunderstandings can make or break a deal. Study all aspects of the area before embarking on a business deal. The Middle East is radically different than anything a Westerner can imagine. Most countries are not democracies (except for Israel), therefore a businessman (or woman, if they dare do business in the Middle East) must be sensitive and know whom to approach. Legal aspects are based on Muslim and / or Jewish law and are religious by nature, which may clash with Western laws.

Dubai Internet City. (n.d.). Why Dubai Internet city? Retrieved January 3, 2011, from http://www. dubaiinternetcity.com/why_dubai_internet_city/ Harris, P., & Moran, R. (1996). Managing cultural differences. Gulf Publishing Company.

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HSBC Saudi Economic Survey. (2010). Saudi SMEs among world’s most confident. Jeddah. IMF. (2010). IMF raises 2010 Middle East growth forecast to 4.5%, expects contraction in Dubai. Retrieved January 3, 2011, from http://www.bime.com/main.php?id=43786&t=1&c=34&cg=4 &mset=1011

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INSEAD. (n.d.). Israel Research Center. Retrieved January 4, 2011, from http://www.insead.edu/ israelresearchcentre/hitech_industry/index.cfm Klieman, A. (2008). Middle Easterner: A regionalism denied. Brown Journal of World Affairs, 15(1), 305–317.

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The globalization of business is moving forward at a frantic pace creating new systems, strategies, and practices and leaving “in its wake” many business people who are in a confused and disadvantaged position. Corporations must engage in international business ventures or perish. This fact alone necessitates the inclusion of international business in the curriculum of all high school and university-level students. Only in this way will countries continue on the path of international growth and competitiveness.

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Ben-Shahar, H., Fishelson, G., & Hirsch, S. (Eds.). (1989). Economic cooperation and Middle East peace. London, UK: Weidenfeld and Nicolson. de Fontenay, C., & Carmel, E. (2004). Israel’s silicon Wadi: The forces behind cluster formation. In Bresnahan, T. F., & Gambardella, A. (Eds.), Silicon Valley and its imitators. London, UK: Cambridge University Press.

Ministry of Foreign Affairs. (2004). Israel’s story in maps. Jerusalem, Israel: Author. Mostyn, T. (Ed.). (1988). The Cambridge encyclopedia of the Middle East and North Africa. Cambridge, UK: Cambridge Univeristy Press. Philip, R. H., & Moran, R. (2004). Managing cultural differences (6th ed.). Elsevier ButterworthHenemann. Romagnoli, A., & Mengoni, L. (2008). The challenge of economic integration in the MENA region: From GAFTA and EU-MFTA to smallscale Arab unions. Springer Science and Business Media, LLC. Senor, D., & Singer, S. (2010). Start-up nation. A council of Foreign Relations Book. New York.

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Globalism, Culture and Business Environment:

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A Latin American Perspective

Mohammad Ayub Khan Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM), Mexico

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Diana Bank Universidad de las Américas Puebla (UDLAP), Mexico

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ABSTRACT

In contemporary globalization, companies need to be entrepreneurial, innovative, creative, and dynamic since the life cycle of products is shortening and competition is stiffening; hence companies need to increase investment in research and development (R&D) to remain competitive or even just to survive. Global sourcing and evolving markets demand that companies become proactive in their business approaches. Considering all these changes and challenges facing business organizations, this chapter focuses on how Latin American companies cope with globalization, cultural differences and diverse business environments. The authors start with a discussion on culture, globalization, and business performance of Latin American companies, followed by solutions to their shortcomings, and conclusions. A case study of business performance in Brazil and Mexico will be presented at the end of the chapter. The authors believe there is enough reason why foreign businessmen and women should seriously consider the Latin American option when making their business decisions. The authors hope this chapter will convince them that, without a shadow of doubt, cultural differences can be understood and overcome for the benefit of everyone. Understanding Latin American culture could be a winning strategy for the foreign investors in Latin American markets (Spillan, 2004).

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INTRODUCTION

Today´s global environment presents a multitude of opportunities for business operations, regardless of the nature, history, size, and/or origin of the business. Such opportunities are reflected DOI: 10.4018/978-1-4666-0306-6.ch012

in the shape of the following developments in different areas: Globalism encourages national economic systems to play an important role in defining the landscape of nation states. Historically, it used to be the politics; Regionalization of national economies in the form of trading unions and blocks such as the European Union (EU), the North American Free Trade Agreement

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Globalism, Culture and Business Environment

(NAFTA), the Association of East Asian Nations (ASEAN) and the South American Common Market (MERCOSUR), among others, promote an environment in which participating nations can maximize their commercial benefits, lower trade barriers, specialize in certain economic sectors and increase the interdependence of national economies; Emergence of economic groups such as the BRICS economies, as well as others, such as Mexico, Turkey, South Korea, Indonesia and some parts of the Middle East and Africa are also following suit; Uses and advances of information, communication and operational technologies are helping business organizations achieve operational efficiencies; Themes of deregulation, privatization, market-oriented reforms, open competition, industrial standardization and conducive business environments are commonly discussed these days by practitioners as well as by theorists; Management and maximization of the benefits from workforce diversity are creating a corporate culture that accommodates workers of diverse backgrounds based on equality, and regardless of gender and of country of origin. It is also worth mentioning here that the globalization of people (relatively easier mobility of professionals between nations) is leading business organizations to adopt a more flexible management system; Corporate level alliances are also becoming part of business culture today. These have caused increasing benefits for allied organizations, but small businesses are losing grounds to these joint organizations, since they do not have access to them; Issues of ecology (natural environments and global warming) and corporate social responsibility are also part and parcel of the discussion of policy makers.

National culture and value systems have significant effects on the culture of an organization (Tayeb, 1995). Organizational culture is influenced by employees (individual culture) who, in turn, are influenced by events outside the organization (Khilji, 2001) and is the driving force behind organizations (Willmott, 2000) which influences managerial decision-making, leadership styles and human resource management practices (Li, Lam, & Qian, 2001). In fact, organizational culture represents the interaction effects of these spheres (Schneider & Barsoux, 2003). Differences in national cultures greatly affect leadership style, communication, motivation, organizational design, and people’s expectations of work design and reward (Nicholas, Lane, & Brechu, 1999). Specifically, organizational polices (e.g., human resource policies) can be influenced by various national institutions such as labor laws, educational and vocational training practices, and industrial standards and regulations (Budhwar, 2001). Culture organizes values into mental programs and the behavior of people within organizations is an enactment of such programs (Hofstede, 1980). Organizations can be the same in such objective dimensions as physical plant, layout or product, yet totally different in the meanings which the surrounding human cultures read into them (Trompenaars and Turner, 1998). Organizational culture is shaped not only by technologies and markets, but also by the cultural preferences of leaders and employees and national culture which has a strong impact on people’s interpretations, understandings, and assessment of those with whom they work. Cultural values can affect a manager´s decision making processes and play a significant role in the way people conduct their lives and behave on the job. Several studies (e.g., Khilji, 2003) have been conducted on the importance of learning about national cultures and the impact of national cultures on the operations of business organizations. Why should one think about culture in or around organizations? Because “behind the scenes” of

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CULTURE: CONCEPTUAL AND THEORETICAL APPROACHES Culture represents one’s outlook and world view, and is not limited to national phenomena (Lewis, 1996). Culture is organizational and individual.

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what happens in the day-to-day life of organizations and employees...is culture. Culture is everywhere. It directly impacts what happens, or does not happen in organizations. Organizations are more than they appear to be on the surface. Behind products, policies, services, and rewards are the “ingredients”, which determine the “results” in an organization. Organizational culture is a primary, if not the primary determinant of that which separates a “champion” from a “loser”. Though national culture and corporate cultures are distinct and separate concepts (Weber, Shenkar, & Raveh, 1996), the relationship between the two cannot be ignored. National culture can have a direct or indirect impact on corporate culture, and vice versa. Nationality (as a national cultural variable) can affect drivers of globalization strategy (Yip, Johansson, & Roos, 1996). Differences in corporate governance across cultures have been shown to stem from differences in nationality (Hewett, Money, & Sharma, 2006). Such is the case of the Japanese industrial networks, or “keiretsu”, or the system of close personal ties in China are best examples of collectivistic national cultures (Dyer and Ouchi, 1993; Boisot and Child, 1996). Other studies (i.e., Tayeb, 1994) have found that national culture influences organizational practices and work-related values. When management practices (corporate culture) are congruent with values embodied in national culture, financial performance increases (Newman & Nollen, 1996). Hewett, Money & Sharma (2006) spoke of national culture as “… composed of several layers of “programming,” beginning with the family, then the education system levels”. Companies in Latin America can be classified more as organic corporate cultures, whereas North American firms are closely associated with a more mechanistic culture. Latin American culture, with its high levels of collectivism, uncertainty avoidance, power distance, and Confucian dynamism tend to breed people who are more participative, creative, and spontaneous (Hofstede, 2001).

In conclusion, it is clear national culture has a direct effect on organizational culture. We will now see how this performs in the context of Latin America. Recommendations to men and women who want to do business in those countries will follow.

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Geographically speaking, Latin America is composed of several independent nations including the Spanish, Portuguese, and French speaking nations of Central America, South America, and the Caribbean. In terms of general cultural values, Latin American cultures are considered to be similar, but when evaluated or compared based on specific cultural variables such as ethnicity, linguistic, religion, gender and age, there are visible differences among these nations. Although there are similarities based on historical and linguistic dimensions, each nation has its own history and geographical inheritance (Lenartowicz & Johnson, 2003). For example, in Mexico, there are more than 15 native dialects spoken, and there are several indigenous religions associated with Aztec and Mayan traditions. Other studies (i.e., Rivera, 1978; Olien, 1973) identified Argentina (although Argentina´s population is 97% of European origin and hence a very different country, culturally speaking), Uruguay, Paraguay, and Chile as one cultural group since there has been little influence on their cultural development by indigenous people while Peru, Ecuador, and Bolivia were grouped separately as Andean cultures. These nations share some other cultural characteristics such as a low level of industrialization and the strong influence of indigenous languages on the development of a local variety of Spanish. Venezuela and Colombia were also grouped separately because both of these countries were part of the Spanish colony of New Granada, Greater Colombia. These countries share a unique internal division between coastal and inland mountain re-

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Cultural Classification: Latin America

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gions that explains many of the cultural differences inherent to these countries. Brazilians are proud of their strong multicultural heritage (European, African, and Amerindian). Mexicans are proud of their Indian heritage (Aztec and Mayan civilization). Mexico´s increasing business dependency on and geographical proximity to the USA has exposed the country to American cultural influences. Management and corporate cultures, the educational system and other work habits have been greatly influenced by American cultural values, which, combined with the size, history and economic growth, has made the Mexican culture relatively unique and different from its other Latin neighbors. Similarly, Puerto Rico, because of its political affiliation with the USA, has a distinct cultural system from its other Latin neighbors. Finally, Brazil has to be the most diverse of Latin American countries. As an ex-Portuguese colony, an important component of its national population is of Portuguese origin, mixed with the indigenous Indian populations and Africans, who had been brought over as slaves. Brazil is the only Latin American country where Portuguese is the country´s official language.

Other financial and political crises took place in countries like Ecuador, Bolivia, Paraguay, Uruguay, Colombia, and Venezuela. The crises highlighted the importance of situations of which companies should be weary. For example, some of the crises involved fallen governments, unemployment, and an increase in riots and looting. In the case of Mexico, the subsequent change in government started an era of drug and drugrelated violence. In economic terms, governments increased interest rate and devalued currencies. Chile and Costa Rica, generally considered two of the more stable countries in the region, also suffered some of the economic and business effects described above (EIU Views Wire, 2010; EIU Views Wire, 2009). Fortunately, in time, most countries stabilized and continued the structural changed they had begun. According to The Economist (2010), the next decade may well be “Latin American decade”, as the region grew by five percent in 2010 and many positive signs in terms of GDP growth, the rise of the “multilatinas” (multinational Latin corporations) and the improvement in governments´ economic management, which has managed to keep inflation and currency fluctuation under control, have reinvigorated the region. Additionally, as almost all Latin American countries (with the exceptions of Cuba, Venezuela, and Bolivia) are democratically administered, and market orientations and liberalizations have replaced closed economies, a competitive and stable business environment for international businesses has brought about a significant amount of foreign investment into Latin America (Arbelaez & Milman, 2000). Latin American trade has grown and expanded with almost all global players, including Western Europe, North America (specifically the NAFTA and MERCOSUR regions), and more recently, with China in her quest for natural resources and investment opportunities. Nonetheless, progress on economic programs, including electricity, tax, labor-market, and telecoms reforms and privatization will be slow, as governments will continue

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Since the start of the structural reforms in the late 1980s, the region has suffered many economic, financial, and political crises, the most important being: • • •

The Tequila Crisis in Mexico in 1994 The debt and currency crisis in Brazil at the beginning of 1999 The debt, currency, and political crisis in Argentina at the end of 2001

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to prioritize deficit reduction, inflation control and debt management over growth, job creation and the attraction of Foreign Direct Investment (FDI), which have to be the next steps in their development programs, according to The Economist (2010). It is in this context that culture will be a major subject for international multinationals seeking to invest in these countries.

Cultural Latin America It is commonly understood that globalization has brought the business community together to a larger extent, which added a challenge of understanding global cultural systems and the impact of differences in the cultural systems across nations on the functions on firms and firms across cultures. A firm’s national culture can influence its operational, tactical, and strategic actions and aspects (Tse et. al., as cited in Blocker & Flint, 2007). Examples of such influence are usually given in the cases of Japanese “keiretsu”, German engineering, and the “laid-back” high context atmosphere of Latin America (Steenkamp, 2001, as cited in Blocker & Flint, 2007). National culture can thus explain the role of national culture in influencing business strategies and management decisions such as new product development, branding strategy, selection of channel distribution, human resource management and marketing activities. Studies (i.e., Money et al.1998; Bolton and Myers, 2003; Overby et al., 2004, as cited in Blocker & Flint, 2007) have shown national culture influencing buyer behavior in many ways such as affecting buyer search criteria, referral behavior, formation of preferences, and consumer perceived value. Other similar studies have found cultural differences at levels such corporate, industry, professional, group, and individual can have varying influences on consumer behavior (Leung et al., 2005; Möller & Svahn, 2004; Schein, 1992; Törnroos & Möller, 1993; as cited in Blocker & Flint, 2007).

The relationship between national culture and business performance is often viewed as a debatable issue. Some researchers (i.e., Hewett, Money, & Sharma, 2006) have studied the moderating effects of the national culture on the link between relationship strength (collectivist cultures) and repurchase intentions (buyer’s perspective). These authors found that “…the relationship between Latin American firms will have a stronger influence on repurchase intention than for US firms. Because a lower level of individualism in Latin America will strengthen the link as buyers seek to preserve the ties they have developed with sellers.” Furthermore, these studies also found that “…the higher level of uncertainty avoidance in Latin America will lead buyers to stick with known suppliers.” Previous studies on such issues (March & Simon, 1958) had established that people tend to accept what is familiar rather than to accept what is new. Other national cultural variable such as a long term orientation in Latin America can be viewed as a means to establishing long term relationships between the firms and buyers/suppliers. In contrast, as US culture is considered to be individualistic with a low level of uncertainty, less power distance and short-term orientation, firms and buyers/suppliers are more likely to have short term relationships (Hewett, Money, & Sharma, 2006). These authors have also developed theories establishing the relationship between the changes in the national cultural systems in terms of changes in the political, legal and market systems, and the need for entrepreneurial values in a particular country. For the last two or three decades, substantive political reforms, trade liberalizations, and investment friendly environments in Latin America, have brought international investments into the region. This has created an environment of competition based on quality, competitive price and customer service for the local industries, thus forcing them to be innovative, proactive and dynamic. Culture is gradually being transformed with emerging waves of globalization.

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Culturally speaking, in Latin America family and business go hand in hand as no separation between management and ownership of the company may exist. Managers are the owners and the owners are the managers. It is not only about the chief executive officers or the chairman of the board of directors, but it is also about the presence of family members, relatives, and close friends in the top management team, as well as in mid-level, and even low-level management. Trust, favoritism and nepotism are major causes of such management culture in Latin America. As family culture is brought to the company, Latin American corporate cultures can best be described as being hierarchical and authoritarian. Managers pretend to be figure head, leader, status holders all at once. Show of authority and recognition of this authority by direct and indirect subordinates is naturally embedded in the existing management infrastructure of the company. Subordinates can be dependent on their direct bosses (“jefes”) for instruction, decision making and feedback. The management approach is paternalistic, and direct conflict of interest is minimal. Therefore, personality and personal relationships are keys to successful management in Latin America. According to Dávila and Elvira (2010), Latin American companies are managed like a family, where senior managers or executives are expected to protect their subordinates and even take care of the personal needs of workers and their families. The authors further suggest that “Latin Americans value status within a hierarchy because it indicates social distance between the higher-up and his subordinates. Job titles and additional benefits also have a great significance because of the social status that they bring.” Social criteria such as family background, physical appearance, gender and age can be decisive factors in recruitment, promotion and even compensation. Employees value social relationships based on

personal communication and empathy, concepts that are essential to teamwork. Communication within a typical Latin American organization has a hierarchical and vertical structure in which information generally flows from top to bottom. Also considering the fact that subordinates lack a spirit of confrontation, it is no surprise communication is less than adequate. There are fewer horizontal relationships, and authority is rarely delegated. Establishing solid, stable labor relations requires personal contacts as well as courteous social interactions. Essentially, Latin America is a group oriented culture where personal relationships play an important role in any business deals or transactions. People can become easily emotional and express themselves strongly and openly in meetings. Seniority is important and senior managers will make most of the strategic decisions. It is important to know the counterpart and trust can be built quickly. Courtesy and signs of respect are highly valued. A manager is expected to respect his/her subordinates at all levels of the organization. Aggressive and authoritarian behaviors and approaches to manage people in Latin America might result in conflict and rejection by the workers. Criticizing a Latin American manager in public will be resented since it would mean a loss of face in front of others. Although a Latin American manager can be viewed as a so-called “father figure” in the company, the social and professional distance between supervisors and subordinates is maintained. As Latin American society is classified based on education, wealth, and power, managers and supervisors belong to a higher class status. Latin American can be both formal and informal. For example, social life is characterized by social formalities and behavioral codes, but at the same time, gestures of friendship, informal communication, loyalty, and affection can be clearly seen in daily transactions.

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Business in Latin America Several studies, such as Starr (2002), found general public discontent with the social, political, economic, and environmental consequences of the expanding interconnections among national economies. These studies suggest that “rather than promoting stable economic growth and creating opportunities for improved living standards, such reforms have been associated with financial crises, expanded inequality, increased unemployment and job insecurity, and stagnant or declining living conditions for the majority (Starr, 2002).” The similar reaction is found in Latin America. Market reforms brought doubts in Latin American populations because of high inflation, poor public services, job losses, economic inequality, and little progress in poverty reduction. Nonetheless, Latin American countries have continued working on market reforms and liberalization, as well as improving business environments by stabilizing economic factors. Other studies (Crummett, 2004, The Economist, 2010) found that the region has a substantial potential for growth in the next years to come. Not only is the region full of natural resources, but its geographical proximity to the North America, a strong attraction for foreign investors, gives Mexico, for example, an added competitive and comparative advantage. Mexico was rated 35th place out of 183 in the World Bank’s Doing Business 2011 Index, which positions Mexico as one of the best ranked economies in Latin America, even ahead of the BRIC economies (China—79, Russia—123, Brazil—127, and India—134). As one of the largest and growing economies in Latin America, Mexico is moving in the right direction, making an overall positive impact on the Latin American markets. In Chile’s case, a stable and business friendly environment, strong economic and political fundamentals, a talented labor pool, and outstanding physical and telecom infrastructure is positioning the country for continued growth (Fornes and Cardoza, 2009).

As a regional block, Latin America is an emerging continent with the growing economies of Brazil, Argentina, Mexico, Chile, and more recently, Peru and Colombia. Latin American nations have taken several market-oriented reforms over the past several years. Traditionally, Latin American countries used import substitution policies to protect local industries, but globalization, participation in the World Trade Organization (WTO), and the need for foreign investments have shifted these policies. Latin America receives foreign investments in different forms from developed nations including the USA, Japan, and Europe. Because of the changes in the investment and general business environment in Latin America, Egan (2010) suggests that the pattern of ownership of business has changed allowing foreign companies to own whole or a majority of ventures. In Latin America, local/domestic businesses and the government have strong bonds, which enhance the possibility of having joint ventures with foreign firms. But this does not applied to all sectors, especially those deemed as important for national security, such as PEMEX (Theodore, 2010).

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RECOMMENDATIONS AND CONCLUSION Latin American countries need to continue improving their business environments and provide diversified business options to national as well as to international investors. Such improvements are needed in many areas, such as socio-cultural, markets, economic, physical infrastructure, and governmental institutions (Charnock, 2009). Promotion of open markets policies and the strengthening of democratic and transparent institutions combined with social development programs will surely enhance the global outlook of Latin American countries. The use of technology, innovative industry models, and investment on quality education can bring about revolutionary changes in the economic and social atmospheres

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of Latin America. With indigenous growth, these nations can cope with certain potential threats such as excessive dependency on the North American economy (principally on the USA economy) and the emerging economic regions such as the Dragon economy (China), the Vodka economy (Russia), and the Sunshine economy (India). It is recommended Latin American nations diversify their business options – goods and services – to attract new FDI. They should focus on entrepreneurial activities, which could lead to the high economic growth in the long run (Larroulet & Couyoumdjian, 2009). Educating the workforce, simplifying business establishment processes, obeying the rule of law, providing ownership options, establishing market-based competition, and reducing the marginalization of labor union power can prove helpful in this challenging endeavor. Furthermore, Latin American nations should promote to outsiders their comparative advantages in labor force, cheap raw materials, low production costs and other business advantages of doing business in Latin America (i.e., growing demand for foreign products, brand names and growing high income population). Other sectors, such as tourism, agriculture, oil, gas and minerals, also demand renewed efforts from national governments. These nations must transform themselves from being consuming nations to producing nations. In general, Latin American nations and firms should develop the following:



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Improve economic competitive factors (labor costs, interest rates, exchange rates and economies of scale). Hire internationally experienced managers. Emphasize human resource and work policies, and international attitudes. Improve trade regulations. Increase investment and global R&D.

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It is an interesting time in Latin America and the Caribbean because the economic trends are the best they have been in 25 years. After more than five years of near stagnation, average annual growth in the past 2-1/2 years topped 4.9 percent. For 2011, growth is projected at a healthy 4.5 percent, much higher than any European country, or the USA and Canada. Moreover, despite the recovery of domestic demand and high oil prices, inflation is the lowest it has been since the 1960s. Latin American nations are emerging economic models in the world with almost all of them are governed by democratic institutions (Kotabe & Leal, 2001). We have suggested earlier the business environment in Latin America is generally conducive to business, and presents enormous opportunities for national as well as for international investors. Institutional and economic reforms continue to be underway making the business environment transparent and equal for all types of business players. Foreign investment is welcome and conventional industrial policies such as import substitution are being replaced with liberal business policies as far as allowing foreign operators to have direct and outright control of their operations. Investment in industries such as the automotive, high-tech, tourism and real estate is increasingly higher (Vial & Cornelius, 2002). What comes next? Will Latin American nations build on their exiting progressive economic models? What type of social and political revolutions do these nations need to speed up social equality and economic balance? The answers to these questions will depend on how national

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Better product and service quality. Foment close relationships between industry and government. Improve information, production and marketing technologies. Increase affiliation with associations (business, political or economical). Develop a global orientation. Change thinking patterns and planning as a global endeavor.

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governments continue with the political, social and economic reforms of their respective countries. For now, Latin America is going through an impressive change in the way business is done. Modernization of business processes is taking place all through this market. Globalization has arrived with the many trade agreements, and as domestic and foreign trade grows, modern business practices are coming into general use. Now is the time for foreign businessmen and women to jump in the bandwagon and do business in Latin America, while not forgetting that national culture and organizational management need to be adapted for assured success (Robles, Simon, & Haar, 2002).

CASE STUDY: BRAZIL AND MEXICO, THE TWO LARGEST ECONOMIES IN LATIN AMERICA

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Brazil and Mexico are the two largest economies in Latin America and several similarities exist between their economies. Both have highly diversified economies and entered the 1990s embracing market-oriented reforms that drastically changed their business landscapes. Mexico and Brazil have similar per capita incomes, and similar education and health standards. Both nations also show considerable agricultural potential and have abundant sources of energy. Despite these similarities, economic interaction between the two economies remained very low throughout the 1990s. By that time, Mexico had taken aggressive measures to boost regional trade by developing several bilateral trade agreements with Latin American countries. Mexico signed free-trade agreements with Chile in 1991, and with Colombia and Venezuela, both in 1994, the same year Mexico joined NAFTA. Mexico has also pursued non-regional trade alliances such as joining Asia-Pacific Economic Cooperation in 1993.

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In the late 1990s, Brazil began expanding its Mercosur membership to develop a free-trade agreement with the European Union (EU). In fact, Brazil signed a free-trade agreement with the EU in 1999 (CNI 1999a, 1999b). Exporting figures for Brazil and Mexico show relatively slow growth of Brazilian trade compared to Mexico’s higher trade performance. Between 1985 and 1996, Mexican exports of manufactured products expanded by 772 percent compared to Brazil’s 88 percent, demonstrating the dramatic shift in Mexico’s export structure toward exportation of manufactured products. By 1999, exports of manufactured products accounted for almost 84 percent of Mexican exports, showing a dramatic change from Mexico’s reliance on oil exports in the 1980s (Gouvea, 2002; Parnell, 2010; Turner & Kleiner, 2001). Brazil, on the other hand, has been trying to diversifying exports. In 1999, Brazil’s top 10 exports mainly comprised natural resource-based goods, such as iron ore, coffee beans, frozen orange juice, and soy beans, with manufactured goods only accounting for 27 percent of Brazil’s top ten exporting products (SECEX/DECEX, 2000b). As a whole, manufactured products accounted for only 56 percent of Brazil’s total exports for 1999. Mexico’s increasing trade performance has resulted in a strong reliance on the U.S. market for most of its trade. In 1985, the U.S. accounted for 66.8 percent of all Mexican exports. In the late 1990s, the USA market was responsible for almost 80 percent of all Mexican exports and for about 78 percent of all Mexican imports. There is a growing perception that trade and investment between Mexico and Brazil could increase substantially in the coming years. Currently, trade levels remain relatively low. In the mid-1980s, Brazil accounted for 1.2 percent of all Mexican exports. This number declined to 0.9 percent in the late 1990s, when Brazil’s share of the Mexican market reached only 0.8 percent. In 1999, Brazilian exports to Mexico accounted for only two percent of Brazil’s total exports, with Mexico

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ranking 13th among Brazil’s main exporting markets (SECEX/DECEX, 2000b). Brazilian exports are relatively stable, while Mexican exports show great fluctuations throughout this period. The trade structure between the two economies has also changed substantially in the last decade. In 1992, Brazil was importing oil, electric machinery, and chemicals from Mexico, with oil accounting for almost one third of Brazilian-Mexican trade. Brazilian exports to Mexico in 1992 mainly consisted of transportation equipment (buses and chassis), iron ore, and machinery. In 1999, Brazil mostly imported chemicals and transportation equipment from Mexico, and Brazilian exports to Mexico mainly comprised automobiles, iron ore, and electronics. Brazil has a number of incentives to establish closer trade ties with Mexico. Mexico is Brazil’s largest market in Latin America. With dynamic economies and a combined population of 310 million people, Mexico and Brazil have what it takes to become important trade and investment partners. Brazil’s and Mexico’s renewed interest in developing closer economic alliances could facilitate the sowing of a Free Trade Agreement of the Americas (FTAA). However, Brazil stands out in Latin America as the “country to watch”. A member of the so-called “BRIC economies”, Brazil already enjoys enormous interest from outside investors. It is of prime importance that anyone who wishes to do business in this country to be familiar with certain cultural aspects. The official language of Brazil is Portuguese. Most Portuguese are not fluent enough in English to conduct business in that language. More than half the time an interpreter will be needed for a non-Portuguese speaking executive. The pace of negotiation is slower and is based largely on personal contact. It is rare for important business deals to be conducted through letters and by telephone. Many Brazilian executives do not react favorably to quick and infrequent visits by foreign sales representatives, even though Brazilians are very people-oriented. They do not interact

with others in a formal systematic manner. Their relationships with other business people are interpersonal in nature, and they place a high value on human relations. Any first-time meeting begins with getting fully acquainted with each other in a relaxed way, as they are very casual about time and work. American business people are notorious for conducting business first, regardless of whether they like a person or not, or whether they have a personal relationship with them or not. A Brazilian would find this behavior rude, if not insulting. Brazilians prefer comfortable interaction with a good sense of humor. It is very important that a continuous working relationship is maintained. After meeting a businessman or woman for the second time, you will be expected to give a hug. Failing to do so will leave him or her feeling rejected and wondering if it was something he or she said. As a rule, problems and subjects are approached indirectly. Brazilians enjoy bargaining, and presentations should be made with enthusiasm. Brazilians are also different from Americans in matters of punctuality. Whereas Americans tend to be very punctual, Brazilians may be just a few minutes late for business meetings. This way, the person expecting company will have time to properly prepare for the others’ arrival in case he or she is running a little late. If one is required to be punctual, then he or she will be told to “come airport time” or “come American time”. Brazilians demonstrate their strength by being aggressive and like to seize the initiative in a business deal. Respect must be commanded and shown. During conversations, eye contact is maintained between both speaker and listener to a degree that Americans would consider a stare. Finally, it is important to remember that Brazilians judge others on personal standards, not by something abstract. They are very suspicious of ambition in a person. They regard someone who is ambitious as one who pursues his or her goals, while sacrificing the well-being of others in the process.

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There are many factors and aspects of Brazilian culture and law of which to be aware if thinking of conducting business there. But many of those will no doubt have to `sink in’ through experience. Nevertheless, a basic knowledge of the most important characteristics of Brazilian etiquette can possibly save a lot of embarrassment and help in cementing long term business relationships.

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Dávila, A., & Elvira, M. (2010). La evaluación del rendimiento en empresas intensivas en conocimiento: Un caso de estudio. Universia Business Review, 27, 124–14.

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Blocker, C. P., & Flint, D. J. (2007). Exploring the dynamics of customer value in cross-cultural business relationships. Journal of Business and Industrial Marketing, 22(4), 249–259. doi:10.1108/08858620710754513

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Gouvea, R. (2002). Brazil and Mexico - Partners in sowing a free trade area of the Americas. Thunderbird International Business Review, 44(5), 603–616. doi:10.1002/tie.10035 Hewett, K., Money, R. B., & Sharma, S. (2006). National culture and industrial buyer-seller relationships in the United States and Latin America. Academy of Marketing Science Journal., 34(3), 386–403. doi:10.1177/0092070305285370 Hofstede, G. (1980). Culture’s consequences. London, UK: Sage Publications. Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions and organizations across nations (2nd ed.). Thousand Oaks, CA: Sage Publications. Khilji, S. E. (2001). Human resource management in Pakistan. In Budhwar, P., & Yaw, D. (Eds.), Human resource management in developing countries. London.

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Newman, K. L., & Nollen, S. D. (1996). Culture and congruence: The fit between management practices and national culture. Journal of International Business Studies, 27(4), 753–780. doi:10.1057/palgrave.jibs.8490152

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Nicholas, C. E., Lane, H. W., & Brecha, M. B. (1999). Taking self-managed teams to Mexico. The Academy of Management Executive, 13(3), 15–28. doi:10.5465/AME.1999.2210310

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Olien, M. D. (1973). Latin Americans: Contemporary peoples and their cultural traditions. New York, NY: Holt, Reinhart, and Winston, Inc.

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Khilji, S. E. (2003). To adapt or not to adapt: Exploring the role of national culture in HRM—A study of Pakistan. International Journal of Cross Cultural Management, 3(1), 109–133.

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Kotabe, M., & Leal, R. (Eds.). (2001). Market revolution in Latin America: Beyond Mexico. New York, NY: Pergamon.

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Larroulet, L., & Couyoumdjian, J. P. (2009). Entrepreneurship and growth: A Latin American paradox? The Independent Review, 14(1), 81–101.

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Lenartowicz, T., & Johnson, J. P. (2003). A crossnational assessment of the values of Latin America managers: Contrasting hues or shades of gray? Journal of International Business Studies, 34(3), 266–281. doi:10.1057/palgrave.jibs.8400032 Lewis, R. D. (1996). When cultures collide: Managing successfully across cultures. UK: Nicholas Brealey Publishing Limited.

Parnell, J. A. (2010). Competitive strategy and performance in Mexico, Peru, and the United States. Journal of Centrum Cathedra, 3(2), 150–166. Rivera, J. (1978). Latin America: A socio-cultural interpretation. New York, NY: Irvington Publishers. Robles, F., Simon, F., & Haar, J. (Eds.). (2002). Winning strategies for the new Latin markets. Englewood Cliffs, NJ: Financial Times/Prentice Hall. SECEX/DECEX. (2000a). Mercosul: Estatistias de Comercio Exterior. Brasilia: MICT. SECEX/DECEX. (2000b). Balanca comercial. Brasilia: MICT. Spillan, J. E. (2004). Winning strategies for the new Latin markets. International Marketing Review, 21(6), 667–669. Starr, P. (2002). Perfecting reform in Latin America: What role for the state? Latin American Research Review, 37(2), 183–221.

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Tayeb, M. (1994). Organizations and national culture: Methodology reconsidered. Organization Studies, 15(3), 429–446. doi:10.1177/017084069401500306

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Weber, Y., Shenkar, O., & Raveh, A. (1996). National and corporate cultural fit in mergers/acquisitions: An exploratory study. Management Science, 42, 1215–1227. doi:10.1287/mnsc.42.8.1215

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Willmott, R. (2000). The place of culture in organization theory: Introducing the morphogenetic approach. Organization, 7(1), 95–128. doi:10.1177/135050840071006

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Anabella Davila Tecnologico de Monterrey, Mexico

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The purpose of this chapter is to understand the strategic role performance management systems play in organizations, and to identify the evolution process and the organizational factors involved in the implementation of those systems in Mexico. The authors identify the best-known appraisal tools in Mexico, the issues related to organizational performance, and those linked to the superior-subordinate relationship. They discuss those topics in terms of macro-organizational and micro-organizational levels and we draw lessons for developing best practices for performance management systems in Mexico.

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Managing a comprehensive performance management system with multiple appraisal tools is challenging, and requires significant resources as well as a redefinition of the role of Human Resources (HR). The goal of this chapter is to understand the strategic role performance management systems play in organizations, and to identify the evolution process and the organizational factors involved in the implementation of those systems in Mexico.

The authors have developed this chapter on the lessons derived from our research findings in several in-depth case studies (Davila & Elvira, 2009), focus-groups interviews (Davila & Elvira, 2007), business press analysis (Davila & Elvira, 2008), and individual interviews with senior HR executives in Mexico. Performance management (PM) systems have been identified as the core of HR, because through them organizations establish work goals, determine performance measurements, evaluate and

DOI: 10.4018/978-1-4666-0306-6.ch013

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appraise work, provide performance feedback, identify training and development needs, and define rewards and recognitions for high performance (Varma, Budhwar, & DeNisi, 2008). PM systems also generate the infrastructure path for attracting and retaining key human capital (Davila & Elvira, 2009). PM systems include a set of concepts, tools and processes organizations use for different purposes. The traditional aims of PM systems include rewards and recognition, career planning, training and development, and organizational restructuring. However, new views about PM systems place them in a more comprehensive role that includes: acting as organizational integration mechanisms for work flow, providing organizational architectures that assure a harmonious and collaborative work environment, and serving as generators of data about the organizations’ overall performance (Davila & Elvira, 2009). HR executives face the pressing challenge of how to design strategies linking individual and organizational performance in practice. Developing innovative strategies for managing this link could give PM systems an increasingly strategic role. However, two factors can inhibit this goal: first, top management and other organizational stakeholders (i.e., supervisors, employees or users/ clients) may not agree on the meaning of performance; second, supervisors and employees do not always recognize that participating in performance appraisal processes requires the development

of specific competencies. HR departments face these subjective drawbacks, and find it difficult to develop strategies for PM systems. Hence, the main challenge when installing PM systems is to develop managerial strategies that help HR to overcome these constraints. HR managers recognize perceptions of performance differ according to the position of the individual in the hierarchy and his/her respective responsibilities. Therefore, they are challenged to both design and use instruments that measure different types of performance, and to manage such a diverse range of PM tools. This problem is particularly acute for front-line managers who are responsible for providing and receiving feedback about employees’ performance (Davila & Elvira, 2007). Front-line managers and their subordinates are typically the main actors involved in evaluation and appraisal processes, while HR executives are typically responsible for the management and output of PM systems. This situation can develop differently depending on the role of HR in the particular organization. If HR is valued as a strategic partner, PM systems are likely to be integrated with the organization’s business plan. Conversely, if HR is not involved at the strategic level, PM systems may be isolated not only from the evaluation of organizational performance but also from other HR practices. The case of the company CompuSoluciones portraits the strategic position of PM Systems (See Case 1).

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          CompuSoluciones, a medium-sized IT Mexican consulting firm chosen by the Great Place to Work Institute of Mexico as an outstanding company in 2007, developed a performance management system tightly linked to the company’s strategic aims: to offer excellent client service, develop employees personally and professionally, live up to commitments, and be profitable. All these aims were to be achieved through solid principles and values. The company has a clear defining of the different meanings that performance can have depending on the employees’ position in the hierarchy and overall responsibility within the organization. For example, top management focuses on overall company performance, including the company’s principles and values as a central platform (besides economic aims); supervisors stress employees’ individual results; and employees emphasize attitudes towards collaborative work and a harmonious work environment. Thus, CompuSoluciones has implemented multiple appraisal tools targeting each specific aspect of performance. Adapted from: Davila, A., and Elvira, M. M. (2009). Performance management in a knowledge-intensive firm: The case of CompuSoluciones in Mexico (pp. 113-127). In A. Davila and M. M. Elvira (Eds.). Best Human Resource Management Practices in Latin America. Oxford, UK: Routledge.

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PERFORMANCE APPRAISAL PROCESS AND TOOLS Employee performance appraisal has been studied as part of organizational performance management systems (den Hartog, Boselie, & Paauwe, 2004; Guest, 1997). Different models and tools are available according to the organizational level at which performance is appraised (Wiese & Buckley, 1998). Examples of such tools are the critical incident method or the management by objectives system. Multi-source systems such as 360-degree surveys also exist that are geared towards improving behaviors and attitudes. These practices and tools are highly complex and also subjective when it comes to defining performance or the supervisors’ and employees’ competencies for managing the process (see Table 1 for descriptions of the best-known appraisal tools in Mexico). To gain a better understanding of the different perceptions of performance and the implications for managing them, we structure our analysis around different organizational levels. First, we look at the macro-organizational level that includes

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The first efforts to manage businesses professionally in Mexico appeared in the 1970s. Management theories arrived from the USA as a result of the internationalization of Mexican executives studying abroad as well as the arrival of management consultants. Moreover, foreign management practices were introduced in Mexico by multinationals and their alliances with Mexican companies. Today, many executives continue to compare and benchmark their HR practices with those of other nations, carefully observing organizations in the

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Table 1. Performance appraisal tools

the organization as a whole or its divisions/departments, focusing attention on the organization’s hierarchical level. Second, we address the microorganizational level, which emphasizes evaluation or appraisal of individual behaviors or attitudes (den Hartog, Boselie, & Paauwe, 2004). This dual approach guides our exploration of PM systems in Mexico in the rest of this chapter.

Description

Main Purpose

Work objectives cascade top down within the organization. This includes company wide, divisional, departmental, and individual objectives.

Measuring and evaluating performance.

Economic Value-Added (EVA)

Financial system that evaluates the direct impact of organizational strategies and practices on share value.

Rewarding top management performance.

Balanced Scorecard

Management system that includes: financial, customer, internal business process, and learning and growth goals.

Aligning organizational strategy with performance measurements.

360-degree Evaluation

Multisource evaluation method. Employees receive evaluation of their behaviors and job attitudes by supervisors, coworkers, clients, and other organizational members.

Developing individual competencies.

Critical Incident Method

Supervisors keep a record of good or bad performance with specific examples.

Individual and group rewards and recognition.

Top Talent Ranking (Forced Curve)

Employees are ranked according to the evaluation of performance. Employees are classified in a forced distribution curve.

Identifying top performers and, in some companies, dismissing low performers.

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USA, Germany and other European countries. Once the PM systems had been adopted, they were developed to support two main organizational aims: employee recognition and rewards and employee development opportunities such as promotion, executive education or training. PM practices and instruments tended to follow naturally the organization’s hierarchical structure. The work of top management, for example, began to be assessed using instruments that evaluated their contribution to organizational performance, while clerical or manufacturing jobs began to be evaluated in accordance with merit and mastery of job duties (see Table 2). Because of the importance for PM systems of differences in job levels, we have structured the remainder of the chapter around the notion of hierarchical position.

Management By Objectives (MBO) was one of the first systems implemented by Mexican businesses for evaluating top-management performance. Originally, this methodology was only associated with salary increases. In the 1970s, almost no company offered performance-based bonuses and, when granted, bonuses were considered an additional and special form of remuneration, awarded without the use of formal appraisal mechanisms. Consequently, managers did not know what aspect of their performance had led to these rewards. Many of these decisions were left to the discretion of HR managers. At first, MBO suffered from various implementation challenges. For example, it was employed at all levels of the organizational structure, including clerical and manufacturing jobs where the employee’s contribution to overall organizational performance was difficult to determine. Given the extensive use of this methodology, its objectives were heterogeneous and its results mired in

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Performance Indicators (select examples)

Top Management

Share value, profitability, market share, corporate image

Managerial Level

Sales, market penetration, financial health, and accounts receivable

Clerical and manufacturing jobs

Production efficiency, quality, client satisfaction

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contradictions. That is, front-line managers felt obliged to give high performance evaluations to justify increases in employee salary, yet evaluations had to be low to justify career development plans. Because of this dilemma, PA bifurcated into diverse systems that allowed managers to comply with the two aims for which it was then used: performance evaluation and the identification of employees’ development needs. Consequently, HR executives contributed to the increasing sophistication of PA methodologies and instruments. By the early 1980s, the factors influencing organizational performance had become more clearly identified and associated with variable compensation in the form of performance bonuses. These bonuses typically related to two levels or areas of performance: the organization’s performance level and the executive’s area of responsibility. Business performance was measured using indicators such as profitability, achievement of sales goals, market penetration, financial health, and accounts receivable. Naturally, the criterion for performance depended on the industry. For example, in the beverage industry performance was related to market share and to contributions made within specific brands, in addition to the global sales volume across business units. These business-level criteria differed from those at the executive level, where the objectives’ scope and requirements were negotiated individually with superiors.

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Performance Evaluation for Top Management

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Table 2. Organizational level and common performance indicators

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An issue developed in the early times indicative of low organizational maturity regarding understanding about management by objectives; namely, the confusion surrounding what was meant by the term ‘satisfactory objective’. For instance, business results could be unsatisfactory in economic terms, despite individual executives having met their individual objectives within their respective areas of responsibility. Even if a business did not reach targeted profit levels, it would still pay performance bonuses to executives who met objectives within their areas of responsibility. To sidestep this inconsistency, the evolution in management by objectives leaned towards compensation strategies that aligned the organization’s financial objectives across all areas of the firm. This method required that weighted percentages be assigned to organizational objectives. In some cases, objectives in executives’ areas of responsibility had low importance, because the firm sought to reach the forecasted business results. That is, rewards for individual results were conditional upon the organization’s global performance. Today, various appraisal methods are used simultaneously: for example, MBO is used with Economic Value-Added (EVA) or Balanced Scorecard systems. Multi-source instruments such as 360-degree evaluations are also used for top management.

praisals are usually qualitative. Employees were rated on scales ranging from very good, good, neutral, bad, and very bad, or using achievement or non-achievement ratings. In the simplest method, percentiles were used, such as achieving 80, 90, or 100 per cent of goals. Serious criticisms of these rating methods arose at that time (1970s) because scales forced front-line managers to classify their employees rigidly. Today, HR executives recognize front-line managers tend to avoid rating employees in the middle range, requiring them to use normal distribution curves. Some question the validity of a method that automatically devalued employees who were effective yet had to be classified as underperforming. Nonetheless, this form of appraisal, also known as comparative/relative evaluation, forced curve, or top talent ranking, is still the most common appraisal method according to the executives the authors interviewed. Ultimately, these instruments offer a range of criteria for classifying individual performance. The primary outcomes of these instruments are employee development and rewards such as salary increases. At lower organizational levels, performance bonuses are given sporadically, as in the case of special rewards for high achievement. A summary of the content, instruments and processes involved appears in Table 3. It is important to note that in Mexico, employers are required by law to distribute a percentage of yearly profits among all the organization’s employees. This compensation is variable and based upon the company’s annual profits, providing an institutionalized link between individual and organizational performance. Therefore, the question that arises is how to relate individual performance appraisal instruments with this yearly profit-sharing system. Concerning unionized employees, performance appraisal is limited in Mexico. Blue-collar workers are subject to a collective bargaining agreement determining a fixed salary for each job category. Labor laws require adherence to the salaries stipulated in the collective agree-

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Performance Evaluations for Clerical and Manufacturing Jobs

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In the 1970s, merit systems were widely used for functional jobs such as sales representatives. Early efforts aimed to develop instruments that could identify all activities and responsibilities of lower-level organizational jobs and provide objective evaluations of their performance. Usually, each supervisor carried a “little notebook” where he would write employees’ names and take some notes by way of informal evaluation. One of the problems associated with meritbased instruments was conceptual in nature: ap-

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Table 3. Performance appraisal content, instruments and processes in Mexico Content

Instrument

Human Process

Objectives and goals

Management by Objectives, EVA, relative comparison—ranking systems, work systems

Derived from business plan; negotiation with superiors, in cascade through the organizational hierarchy, normal distribution curve, continuous evaluation

Behaviors and attitudes

360 degree; productivity indicators

Feedback, evaluation, assessment

ment. Consequently, salary raises based on work performance do not apply. Increases in salaries may only result when a worker is promoted to a higher job category or when the employee is no longer a union member. Nevertheless, depending on specific collective bargaining agreements, bluecollar workers may be offered rewards based on performance as well as on attitudes and behaviors. For example, in a Latin American Multinational Company (MNC) the authors studied, productivity indicators such as efficiency, waste, work attendance and punctuality are used at the plant level, and variable compensation based on these factors is offered every three months. At the end of the year, a worker may have obtained 36 days of extra pay, an incentive that is also extended to non-unionized employees working in the same plant. More examples of performance- and attitude-based compensation include rewards for contributing useful ideas and suggestions. The purpose of these rewards is to foster worker awareness of the need for discipline, responsibility, professionalism, dedication, and maintaining a clean working space. In many organizations these rewards are not monetary but in kind, taking the form of vouchers and certificates, or commodities and goods for the home (e. g., a refrigerator, stove, or television). The historical evolution of PA in Mexico presented above suggests avenues to identify the issues most closely related to organizational performance and those linked to the superiorsubordinate relationship. Next we discuss these topics in terms of macro-organizational and microorganizational issues.

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The management by objectives PM strategy was based on several assumptions. One premise was that the company functioned in a stable economic and political context, in which objectives could be predicted and reached within short-term periods (Wiese & Buckley, 1998). Yet, Mexican organizations face severe economic fluctuations due to fragile economic development and to Mexico’s recent opening to global economic competition. In a region where economic and political instability, as well as global forces, make firm survival increasingly difficult, HR practices have been severely affected (Davila & Elvira, 2009; Elvira & Davila, 2005a). Consequently, one of the main concerns for HR executives is how to maintain planned goals and objectives in changing economic and market conditions. Objectives that are negotiated and adopted by a board of directors are typically perceived by executives as difficult to adjust in an adverse environment. Mexico has not yet attained a degree of economic stability that permits accurate market predictions, and consequently, the establishment of fixed objectives related to overall business performance is questioned by HR executives. Another assumption that underpins management by objectives is the disproportionate attention paid to individual employee objectives negotiated with immediate superiors. From the perspective of a managing director, this individual focus diverts attention from joint organizational objectives. The integration of overall organizational objectives is

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Macro-Organizational Issues in Performance Management

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a problem left to HR executives. Similarly, HR executives are concerned about the mercenary behavior that arises when economic rewards are associated with PAs while pursuing aggressive short-term objectives. As one executive put it: We need to create a long-term culture, where people do not come to finish the business in the short term, to drain the money. − Vice-HR, Mexican MNC Given that PM systems have been increasingly formalized over time and better aligned in support of management decisions (e. g., salary raises, promotions), the rigid PM structure has almost become an end in itself in Mexico. This prevents HR executives from applying flexible incentives such as salary adjustments or extraordinary bonuses to retain high-potential employees. Thus, supervisors find themselves tempted to manipulate the outcome of appraisal instruments to justify additional compensation aimed at retaining key personnel. This distortion means that appraisal loses its intrinsic value for performance management. The challenge is how to assess the person’s talent and not the job position. As one executive stated:

a certain organizational structure. He thinks that his organization is not ready although he does not rule out the possibility of using such instruments in the future. Other companies use 360-degree appraisals only as self-diagnostic tools when the employee requests it. The lessons learned from CompuSoluciones, a consulting company in technology, are about successfully managing 360° surveys as identified in Table 4. PM methodologies are also affected by modern work systems. This is a concern of foreign MNCs. For example, work systems such as Six Sigma, Lean Manufacturing, or Total Quality Management (TQM) programs alter the instruments’ performance criteria, because employees are asked to document specific objectives or projects generated by these systems. This PM evolution arises often from “fashionable” management systems and is one of the reasons why HR risks losing credibility in Mexican organizations. Some HR executives view PM in Mexico as unrelated to performance because it is not associated with the organization’s business plan. From this viewpoint, PM instruments become evaluative rather than descriptive, leaving many opportunities for subjective judgments by both superiors and subordinates. Finally, organizations implementing PM systems use instruments that are standardized throughout the firm as well as in its subsidiaries. Overall, it appears a major concern for HR executives is the process of PM, in which instruments play an pivotal role.

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With globalization we have to enhance the flexibility of HR systems, to make it easier to retain competitive talent and the valuable human capital that we have in our organizations, without trying to manipulate the instruments, and while recognizing that there can be special cases. − Senior Mexican HR Consultant

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Modern instruments such as 360-degree evaluations can generate expectations among employees beyond what the organization can manage. One executive said: “...I already have someone who said he appraised his boss poorly, so … I have to make a decision about that.” For this HR executive, the successful implementation of such a system requires a degree of maturity and

Micro-Organizational Issues in Performance Appraisal (Superior [Rater]–Subordinate [Ratee] Relations) Evidence from this analysis suggests that micro issues arise mostly from superiors’responsibilities, specifically from supervisors’reluctance to explain their appraisals personally to the employees. This reluctance could be due to the difficulty superiors

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Table 4. Key issues in 360° survey management at CompuSoluciones Appraisal Questions

Questions are based on the set of organizational values and designed according to the competencies that each individual needs at his/her organizational position.

Raters

Each employee’s work is appraised by 12 individuals: five are assigned by default among people with whom the employee interacts on a daily basis; immediate supervisor and the third level supervisor; remaining raters are selected by the employee him/herself with supervisor’s approval.

Survey

The survey is managed through the company’s intranet and secured via passwords.

Feedback skills

The company requires employees to attend feedback-giving training sessions.

Feedback interview

Supervisors and subordinates are required to personally discuss the appraisal results with a view to elaborating a development plan targeting improvement in those competencies that the individual needs to improve.

Outcomes of the survey

A large component of yearly salary raises, promotions, professional development opportunities, options to apply for special work programs (i.e. home-office programs).

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Adapted from: Davila, A., and Elvira, M. M. (2009). Performance management in a knowledge-intensive firm: The case of CompuSoluciones in Mexico (pp. 113-127). In A. Davila and M. M. Elvira (Eds.). Best Human Resource Management Practices in Latin America. Oxford, UK: Routledge.

experience in articulating relevant arguments for the appraisal given. Occasionally, superiors have not documented the assessment. The appraisal may be favorable, but the superior feels that he or she lacks sufficiently rational arguments with which to face the subordinate. When the conversation is unpleasant or difficult, superiors may prefer to avoid touching on sensitive topics. One executive stated: “when managers see those months approaching [the evaluation period] they feel very uncomfortable because not all news is good news.” This problem is in large part due to lack of management training in how to conduct an adequate feedback session. From an employee’s perspective, it is sometimes difficult to find an appropriate way to accept failure and to avoid reacting in an unprofessional manner. In fact, employees often react with repressed anger, dissatisfaction, loud rejection of the appraisal, or even undermining their superior in front of other colleagues. The micro-level concerns regarding superiors and subordinates center on the feedback interview. The reluctance of superiors and/or employees to debrief PM means that expectations about the appraisals have not been met. Building on this theme, there is an extensive discussion in the literature on the impact of Mexi-

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can work culture on PA. Specifically, this work culture tends to associate assessment with a threat to personal or private interests, possibly due to low self-esteem, rather than as potential source of individual or collective development. This cultural trait causes superiors and employees alike to avoid the appraisal process and to shun the efforts by HR to make compensation dependent on compliance. Some superiors treat the process as a superficial artifact or an informal task to complete at the last minute, quickly and carelessly. The need for compliance elicits a controlling response by HR that makes this area take ownership of the appraisal process to the detriment of supervisors’ commitment to organizational performance evaluation. A third problem is superiors have few feedback sessions with their people. If timely feedback is not provided, there is no opportunity to take remedial measures. These sessions are opportunities within organizations for both employees and management to communicate with one another. According to the interviewees, surprises over a poor assessment or job dissatisfaction could be avoided with opportune information. Interestingly, junior employees belong to another generation: they “do not keep quiet” and are more assertive and argumentative in their appraisals.

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CONCLUSION: LESSONS FOR DEVELOPING BEST PRACTICES FOR PM SYSTEMS IN MEXICO

internal and external factors? Internal factors include work systems that incorporate their own assessment methods, such as TQM or Lean Manufacturing. It is reasonable to question the duplication of appraisal systems and to require system integration. However, in Mexican organizations one observes multiple systems depending on hierarchical level and purpose: compensation and/ or development. Regarding external factors, the business environment and organizational maturity require attention.

In this chapter, we have identified various issues related to both the content and the process of performance appraisals. We review critical questions and issues in the following section.

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Performance Appraisal Content 1. The impact of standardized appraisal instruments in Mexican business organizations. It appears that PM tools are standardized in Mexican firms and their subsidiaries, be they American or Latin American MNCs, suggesting that in Mexico, the theories on which PM systems and practices are based are considered universal (Delery & Doty, 1996). In other words, Mexican organizations and their HR executives assume that the outcomes of PM will be the same in Mexico as abroad. Thus, HR executives’ concern is the appraisal process rather than the instrument itself. 2. The relationship between PM practices and organizational performance in an unstable economic and political environment such as Mexico. PM requires strategic value deriving from the organization’s business strategies. Yet, business plans can hardly be accomplished by organizations facing high instability. One serious issue for HR executives is to determine the role of PM in unstable environments. 3. The Mexican organizations on which this chapter is based used appraisal instruments developed for mature (large) organizations. What level of organizational maturity will be necessary in order to make effective use of the different appraisal tools? 4. What is the optimal combination of methods required for organizational performance evaluation when it depends on a variety of

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1. The role of the appraisal process in the psychological contract between the involved parties: superior and subordinate (den Hartog, Boselie, & Paauwe, 2004). It appears that in Mexican organizations the superior tends elude involvement in the PA process because it does not register in his/ her psychological contract: PA is the responsibility of HR. Behaviors such as avoiding feedback sessions could be indicative of this. More understanding is needed about employee expectations with regard to PA. Learning from this post-evaluation process could explain much negative behavior and rejection of unfavorable appraisal. 2. The locus of responsibility for the performance appraisal process remains debatable: HR or line managers. Before resolving this controversial question, it seems necessary to specify who is responsible for providing feedback and who is responsible for assessing performance. Practice questions for this area could include the following: How to best involve those responsible for feedback in the design of instruments and processes? How to align the instruments with those responsible for this process? 3. Responses by superiors in Mexican organizations indicate a clear adherence to bu-

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reaucratic procedures. Yet they also request participation in the compensation decisions while fostering informality in the appraisal process. Might PA be used as a rational justification for emotional decision making? Both HR directors and line managers need to be sensitive about how to apply performance evaluation tools to validate ‘intuitions’ or feelings towards employees.

Building on HRM research central findings about PM systems, our work reveals a number of critical issues faced by Mexican executives in the application of such systems. In this chapter we have provided an overview of the evolution of performance management, its content and implementation. These issues could guide future practices on culturally sensitive performance evaluation systems.

ACKNOWLEDGMENT

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Davila, A., & Elvira, M. M. (2007). Psychological contracts and performance management in Mexico. International Journal of Manpower, 28(5), 384–402. doi:10.1108/01437720710778385 Davila, A., & Elvira, M. M. (2008). Performance management in Mexico. In Varma, A., Budhwar, P. S., & DeNisi, A. (Eds.), Performance management systems: A global perspective (pp. 115–130). Oxford, UK: Routledge.

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Delery, J. E., & Doty, H. D. (1996). Modes of theorizing in strategic human resource management: Tests of universalistic, contingency, and configurational performance. Academy of Management Journal, 39(4), 802–835. doi:10.2307/256713

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den Hartog, D. N., Boselie, P., & Paauwe, J. (2004). Performance management: A model and research agenda. Applied Psychology: An International Review, 53(4), 556–569. doi:10.1111/j.14640597.2004.00188.x

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Elvira, M. M., & Davila, A. (2005a). (Eds.). Managing human resources in Latin America: An agenda for international leaders. Oxford, UK: Routledge.

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The authors would like to thank six anonymous HR executives of Mexican and multinational corporations operating in Mexico that shared with us their insightful views and lessons of performance management systems in the country.

REFERENCES

Davila, A., & Elvira, M. M. (2009). Performance management in a knowledge-intensive firm: The case of CompuSoluciones in Mexico. In Davila, A., & Elvira, M. M. (Eds.), Best human resource management practices in Latin America (pp. 113–127). Oxford, UK: Routledge.

Guest, D. E. (1997). Human resource management and performance: A review and research agenda. International Journal of Human Resource Management, 8(3), 263–276. doi:10.1080/095851997341630 Wiese, D. S., & Buckley, M. R. (1998). The evolution of the performance appraisal process. Journal of Management History, 4(3), 233–249. doi:10.1108/13552529810231003

ADDITIONAL READING Fletcher, C. (2001). Performance appraisal and management: The developing research agenda. Journal of Occupational and Organizational Psychology, 74, 473–487. doi:10.1348/096317901167488

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Hall, J. L., Posner, B. Z., & Harder, J. W. (1989). Performance appraisal systems: Matching practice with theory. Group & Organization Studies, 14(1), 51–59. doi:10.1177/105960118901400106

Smith, A. D., & Rupp, W. T. (2004). Knowledge workers’ perceptions of performance ratings. Journal of Workplace Learning, 16(3), 146–166. doi:10.1108/13665620410528506

Jawahar, I. M. (2006). Correlates of satisfaction with performance appraisal feedback. Journal of Labor Research, 27(2), 213–236. doi:10.1007/ s12122-006-1004-1

Wilson, D., Mueser, R., & Raelin, J. (1994). New look at performance appraisal for scientists and engineers. Research-Technology Management, 37(4), 51–55.

Kluger, A. N., & DeNisi, A. (1996). The effects of feedback interventions on performance: A historical review, a meta-analysis, and a preliminary feedback intervention theory. Psychological Bulletin, 119(2), 254–284. doi:10.1037/00332909.119.2.254 Lee, J. S. Y., & Akhtar, S. (1996). Determinants of employee willingness to use feedback for performance improvement: Cultural and organizational interpretations. International Journal of Human Resource Management, 7(4), 878–890. doi:10.1080/09585199600000161

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KEY TERMS AND DEFINITIONS

360-degree Feedback: A multisource evaluation method that offers feedback to the employees of their behaviors and job attitudes by supervisors, coworkers, clients, and other organizational members. This method aims to develop individual competencies. Management by Objectives: An appraisal tool that cascades work objectives top down within the organization. This includes company wide, divisional, departmental, and individual objectives. Performance Management Systems: A human resource management set of practices that help organizations to establish employees’ work goals, determine performance measurements, evaluate and appraise employees’ work, provide them with performance feedback, identify their training and development needs, and define rewards and recognitions for high performance.

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Rynes, S. L., Gerhart, B., & Parks, L. (2005). Personnel psychology: Performance evaluation and pay for performance. Annual Review of Psychology, 56, 571–600. doi:10.1146/annurev. psych.56.091103.070254

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Shen, J. (2004). International performance appraisals: Policies, practices and determinants in the case of Chinese multinational companies. International Journal of Manpower, 25(6), 547–563. doi:10.1108/01437720410560442

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Business Performance Management from the Systemic Communicative and Linguistic Side

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Magdalena Bielenia-Grajewska University of Gdansk, Poland

ABSTRACT

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The purpose of this chapter is to discuss Business Performance Management (BPM) by taking into account its communicative and linguistic aspects. To narrow the scope of the research, the author concentrates on the systemic approaches to highlight the role of communication and language in BPM. To discuss this issue in greater detail, two concepts have been created, namely, the corporate linguistic allostasis and the calibrated corporate linguistic identity, which are used to show the role of corporate identity and communication in business performance management and their implications for creating and sustaining competitive advantage.

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In times of continuous change, people have begun to rely on their identity which offers the feeling of societal anchoring. The same applies to organizations and their common set of rules, norms,

and rights which help individuals to survive in an environment of growing competition and transformation. To narrow the scope of the research, this chapter will focus solely on one dimension of identity, namely its linguistic representation, being not only the factor forming any individual

DOI: 10.4018/978-1-4666-0306-6.ch014

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Business Performance Management from the Systemic Communicative and Linguistic Side

or group personae, but also the resultant of identity processes. Since people negotiate and create their ipseity by communication, this aspect, especially its verbal side, seems to be of importance during any discussion on identity issues. The same applies to organizational identity which is formed and maintained especially in verbal and nonverbal interactions. Additionally, the dynamic approach is taken into account, treating organizational identity as an instrument of BPM. To study the communicative dimensions of BPM in greater detail, two terms will be introduced: namely, the corporate linguistic allostasis, and the calibrated corporate linguistic identity. Through the prism of the mentioned concepts the author will try to show the most important issues related to corporate linguistic identity and their implications for creating competitive advantage of modern organizations.

BUSINESS PERFORMANCE MANAGEMENT (BPM)

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SYSTEMIC APPROACH TO BUSINESS PERFORMANCE MANAGEMENT

One way to study BPM is the systemic approach which reflects the nature of BPM visible in one of its definitions: business performance management encompasses all the processes, information, and systems used by managers to set strategy, develop plans, monitor execution, forecast performance, report results, and make decisions (Axson, 2010, p. 25). Thus, the systemic perspective, concentrating on systems, processes, and flows and their role in managing has been chosen by the author of this chapter to study BPM. One of the reasons for the application of systemic theories in the studies on organizational identity and communication are the research interests of the present author. In her previous publications (Bielenia-Grajewska, 2009; Bielenia-Grajewska, 2011a; Bielenia-Grajewska, 2011b), the author has also concentrated on the role of networks and systems in corporations by using the notion of an ecosystem to discuss organizational communication and culture. Secondly, although the role of systems in organizations has been discussed in literature (e.g., Scott, 2002), the role of language has not been studied in greater detail. The other argument for using the systemic perspective is its embedded dynamism. Since a system is a collection of interacting elements (Morecroft et al., 2002, p. 7), it gives the possibility of looking simultaneously at many constituents which undergo continuous changes and determine BPM. Additionally, taking one of the most important concepts in systems theory— the feedback loop—offers the opportunity to study not only the interrelations between elements, but also to observe how a single change in one component or subsystem triggers alternations in other

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BPM is defined as the group of processes directed at realizing previously planned targets. It concerns establishing corporate goals, arranging the budget for goals realization, checking key performance indicators (Stiffler, 2006), and includes certain activities such as strategic planning, tactical planning, financial planning, management reporting, forecasting, and risk management (Axson, 2010). Besides BPM, the terms Corporate Performance Management (CPM) or Enterprise Performance Management (EPM) can be also found in literature. However, BPM is considered to be the broadest concept since it takes into account all the organizational levels within the company to judge its performance (Paćkova and Karácsóny, 2010). Since BPM comprises various processes which help to opt for the most efficient way of using financial, human and material resources (Sharma, 2009), the factors determining BPM are also of a diversified nature (Dinter & Bucher, 2006).

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Furthermore, there are also different approaches which can be adopted to investigate BPM, one which is presented below.

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elements or systems, and finally, how the initiator changes itself. As far as the influence is concerned, different systemic impact results from different feedback loops. When the increase or decrease in one system leads to a corresponding increase or decrease in other systems, the positive influence can be observed. However, when the increase or decrease in one system results in an opposite process in the inflected system, a negative influence occurs (Morecroft et al., 2002). This juxtaposing impact can be used to study workplace relations and corporate communication. Regarding methodology, the approach taken into consideration by the author is Systems Theory. There are two main systemic approaches: 1) classical system principles which concentrate on the relations and properties of the system itself; and 2) the modern system models which stress the relation between the system and the environment (Teubner, 1984). In the first case, systems are treated as autopoietic, self-referential, and independent entities which are not influenced directly by the surrounding systems (Türke, 2008). The second case takes into account the role of the organizational environment. An example can be the Viable System Model proposed by Stafford Beer (Schwaninger, 2006), in which attention is paid to managing long-term relations with the environment. The other discussions of the systemic nature of organizations concentrate on the organization as a system or study the subsystems of companies which can function independently (Burgess, 2004). These approaches have both advantages and disadvantages since open doors invite in, invite others to join us, carry risks of invasion and intrusion, whereas closed doors give safety, keep out, carry risks of isolation (Mathers, 2001, p. 1). In the following study, the investigations centre around the open systems approach, treating organizations as open systems with permeable boundaries which absorb and expel energy to and from the system (Becker, 1997). The perspective provided by the author of this chapter is in line

with the Competence-Based Management Theory (CBMT) which focuses on four cornerstones. First, modern organizations operate in the dynamic environment. Consequently, they have to be viable to meet the changes in the corporate entourage. Second, organizations are goal-seeking open systems. The company has to offer something to its workers to attract their resources and capabilities. In the process of achieving this goal, the open organizational system should rely not only on the internal resources but also on external ones. The third aspect is related to the necessity of managers to control and distribute the value generated by organizations to all the stakeholders, who sometimes have conflicting interests. The fourth cornerstone reflects the need for special cognitive abilities of managers—that is, sensemaking, analyzing, imagining, and other intellectual tasks (Morecroft et al., 2002). The above-mentioned features are important for the discussion on BPM. Open systems, with the unrestricted flows of information, material, and energy are more competitive than closed systems, not reacting to the changes of the environment. Furthermore, the subsystems of open systemic organizations are fluid and dynamic themselves, responding to close and distant alternations. As far as the generation of value is concerned, organizations have to be flexible and competitive to attract workers, customers and stakeholders. In addition, corporate value is generated mainly by creative management and workforce, relying on their cognitive skills. As a result, organizational subsystems strengthen their market position. One of the organizational subsystems important for the performance of the organization is the one of culture. Since culture determines performance of any organization (Stiffler, 2006), organizations are viewed as systems of cultural interrelationships. The role of culture in the overall business performance is viewed in various methods which are applied to estimate the BPM of studied organizations. One of them is the cultural performance management analysis which measures how cor-

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porate culture determines business performance. Its aim is not to classify a culture as good or bad, but to exemplify what needs to be done for the company to perform well (Buytendijk, 2009). Taking the open system approach into account, the company is viewed as responsive to the cultural environment, being a part of a larger system (Johnson, Kast, & Rosenzweig, 1964), which can be a local community, a country, or even global institutions. The need of organizations to make use of external resources places them in various legal, economic, technological systems simultaneously (Morecroft et al., 2002). The open organization, being the firm in such a case, is not only shaped by the more extensive cultural systems, but also determines their performance. Since systems, regardless of their size, are formed from available resources (Johnson, Kast & Rosenzweig, 1964; Mollona, 2002), this chapter will discuss one of them—communication.

tional communication capital is built of juridical capital, organizational capital, human capital, and relational capital. Within the juridical capital such items as protected rights and organizational information (systems, software, and databases) are considered. Organizational capital includes communication rules and strategies which are independent of individuals. Human capital is related to knowledge, experience, and information of workers. Relational capital deals with how stakeholders and customers view an organization (Malmelin, 2007). Another systemic perspective to organizations that takes paradigmatic knowledge into account is expressed by Yolles and Fink (2010). The mentioned authors have divided the organizational system into metasystem (culture, paradigm, knowledge), figurative system (system of thought, polity introduced order), and operative system (responsive actions, actor system, impact of phenomena, operative behavior). Different systems can be exemplified by looking at the organization through the perspective of corporate performance management. Analyzing the human side of CPM, various elements of organizational architecture can be enumerated. Among them, skills, and competencies, communication, control systems, human resource system, business system and culture (Wade & Recardo, 2001). After presenting some selected organizational systemic approaches it can be noticed that culture is mentioned in every method. It should be stated, however, that sometimes the role of organizational culture is often neglected and treated as an unimportant notion in business performance since financial or technical factors are given priority (e.g., Škerlavaj, Štemberger, Škrinjar and Dimovski, 2007). This tendency to treat soft management areas as less crucial is fortunately becoming less and less visible, and its importance is highlighted in various works (e.g., Alvesson, 2002; Martin, 2002; Schein, 2010). There are various definitions of organizational culture; however, the attention will be provided only to the ones describing this business phenom-

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BPM encompasses managing different aspects, including cultural performance which is the social process of informing others about the meaning of one’s social situation (Alexander, 2006). Since any information on the individual or social position and its implications for the group require verbal or nonverbal exchange, the cultural performance is strongly related to communication. Communication is an important system within the company since it is responsible for coordinating the flows of information and resources (Johnson, Kast, & Rosenzweig, 1964). It is communication which determines the relations within the group of workers as well as with stakeholders. There are various approaches to communication from the systemic perspective. One of the approaches is to treat communication as organizational capital. Within organization capital various subsystems (or subcapitals) can be elaborated. An organiza-

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enon through the systemic prism. Organizational culture is build of subsystems, constituting of organizational beliefs, attitudes, and values. Regarding key characteristics, organizational culture has a systemic dynamic nature since it results from information flows within the company and in its surrounding systems (Becker, 1997), as well as communicative interactions between organizational members (Keyton, 2005). As far as the flow of information is concerned, the thermodynamic principle should be considered since the amount of energy reflects the stage of organizing the system. Thus, in the organizing stage more energy will be required than during daily system maintenance. As for organizational culture, a stable culture requires less information to reduce uncertainty regarding the content of specific messages (Becker, 1997, p. 132). Organizational culture is also created from the linguistic processes and practices taking place on many levels, including the micro-, meso- and macro-levels. The micro-level concerns the individual and his or her linguistics behavior which determines the communicative aspect of companies. The meso-level encompasses mainly organizations and corporate group behaviors. However, it should be stated the linguistic dimension has some unique features different from other BPM factors. Language varies from other resources and goods since managing the language means managing the meanings and representations created by people (Cameron, 2005). Thus, language belongs to the most active and changeable resources the company possesses. Humboldt (2003) states language is not a work (ergon), but an activity (energeia); therefore, it is not only the mirror of reality, but also the determinant shaping its form. Consequently, language should be treated as the set of tools responsible for creating the social reality and the active factor constituting the perceived world (Szahaj, 2004). Moreover, language may isolate the community (De Swaan, 2010). In the case of corporations, it may limit its market share since some customers may not have

access to its products or services due to linguistic barriers. Simultaneously, language is consolidating (Sapir, 2003), making the company unique and coherent. Language also introduces order and, consequently, communication can be also treated as the mechanism of regulation and supervision since in controlling a system it is important to measure inputs of information, energy, and materials; and outputs of products and/ or services (Johnson, Kast & Rosenzweig, 1964, p. 379). In corporations, both stable and dynamic elements should be treated as equally important (Campbell, Draper, & Huffington, 1991). Applying these aspects into the linguistic sphere of business performance management, employees should rely on the well-known communicative patterns; however, simultaneously they should be open to novel linguistic strategies of new coworkers. This linguistic necessity is partly connected with the role of change in modern business world. The above-mentioned feature will be discussed further in future sections.

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THE CONCEPT OF ALLOSTASIS IN CORPORATE SETTINGS To discuss the complexities of linguistic organizational environment, the concept of corporate linguistic allostasis is coined. The term allostasis originally comes from biology, biomedicine, and behavioral medicine, and is defined as the ability of the body to produce hormones (like cortisol, epinephrine) and other mediators (e.g., cykotines) that help an animal adapt to a new situation/ challenge (Karatsoreos & McEwen, 2010, p. 651). Another term used in the studies on organisms is homeostasis, but since it refers to the systemic characteristics of survival, homeostasis applies to a limited number of systems and does not consider the adaptation to changes. Therefore, the notion of homeostasis seems to be rarely used, or at least only under limited conditions.

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However, the notion of homeostasis can be also applied in the studies on corporate linguistic identity. In that case, homeostasis can be used for the purpose of distinguishing the systems which are indispensable for the organization to survive and allostasis for the systems which react to alternations. However, since changes are important elements of modern organization, it is allostasis, with the notion of change in adapting to circumstances (Schulkin, 2003) which is applicable to various aspects of corporate life.

CORPORATE LINGUISTIC ALLOSTASIS Since the purpose of this chapter is to concentrate on the cultural and communicative aspect of organizations, we will attempt to implement the concept of allostasis in the discussion on corporate linguistic aspects. The concept of allostasis encompasses the notion of communication, also when treated exclusively from the biological perspective since it depends on communication between so-called low level feedback systems that locally regulate physiological responses and higher order mechanisms in the brain (Fausto-Sterling, 2010, p. 180). In organizations, communication is also responsible for corporate allostasis—the organizational attitude to alternations and the selected responses to change. Since an organism produces hormones or cytokines1 to be able to respond to changes, the organization should also find ways to react to alternations. Thus, companies should make use of their internal corporate hormones or cytokines. One of them can be effective corporate communication which becomes indispensable especially in change management. In companies, the harmonic or cytokinic flows (e.g., represented in proper linguistic tools) can be shared by managers as well as by everyday workers. In addition, corporate

linguistic allostatic mediators both human and nonhuman factors can belong to and determine the state of corporate linguistic identity. This is in line with other systemic approach, namely the Actor Network Theory (ANT) which treats living and nonliving elements as equally important elements in constituting networks and systems. Similar to cytokines, linguistic mediators will share several features. The first one is the pleiotropic nature which has a different influence depending on the type of entity. Regarding language brokers, the individual as well as the group identity will determine the attitude to the ideas presented by linguistic mediators and also determine the reaction. To discuss the nuances of corporate linguistic allostasis some concepts from allostatic studies will be discussed. Allostatic load is the cumulative result of an allostatic state (McEwen & Seeman, 2004, p. 41), the price paid by the body to maintain its systems (Ashford & LeCroy, 2010). An example in the corporate linguistic setting is the communicative preparation for new or unknown situations (e.g., crisis, employing new employers, mergers and acquisitions, etc). It is a type of communicative adaptive response to the changing environment. However, when the allostatic load lasts for too long or constitutes a substantial burden for the system, it may turn into the allostatic overload. Thus, organizational communicative pathologies may appear, which may be exemplified in limited everyday communication and extensive communicative event management. In the long-term, this communicative tension may lead to corporate conflicts, lack of indispensable interaction, and, consequently, to the decrease in market share or the loss of competitive position. Thus, the proper adaptation to the environment is an important aspect of corporate performance. To discuss this ability of responding to organizational entourage, the concept of corporate linguistic calibration has been coined.

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CALIBRATION- INTRODUCTION The term calibration can be used in two senses. The first one concentrates on the technical aspect, and consequently, calibration can be defined as the process of determining the performance parameters of an artifact, instrument, or system by comparing it with measurement standards. Adjustment may be a part of a calibration, but not necessarily. A calibration assures a device or system will produce results which meet or exceed some defined criteria with a specified degree of confidence (McGraw-Hill Encyclopedia of Science & Technology, 1997, p.174). The other approach is to concentrate on the human component, since calibration is responsible for observing any change in another person’s state and noticing a specific condition of body posture, breathing, vocal qualities, or movement (Hogan & Horton, 2002, p. 200). However, no matter which type of calibration is taken into account, there are certain notions which can be used during the discussion on calibration from the organizational communicative perspective. Competitive advantage does not only result only from corporate resources, but also from the manner in which the mentioned accumulated resources respond to the change in the environment (Morecroft, 2002), the role of calibration influences the market position of modern companies. For example, since calibration is a process in which one’s interests and purposes undergo a temporary change (Dretske, 2003:312), calibration can be used to discuss temporal situations and reactions to change, especially through the corporate linguistic prism.

already been used in communicative studies (e.g., to discuss the notion of meaning), which is very important in intercultural encounters and in the translation process: calibration involves checking isolates of meaning, considering what isolates of experience they might reflect, and determining degree of overlap with bits of experience picked out in other languages and in danger of being lost in translation (Lee, 2009, p. 265). Additionally, calibration is connected with knowledge. Communication is related to the attitude of speakers to information exchange since the construct ‘calibration of knowledge’ refers to the correspondence between accuracy of knowledge and confidence in knowledge (Goldsmith and Gopalakrishna Pillai, 2006, p. 311). In linguistics, several potential ways of calibration can be enumerated. First, calibration is related to languages. Languages are not closed systems that they were in the past since languages throw light on each other: one language can, after all, see itself only in the light of another language (Bakhtin, 2004, p. 12). The same applies to sublanguages, dialects and genres. Thus, calibration is an important process related not only to national languages, but also to professional communication. Second, calibration is related to the need of adjusting to the previously agreed meanings of words and phrases, if the interlocutors want their communicative exchange to be successful (Lee, 1996). In addition, calibration can be connected with linguistic skills. If there is a discrepancy between accuracy and confidence, the problem of miscalibrated individuals appears (Goldsmith and Gopalakrishna Pillai, 2006, p. 311). The difficulty is related to the linguistically undercalibrated workers as well as to the linguistically overcalibrated workers, since the first representatives do not believe in their communicative skills, whereas the second ones tend to overestimate their linguistic possibilities. This issue is related to the concept of calibration tolerance which is defined as the value-accepted abnormality (Cable, 2005). Thus,

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CALIBRATION-LINGUISTIC PERSPECTIVE As has been already suggested, calibration is not used exclusively in the technical world since it can be also a useful concept for any discussions on communication. The notion of calibration has

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the measurement reflects the calibration and the acceptable deviation (Borruso, 2007). In that case, the implementation of communicative benchmarking, understood as comparing the processes and practices related to language policy used by one company in comparison with other companies, may prove useful. The aim of communicative benchmarking is to select and implement the best communicative strategies used in other companies in one’s own enterprise. Since benchmarking demands any system of measurement, in communicative benchmarking, the role of metrics is to estimate whether the communicative strategy is the most effective one. At the same time, communication can serve as a metric tool itself since it mirrors the corporate behaviors. For example, corporate negative emotions as well as wrong hierarchical relations are visible in communication methods or even in the lack of corporate communication. Staying within the benchmarking terminology, an important notion is the enabler which is any condition or factor that influences the effectiveness of a practice (Damelio, 1995, p.7). In the case of corporate linguistic identity, its process of calibration will be determined by human and nonhuman elements (e.g., managers, corporate linguistic policy, communication channels). Calibration encompasses everyday language, jargon and technical terms (Lee, 2009). By reviewing language parts and functions in greater detail, it is the grammar which can be perceived as a calibrative tool (Hasan, 1993), since it organizes lexical elements and changes their arrangement, if necessary. However, it should be remembered that complete calibration in any organizational setting requires not only individual efforts, but also communal ones. Thus, the notion of calibrated corporate linguistic identity is coined by the author to discuss the role of organizational personae in business performance management.

CALIBRATED CORPORATE LINGUISTIC IDENTITY The approach to identity taken in this research is one of postmodern character, stressing the changeability of the world. Identity is not fixed and stable, but it is shown as the identity process (Balibar, 2002). This is also stressed by Delanty and Rumford (2005) who claim that identity is created in action, thus both the identity of a given person and the social identity of a group he or she belongs to change with the flow of time. Identity is not one and for ever; a modern person, having many forms, resembles Prometheus (Lifton, 1999). This approach is also in line with the attitude of Balibar (2002), who states that identity is neither (purely) individual nor (purely) collective (p. 27). The individual identity is shaped by the constituting environment and, at the same time, the collective identity is determined by one’s individual perception. In postmodern approaches the supremacy of collective identity over individual personae is stressed. Some state that today people have less agency than they think they actually possess, since they are positioned by others (Campbell and Grønbæk, 2006, p.19). The same holds true in the case of corporate identity, taking into consideration modern multinational and multicultural environments. In Leibniz’ terms (2008), workers are similar to monads and serve as the living mirrors of the corporate reality. However, it should be stated that it does not mean that the individual is deprived of personality and free will since the worker does not only reflect the entity, but also adds his or her own component to the overall image (Cassirer, 2003). When new workers join the company both personal beliefs and organizational assumptions determine the process of adaptation (Campbell, Draper, & Huffington, 1991). Similarly, individual linguistic identity and organizational linguistic personae will determine whether the process of adjustment is effective or not.

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The change of identity throughout life can be discussed by taking into account the notion of ‘identity alignment’ which is connected with socialization and acculturation and the role of language and identity in them (Ansaldo, 2010). Thus, the emergence of one’s identity during his or her existence is a unique process. What is more, any form of socialization involves a sort of calibration (Agha, 2007). Calibration does not only reflect one’s own process of identity creation and maintenance, but also reflects the need for forming and sustaining any group personae. During calibration, the person cannot concentrate exclusively on his or her own existence, but also must consider the environment (Hogan & Horton, 2002). The modus operandi of calibration depends on one’s calibration skills, and on whether we can calibrate through our senses and make contact with the world/people with whom we communicate and interact (Sen, 2007, p. 148). It can be also stated the process of calibrating identity is similar to the process of mimesis. Mimesis is understood in the way it is perceived by Pierre de Ronsard (Willett, 2004); namely, as the imitation and invention. Mimesis is a concept used to discuss identity since some theorists compare human collective life to the instinctual imitative behavior of insects and animals (Potolsky, p. 116). It is an important part of everyday life since socially, everything is either invention or imitation (Tarde, 2009, p. 3). Thus, the process of calibrating corporate linguistic identity should simultaneously involve copying what seems to be valuable and also adding, even subconsciously, some new elements. It should be also remembered that even any repetition itself is not only the mechanical duplication, since both repetition and reduplication can also lead to growth (Tarde, 2009). Taking corporate linguistic identity into consideration, repeating old patterns, even the mechanical ones, is always related to learning news things and even adding some new components to the repeated action. In the case of individual mimetic dimension, a corporate

language user resembles Tarde’s scientist who in the process of adaptation, labors continually to detect, disentangle, and explain (Tarde, 2010, p.5). Similarly to the researcher, the corporate member in the time of adapting reaches a higher adaptation, that is the harmony of his system of notions and hypotheses with the interrelations of facts (Tarde, 2010, p.5). Since mimesis is always the meeting-place of two opposing but connected ways of thinking, acting and making: similarity and difference (Melberg, 1995, p. 1), it is also the place of finding a common ground for often juxtaposing elements and contradictory opinions. The notion of calibrated linguistic identity is especially important in the case of modern corporations which employ workers from different cultures since when we interact with others from different cultures, our interactions are not just bounded by architectures of both cultures but also by the intersection of these cultures (Gill, 2007, p. 214). In this case, calibration is connected not only with adapting to new conditions, but also with the hybrid conditions which appear as the result of intercultural contacts. This can be observed by taking into account expatriate workers. In modern organizations, mobility is highly demanded and, consequently, temporary workers constitute an important part of corporate workforce. Although expatriate adjustment is related to various factors (e.g., Brayer, Hess, & Linderman, 2002; Harzing, 2001; Kohonen, 2008; Oddou, Deer, & Black, 1995), the language issues belong to the very important ones (Björkman & Marschan-Piekkari, 2002; Feeling & Harzing, 2003; Inman, 1985). Concentrating only on the linguistic aspect of their stay, the complexity of expatriate linguistic identity will be given some consideration since the notion of calibration is very visible in that case. As has been discussed in the article on sojourners’ linguistic behavior written by the author (Bielenia-Grajewska, 2010), expatriate linguistic performance depends on individual corporate linguistic dimension and societal corporate linguistic dimension.

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The individual sphere encompasses such elements as the attitude to the host culture, languagerelated benefits, and assignment factors. The attitude to the host culture, mainly the eagerness or lack of eagerness to learn the new culture, determines whether the expatriate will be successful or not with the new language. As far as assignment factors are concerned, such issues as phase, place, time and culture, and occupation determine the linguistic identity. Concerning phases, the type of sojourning (e.g., domestic, international, multinational, or global assignments) determines the necessary linguistic skills. As far as place is concerned, going to the country with the same language requires far less calibration than moving to a country with a different language and culture. The relation between expatriatism and language is also connected with the length of foreign assignment. During short stays, expatriates do not see the necessity to grasp the local language. Taking into account the occupational factor, the job one performs influences the attitude to the host language and the openness to new culture. For example, engaging in knowledge transfer requires understanding the language and the culture of new users (Brewster in Haslberger, 2008). The last group of individual corporate linguistic dimension is constituted of language-related benefits, which encompass both the advantages connected with the work life, as well as the ones related more to the private sphere of the existence in any host country. On the other hand, the societal corporate linguistic dimension is connected with in-company linguistic issues (language in headquarter- subsidiary relation), language policy in companies (linguistic standardization), corporate communication, and hierarchy. As far as the corporate communication is concerned, the notions of national versus corporate cultures will be important. The issue of hierarchy is related to the corporate attitude of social stratum. A more detailed discussion on expatriate linguistic identity and its constituting elements is available in Bielenia-Grajewska (2010).

Some potential negative aspects of identity calibration should be also highlighted. First, calibration may also lead to constructing artificial identities, needed for some particular organizational situations. The ones which for various reasons will not be able to calibrate themselves to the existing conditions may opt for creating a temporal, fake identity. Second, calibration is not a process which can be performed in any situation. When different categories are taken into account, such as profession, age, or relevant data are missing, a problem with calibration may appear (Butler, 2010; Usunier, 1998). In corporate linguistic identity, it means that not always the process of language adjustment is successful.

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The goal of this chapter was to draw the attention of the reader to the linguistic side of BPM, which in the author’s opinion has not been examined in detail in literature compared to other aspects such as finance or marketing. Due to the limitations imposed on the chapter, only selected aspects of the communicative BPM have been presented. To narrow the scope of the research, the systemic perspective has been adopted throughout the chapter. To discuss the role of language as an effective instrument of BPM, especially the one responsible for creating and sustaining competitive advantage, two concepts have been created; namely, corporate linguistic allostasis, and calibrated corporate linguistic identity. As Cooks (2010, p. 367) says, just as communication is (social interaction) is never final or complete, so, too the process of knowing the self or the other can never be complete. The same applies to the linguistic side of creating competitive advantage. It is the process which needs a constant development. Thus, the author hopes that in the next works she will be able to expand the suggested notions and show the new aspects of their potential applications.

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Feely, A. J., & Harzing, A. W. (2003). Language management in multinational companies. Cross Cultural Management, 10(2), 37–53. doi:10.1108/13527600310797586 Gill, K. S. (2007). Rethinking the interaction architecture. In Gill, S. P. (Ed.), Cognition, communication and interaction. Transdisciplinary perspectives on interactive technology (pp. 213–234). London, UK: Springer Verlag. Goldsmith, R. E., & Gopalakrishna Pillai, K. (2006). Knowledge calibration. In Schwartz, D. G. (Ed.), Encyclopedia of knowledge management (pp. 311–316). Hershey, PA: Idea Group, Inc. doi:10.4018/978-1-59140-573-3.ch041

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Cytokines- small to medium sized proteins or glycoproteins which mediate potent biological affects on most cell types (Mire-Sluis and Thorpe, 1998: xxiii)

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Chapter 15

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Strategic Entrepreneurship:

Competitive Advantages Amidst Globalization and Technological Change Gang Yang Tongji University Shanghai, China

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Hans-Christian Pfohl Technische Universität Darmstadt, Germany

Sasa Saric Technische Universität Darmstadt, Germany & Tongji University Shanghai, China

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ABSTRACT

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Entrepreneurship deals with how firms explore new short-lived economic opportunities, while strategic management explains how firms create and defend competitive advantages. Traditionally, both fields have existed independent of one another implying that firms can act either entrepreneurial or strategic to be successful. Recent research, however, suggests that in contemporary globalism, entrepreneurial firms are often unable to turn opportunities into competitive advantages due to a lack of strategic resources and capabilities. Similarly, firms lacking entrepreneurship see their competitive advantages erode over time as new emerging market competitors challenge their established rivals and disruptive technologies shake up industry structure more frequently. Strategic Entrepreneurship is the concept that has arisen from this insight. The aim in this chapter is to synthesize prior work on Strategic Entrepreneurship and elaborate on it by proposing a generalized model of the entrepreneurial strategy making process as it has become necessary in today’s competitive landscape.

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INTRODUCTION The 1990s witnessed the simultaneous advent of two powerful contextual forces that drastically altered the global competitive landscape: the globalization of markets and rapid technologiDOI: 10.4018/978-1-4666-0306-6.ch015

cal change (Held, McGrew, & Goldblatt, 1999; Longhi & Keeble, 2000). At the beginning of the 1990s, deregulation and liberalization of industries and markets took on a global scale and led to a sharp decline of artificial trade barriers. Increased foreign direct investment and the widening of international trade agree-

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ments helped to spread these trends (Dunning, 2000). Today, firms located anywhere can achieve economies of scales and exploit differences in comparative resource endowments, effectively increasing the level of international competition. In many parts of the world this gave rise to new emerging market economies. Although firms from developed markets still dominate the market scene, new emerging market competitors are increasingly challenging their established rivals (Boretos, 2009). Furthermore, globalization also leads to higher levels of performance standards in many competitive dimensions as consumers demand ever more sophisticated products and services (Hitt, Ireland, & Hoskisson, 2009). This is particularly evident in intra-industry statistics, which show that a large amount of trade between countries is based on differentiated and knowledge intensive products and services. Firms today must be able to meet these heterogeneous needs as well as create and serve new needs faster than their rivals (Michael, Storey, & Howard, 2006). Rapid technological change amplifies these effects as it accelerates the pace of technological innovation, diffusion, and replacement and significantly shortens product lifecycles and reduces the costs of information and communication (Malecki & Moriset, 2008). Moreover, in recent years disruptive technologies emerge more frequently and significantly alter industry structure and boundaries (Hitt, Ireland, & Hoskisson, 2009).1 As a result, the time for gathering and analyzing information, making strategic decisions based on this information, and acting upon the decisions being made has been significantly compressed. In this competitive reality of hypercompetition and high velocity markets, firms are increasingly less able to sustain a strategic advantage over a long period of time (D’Aveni, 1994; Eisenhardt, 2000). Instead, they have to find a series of temporary competitive advantages and concatenate them into a sustained competitive advantage by (1) continuously identifying structural changes in their environment that give rise to new short-term

opportunities, (2) creating and mobilizing the resources necessary to exploit these opportunities, and (3) acting in response to renew their competitive advantage (Bettis & Hitt, 1995; Hitt, Ireland, Camp, & Sexton, 2001). Strategic Entrepreneurship is the concept that has arisen from this paradigmatic shift. Central to Strategic Entrepreneurship is the focus on heterogeneity, firm performance, and the acknowledgment of the emergence and far reaching consequences of the new competitive landscape (see Figure 1). This holistic approach to strategy combines elements from the fields of strategic management and entrepreneurship as both are concerned with how firms create and defend competitive advantages.2 The central logics of each field represent the Resource-Based View (RBV) that during the 1990s has emerged as the single dominant approach to explain competitive advantages of firms and the Austrian School of Economics and Entrepreneurship (Foss & Ishikawa, 2007). For an extended period, both approaches have existed independent of one another, implying that it is sufficient for firms to act either entrepreneurial or strategic to be successful. However, recent research suggests entrepreneurial firms are often unable to turn opportunities into competitive advantages due to a lack of strategic resources and capabilities. Similarly, firms that lack entrepreneurship see their competitive advantages erode over time as they are unable to renew their underlying resource base (Hitt, Ireland, Camp, & Sexton, 2001; Wiklund & Shepherd, 2003; Wiklund & Shepherd, 2005; Walter, Auer, & Ritter, 2006; Stam & Elfring, 2008). In contrast, Strategic Entrepreneurship highlights that firms need to simultaneously seek short-term economic opportunities and turn them into a series of long-term competitive advantages (Hitt, Ireland, Camp, & Sexton, 2006). Although much work has been done that has highlighted where the fields of strategic management and entrepreneurship can enrich one another, Mathews (2002) cor-

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Figure 1. Core logic of strategic entrepreneurship

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rectly finds that “the disciplines remain stubbornly apart” (p. 30). The goal of this chapter is to synthesize prior work on Strategic Entrepreneurship and elaborate on it by proposing a generalized model of the entrepreneurial strategy making process as it has become necessary in today’s competitive landscape. Because the fields of entrepreneurship and strategic management historically have existed independent of one another, we first discuss them separately, thereby highlighting some avenues for mutual enrichment. We then present the need for a balance between entrepreneurship and strategic management, which serves as the key argument for a unifying framework of Strategic Entrepreneurship. We base our efforts on a discussion about their similarities, differences, and complementarities most relevant to the competitive advantage of the firm.

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unable to duplicate or find too costly to imitate. The firm can be confident that it has achieved one or more competitive advantages only after competitors’ efforts to imitate its strategy have failed or ceased. The durability of a competitive advantage is strongly dependent on the firm’s ability to erect barriers to imitation that limit the speed with which its competitors are able to acquire new skills and competence to challenge its market position (Hitt, Ireland, & Hoskisson, 2009). A firm’s competitive advantage is therefore always a comparative advantage that is valued relative to other firms. Within the strategy field, the RBV emerged as the dominant paradigm during the 1990s that firms use to achieve competitive advantages. It suggests that a firm’s unique resources and capabilities are the critical link to above-average performance.

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Strategic Management

Basic Assumptions of the Resource-Based View of the Firm

Strategic management is concerned with setting the direction of the firm and ensuring its longterm survival by enabling it to achieve and defend competitive advantages (Teece, Pisano, & Shuen, 1997). A firm is said to have a competitive advantage when it implements a strategy that generates above-average returns and that its competitors are

Resource-based scholars view the firm as a bundle of resources and capabilities, which determine its strengths and weaknesses. Resources are assets that are controlled or owned by a firm, whereas capabilities refer to its distinctive and superior abilities of exploiting and combining resources in order to accomplish its targets. The RBV builds

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on the notion of imperfect or not existent strategic factor markets, which leads to two fundamental assumptions: (1) Resources are heterogeneously distributed among firms and (2) imperfectly mobile, allowing resource differences to persist over time (Amit & Schoemaker, 1993; Barney, 1986; Barney, 1991; Prahalad & Hamel, 1990; Wernerfelt, 1984).3 The main reasons for imperfect factor markets are information asymmetries between buyers and sellers of resources. Only when the buying firm possesses superior expectations about the economic value of a resource compared to the selling firm, the purchase becomes viable as the resource remains underpriced. In this case, the buyer can exploit its (Ricardian4) rent generating potential, because the costs of acquiring the resource are lower than the economic value that can be created by using it in a superior way (Barney, 1986). In contrast, a perfectly competitive factor market would require that the price of any given resource fully reflects the economic value that can be created by putting the resource to use. In that case, the (hyper-rational) seller of the resource would ex-ante be able to anticipate every possible way in which the resource can be used and simply price the resource according to the highest achievable value: “If strategic factor markets are perfect, then the cost of acquiring strategic resources will approximately equal the economic value of those resources once they are used to implement product market strategies” (Barney, 1986, p. 1231). Thus, every strategy that a firm would implement with ex-ante perfectly priced resources would not be a source of economic rents (Barney & Clark, 2007). Although resource heterogeneity and immobility represent the two central assumptions of the RBV, it does not mean a strategy which is built on any given resource holds the potential to contribute to a firm’s competitive advantage. To enhance a firm’s superiority, resources furthermore must be valuable, rare, not imitable, and not substitutable (so called VRIN). These attributes can be seen as indicators of how heterogeneous and immobile a

given resource is and consequently how useful it is to contribute to a firm’s competitive advantage (Barney, 1991). Valuable resources allow a firm to develop and implement a strategy that improves its efficiency and effectiveness, while rareness ensures that the firm can implement a strategy that differentiates it from its competitors and thereby creates a unique competitive advantage. Yet, a competitive advantage will be short-lived, if it is based on easily imitable resources. Therefore, barriers to imitation such as their unique historical conditions of creation, a causally ambiguous link with a firm’s competitive advantage, or their social complexity can make resources difficult to imitate. Causal ambiguity means that the way in which a resource contributes to competitive advantage is not understood or understood poorly by a firm’s managers, while social complexity refers to the fact that they can only unfold their true potential in a complex mix of tangible and intangible resources. Lastly, non-substitutability means that there must be no other resource that in itself is valuable, rare, and not imitable and that when it is put to use contributes to the implementation of an equivalent strategy. Substitutability is a particularly big threat amidst globalization and rapid technological change. In this new competitive landscape it is more than likely that a firm outpaces its competitors by replacing a critical technology with a disruptive technology and thereby implements the same strategy more efficiently (Collis, 1994).

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Organizational Capabilities So far, the discussion about the basic assumptions of the RBV has assumed resources are valuable in and of themselves, and has said nothing about how these resources are coordinated and put to use. To resolve this issue, the RBV offers the concept of organizational capabilities. While resources refer to tangible and intangible assets and production inputs that are tied semi-permanently to the firm, organizational capabilities refer to “a high level

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routine (or collection of routines) that, together with its implementing input flows, confers upon an organization’s management a set of decision options for producing significant outputs of a particular type” (Winter, 2000, p. 983). Therefore, the notion of capabilities fundamentally rests on organizational routines and resources, which serve as their basic building blocks. Routines are concerned with the fulfillment of specific tasks and problems of low-complexity and represent “forms, rules, procedures, conventions, strategies, and technologies around which organizations are constructed and through which they operate” (Levitt & March, 1988, p. 320). They formalize the way in which recurring tasks are approached and by doing so serve as coordination mechanism to effectively leverage and utilize a firm’s resource base and that is how they contribute to competitive advantage (Becker, 2004). For many RBV scholars capabilities are the most important factor to distinguish firms from their competitors, because their complexity and social embeddedness makes them difficult to imitate. After all, if a firm dissolves, its capabilities vanish with it (Korhonen & Niemela, 2005). Consequently, RBV scholars agree the strategic imperative for firms is not only to focus on resources, but also to focus on the set of capabilities behind their appropriate development. In sum, effective resource-based strategy making requires a firm to reflect deeply on its internal structure to: (1) identify the existing resource base; (2) appraise its capabilities; (3) analyze in which markets they can earn the highest rents; (4) select an appropriate strategy; and if necessary (5) extend and upgrade the firm’s stock of resources and capabilities (Grant, 1991).

a firm’s competitive advantage in the long-run, the RBV requires that the underlying resources must be protected from competition. If this is not achieved, the resources will not add value to the firm and wealth creation will not be realized. Therefore, once a firm has achieved a superior position based on its unique resource endowment, it must create forces that limit or even cease competition. Otherwise, so the argument goes, the Ricardian rents will be competed away and the competitive advantage will erode before the firm can earn any profit (Alvarez & Barney, 2007). The consequence of this logic is a perspective that views the competitive environment as being inherently static. This is particularly evident in Barney’s (1991) definition of sustainable competitive advantages: “A competitive advantage is sustained only if it continues to exist after efforts to duplicate that advantage have ceased. In this sense, this definition of sustained competitive advantage is an equilibrium definition” (p. 102). This conceptualization of competition assumes once a firm has achieved a sustainable competitive advantage, the environment surrounding it turns into an equilibrium in which prices, qualities, and resources are given as objective, all times governing data. Consequently, the resource configurations that have led to any firm’s competitive advantage must be perfect in the sense that there is no other next best resource configuration that can be achieved. As a result, Kirzner (1997) concludes that in an equilibrium model, at some point in time competition would inevitably grind to a halt, because “all conceivably relevant available opportunities have been instantaneously grasped” (p. 65). In this model, competition would cease and there would be no need for further innovation and growth. In addition to the problematic conceptualization of a static competition, which ignores the new competitive landscape of globalization and technological change, Priem and Butler (2001) criticize that “the process through which particular resources provide competitive advantage remain

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Shortcomings of the RBV One of the key shortcomings of the traditional RBV is its heavy reliance on stable competitive conditions to achieve sustainable competitive advantages, which result from superior resources that are imperfectly mobile and imitable. To protect

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in a black box. […] We do not know, for example, how the resources generate sustainable rents” (p. 33). Indeed, within the RBV framework there is no discussion at all about the individual that acts in response to imperfect factor markets. This is particularly evident in the concepts of causal ambiguity and social complexity as indicators of how useful a resource is to contribute to competitive advantage. Although causal ambiguity remains an often cited source of competitive advantage, it implies a manager’s ignorance and lack of knowledge regarding its underlying resource configuration. According to Collis (1994), “causal ambiguity ultimately cannot be a source of sustainable competitive advantage, because it contains the seeds of its own self-destruction” (p. 147). If an organization is not able to identify the sources of its own competitive advantage, then it is equally not able to manage or adapt to environmental change, in which case its competitive advantage erodes over time. Similarly, if it takes action and changes the configuration of its resources, it runs the risk to unintentionally destroy its competitive advantage. Social complexity on the other hand, hints to management’s inability to deliberately develop and nurture them. Although it is known that social relations are the prime causes of a firm’s competitive advantage, the RBV assumes that the underlying determinants are beyond management’s immediate control. McWilliams and Smart (1995) therefore conclude that for the RBV ”managers are […] relatively unimportant because they either (a) do not know how their internal operations generate competitive advantage (causal ambiguity) or (b) cannot effectively manage the relationships that lead to competitive advantage (social complexity)” (p. 311). It is in these two areas, namely the durability of competitive advantages and the process of value creation, that the field of entrepreneurship can provide valuable insights to the field of strategic management.

ENTREPRENEURSHIP Unlike the strategic management field and the RBV, both which assume that competitive advantages stem from the creation of imperfect factor markets (i.e., Ricardian efficiency rents), entrepreneurship scholars assume that rents or more precisely “entrepreneurial (Schumpeterian) rents may be achieved by risk-taking and entrepreneurial insights in an uncertain/complex environment” (Mahoney & Pandian, 1992, p. 364). The most important tenant of the entrepreneurship theory is the Austrian School of Economics.5 It argues the market is a dynamic process in which competitive advantages are only temporary phenomena, and that firms create value through the entrepreneurial discovery and exploitation of economic opportunities (Jacobson, 1992).

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The Market as a Dynamic Process According to the Austrian School of Economics, competitive advantages are the result of a process of discovery and exploitation of market imperfections or inefficiencies. In this respect, it offers two alternative perspectives regarding the way in which markets operate. While the mainstream theorizes that markets are always in a state of disequilibrium, Schumpeter argues that markets are subject to business cycle fluctuations that move from equilibrium to disequilibrium and vice versa (Millonig, 2002). For Schumpeter (1975), competitive advantages are the result of market disruptions that he sees as an act of creative destruction “that incessantly revolutionizes the economic structure […] incessantly destroying the old one, incessantly creating a new one” (p. 83). It is a process of revolution, because it disrupts the market equilibrium and alters industry structure in a way that once held competitive positions erode and become obsolete over time. It is a creative process, because its essence is innovation (Stevenson & Jarillo, 2007). Creative destruction takes place in cycles, which

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are separated from each other by phases of equilibrium. It starts when innovative agents introduce “new combinations”, such as new products, production processes, and organizational structures (Schumpeter, 1934). When they are introduced in the market, the innovator temporarily outcompetes his rivals and earns economic rents. These rents provide incentives for other economic actors to imitate the innovator and appropriate some of his profits. Increased competition gradually reduces the profits that can be generated until they finally disappear, at which point the market enters a new state of equilibrium. According to Schumpeter, the profit generated through innovations only provides the means to pursue new innovations and thereby restarts the cycle of creative destruction. Superior economic rents based on competitive advantages are therefore temporary phenomena that eventually get “competed away” (Jacobson, 1992). In contrast to Schumpeter, the Austrian School’s mainstream argues that the market is constantly in disequilibrium due to “entrepreneurial errors which have resulted in shortages, surplus, and misallocated resources” (Kirzner, 1997, p. 70). Entrepreneurial errors happen, because the market process requires the participants to meet each others’ needs based on expectations, hunches, intuitions, and heuristics causing their decisions to be incorrect some of the time. These errors leave space for improvements as customer needs are not fully met by new and existing products or because some resources are priced too high and others too low. Entrepreneurial firms that are alert to these opportunities can purchase resources where prices are too low, recombine them to either imitate their rivals or introduce new combinations, and then sell the resulting products in markets where prices are too high. Regardless of whether firms pursue imitation or innovation, the process of competition is in both cases interpreted as a “discovery procedure” (Hayek, 1978, p. 179). It moves towards better mutual awareness among market participants and the reduction of information asymmetries through

which profits are competed away and the market moves towards equilibrium (Kirzner, 1997). The market, however, never reaches equilibrium, because “many potentially advantageous opportunities go unnoticed. […] An enormous amount of ignorance stands in the way of the complete coordination of actions and decisions of the many market participants” (Jacobson, 1992, p. 787). Therefore, inefficiencies remain and the possibility of earning superior profits keeps the entrepreneur in a sustained state of alertness.6 Summing up, in both perspectives entrepreneurial firms earn superior profits based on temporary competitive advantages that over time get competed away. They can then use these short-term profits to generate new competitive advantages by continuing to introduce innovations to the market (Millonig, 2002).

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Value Creation through Entrepreneurship Entrepreneurship fulfills a central function within the Austrian School of Economics, because firms create value through entrepreneurial actions and insights, that is, through the process of creative destruction or through discovering market inefficiencies. In both cases, the prospect of superior economic profits serves as the main driving force. To explain how the entrepreneur gains insights about the value of new combinations, Kirzner (1973) stresses the informational aspect of entrepreneurship. It stems from the perception of previously unexploited opportunities. Asymmetries of belief and information are preconditions for the discovery of opportunities and not all opportunities are always obvious to everybody. To recognize an opportunity, an entrepreneur has to have previous knowledge that is related to the new information which triggers its discovery. Acquiring this information is difficult, because modern societies emphasize specialization and different cohorts in society are defined by their unique fields of expertise, lifestyles, education, and

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social status. The result is a variety of interdependent roles in which individuals know only a small segment of each other’s personal circumstances (Simmel, 1950). Information and insights about entrepreneurial errors, inefficiently used resources, unmet needs, and the effects of political and technological shifts are therefore unevenly distributed among the overall population (Shane & Venkataraman, 2000). Consequently, opportunities come most frequently to individuals or firms that are located at advantageous positions within networks of different members of society. This argument stems directly from Granovetter’s (1973) work on the strengths of weak ties between individuals and their acquaintances. He argues that “acquaintances, as compared to close friends, are more prone to move in different circles than oneself. Those to whom one is closest are likely to have the greatest overlap in contact with those one already knows, so that the information to which they are privy is likely to be much the same as that which one already has” (Granovetter, 1974, pp. 52-53). Weak ties, as they are characteristic for social networks, provide aspiring entrepreneurs with access to information and resources beyond those available in their own social circle (Granovetter, 1983; Aldrich & Zimmer, 1986). Furthermore, exploiting opportunities (i.e. entrepreneurship) requires the skills to mobilize resources. The same types of networks and contacts required to identify opportunities are also necessary to acquire the resources needed to exploit them. Being embedded in such networks facilitates “linkages between aspiring entrepreneurs, resources and opportunities” (Aldrich & Zimmer, 1986, pp. 8-9). Networks assist in the acquisition of resources and enhance the likelihood of discovery and exploitation. Kirzner (1973) therefore views “the entrepreneur not as a source of innovative ideas ex nihilo” (p. 134), but as being able to mobilize resources and to know how to combine them to exploit opportunities once they are discovered. Thus, entrepreneurship creates value through

entrepreneurial insights on the feasibility of new combinations and the possession of resources to successfully introduce them to the market.

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STRATEGIC ENTREPRENEURSHIP The Need for a Balance between Exploration and Exploitation

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Although in the new competitive landscape entrepreneurship is a desirable quality that can enrich the field of strategic management, it must be applied with great care. According to entrepreneurship theory, competition is dynamic and generates a continuous stream of opportunities. It demands that firms continuously perceive these opportunities and introduce new combinations in their response in order to generate temporary competitive advantages. Thus, dynamic competition emphasizes the process of exploration. “Exploration includes things captured by terms such as search, variation, risk taking, experimentation, play, flexibility, discovery, innovation” (March, 1991, p. 71). In a fast changing environment it allows firms to pursue opportunities that have gone unnoticed by competitors. Yet, it is an uncertain, chaotic, and unpredictable process where excessive exploration can turn into a frenzy of experimentation, search, and innovation (see Figure 2). It can lead firms into a series of failures without rewarding benefits, because firms suffer the costs of experimentation and devote too few resources to develop and exploit the opportunities that have been discovered (Liu, 2006). Alternatively, the field of strategic management and with it the RBV assume that competition takes place under static market conditions. Once a firm has achieved a sustainable competitive advantage, the environment surrounding it turns into an equilibrium in which prices, qualities, and resources are given as objective, all times governing data. Consequently, the resource configurations that have led to any firm’s competitive advantage

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Figure 2. The tension between exploration and exploitation

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must be perfect in the sense that there is no other next best resource configuration that can be achieved (Kirzner, 1997). Thus, static competition places a premium on the process of exploitation. “Exploitation includes such things as refinement, choice, production, efficiency, selection, implementation, execution” (March, 1991, p. 71). It refers to the process of retrieving, applying, and nurturing current resources and capabilities that have proven to generate competitive advantages. In its positive form, it can lead to the further building up towards a long-term competitive advantage. In its negative form, however, it can lead to escalating commitment towards resources and capabilities that have become obsolete due to structural shifts in the external environment (see Figure 2). In this case, the firm continues to invest time and effort in these resources and capabilities and eventually becomes entrapped in a self-reinforcing negative cycle in which it starts throwing good money after bad money. In the worst case, the firm becomes locked in a certain strategic orientation and unable to perceive stra-

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tegic alternatives. Such a destructive behavior can even lead a once successful pattern to turn into a pattern of failure (Schreyögg & Kliesch-Eberl, 2007; Zander & Kogut, 1995; Kraatz & Zajac, 2001). To avoid falling into this trap, the literature on Strategic Entrepreneurship emphasizes the need to balance the processes of exploitation and exploration in a continuous trade-off as an excess in either dimension inhibits the risk of failure (see Figure 2).

Combining the ResourceBased View and the Austrian School in a Framework of Strategic Entrepreneurship Table 1 presents the similarities, differences, and complementarities between the RBV and the Austrian School where both fields show the greatest potential to mutually enrich one another in a unifying framework of Strategic Entrepreneurship.

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Table 1. Characteristics of the RBV and the Austrian School of Economics Dimensions Similarities

Resource-Based View

Austrian School of Economics

• Focus on firm performance • Resource heterogeneity as source of competitive advantage • Importance of information asymmetries

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Differences

• Competitive equilibrium model • Sustainable competitive advantages

• Competitive disequilibrium model • Temporary competitive advantages

Complementarities

• Emphasis on managing resources strategically • Establishment of isolating mechanisms

• Role of the individual • Subjective resource appraisal • Entrepreneurial alertness

Regarding their Similarities, both the RBV and the Austrian School of Economics and Entrepreneurship share the same objective of explaining how firms earn superior economic rents. They emphasize the source of competitive advantage lies in the possession of heterogeneous resources that are bundled together in firms. These acquire resources in imperfect factor markets in which agents share different expectations and information about the true value of a given resource. Due to these information asymmetries regarding the Net Present Value (NPV) of a given resource and its expected future value if it is put in a different use, firms can purchase resources where prices are too low, recombine them with their existing resource bundles, and sell the outcome where prices are too high (Foss & Ishikawa, 2007). Gathering superior information and acquiring underpriced strategic resources that lend heterogeneity to the firm are of strategic importance. For both the RBV and the Austrian School, loosing heterogeneity implies that superior economic rents (competitive advantages) diffuse and eventually get competed away: “Regardless of the rent, […] competitive advantage requires that the condition of heterogeneity be preserved. If the heterogeneity is a short-lived phenomenon, the rents will likewise be fleeting” (Peteraf, 1993, p. 182). However, a distinct difference also separates the RBV from the Austrian School. In its original form, the RBV does not focus on the market as a

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process or on dynamic competition and instead relies heavily on competitive equilibrium models. The RBV emphasizes sustainability of competitive advantage and views imitable strategies as not being able to create value. For the Austrian School on the other hand, strategies that can be duplicated have value, because lags between the time new combinations are introduced to the market and the time they are imitated by rivals allow the firm to earn superior economic profits. Competitive advantages are therefore seen as a temporary phenomenon, rather than being sustained indefinitely. Yet, in recent times the assumption of dynamic competition and temporary competitive advantage has become accepted in much of the literature on strategic management. Evidence can be found in the concepts of the new competitive landscape, hypercompetition, and the dynamic capabilities approach (Bettis & Hitt, 1995; D’Aveni, 1994; Eisenhardt, 2000; Foss & Ishikawa, 2007; Porter, 1991; Teece, Pisano, & Shuen, 1997; Winter, 2003). It is therefore safe to assume, that there is a wide consensus within the field of strategic management to view competition as being a dynamic process. Besides their similarities and differences, a set of complementarities exists that promotes an integration of both fields into a unifying process model. Integrating the entrepreneurial role allows to open up the black-box of the RBV and to explain how resources contribute to competitive advantage. According to Foss and Ishikawa, the RBV

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suppresses the way how resources are appraised and deployed to new uses, treats all knowledge and information about the future value of a given resources as objectively given data, and neglects the creation of new combinations out of existing resources. It is here that the Austrian School has shown the future contribution of resources to value creation is not objectively given data, but a subjective appraisal that depends on the entrepreneur’s related knowledge, accumulated experience, and alerted mind. Expectations about the NPV of a given resource therefore differ widely across agents. Some agents can realize rents by purchasing resources where prices are below their NPV and selling them where prices are too high, or combining them with their existing resource stock and selling the outcome in appropriate product markets. In contrast, if the NPV of resources is given as objective data, agents will hold the same expectation about their future value and all rents will be priced away. Different expectations and entrepreneurial appraisals are therefore important pre-conditions of competitive advantage (Foss & Ishikawa, 2007). On the other hand, the RBV contributes to entrepreneurship theory an understanding of the importance of the firm to manage resources strategically to exploit opportunities and extend the duration of temporary competitive advantage. Because factor markets are imperfect, the RBV emphasizes the need to upgrade homogenous input into heterogeneous output by combining externally-acquired resources with complementary resources held by the firm. To maintain the value that has been created, firms have to continuously nurture, develop, and extend their existing resource stock (Ireland, Hitt, & Sirmon, 2003; Alvarez & Barney, 2006). In addition, establishing isolating mechanisms creates information asymmetries between innovators and imitators that impede profits being instantaneously competed away before the firm can appropriate sufficient rents. Eventually, rivals will understand the underlying sources of

the entrepreneurial firm’s competitive advantage, but it is time consuming. Therefore, the RBV “suggests that firms wishing to obtain expected above normal returns from implementing product market strategies must be consistently better informed about the future value of those strategies than other firms in the same market” (Alvarez & Barney, 2006, p. 99). The strategic imperative for firms is therefore to constantly increase their information advantage and identify the value creating potential of externally and internally available resources.

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A Generalized Model of the Entrepreneurial Strategy Making Process

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With this discussion in mind, it is now possible to explicate a process model about the way in which firms pursue and exploit opportunities to create wealth in today’s competitive landscape (see Figure 3). It is based on three fundamental assumptions: (1) Resources are heterogeneously distributed among firms, (2) resource markets are imperfect, and (3) the market is seen as a dynamic process in disequilibrium. Central to this model is the notion of imperfect resource markets in which entrepreneurs bid for resources based on current prices and anticipated future outcomes (Foss & Ishikawa, 2007). This assumption is central to the RBV, and can also be found in the Austrian School. Although Schumpeter did not explicitly use the term “resources”, his thoughts can easily be translated into the notion that ultimately, competition takes place in imperfect resource markets (Matthews, 2002):

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In capitalist reality as distinguished from its textbook picture, it is not [price-guided] competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance) – competition which commands a decisive cost

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Figure 3. Process model of strategic entrepreneurship

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or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. (Schumpeter, 1975, p. 84).

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Once resources become part of the firm, it is management’s task to strategically upgrade and augment the acquired resource stock and to produce new goods and services in response to perceived opportunities. Effective isolating mechanisms increase the duration of competitive advantages and allow the firm to appropriate the value it has created. Eventually, the entrepreneurial firm’s rivals succeed in imitating its innovation and over time profits get competed away at which state the market moves towards equilibrium. The introduction of new innovations, however, keeps the market in a constant state of disequilibrium through which it continues to provide economic opportunities. Thus, the strategic imperative for firms is to continuously renew their competitive advantages by being consistently better informed about the future value of their resource stock, deploy them in anticipation of upcoming opportunities, and create strategic defenses to exploit the value that has been created. This is at the heart of Strategic Entrepreneurship.

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At the outset of competition, a market in disequilibrium generates a stream of economic opportunities. In response to their perception, the entrepreneur tries to mobilize simple resources and combine them into a firm of complex resource bundles that is aligned to its external environment. Yet, the existing resource stock sets limits to the firm’s strategic alternatives and the opportunities it can pursue. To increase its options the firm has to continuously gather superior information about underpriced resources, acquire them, and deploy them in response to the opportunities it wants to pursue. Acquiring resources, however, is costly and their value depends entirely on the entrepreneur’s strategic judgment. In this context, the entrepreneur’s task is to find resources that are priced in such a way that the firm can create more value by combining them with its existing resource stock than the market at that price (Mathews, 2010).

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CONCLUSION The landscape in which firms have to operate today is fundamentally different than it was in the decades prior to the 1990s. Globalization and technological change have created an atmosphere of hypercompetition and high-speed decision making in which new players from emerging market economies challenge their established rivals and disruptive technologies shake up industry structure more frequently. As a result, established firms regardless of their cultural and national origin are increasingly less able to defend their once held competitive positions over a long period of time. Similarly, entrepreneurial firms are faced by an increasing stream of opportunities. This causes the risk that they do not commit fully to a potentially valuable opportunity and instead fall into a devastating frenzy of experimentation and search. In contrast, contemporary globalism has significantly altered the rules of competition. It demands that firms continuously identify new opportunities and seek out attractive market niches, commit fully to these markets by acquiring and managing the necessary resources, and establish strategic defenses to exploit the value that has been created. It therefore calls for the simultaneous pursuit of entrepreneurial value creating and strategic value defending actions. Therefore, in this chapter we have proposed a generalized model of the entrepreneurial strategy making process as it has become necessary in today’s competitive landscape. We have based our arguments on a synthesis of prior work on the emerging concept of Strategic Entrepreneurship by showing how the RBV and the Austrian School of Economics (as the central tenants of the fields of entrepreneurship and strategic management) can mutually enrich one another. The Austrian School contributes to the RBV an understanding on the limited durability of competitive advantages and the way in which resources contribute to wealth creation. It is through entrepreneurial insights that firms identify the

future feasibility of resource combinations and it is through the act of creative destruction based on the mobilization of these resources that they create temporary competitive advantages. On the other hand, the RBV contributes to entrepreneurship an understanding on the importance of managing resources strategically and establishing defenses to extend the duration of competitive advantages. This in turn provides the entrepreneurial firm with the means to introduce new combinations to the market and thereby ensure its long-term financial success.

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ENDNOTES





Disruptive technologies are defined as technologies that destroy the value of an existing technology and thereby create new markets and business opportunities (Gilbert, 2003). 2 Meyer, Neck, and Meeks ((2006)), for example, found that in the Strategic Management Journal and the Journal of Business Venturing (both are leading journals in the strategic management and entrepreneurship field) 86% and 46% of all articles that have been published between 1980 and 2000, respectively, used firm performance as the dependent variable. 3 Contemporary approaches such as the dynamic capability approach (Teece & Pisano 1



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& Shuen, 1997) and the knowledge-based view of the firm (Kogut & Zander, 1992) will not be discussed separately as they represent only slight modifications of the RBV and are based on the same core logic (Barney & Clark, 2007). 4 Ricardian rents are returns on the efficient use of an existing stock of resources, which is superior to resources held by other firms. From this perspective, profits are ultimately a return to the unique assets owned and controlled by the firm (Spanos & Lioukas, 2001) 5 The most important representatives of the Austrian School of Economics are Joseph Schumpeter and Israel Kirzner. Further representatives are Carl Menger, Friedrich Hayek, Ludwig Mises, and Ludwig Lachmann (Jacobson, 1992). 6 The reader should note, that equilibrium means precisely that all inefficiencies are eliminated, i.e. that supply is perfectly in balance with demand and that prices reflect the true value of any resource, product, or piece of information. In equilibrium models market participants are not able to e.g. bid higher prices or undersell competitors, etc. (Hayek, 1948).

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A Social Capital Approach to Inter-Cultural Differences:

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Empirical Evidence from a Global Tour Operator

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Manuela Presutti University of Bologna, Italy Lucrezia Zambelli University of Bologna, Italy

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This work examines to what extent cultural differences at a level both of intra-organizational multinational network and inter-organizational multinational network are associated with liability of foreignness. The authors propose a conceptual framework where the different dimensions of social capital improve the exchange and combination of resources and knowledge in different subsidiaries localized in dissimilar cultural contexts, by mitigating the inter and intra organizational cultural differences. This in turn reduces the liability of foreignness. The chapter empirically applies this conceptual framework to Globus Family of Brands, which is one of the world’s largest tour operators. It focuses on different moments of foreign growth of Globus, performing an exploratory longitudinal case study. The findings presented have important implications for research in multinational literature because the chapter proposes to originally study the liability of foreignness and cultural differences topics according to a social network perspective of analysis.

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INTRODUCTION

The cross-border transfer of firm-specific advantages is considered a significant element of success in Multinational Enterprises (MNEs) (Vernon, 1966; Hymer, 1976). In literature regarding

multinational firms, these advantages are usually geographically dispersed in countries where the different unities of an MNE are able to perform specific value creating activities (Tsai, 2000). At the same time, the liability of foreignness, conceptualized as the costs of doing business

DOI: 10.4018/978-1-4666-0306-6.ch016

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abroad that result in a competitive disadvantage for a MNE subunit, has been the fundamental assumption driving theories of multinational firms. Independent of its source, the liability of foreignness implies foreign firms will have lower profitability than local firms, all else being equal and perhaps even a lower probability of survival (Zaheer, 1995). Despite much research indicating the potential determinants of liability of foreignness – such as unfamiliarity with the local business conditions or local authorities’ discrimination against foreign companies (Petersen, Pedersen, 2002) – to the best of our knowledge no study has systematically examined the impact of cultural diversity on the MNE’s liability of foreignness. It is quite surprising since the effectiveness of cross-border transfer of firm specific advantage has a great deal of complexity because it usually involves dissimilar cultural contexts (Bhagat et al., 2002). In fact, cross-border knowledge transfer among MNEs involves two or more units in at least two countries and thus cultural differences play a significant role in determining the efficacy of such global transactions (Rugman, Verbeke, 2001; Clark, 1990). In this chapter, the authors examine to what extent cultural differences of intra-organizational multinational networks (inside dispersed subsidiaries of a same multinational firm) and interorganizational multinational networks (among a subsidiary and its external local network) are associated with the liability of foreignness. Given that cultural differences are embedded inside dispersed internal and external networks of a multinational firm, this study builds upon a social network approach focusing on social capital concept (Lin & Dumin, 1986; Nahapiet & Ghoshal, 1998). We propose a conceptual framework where the different dimensions of social capital– social interaction, trust and shared vision (Yli-Renko, Autio, & Sapienza, 2001) – improve the exchange and combination of resources and knowledge in different subsidiaries of a multinational firm

localized in dissimilar cultural contexts, by mitigating the inter and intra organizational cultural differences (Ellis, 2010; Zahra, 2010; Kianto & Waajakoski, 2010; Vallejois et al., 2008). This, in turn, reduces the liability of foreignness. We empirically apply this conceptual framework to Globus Family of Brands (GFB), which is one of the world’s largest tour operators with more than 30 tourism and aviation businesses around the world, covering more than 70 countries on six continents. We propose Globus as an important case of study and, through the three dimensions of social capital, we analysis how inter- and intracultural differences are associated with the liability of foreignness. The empirical analysed case allows us to make more efficient our conceptual framework, suggesting that different informal and formal solutions in the global management of MNE’S social network are able to mitigate or solve the problem of inter and intra organizational cultural differences and so to reduce the liability of foreignness. The structure of the chapter is organized as follows: Section 2 gives a review of studies on social capital, liability of foreignness and cultural differences concepts. On the basis of the literature review, we present a conceptual framework explaining the interaction among different dimensions of social capital, inter-cultural differences and liability of foreignness. Sections 3 accounts for the methodology approach and analyses the case of Globus. In Section 4, we improve the conceptual framework according to empirical evidence from the analysed case. Finally, in Section 5 we conclude, proposing the main managerial implications of the study.

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THEORETICAL AND CONCEPTUAL FRAMEWORK The primary purpose of our research is to integrate, from a social capital point of view, the accumulated knowledge in the frameworks

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concerning liability of foreignness to develop a paradigm explaining how the development of inter- and intra inter-organizational social capital relationships may improve the management of cultural differences inside a MNE. Despite the long history of research on social networks in international business studies, little work has been conducted to develop an overarching paradigm that systematically associates this concept to the management of cultural differences and liability of foreignness (Gomez-Mejia & Palich, 1997; Dyer & Sing, 1998). The foundation of our research is the hypothesis that boundaries among subsidiaries firms and environment continue to vanish, and that the implementation of social capital with local business partners allows subsidiaries to better manage the potential inter-cultural differences, thus reducing uncertainty within the environment itself. Simultaneously, the traditional problem of the liability of foreignness could be solved by building intra-organizational collaborative relationships of social capital in order to reduce the inter-organizational cultural differences inside a MNE. For the purpose of this chapter, we have adopted the Lin and Dumin (1986) view of social capital and have defined it as the “resources embedded in a social structure of relationships which are accessed and/or mobilized in purposive actions”. By this definition, the notion of social capital contains three ingredients: resources embedded in a social structure of intra and inter organizational relationships, accessibility to such social resources by involved global actors, and use or mobilization of such social resources by different subsidiaries for their profitable actions (Pirolo & Presutti, 2010; Presutti, Boari & Fratocchi, 2007).. The study is built upon Nahapiet, Ghoshal’s three dimensions of social capital – social interaction (structural dimension), trust (relational) and shared vision (cognitive), according to the idea that in addition to structural dimension, both relational and cognitive dimensions are important:

the configuration of that network (structural) is not all that matters, yet the quality (relational and cognitive) of social relationships matter as well (Moran, Ghoshal, 1996). The structural dimension includes the total number of social interactions of business actors (Burt, 2000). The relational dimension refers to qualitative assets that are rooted in relationships of a business actor, such as trust and trustworthiness (Ibarra, 1993). The cognitive dimension is embodied in attributes like a shared code or a shared paradigm facilitating a common understanding of collective goals and proper ways of acting inside a global dispersed network ties (Portes, Sensenbrenner, 1993). Figure 1 shows the proposed conceptual framework concerning the interaction between these three different dimensions of social capital, cultural differences and liability of foreignness. We argue that the more social capital a subsidiary develops in its business relationships with the network of both local external partners (interorganizational social capital) and other subsidiaries (intra-organizational social capital), the more likely it is to exchange and combine resources and knowledge, reducing inter-cultural differences and consequently the liability of foreignness of its MNE. This proposed framework considers the subsidiary as the unit of analysis to discuss the research problem. Specifically, in relation to shared vision (cognitive dimension of social capital), we suppose that the development of common goals, norm and reciprocal expectations between intra and inter organizational networks of a subsidiary may enhance its local managerial learning through a simpler leveraging of new experiential knowledge of markets (Napahiet, Ghoshal, 1998; Lin, Dumin, 1986; Coleman, 1990). Moreover, shared vision reinforces reciprocal knowledge acquisition form inside and outside network and reduces the need for formal monitoring, allowing a subsidiary to invest more effort in knowledge absorption and exploitation related to innovation process in its local context (Tsai, Ghoshal, 1998).

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Figure 1. The proposed conceptual framework

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Regarding social interaction (structural dimension of social capital), we suppose that the development of reliable and effective communication channels across inter and intra organizational network of a subsidiary is able to improve the exchange and combination of resources and knowledge, reducing the uncertainty about economic performance outcomes of a subsidiary in its local network. Moreover, the development of profitable channels information and resources flows with a diversity of external and internal knowledge networks is essential to the learning of a subsidiary (Yli-Renko, Autio, Sapienza, 2001), facilitating the development of new shared forms of innovativeness inside a local context. Finally, the development of high level of inter and intra

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organizational trust and trustworthiness (relational dimension of social capital) reduces the transaction costs (also in terms of lack of opportunism) of a subsidiary, facilitating the exploitation of profitable actions and the combination of resources and knowledge from inside and outside its network. In this sense, the relational dimension of social capital may increase the acquisition and exploitation of relation-specific common knowledge useful to innovation activity through a stronger frequency, breadth and depth of the processes of diffusion and transfer of profitable information between partners belonging to intra or inter organizational networks of a subsidiary (Ring, Van de Ven, 1994). In proposing our framework, we share the idea that the liability of foreignness with the

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local market can be strongly mitigated through engagement in knowledge based activities (Acs, Audretsch, 1991; Eriksson et al., 1997), which are reinforced by development of strong social network with internal and external multinational partners. In the other words, we implicitly suppose that the liability of foreignness is likely to diminish with elapsed time (Petersen, Pedersen, 2000; Zaheer, 1995), since the “time” in itself is strongly correlated with increased international commitment of a firm which reinforces the development of social capital networks. But, of course, we consider that the ability to develop social capital asset to better learn inside foreign contexts may also rest on more generally skills of a subsidiary to acquire and transfer knowledge which involves dissimilar cultural contexts (Bhagat et al., 2002). Along this direction, we consider the impact of cultural diversity on the interaction between social capital asset and liability of foreignness according to several international business studies which found that knowledge transfer is more difficult when differences in cultural contexts make less efficient the activity sharing and the synergy formation (Clark, 1990). Consequently, we emphasize the importance to develop different social capital dimensions to support information flows between globally dispersed nods. This requires that the diffusion of subsidiary-specific advantages is based on appropriate networking organizational mechanisms to leverage a firm’s absorptive capacity (Cohen, Levintal, 1990), thereby enhancing the transfer of knowledge (Rugman, Verbeke, 2001).

dimensions of social capital to mitigate the interand intra-cultural differences and so to partially solve the problem of foreignness. The history of Globus began over 80 years ago. In 1928, Antonio Mantegazza, the founder of Globus Family of Brands, began transporting travelers across Lake Lugano and sharing stories about local sights and his region. Over time, Mantegazza bought motor coaches to transport tourists around the southern area of Switzerland. He called this new opportunity as Globus Viaggi. Then in the 1980’s, Globus truly became worldwide, selling in New Zealand, Canada, and Australia. Destinations expanded as well, adding Asia, the South Pacific and Africa to its array of vacations in Europe, North America, and South America. Today, Globus family of brands is one of the world’s largest tour operator with four different brands, more than 30 tourism and aviation businesses around the world, serviced by a group of more than 5,000 professionals. Many are the subsidiaries localized in almost all the countries with Anglo-Saxon back ground; however following the economy trend, Globus grasped at once the opportunity to expand his business, recently opened a new subsidiary in India in order to cover all the possibility demand coming from all emerging economies. Readily available via website, all the subsidiaries as Canada, Unites States, and New England cover their own markets, except for Australia and India that manage demand coming from other countries as China, Japan, Egypt, Korea, Oman, Mauritius, and so forth. We propose that a single exploratory case study is the appropriate design (Curran et al., 1993; Yin, 1989, 1994), since we ask a “how” question about a contemporary set of events over which we have little control. Our main aim is to investigate the research’s problem with one MNE – Globus - and, based on the findings, to develop a potential interpretative framework and pertinent assertions to test in other entrepreneurial contexts, using a mix of quantitative and qualitative evidence. In order to assure the validity and

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METHODOLOGY: THE GLOBUS CASE We empirically apply the proposed conceptual framework in Figure 1 to Globus Family of Brands. By analysing this case, we are able to improve the proposed conceptual framework. In particular, we analyse how Globus tends to develop the different

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reliability of data, we took several precautions. First, we used a protocol prior to working on the case which was a very useful guide in carrying out the case study. Then, we used multiple sources of evidence, creating a case study database, which forms the foundation of our empirical research. Data collection involved two main sources: semistructured interviews and archival documents and record, with multiple sources used to enable triangulation of data, contributing to a comprehensive and accurate view of the examined problem. Specifically, we conducted 16 open-ended and semi-structured interviews at the executive (7 interviews) and operational (9 interviews) levels involved in different corporate functions (Finance, Sales, Marketing) managed in Lugano City. The interviews focused on different topics such as the history and growth of the firm, its success factors, anecdotes on the firm’s development abroad and especially on the relationships with subsidiaries. Detailed notes were taken and the transcription of the abstract of each interview was sent back to the respondents a few days after meeting. While the interviews are the essential source of this case study, we know they should be considered verbal reports only (Yin, 1989; 1994), and thus subject to the common problems of bias and poor recall. Thus, we supplemented the information collected through interviews using different kinds of documents and archives which furnishes precise, quantitative and broad information. We also had the opportunity to personally stay in the Canadian subsidiary (Toronto) many times, to provide additional significant information about the topic. During the interviews, we focus on different moments of foreign growth of Globus, performing an exploratory longitudinal case study, together with the idea that the social capital development consists in a dynamic and evolutionary path over time. It is also compatible with our evolutionary approach to foreignness liability problem which may allow a firm to better understand local cultures and opportunities in a

gradual manner, incrementally absorbing cultural diversity into its existing corporate-wide culture. During our collection of data, we always tried to maintain a chain of evidence useful to follow the derivation of evidence from initial research problem to case study conclusions (Yin, 1994).

EMPIRICAL ANALYSIS OF CASE STUDY

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The empirical analysis of Globus allows us to improve the conceptual proposed framework in Figure 1, according to evidence directly obtained from the case. On a general level, we confirm the importance of social capital development inside a multinational to reinforce the internal cohesion and to impose a significant presence on external local context where the single subsidiaries are localized. We first discuss the social capital asset according to its different dimensions of analysis and then we analyse the interaction among the different dimensions of inter and intra organizational social capital, improving the proposed conceptual framework.

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Relational Dimension of Social Capital The relational dimension of social capital refers to assets that are rooted in social relationships, such as trust and trustworthiness. While trust is considered a governance mechanism for embedded relationships (Uzzi, 1996), that is an attribute of a relationship, trustworthiness is studied as an attribute of an individual actor involved in a relationship. The realized interviews verify that trust is considered both an aspect of organizational context (Ghoshal & Bartlett, 1994) and an antecedent of cooperation in Globus (Gambetta, 1988; Gabarro, 1978; Ring, Van de Ven, 1994). When subsidiaries localized in different parties of world begin to trust each other, they declare to take advantage of the other subsidiaries and to

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to share their resources and knowledge (Morris, Snell, 2014; Madhok, 2005; Zaheer, zaheer, 2005; Johanson,.Vahlne, 2009; MacDuffie, 2010). The development of intra-organizational social capital is strongly supported and improved at a level of headquarter which considers the combination and exchange of local knowledge and resources a significant aim to reach. Along this direction, the headquarter supports the development of trust to reinforce the intra organizational social capital development which allows different unities of group to be more motivated to diffuse from local to global level their resources, services and practices. Thus, the headquarters tends to diffuse a cooperative behavior at a group level able to reduce the local strategic and organizational aims and interest of different subsidiaries. As trusting relationships develop inside intraorganizational network of Globus – that is constituted by all subsidiaries dispersed in the word – the diffusion of social capital begins to involve also the inter-organizational network which is formed by all business and social relationships which the single subsidiaries develop with their local network of actors (Morris, Snell, 2014; Madhok, 2005; Zaheer, Zaheer, 2005; Johanson, Vahlne, 2009; MacDuffie, 2010). While in the case of intra-organizational trust, the development of business relationships are characterized by a low level of variance (all business actors of a same group), when we consider the interorganizational trust, it is evident that the type and number of involved actors tend to grow. In fact, subsidiaries tend to frequently change their local partners both to develop cooperative behavior and to exchange resources. Moreover, the partners involved in inter-organizational network are constituted not only by business actors (firms) but also by institutional and social partners. Thus, the management of inter-organizational trust is very difficult and involves a great level of engagement by all subsidiaries of Globus but also at a level of headquarter (Ellis, 2010; Zahra, 2010; Kianto, Waajakoski, 2010; Vallejois et al., 2008).

The empirical analysis puts into evidence that the formation of inter-organizational trust allows subsidiaries to build up reputations of trustworthiness very useful for external actors of Globus network – that is at an inter-organizational level of analysis. In fact, a more trust worthy subsidiary is more likely to be a popular exchange partner for its local external network of partners. In other words, the formation of trust at an intra-organizational level is the first step to assure a greater and significant level of exchange of knowledge and resources from Globus network to external partners localized in different local context. In fact, in the analysed case, intra-organizational trust precedes the diffusion of trustworthiness which strongly concerns the inter-organizational network. Hence, at a general level we can verify that differences in levels of inter and intra organizational trust and trustworthiness may result in different levels of resources exchange and combination of knowledge among both different actors and different units of the same organization. From a more organizational perspective of analysis, the diffusion of relational dimension of social capital in Globus case consists of a combination between formal and informal mechanisms which are able to adapt according to specific intra and inter organizational collaborative relationships. The intra-organizational relational social capital is mainly based on management control through formal mechanism by the headquarters. In the majority of cases, there is a standardization of the proceed through monthly report, half yearly or even quarterly meetings with all the subsidiaries which tend to plan a lot of objectives of short and long terms. Thus, the headquarters develops strong formal collaborative relationships as its work is divided in administration of the financial activities, monitoring, creating packages and supervision of the subsidiaries. Otherwise, the more informal approach to inter-organizational trusting relationships allows subsidiaries to coexist with different local realities and the main aim of reach-

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ing certain goals, targets and all the development parts in order to purpose the common vision. Obviously, the headquarters is unable to control the network of the subsidiaries, but at the same time the inability of control can be considered as a strategic technique to provide a chance for the subsidiaries to adapt in the new context. Thus, the subsidiaries can manage and coordinate their business actors based on the economic framework and the current travel industry presents in the local reality.

Structural Dimension of Social Capital The structural dimension of social capital includes social interaction which may provide certain advantages for an actor. By using its social interactions, an actor is able to obtain information or to access specific resources and knowledge (Mursitama, 2006; Bhander, pen, Tan, 2007; Canas, Palomino, 2010). Our case study contests that both inter- and intra-social ties are considered in Globus as the significant channels for information and resources flows. The development of profitable social interactions always becomes the main informal mechanism to exchange reciprocal resources and knowledge and to stimulate the formation of common interests. However, over time the interaction among social and business relationships is strongly formally supported inside Globus firm and encouraged by the headquarter. Several pieces of evidence from our analysis verifies that inside this multinational, the subsidiaries are able to develop durable and strong social interactions with both their intra-organizational network (other subsidiaries localized in different countries) and inter-organizational network (different partners localized inside countries where subsidiaries are localized), and have realized a greater and significant level of knowledge and resources exchange. In particular, we contend that importance of inter- and intra-social interac-

tion for the creation and diffusion of new ideas, solutions and innovations of service exist within the entire multiunit organization (Powell, Koput, Smith-Doerr, 1996; Ibarra, 1993). It means that sometimes in this multinational, new sources of value are generated through novel deployments of resources, especially through new ways of exchanging and combining resources strongly based on informal mechanism of social interaction. All subsidiaries of Globus diffused around the word need to reallocate internal specific resources during their process of new or create better services. They combine internal resources with external local knowledge (inter-organizational network), founding new ways to combine resources by using the internal relationships with other subsidiaries. In summary, inter- and intra-social interactions are used to acquire new resources inputs and to develop profitable combinative capacities (Kogut, Zander, 1992). While the development of social interactions at the beginning was strongly based on informal mechanisms of relationships according to the embeddedness approach (Granovetter, 1985), during recent years some mechanisms at the headquarter-level were useful to encourage the social interaction are supported. It is verified especially in relation to subsidiaries which occupy a central location inside social organizational network of Globus. In particular, the company organizes breakfast meeting, trips abroad in order to specialize in particular kind of tourism, tourism fair, BBQ and parties for the local holidays as Halloween, or Thanksgiving. During these social meetings the company creates games, times of entertainment in order to award a prize for the best seller, best booking group, etc. This way of acting creates power, goals, and positive attitude in all the employees so the working environment is more focus with the local goals and the Global vision. This is the typical approach in Canada and the USA where the corporate idea of social meeting is stronger than in the European context.

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Cognitive Dimension of Social Capital According to the Nahapiet and Ghoshal framework, the cognitive dimension of social capital is embodied in attributes such as a shared code or a shared paradigm which facilities a common understanding of collective goals and proper ways of acting in a social system. From this case of study, we verify that the cognitive social capital is the most important dimension allowing all subsidiaries dispersed in different countries to reduce their inter-cultural differences with both internal and external network of relationships. In Globus, the development of a common understanding and a shared vision is considered as a collective resource (Coleman, 1990) which facilitates the actions of subsidiaries with both their inter- and intra-network. Since the beginning of foreign development, the headquarters has considered the shared vision of collective goals and aspirations of the members of organization as the main goal. Along this direction, the selection of countries where Globus has developed over time is in line with the respect of an important criteria; namely, the subsidiaries are all localized in countries with an Anglo-Saxon background. It is a not casual selection, but the consequence of an accurate process of strategic planning which aims to guarantee the formation of a global shared vision. It is the development of this group inside different countries characterized by a common matrix of cultural, social, economic, and linguistic elements which has encouraged the opportunities to exchange ideas and resources freely inside the network and among intra- and inter-network, thus avoiding possible misunderstanding in communications. We can affirm the headquarters has strongly followed and respected the physical distance approach by adapting to its business interests. In fact, while the headquarters has preferred to have a global diffusion also in countries very far from the headquarter location, this physical distance has been solved by the

growth inside countries which present similar cultural and social features and social (Ellis, 2010; Zahra, 2010; Kianto, Waajakoski, 2010; Vallejois et al., 2008). We can thus consider a shared vision as a formal bonding mechanism encouraged by the headquarters to help different subsidiaries to integrate or combine their specific resources. In fact, the common goals and interests they share help them to see the potential value of their resources exchange and combination. Moreover, a shared vision may hold together a loosely coupled system and promote the integration of an entire organization with also its external network of relationships (Tsai, Ghoshal, 1998). This, in turn, reduces the liability of the “foreignness problem”.

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STRUCTURAL, COGNITIVE AND RELATIONAL SOCIAL CAPITAL: AN IMPROVEMENT OF PROPOSED CONCEPTUAL FRAMEWORK Previous analysis confirms how the different dimensions of social capital are able to improve the exchange of resources and knowledge among different subsidiaries of Globus, and also among these subsidiaries and the local context in which they are localized. This exchange of resources is in turn able to reduce the liability of foreignness which traditionally characterizes a multinational firm, since it positively impacts intra- and intercultural differences present at the inter- and intraorganizational level. Specifically, the empirical analysis provides evidence of a clear association among different dimensions of social capital and their impact on reduction of liability of foreignness by improving inter- and intra-organizational exchange of knowledge and resources. In this respect, we can verify a temporal sequence of inter- and intra-social capital development in Globus according to its different dimensions of analysis. In fact, the case shows how the headquarter since from the beginning has considered the cognitive

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dimension – in terms of shared vision – the primary element to assure for reducing the negative effect of foreignness of liability (Dyer, Sing, 1998). The rigorous selection by Globus of the only countries of Anglo- Saxon origin tends to confirm this assumption, confirming the importance of sharing common interests and vision firstly at an intra-organizational point of view, and consequently at an inter-organizational level. The cognitive dimension in turn influences and reinforces the development of social interaction among different subsidiaries and among subsidiaries and their local context network. In the other words, the belonging to a same social, language and economic context – cognitive dimension – as assured by the Anglo- Saxon criteria of selection favorites the social interaction inside and outside this multinational. Finally, the structural dimension has a direct reinforcing effect on relational dimension of social capital, since the diffusion of strong social interaction ties is able to stimulate trust and perceived trustworthiness. The global interaction between these three dimensions of social capital, where the cognitive dimension represents the first step of evolution—the structural, the intermediate variable, and then the relational variable—has a direct effect on resources and knowledge exchange, thus reducing the liability of foreignness problem. Specifically, we detail our evidence according to specific dimensions of social capital which allows us to improve the proposed conceptual framework as shown in Figure 2.

strong reciprocal social interactions, as they can expect they all work for collective goals and will not be hurt by any other member’s pursuit of selfinterests. It is also verified among subsidiaries and their inter-organizational network. The development of shared values reinforces the importance of informal social interactions which allow inter- and intra- organizational actors to realize and adopt their languages, codes, values, and practices in different contexts of analysis. Simultaneously, these socialized actors may diffuse new values and interests based on their common interests and mutual understandings, improving the diffusion of innovations inside and outside the multinational. The sharing of a collective orientation represents the vision of a unit such as a multinational where social interaction assumes a significant reinforcing role, despite the necessity to adopt the different social actions according to specific different contexts where it is present. It means that the diffusion of a collective orientation is useful to the reaching of global goals and plans, which is strongly supported and influenced by social informal ties of interaction. A profitable social interaction in this sense is strongly supported by the evidence that common goals and values have kept different partners together, reducing the possibility of opportunistic behavior (Ouchi, 1980). Along this direction, our case puts in evidence that the subsidiaries of Globus which are in a central location inside both inter and intra network of social interactions are likely to share a vision and values both with other subsidiaries and their local network.

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Linking Cognitive and Structural Dimensions of Social Capital in the Model Common values and a shared vision (cognitive dimension) encourage the development of social interactions among different subsidiaries, and among subsidiaries and their local context of reference. With collective goals and values, organizational members are inclined to develop

Linking Structural and Relational Dimensions of Social Capital in the Model As second temporal step, we empirically verify from the case that social interaction, which is strongly supported by the diffusion of a shared vision inside the group, have a direct reinforcing effect on the relational dimension. According to

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Figure 2. Explicative proposed framework

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numerous studies (Gabarro, 1978; Granovetter, 1985), in Globus case we confirm the idea that trusting relationships evolve from social interactions: the more social interaction are of long duration, the more trusting relationships will become more strong and the involved actors are more likely to perceive each other trustworthy. While in the mechanism influencing the tie between structural and cognitive dimension of social capital in Globus we remark a strong informal development, in relation to this second step it is evident a major formal interest by headquarter level in reinforcing the evolution of shared trusting relationships. In fact, especially during recent years the headquarters has realized many formal social interactions mechanisms allowing frequent and close social inter- and intra-organizational interactions which have permitted actors to know one another, to share important information and to create a common point of view.

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This means the headquarters considers the cooperative behavior, which is strongly reinforced by the trust asset, an important issue to reach by improving social interactions inside and outside the multinational network knowledge (Mursitama, 2006; Bhander, pen, Tan, 2007; Canas, Palomino, 2010). However, it is evident that the development of trusting relationships is also encouraged by the cognitive dimension of social capital which in our model (Figure 2) has a direct influence on structural dimension and an indirect one on the relational dimension. The presence of collective goals and values allows actors to be inclined to trust one another, since the respect of global values by single actor reinforces the value congruence which is interrelated to trust asset. Moreover, any subsidiary of Globus sharing collective goals and values is likely to be perceived as trustworthy by both other subsidiaries and external network.

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DISCUSSION AND CONCLUSION In this chapter we examine to what extent cultural differences at a level both of intra-organizational multinational network and inter-organizational multinational network are associated with liability of foreignness. Provided cultural differences are embedded inside dispersed internal and external networks of a multinational firm, this study builds upon a social network approach focusing on social capital concept (Lin, Dumin, 1986; Nahapiet, Ghoshal, 1998). We propose a conceptual framework where the different dimensions of social capital asset – social interaction, trust and shared vision (Yli-Renko et al., 2001) –improve the exchange and combination of resources and knowledge inside subsidiaries localized in dissimilar cultural contexts, by mitigating the inter and intra organizational cultural differences. This in turn reduces the liability of foreignness. We empirically apply this conceptual framework to the Globus Family of Brands (GFB), which is one of the world’s largest tour operator. We focus on different moments of foreign growth of Globus, performing an exploratory longitudinal case study, together with the idea that the social capital development consists in a dynamic and evolutionary path over time. It is also in accord to our evolutionary approach to foreignness liability problem which may allow a firm to better understand local cultures and opportunities in a gradual manner, incrementally absorbing cultural diversity into its existing corporate-wide culture (Morris, Snell, 2014; Madhok, 2005; Zaheer, zaheer, 2005; Johanson,.Vahlne, 2009; MacDuffie, 2010). The findings we present have important implications for research in multinational literature because we originally study the problem of liability of foreignness and inter-cultural differences according to a social network perspective of analysis. Our main research objective is to investigate the research’s problem with a case study and, based on the findings, to develop a potential interpretative framework and pertinent assertions to test

in other entrepreneurial contexts, using a mix of quantitative and qualitative evidence. Along this line, we highlight the importance for a MNE to develop social capital with both internal and external partners to reach important goals in terms of a better global performance (Ellis, 2010; Zahra, 2010; Kianto, Waajakoski, 2010; Vallejois et al., 2008). The empirical qualitatively analysed case allows us to make more efficient our conceptual framework, confirming the importance of social capital development inside a multinational to reinforce its internal cohesion and to impose a significant presence on external local context where the single subsidiaries are localized. Specifically, the empirical analysis puts in evidence a clear temporal sequence among different dimensions of social capital and their impact on reduction of liability of foreignness by improving inter and intra organizational exchange of knowledge and resources. In fact, the case shows how the headquarters from the beginning has considered the cognitive dimension – in terms of shared vision – the primary element to defense for reducing the negative effect of foreignness of liability. The rigorous selection by Globus of the only country of Anglo-Saxon origin tends to confirm this assumption, confirming the importance of sharing common interests and vision firstly at an intra-organizational point of view and consequently at an inter-organizational level. The cognitive dimension in turn reinforces the importance of informal social interactions – structural dimension - which allow inter- and intra-organizational actors to realize and adopt their languages, codes, values and practices in different contexts of analysis. At the same time, these socialized actors may diffuse new values and interests based on their common interests and mutual understandings, improving the diffusion of innovation inside and outside the multinational. The sharing of a collective orientation represents the vision of a unit such as a multinational where social interaction assumes a significant reinforcing role, despite the necessity to adopt the different so-

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cial actions according to specific different contexts where it is present. It also means the diffusion of a collective orientation is useful for the reaching of global goals and plans, which is strongly supported and influenced by social informal ties of interaction (Mursitama, 2006; Bhander, pen, Tan, 2007; Canas, Palomino, 2010). As second temporal step, we empirically verify from the case that social interactions have a direct reinforcing effect on the relational dimension, confirming that the more social interaction are of long duration, the more trusting relationships will become stronger and the involved actors are more likely to perceive each other as trustworthy. While in the mechanism influencing the tie between structural and cognitive dimension of social capital in Globus, we remark a strong informal development, in relation to this second step it is evident a major formal interest by headquarter level in reinforcing the evolution of shared trusting. In fact, especially during recent years headquarter has realized a lot of formal social interactions mechanisms allowing frequent and close social inter and intra organizational interactions which have permitted actors to know one another, to share important information and to create a common point of view (Pirolo & Presutti, 2010; Presutti, Boari, & Fratocchi, 2007). This means the headquarters considers cooperative behavior, which is strongly reinforced by the trust asset, an important issue to reach by improving social interactions inside and outside the multinational network. However, it is evident that the trusting relationships development is also encouraged by the cognitive dimension of social capital which in our model has a direct influence on structural dimension and an indirect on relational one. The interaction between these dimensions improves resources and knowledge exchanges, and also reduces inter- and intra-cultural differences, and simultaneously may mitigate the problem of liability of foreignness.

The main limitation of this study is that it is performed on a single case study. Consequently, the first logical extension of our research would be to consider other multinational firms, to test for the stability of both the results and the interpretative framework by repeating the same analysis using other empirical contexts of analysis. Thus, we expect other studies could compare our research with the findings gained on a longitudinal analysis focused on different types of MNE, in terms of origin, strategic and organizational approaches, managerial culture, and so forth. We suppose all of these potential extensions of our work can be performed using a quantitative methodology of study where the analysis of social capital can be related to the global performance of a MNE in terms of a strong reduction of its liability of foreignness.

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Cultural Models and Variations Yongjiang Shi Institute for Manufacturing, University of Cambridge, UK

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Zheng Liu University of Cambridge, UK

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This chapter provides the models and variation of culture. Specifically, the following concepts will be introduced: an understanding of the original of culture and how culture is studies in the academic field; the most influential culture theories which are adapted in business and management research. A detailed exploration on the methodology, dimensions, and implications of each model will be provided. An understanding of culture’s impact on manufacturing systems which stems from traditional factorybased model to inter-firm network with the increase of collaboration in globalization is given Some understanding of culture’s variation in the fast growing inter-firm collaboration with case observations are also elucidated.

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CULTURE AND ITS NATURE

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Today business practices have experienced an increasing amount of collaboration as companies seek strategies to grow, restructure, and become globalized (Shi, 2005). Instead of traditional inhouse production, many companies choose to collaborate as networks, particularly as international networks. The networks often include firms in different countries, and thus the interaction with companies from different national culture back-

grounds becomes important. Culture influences the way companies operate. Cultural differences and conflicts become more obvious as increasingly more international outsourcing, Mergers and Acquisitions (M&As), and collaboration are developed. Culture can be defined as a system of values and norms “shared among a group of people, and when taken together constitutes a design for living” (Hill, 2000). It can be used to explain human and organizational behavior (Hofstede, 1980).

DOI: 10.4018/978-1-4666-0306-6.ch017

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To illustrate and visualize the constructing elements of culture, several models have been developed. One of them is the “iceberg” model (French and Bell, 1979). As shown in Figure 1, it describes culture as an iceberg. The majority of culture, meaning to values and norms, is hidden below sea level. The top, visible area consist of behaviors, ways of life, laws and customs, institutions, techniques, rituals, language. They represent the impact of culture in daily life. The “tree model” is another way to explain culture. As shown in Figure 22. It provides the historical roots of culture—unwritten expectations, values, and norms. These factors can lead to the type of rites, stories, rules, language and behaviors, control system, and symbols. The third model, known as “onion” (Figure 3) (Hofstede, 1994), indicates that culture, like an

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Figure 1. Iceberg model of culture1

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onion, can be peeled layer-by-layer to reveal the content. Symbols – words, pictures, or objects that carry a special meaning – are the most superficial layer. The core part of a culture is formed by the tangible symbols, heroes, story, and rituals. However, the real culture meaning of the practice is intangible. It is revealed only when the practices are interpreted (Hofstede, 1994). In terms of cultural studies, the multi-discipline approach can be seen from perspectives of psychology, anthropology, sociology, politics, management, economy, and religion. The study of culture in psychology begins from individuals to groups and organizations, as individuals grow up within a particular culture and the accumulation of individual actions changes culture over time (Smith, 2002). Anthropology is a field of humanity starting from a group to a nation. According

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Figure 2. Tree model of culture3

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to anthropologists, culture is human nature. Cultural sociology is the study which uses culture analysis to interpret social life. In political science, culture is originally related to political sociology. A practical cultural approach is to identify the establishment of politics, to explain how symbols can produce political meanings, and to find out why some policies work better than others (Wedeen, 2002). There are other disciplines which also explore culture factors. For example, from an economics perspective, national culture influences economic performance through institutions. Culture as a system of values has many levels. Some typical levels are national, regional, gender, and organizational levels. These levels can overlap with each other. For example, an organizational culture can contain different regional cultures, and inside a region there can be several types of organizational cultures. In general national culture and organizational culture are most frequently studied as influential factors in business practice.

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CULTURAL THEORIES AND DIMENSIONS National culture is a frequent research in the context of international management. It is believed national level differences have a large impact on people’s values as a group (Ford & Honeycutt, 1992). Many researchers try to define and measure national culture differences by establishing different sets of dimensions. Some of the most influential national culture theories are Hall’s classic patterns (1959, 1969), Hofstede’s cultural dimensions (1980, 1994), Hampden-Turner and Trompennars’ cultural dilemmas (1993, 1997, 2000), and Schwartz value inventory (1992, 1994).

Hall’s Classic Patterns Hall is one of the earliest researchers on intercultural issues. Based on his own experience in foreign services and communication, he published two

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Figure 3. Onion model of culture (Adapted from Hofstede, 1994)

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books – “The Silent Language” (1959) and “The Hidden Dimension” (1969), in which he identified two dimensions – “high vs. low context”, and “polychronic vs. monochromic time orientation”. The first dimension – high vs. low context – describes the way information is transmitted. High context transactions feature pre-programmed information that is in the receiver and in the setting, with only minimal information in the transmitted message. In low context transactions, most of the information must be in the transmitted message”. In this concept, countries such as the United Kingdom belong to low context culture, where information is clearly transmitted. France, on the other hand, is a high context culture, where hidden language is also used behind a conversation. Many Eastern countries also share features of high context.

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Hall’s second concept, “polychronic vs. monochronic time orientation”, deals with the way people look at time. The monochronic time concept follows the notion of “one thing at a time”, while the polychronic concept focuses on multiple tasks being handled at one time. In the culture of the UK and the USA, monochronicity is emphasized where people do tasks according to schedules, plans, and appointments based on first-come-firstserve principle. In Eastern cultures, schedules can sometimes be much more flexible. People tend to deal with emerging issues together with settled tasks. As one of the early culture studies, Hall’s dimensions are very useful; however, the lack of empirical data and quantitative indications makes the concept difficult to apply.

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Hofstede’s Cultural Dimensions From the 1980s, Hofstede began a survey to develop cultural models by using a large sample of IBM employees from 50 countries. Hofstede initially identified four key dimensions – “power distance (PDI)”, “uncertainty avoidance (UAI)”, “individualism vs. collectivism (IDV)”, “masculinity vs. feminity (MAS)” – to define the differences between culture in different countries (Hofstede, 1994). Later on, the fifth dimension – “long vs. short-term orientation (LTO)” – was created in a study among students in 23 countries (Hofstede, 1994). Power distance is defined as “the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally” (Hofstede, 1994). It describes the hierarchical structure of a society and an organization. Uncertainty avoidance is “the extent to which the members of a culture feel threatened by uncertain or unknown situations” (Hofstede, 1994). High uncertainty avoiding countries prefer structured situations, whereas people from low uncertainty avoidance cultures are tolerant of different opinions. In individualism societies, “the ties between individuals are loose”. Collectivism, on the opposite, describes a society in which “people are integrated into strong, cohesive in-groups” (Hofstede, 1994). Hofstede defines the fourth dimension as “masculinity pertains to societies in which social gender roles are clearly distinct (Men are supposed to be assertive, tough, and focused on material success whereas women are supposed to be more modest, tender, and concerned with the quality of life); femininity pertains to societies in which social gender roles overlap (Both men and women are supposed be modest, tender, and concerned with the quality of life).” (Hofstede, 1994). The fifth dimension was first termed as “Confucian Dynamism”, and later was renamed as “Orientation” (Hofstede, 1994). Values associated with short-term orientation are thrift and

perseverance. Long-term orientation is related with tradition, and fulfilling social obligations. In Hofstede’s revised and expanded edition of his previous work (2010), another dimension “the nature of subjective well-being” was added to his original findings. As a societal dimension, it indicates to what degree people pursue leisure and feel happy. Hofstede’s work was widely implemented in management studies. However, there is also debate that Hofstede’s work is entirely based on an attitude-survey questionnaire, and it is questionable whether this is an appropriate way to find out about a nation’s culture (Tayeb, 2000). The sample is also highly specific – a single industry and even a single company (Tayeb, 2000).

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Trompenaars and Hampden-Tuner’s research is based on a ten-year period with questionnaires to 46.000 managers from 40 countries. They used a 7-dilemma model to explain culture from the perspectives of rules, individual, emotion, involvement, status, the approach to time and attitude toward the external environment. A series of seven cultural dilemmas are identified (Hampden-Turner & Trompenaars, 2000).

Universalism vs. Particularism Universalism searches for the common similarity and standardization in a community, whereas particularism highlights the differences and uniqueness (Hampden-Turner & Trompenaars, 1993). American culture is universalism because of its “stable democracies and global cooperation – they assume that techniques can be applied universally” (Hampden-Turner, 1991). Most Catholics, Buddhist, Confucian, Hindu, and Shinto countries tend to be particularism – concerning more about personal relations (Hampden-Turner & Trompenaars, 1993).

Cultural Models and Variations

Individualism vs. Communitarianism (Collectivism) Individualism is associated with competition, personal growth, and fulfillment, whereas communitarianism is linked with cooperation and social concern. Most pioneer capitalist countries favor individualism, and seek personal goals and responsibilities, whereas other countries highlight team spirit (Hampden-Turner and Trompenaars, 1993).

Affective vs. Neutral Cultures In an affective culture, people do not object to a display of emotions. In a neutral culture, people are taught that it is incorrect to show one’s feelings overtly – they are aware of feelings, but keep them in control (Hampden-Turner & Trompenaars, 1993).

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Cultures vary in the how specific they are. Most Protestant countries are specific. They like action, research, problem analysis, and competition. However, Catholic countries are regarded as diffuse, passionate, and romantic – they stress relationships (Hampden-Turner & Trompenaars, 1993).

Achieving vs. Ascribing Status

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Inner direction is measured by virtues inside people – souls, wills, principles, and core beliefs. Outer direction is featured by external virtues in natural rhythms, environments and relationships (Hampden-Turner & Trompenaars, 1993). For each dilemma, according to Hampden-Turner and Trompenaars (1993), the aim is not to choose between the options, but to manage and achieve integrity.

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1993). The contrast is synchronous time, which is circular or cyclical. USA people regard time as money, and race with the clock, whereas eastern people do many things simultaneously.

In a culture of achieving status, people believe there is fair atmosphere. By making efforts, one can achieve his/her goal. In ascribing culture, people are determined by their birth or origins (Hampden-Turner & Trompenaars, 1993).

Sequential vs. Synchronic Sequential time is described as an “irreversible sequence of seconds, minutes, hours, days, months and years” (Hampden-Turner & Trompenaars,

Schwartz Value Inventory Another theory in national culture studies was established by Schwartz (1992, 1994). Using Schwartz Value Inventory (SVT), Schwartz asked respondents to assess 57 values as to how important they felt these values were as “guiding principles of one’s life”. Analysis was separated into an individual-level and a culture-level. From data collected in 63 countries, with more than 60,000 individuals participating, Schwartz categorized 10 distinct values at individual-level analysis: power, achievement, hedonism, stimulation, selfdirection, universalism, benevolence, tradition, conformity and security. Based on this structure, four value dimensions were finalized as: openness to change, self- enhancement, conservation, self- transcendence. Seven types of national values were also found from the survey as – conservatism, intellectual autonomy, affective autonomy, hierarchy, egalitarian commitment, mastery and harmony, which were further summarised into three dimensions.

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Embeddedness / Autonomy This dimension concerns the relationship between the individual and group. Embeddedness culture emphasize group values and people’s commitment to the group. In autonomy culture, people have their own uniqueness.

Hierarchy / Egalitarianism This dimension concerns about the hierarchical structure of a society. Hierarchy represents a cultural emphasis on obeying to the unequal distribution of power. Egalitarianism emphasizes self-interests and equal opportunity.

Mastery / Harmony

classified nations into three groups: linear-active, multi-active, and reactive, whereas Tayeb (2000) also developed seven main categories and 55 items of cultural characteristics.

The study of organization or corporate culture has similar methodology and vision with national culture. From the foundations, culture aspects of an organization are observed through collective behavior, or the manner in which to strengthen member commitment (Durkheim, 1965). The broad studies of anthropology, sociology, political science all contribute to the literature of organizational culture. The level of analysis includes organizational level – viewing culture in its societal context, and “micro” level – concerning about individual participation and problem solving inside the organization (Fryxell, & Van Cleave, 1989). Two general approaches of studying can be observed in organizational culture studies. The first stream views culture as “implicit in social life”. The second stream views culture as “an explicit social product from social interaction as a consequence of behaviors, which contains observable forms such as customs, methods of problem solving and use of technology” (Baker, 2002). In the second approach, more practical issues are considered, such as the control power of the management groups (Martin et al., 1985), leadership, and culture change. In terms of classifications of organizational culture patterns, Deal and Kennedy (1982) identified four key dimensions of organizational culture as: 1) values - the beliefs that lie at the heart of the corporate culture; 2) heroes - the people who embody values; 3) rites and rituals - routines of interaction that have strong symbolic qualities; 4) the culture network – the informal communication system or hidden hierarchy of power in the organisation. Denison (1990) created four types

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Besides the above four key theories, there are other studies on national culture. Kluckhohn and Strodtbeck (1961), and Triandis (1972) created seven dimensions: hierarchical nature, individualism vs. collectivism, attitudes towards work, time orientation, approach to problem solving, fatalism, view of human nature. Additionally, other large scale of culture survey were taken in House et al., (1994)’s GLOBE project, and Minkov’s World Values Survey (WVS) (2007). Lewis (2000)

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Mastery refers to a culture which prefers competition and self-achievement. Harmony represents an emphasis on maintaining the world as it is, keeping a relationship rather than to change it. The SVI mentioned earlier represents a different way from previously studies in terms of methodology. It is based on a conceptualization of values and is developed with systematic measurement and analysis tools (Drogendijk & Slangen, 2006). However as a relatively new theory, the framework has not yet been tested through empirical applications enough (Drogendijk & Slangen, 2006).

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Organisational Culture (Corporate Culture)

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of organisational culture as: “(1) the consistency hypothesis, (2) the mission hypothesis, (3) the involvement / participation hypothesis, (4) the adaptability hypothesis”. Using the four types of leaders from Greek mythology, Handy (1995) characterized organizational culture types as Zeus, Apollo, Athena, and Dionysus, and classified them into three types (Handy, 1995): 1) role cultures “Apollo”; 2) task cultures “Athena”; 3) existential design cultures “Dionysus”; 4) club culture “Zeus”. Cameron and Quinn (1999) categorized organizational culture into four types – hierarchy, clan, market and adhocracy, Schein (1992) developed dimensions of organizational culture into: 1) external environments; 2) managing internal integration: 3) reality, truth, time, space, human nature, activity, relationships. The issue of culture change is also highlighted in qualitative studies. Trice and Beyer (1993) pointed out the basic types of culture change such as the revolutionary, comprehensive, and gradual efforts. In Schein (1999)’s view, the strategies are: (1) unfreezing the old culture and creating motivation to change; (2) capitalizing on propitious moments; (3) making the change target concrete and clear; maintaining some continuity with the past; (4) creating psychological safety through a compelling positive vision, formal training, informal training of relevant groups and teams, providing coaches and positive role models, employee involvement and opportunities for input and feedback, support groups, and addressing fears and losses head on; (5) selecting, modifying, and creating appropriate cultural forms, behaviors, artifacts, and socialization tactics; (6) cultivating charismatic leaders; (7) having a realistic and solid transition plan; and, (8) exercising risk management by understanding and addressing the risks and the benefits as well as the potential inequitable distribution of these risks and benefits.

MANUFACTURING SYSTEM AND CULTURE The linkage between culture and manufacturing system has drawn attention in both research and business practice. Culture is formed by nature forces such as environment change, and human force including war, immigration, trading, and technology (Hofstede, 1980). It influences the way people behave within a family, community, organization, region, and nation. On a system level, it also forms the way of education, family patterns, political structure, business routines, legislation, and communication within a nation and society (Hofstede, 1980). These systems will eventually influence business practice such as innovation pattern and relationship management. Figure 4 provides a framework to indicate culture’s origins and its impact. Figure 5 is the conceptual framework of manufacturing systems. Traditionally, culture influences operations in a single factory in terms of quality management and human resource management. For example, the Lean concept from Japan is much related with the Japanese culture of collectivism, and high uncertainty avoidance. The designing of shop floor layout can also reflect individual or collective culture. More studies are carried out on the impact of national culture on the using of Manufacturing Resource Planning (MRP) and Total Quality Management (TQM). As factories disperse among various countries, to some extent national culture differences can determine the coordination of new product development and production management in different locations. The issue of cross-border Mergers & Acquisitions (M&A) also includes many culture elements as host country and home country can differ in many ways. There are many studies on the relationship between the preferences of foreign investment mode, local management, innovation patterns with culture differences by using the scores provided in Hofstede’s culture theory.

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Figure 4. A system of culture (Compiled from Hofstede, 1980)

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In the vertical axis of Figure 5, the supply chain requires for understanding and coordination of different firms who have different values and culture background. Among the inter-firm issues are trust, technology transfer, and learning. Culture differences can result in different understanding and evaluation methods of trust. For example, the inter-firm trust in western culture rely more on competence and clear contract, but in China, personal relationship is more important. To combine the inter-firm and intra-firm issues, globalization and the global manufacturing virtual network have much interaction with culture in terms of information management, network structure, coordination and control.

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INTER-FIRM RELATIONSHIP AND CULTURE WITH INDUSTRY OBSERVATIONS The impact of national culture on inter-firm relationship becomes an important issue as companies now operate within a network. There is much collaboration between firms from different national backgrounds. Understanding cultural differences can help to solve problems, and failure to do so may cause misunderstanding, conflicts, and difficulty reaching an agreement. This happens not only in traditional industry sectors, but also in new industry sectors. For example, using the creative industry in the past, the product of animations was done primarily via in-house production.

Cultural Models and Variations

Figure 5. International manufacturing system framework. Adapted from Shi, 2005.

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Since the 1980s, there has been a trend towards outsourcing and international collaboration. In China, due to the lack of original design capability during the 1980s, most animation companies are studios which focus only on production. As a result, many western and Japanese animation designing companies choose to collaborate with Chinese studios to enter the Chinese market, and to cut down production cost. When studying into these Chinese animation companies, it is found that they are experiencing culture differences between the Chinese and western culture. One case company from China collaborates with both Chinese and USA partners; however, the collaboration followed different processes. One chief executive said: “In China, we first find friends; then perhaps we choose the most capable partner within that community. Sometimes we do not establish any contract at all. It is more about personal interaction.” In this way, they join animation industry clusters, keeping close to other partners, and getting to know more friends through the intermediate introduction. They build

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up with many Chinese partners who may not be capable enough to design a full animation production. However through co-learning and sharing resources, they develop a competence together. Meanwhile, through 10 years of international outsourcing collaboration, they also realize that “when we collaborate with western partners, we should always focus on our capability. No matter how well people know us, we must show them evidence that our technology and skills are satisfactory. There is a strict process and a standard contract to identify roles, responsibilities, technology issues, cost, IP.” In order to attract more western clients, this company pays much attention to competence improvement by: • • •

Using the latest 3D drawing software and train employees with skills Developing a IP protection system in terms of hardware and software Exchanging staff overseas to learn crossculture management

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• •

Other training program such risk management Continuously improving knowledge and new production technology

chronicity, low power, individualism, masculinity and specification. It highlights the clarification, transparency of documents (in the case of contracts), a clearly defined technology, and individual responsibility. Therefore, companies in the USA may visit their partners directly to make sure that a real competence exists. It may also have a standard process of sample making, technology definition, and partner selection. The success of this Chinese company gives a good example of handling the culture differences between the East and the West. It focuses on conflicting values and adapts itself to the new context. The company does well because it keeps the culture differences clearly in mind and respects the values from its partners. To achieve effective communication, it sends people to learn American culture in USA, and invite partners to experience Chinese culture. Other companies may still struggle with cross-culture relationship. Sometimes they turn to professional consultancy or local agency for help. A comprehensive understanding of culture theory is foundamental. Furthermore a real practical knowledge of how culture influence business behavior can be enriched through international management experience.

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This case shows the different approaches of the Chinese and USA way of developing inter-firm trusting relationship. Chinese companies prefer relationships first, and then co-develop a competence, whereas companies in the USA highlight the competence and standard contract first, and may develop long-term interaction later. To trace back the national culture root of Chinese and USA companies, several features can be learned through previous culture theories. A comparison can be made as in Table 1. In general, Chinese culture has the feature of long-term orientation, polychronicity, high power distance, collectivism and diffusion. It emphasizes group goal, teamwork, and personal relationships. When developing inter-firm relationships, it tends to develop personal interaction with a long-term orientation. Additionally, tasks may not be allocated clearly. Instead, co-evolution and sharing is more desired. In contrast, the USA has the culture of short-term-orientation, mono-

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Table 1. Culture differences in China and USA Culture dimensions

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Long-term (118) (Hofstede)

Short-term (29) (Hofstede)

Polychronicity (Hall)

Monochronicity (Hall) Sequential (Trompenaars)

High (80) (Hofstede) Particularism (Trompenaars)

Slightly low (40) (Hofstede) Universalism (Trompenaars)

Individualism vs. collectivism

Collectivism (20) (Hofstede)

Individualism (91) (Hofstede) Individualism (Trompenaars) Autonomy (Schwartz)

Masculinity vs. feminity

Medium (66) (Hofstede)

Medium (62) (Hofstede) Mastery (Schwartz)

Uncertainty avoidance

Low (30) (Hofstede)

Slightly Low (46) (Hofstede)

Specification vs. diffusion

Diffusion (Hall)

Specification (Hall)

Monochronic vs. polychronic Power distance

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CONCLUSION AND FUTURE AREAS FOR CULTURAL STUDIES This chapter first introduces the concept of culture from the perspectives of typical models, disciplines, and levels. Then particularly some most influential studies on national culture and organizational culture are provided with details of definition, dimensions, and meaning. From the literature review, it is clear that researchers explore culture mostly from aspects of national culture and organizational culture with dimensions. To finalize the similarities among the dimensions by its meanings, three types of culture can be summarised as time orientation, internal integration, and external adaptation (Table 2). 1. Time orientation: related with people’s attitude towards time. Dimensions include the “long vs. short term orientation”; “monochronic vs. polychronic”, which are combined from Hall, Hampden-turner, and Hofstede’s dimensions. 2. Internal integration: refers to the issues related to the relationship in human organizations, such as the hierarchical structure, the emphasis on competition, and group relationships. Dimensions are the power distance, individualism vs. collectivism, and masculinity vs. feminity. 3. External adaptation: focuses on the interaction between human society and the outside environment. Details are uncertainty avoidance, and the content of communication (specification vs. diffusion) can also be included as external issue.

Table 2. Dimensions of national culture Types of culture Time orientation

Key dimensions Long vs. short term orientation Monochronic vs. polychronic

Internal integration

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Specification vs. diffusion

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USA and Chinese collaboration. The values and processes indicate different priorities of Chinese and American companies. Following the literature, this chapter also provides preliminary thoughts on the impact of culture on manufacturing system, which grows from individual factory based system towards inter-firm and intra-firm international network. Some industry observations on the cross-culture inter-firm relationship issues are also explored. There are some future research areas for culture, which are closely related with the emerging issues of business. One important phenomenon now is the emerging countries MNEs. In the past decade, many of these companies have emerged from China and India. They develop quickly, and extend resources quickly through M&A. However, some of the companies failed to conduct local people management, while others may still struggle with local adaptation. Culture differences between the host and home country contribute a lot to the problem. How to use culture dimensions to help those emerging countries MNEs to integrate resources after M&A, and build up local relationship effectively can be of much practice values in the current business climate. Also, as manufacturing nowadays aims to achieve a more sustainable system, the issue of green management, which involves the interactions with environmental and societal factors become important. Different countries may view differently towards green issues, and thus conduct

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The later section of the chapter discuss how these dimensions can be adopted as national culture variables when assessing the interaction between culture and issues of business management. Particularly an industry observation was given to show the culture factor in inter-firm relationship management in the context of the

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different practices. There is a need to link current culture theories with sustainability dimensions. The topics of “what are the new requirements for culture” in this sustainable system will also be of great value in future research. In terms of culture studies itself, a multidiscipline is needed. These can help to enrich the existing theories with a broader view. More qualitative research is also required to understand the process of cross-culture management in the current international business climate.

French, W. L., & Bell, C. H. (1979). Organization development. New Jersey: Prentice Hall.

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Hampden-Turner, C., & Trompenaar, F. (1993). The seven cultures of capitalism. New York, NY: Currency/Doubleday.

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Fryxell, V. C. (1989). The foundations of the organisational culture literature: an integrative Framework. International Journal of Values Based Management, 2(1).

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Hall, E. T. (1959). The silent language. New York, NY: Double Day.

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Hall, E. T. (1969). The hidden dimension. Man’s use of space in public and private. London, UK: Bodley Head.

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Hampden-Turner, C., & Trompenaar, F. (1997). Riding the waves of culture: understanding cultural diversity in business. London, UK: Nicholas Brearley.

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Cameron, K. S., & Quinn, R.E. (1999). Diagnosing and changing organisational culture: based on the competing values framework. Reading, MA: Addison-Wesley Publishing Company.

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Deal, T. E., & Kennedy, A. (1982). Corporate cultures: The rites and rituals of corporate life. Reading, MA: Addison-Wesley Publishing Co.

Dension, D. R. (1990). Corporate culture and organizational effectiveness. New York, NY: John Wiley & Sons.

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Drogendijk, R., & Slangen, A. (2006). Hofstede, Schwartz, or managerial perceptions? The effects of different cultural distance measures on establishment mode choices by multinational enterprises. International Business Review, 15(4), 361–380. doi:10.1016/j.ibusrev.2006.05.003

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Hampden-Turner, C., & Trompenaar, F. (2000). Building cross-cultural competence. West Sussex, UK: John Wiley & Sons, Ltd. Handy, C. (1995). Gods of management: The changing work of organisations. New York, NY: Oxford University Press. Hill, C. W. L. (2000). International business. Competing in the global marketplace. New York, NY: McGraw-Hill. Hofstede, G., Hofstede, G. J., & Minkov, M. (2010). Culture and organizations: Intercultural cooperation and its importance for survival (3rd ed.). New York, NY: McGraw Hill.

Durkheim, E. (1965). The elementary forms of the religious life (J. W. Swain Trans.). New York, NY: Free Press.

Hofstede, G. H. (1980). Culture’s consequence: International differences in work-related. Beverly Hills, CA: Sage Publications.

Ford, J. B., & Honeycutt, E. D, (1992, November/ December). Japanese national culture as a basis for understanding Japanese business practices. Business Horizons.

Hofstede, G. H. (1994). Cultures and organizations: Software of the mind: Intercultural. London, UK: HarperCollins.

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House, R. J., Hangers, P., Javidan, M., Dorfman, P. W., & Gupata, V. (2004). Culture, leadership, and organisations: The GLOBE study of 62 societies. Thousand Oaks, CA: Sage Publications. Kluckhohn, F., & Strodtbeck, F. L. (1961). Variations in value orientations. Westport, CT: Greenwood Press. Lewis, R. D. (2000). When cultures collide: Managing successfully across cultures. London, UK: Nicholas Brealey. Martin, J. Stikin, S. B., & Boehm, M. (1985). Founders and the elusiveness of a cultural legacy. In P. J. Frost, et al. (Eds.), Organisational culture. Beverly Hills, CA: Sage Publications. Minkov, M. (2007). What makes us different and similar: A new interpretation of the world values survey and other cross-cultural data. Sofia, Bulgaria: Klasika y Stil.

Shi, Y. (2005). Contractual manufacturing service providers in different industries: A key co-founder of the global manufacturing virtual network (GMVN). Conference paper (the 12th International EurOMA Conference).

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Smith, P. B. (2002). Levels of analysis in crosscultural psychology. In W. J. Lonner, D. L. Dinnel, S. A. Hayes, & D. N. Sattler (Eds.), Online readings in psychology and culture. Retrieved from http://www.wwu.edu/~culture

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Tayeb, M. H. (2000). International business: Theories, policies and practices. New York, NY: FT Prentice Hall.

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Triandis, H. C. (1972). The analysis of subjective culture. New York, NY: Wiley. Trice, H., & Beyer, J. (1993). The cultures of work organisations. Englewood Cliffs, NJ: Prentice Hall.

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Schein, E. H. (1992) Organisational culture and leadership. San Francisco, CA: Jossey-bass Publishers.

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Schwartz, S. H. (1992). Universals in the content and structure of values: Theoretical advances and empirical tests in 20 countries. Advances in Experimental Social Psychology. San Diego, CA: Academic Press.

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Schwartz, S. H. (1994). Beyond individualism/ collectivism: New dimensions of values. In Kim, U., Triandis, H. C., Kagitcibasi, C., Choi, S. C., & Yoon, G. (Eds.), Individualism and collectivism: Theory application and methods. Newbury Park, CA: Sage Publications.

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Wedeen, L. (2002, December). Conceptualising culture: Possibilities for political science. The American Political Science Review, 96(4). doi:10.1017/S0003055402000400

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Adapted from online source: www.intercultures.gc.ca Source: http://www.army.mil/ESCC/cm/ model5.htm Adapted from online source, http://www. army.mil/ESCC/cm/model5.htm

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Chapter 18

The Impact of Culture on Workplace Conflict in the Caribbean Susan Scott St. George’s University, Grenada

ABSTRACT

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There are many subtleties within a culture that affect decision-making. Lack of understanding of these nuances enhances the mystique of cross-cultural business. Global managers need to better understand trans-cultural decision-making to maximize the benefits of alliances and business relationships abroad. One of these subtleties, often discussed in relation to business in the Orient, is conflict management. The notion of “face” and the importance of individual honor pervade cultural briefing materials on countries such as Japan. It is a defining difference in human relationship management between East and West. Yet when dealing with employees in nations speaking the same language, as a U.S. manager to a Caribbean manager, one often fails to account for equally significant differences in managing conflict. This chapter discusses the impact of culture-specific attitudes concerning workplace conflict on business performance in the Caribbean, using examples specifically from Grenada.

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Managing workplace conflict is more than just a path to a harmonious work environment. Unmanaged conflict weakens the woven fabric of corporate culture and the ability of senior management DOI: 10.4018/978-1-4666-0306-6.ch018

to achieve its goals. Various departments and their employees are required to work in collaboration toward over-arching corporate objectives, but will fail to do so when inter-personal conflict between employees cripples communication and cooperation. The culturally accepted modes of dealing with conflict cannot be easily over-ridden by

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The Impact of Culture on Workplace Conflict in the Caribbean

executive dictates. Neither can one assume that individuals will put personal grievances aside for the good of the larger organization. Although collectivist cultures will expect exactly that of their members, the suppression of overt hostility to present a face of cooperation does not lead to harmony and efficiency in a Caribbean workplace. Managers need to find mechanisms to expose the dynamics of inter-personal conflict in the firm and to bridge any gaps between the norms of the local culture and the desired corporate culture before performance goals are compromised. The cultures of the Caribbean islands are colored by their colonial history. Autocratic management is common, and to some degree expected. Although overt challenges to authority are rare, disagreement and disobedience may be expressed via passive resistance and subterfuge. While the community spirit is a force to be tapped for great energy, this same community can become an isolating force that shuts out those who are not in favor. It can cause conflict to spread quickly. Leaders can use an open door policy and one on one chats to expose and defuse unresolved or unvoiced conflict. Managers wishing to succeed in the Caribbean would do well to develop clear goals and structured roles for employees within their firms, utilizing executive power to manage expectations, explain strategies, and reward goal achievement. This chapter will briefly discuss the role of conflict management in organizational performance and review the types of conflict management styles normally found in the workplace. This will be applied to the Caribbean context - looking at the history of the islands as it affects conflict response mechanisms in the workplace. Examples are provided to illustrate behavior and suggestions are given to assist managers in mediating conflict situations.

WORKPLACE CONFLICT AS AN ASPECT OF BUSINESS PERFORMANCE MANAGEMENT Today’s organizations are under tremendous pressure to perform, facing challenges from all directions in a world of information overload, global competition, unavoidable inter-dependence, and frenetic pace. Globalization creates many new business partners. Mergers are made which create multi-cultural work families. Manufacturing moves into ever more distant and low cost territories, while jaded, globe-trotting tourists explore ever more remote recreational sites. It soon becomes apparent that, in order to succeed, understanding other cultures is an imperative. Aligning the efforts of individual workers toward common goals and objectives is one of management’s key tasks. In an environment where speed to market can mean the difference between profit and loss, ensuring effective collaboration between work groups becomes a core competency for many firms. The responsibilities of management include providing a workplace in which people are not distracted from key tasks by co-worker hostility, a manager’s refusal to resolve problems, or executive feuds. Workplace conflict usually involves interaction and inter-dependence. Conflict can be defined as a difference in ideologies, approaches, or goals. Conflict begins when one party perceives “that the other has negatively affected, or is about to negatively affect, something that he or she cares about” (Thomas, 1992, p. 653) In addition to those mentioned previously, other negative effects of hostility in the workplace include reduced rationality and a reduction in information sharing – between individuals or between groups. In today’s knowledge-based economy, information sharing is vital to successful performance (Adewole, 2005; Ratten & Suseno, 2006).The information shared may include new sources of data, new contacts, new ideas, or information that allows the firm to

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perceive new market opportunities. Information sharing builds the social capital that bonds members of a group (Granovetter; 2005), whether in inter-organizational alliances or cross-functional team collaboration. The open and unfettered transmission of knowledge between individuals and groups depends on trust and goodwill (Sporleder & Moss, 2002). When interpersonal conflicts limit information transfer, this lack of knowledge reduces the quality of decision-making. Moreover, the emotional aspects of the conflict color the perception of economic, business, and technical factors, resulting in decisions that are less than fully rational (Ulbrich, 2009). Recent surveys indicate that managers typically spend 30 percent of their time dealing with workplace conflict (Ross, Phoenix Business Journal, 2010). If organizations wish to increase their productivity, managers need to teach employees conflict prevention skills, and ensure that they themselves have the ability to handle unforeseen problems before they disrupt goal achievement.

Conflict Styles

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Every individual develops personal patterns for handling conflict. Over the years, each organization develops an internal culture that influences how conflict is handled. Yet underlying firm-specific variables, there are basically five common responses to a conflict situation: integration, domination, compromise, submission or avoidance (Rahim, 1983). Integration refers to a creative, problem-solving approach in which the conflicting practices or desires are discussed, explained, modified, and ultimately synthesized into a mutually acceptable outcome. This reflects a belief that each argument has some truth to it and therefore one must make an attempt to satisfy the concerns of all involved parties. This collaborative approach shows concern for others, is aimed at producing the optimal result, and has the added benefit of maintaining harmony going forward.

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The use of domination to handle conflict reflects an imbalance of power, be it intellectual, economic, or organizational (rank). The decision will be made by the person in power, regardless of others’ opinions. This style is effective in resolving conflict speedily, but may not always lead to the optimal solution. It is the response most often employed when conflicts between equals are laid before the boss for resolution. It is also the response provoked most often by competitive situations in which ‘winning’ is perceived to be the goal, when no one is interested in outsiders’ alternative solutions. The use of compromise is common when conflicts arise between equals. In a compromise, each party concedes something in order to reach a mutually acceptable middle ground. While perceived to be fair by all, it seldom produces the optimal solution, but rather the minimally acceptable one. Compromise may be used to restrain competitive rivalries or to avoid offending either side when further collaboration is required. The obliging or submissive response to conflict shows low concern for self and high regard for others. This response is used by a subordinate when conflict arises with the boss or any of the boss’ superiors. It may also be used when an individual is unsure of the validity of a position or feels unequal to defending it against a larger group. While this is good for harmony and saves time, it may leave essential information out of the decision-making process, producing subpar results (Steiner, 1972). The final manner of handling conflict is avoidance. One simply refuses to battle, by either deferring to others or by refusing to express an opinion or take a side. Conflict avoidance does not signal agreement, only discomfort with discord. The person may retain a negative view without taking action to change the situation. Moreover, the group will not realize its potential or achieve optimal solutions if anything that could give rise to conflict is left unexamined or unresolved (Montoya-Weiss, Massey, & Song, 2001).

The Impact of Culture on Workplace Conflict in the Caribbean

Despite its negative reputation, conflict is a normal part of team building and of strategy formulation (Tuckman, 1965; Cova, 1996). In the pursuit of innovation, conflict has been shown to be a creative force, exposing flawed plans before they can be implemented and spurring information exchange (Song & Parry, 1997). For that reason, it is counter-productive to totally eradicate conflict from the organization. Nonetheless, the presence of extreme amounts of conflict is harmful, destroying productivity and impeding accomplishment of goals (Schwenk & Cosier, 1993). Workplace conflict has also been linked to employee turnover and low worker morale (Lambert & Hogan, 2009). Handling conflict effectively can facilitate cultural inclusion, improve knowledge management, and increase the ability to respond quickly to market changes, all of which are vital for business success in the 21st century.

CARIBBEAN CULTURE AS THE FOUNDATION FOR ITS CONFLICT STYLES

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As new technologies spread the work of the firm past national boundaries, the cross-cultural aspect of performance management increases in importance. A recurring theme in international business literature is the variety of business practices across the globe and the conflict caused by misunderstandings related to culture (Hofstede, 2001; Maddox, 1993). The literature suggests that international managers struggle with miscues and missteps caused by divergent paradigms. Hofstede’s work, which classifies national culture based on standardized dimensions such as individualism and risk-avoidance, gives businessmen and academics alike an initial frame of reference for understanding the adaptations needed to succeed in cross-border relationships. The degree of adaptive response required, depends on the degree of divergence between the two cultures (Giacobbe-Miller, Miller, Zhang, & Victorov, 2003). Hofstede’s work introduced managers to five dimensions of national character that affect business relations between individuals of different cultures. One dimension which affects conflict management is individualism, the degree to which individuals act for themselves rather than considering the interests of the larger group. Concern for the group, called collectivism by Hofstede, acts to suppress conflict, whereas individualism may be the cause of conflict. To the extent that a work group thinks of itself as a collective entity, individuals may choose conflict avoidance behaviors to lower the risk of offending others, thus minimizing disagreements, or they may refrain from voicing unpopular opinions for fear of group censure. The advantage of the collective orientation is apparent harmony, team spirit, and cooperation, in which the needs of the group are given precedence over the needs of the individual. Hofstede gives an example of collectivist thinking, by saying that if one family member gained employment, while the remaining

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There are many causes of conflict in business, ranging from perceived personal affronts to cultural differences. Moreover the attitude toward conflict and how people respond to conflict both vary across cultures. One may find the French manager encouraging vociferous debates among his subordinates, publicly critiquing the varying aspects of their competing strategies for a new product, while the Japanese manager may never utter a word of criticism for any of a dozen strategies, ensuring every employee’s view is heard and asking questions before a summary of their ideas is circulated to his colleagues for further review (Dereksy, 2006). This segment will discuss the varying cultural dimensions present in the Caribbean society, their impact on Caribbean connotations of conflict, and the responses to conflict in light of accepted cultural dimensions.

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Overview of Cultural Dimensions Influencing Work in the Caribbean

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members could not find work, the one worker’s wages would be distributed to the whole family (2001). However, the collectivist orientation, found throughout the Caribbean, can also foster a form of ‘group think’ that exalts conformity at the expense of critical thinking. Managers need to provide an opportunity for individuals to offer their opinions outside the group setting in order to gain the full range of input required for decision making. Otherwise, unwillingness to challenge the prevailing thought patterns may stifle innovation and lower efficiency levels to the common baseline. A collective orientation often leads to an ‘us’ versus ‘them’ mentality when dealing with nongroup members. According to a study by Charles (2008), the Caribbean nations, such as Grenada, St. Lucia and St. Vincent, share a collectivist character, which acts as a backdrop to business in the region. Workers create in-groups based on their level in the hierarchy, their departmental work units or their circles of friendship. Conflict can arise if workers are perceived to be pursuing any goal that does not favor the interests of the core group. There is a consciousness of workers’ rights that pervades the societal and labor practices of the islands, stemming both from this collectivism and perhaps from the dearth of such rights during the colonial days. The relationships between managers and workers may be very friendly, yet a sense of ‘us vs. them’ still underlies the harmony. It is manifest in an acceptance of the power distance between the groups and illustrated by the unquestioning belief in a manager’s right to act without consulting subordinates. The high ranking for power distance, typified by St. Vincent, indicates that workers expect management to wield authority with a paternalistic outlook, protecting the interests of the workers during decision making. When workers feel their interests were disregarded, cooperation is diminished. Cultures high in collectivism often rate high on uncertainty avoidance. The dimension of Hofstede’s called uncertainty avoidance indicates

a discomfort with undefined or ambiguous situations in which the individual has no guidance on how to behave or how to predict outcomes (Hofstede, 2001). Handling uncertainty is related to collectivism since group action tends to require norms and rules. Because each decision affects the group, individuals would expect to be guided by others prior to taking a stand. Businesses respond by developing documented procedures or codes of conduct. Grenadians score just above the midpoint in uncertainty avoidance, expecting rules for business transactions, yet able to deal with uncertainty through group discussions or review of precedents. Nonetheless, it leads to a certain inflexibility in the service industries when clients ask to alter standard practices. Another factor affecting uncertainty avoidance is the history of the society. It would be logical to expect a high ranking on uncertainty avoidance in any country with a history of slavery or oppression, where individuals were not allowed to make decisions for themselves without extreme risk. The plantation culture of the Caribbean would have fostered strong individualism among the ruling class, but not among the working classes, who would find strength only in banding together. According to a study by Charles (2008), job satisfaction in the islands is more a function of uncertainty avoidance practices than of goal achievement. Workers want to know what is expected and to be shown exactly how to please management. If instructions are ambiguous, fear of failure may lead to inter-personal conflict as employees, trying to succeed, debate the proper interpretation. Assertiveness as a cultural dimension was defined by the GLOBE project (House, Hange, Quintanilla, et al., 1997) a study of 60 nations performed as a follow up to Hofstede’s work. The assertiveness dimension refers to the degree of aggression or persistence exhibited by nationals of a given country in pursuing their goals or their interests. As managers, this is a valuable commodity for goal achievement, but it indicates the

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potential for a higher degree of conflict when the manner in which a person chooses to pursue the goal conflicts with another’s view of the correct path to success. The assertiveness dimension varies across the Caribbean islands, reflecting perhaps the varying tenure of their independence from Colonial powers. Moreover the assertiveness dimension interacts with Hofstede’s power distance dimension when conflict arises between workers at different levels in the management hierarchy. While Grenadians in general exhibit greater satisfaction in work environments with low power distance, the residual influence of the colonial history can be felt in their reluctance to contradict a superior outright or to assert their rights individually against one of higher rank (Charles, 2008). The pervasive presence of unions in the workforce, another collectivist influence, offsets this by coalescing the group into a more powerful force capable of standing up to management in areas of worker dissatisfaction. In organizational cultures where conflict has negative connotations, individuals avoid creating conflict situations by expressing opinions in very indirect fashions, using vague or ambiguous phrases to express judgments or by remaining silent rather than dissenting (Deresky, 2006). In the West Indies, the middle class portrays a distinct moral code in which people are expected to be in stable marriages, be career-oriented and choose friends based on their professional aspirations (Eriksen, 1990). When the career is seen to be the basis of one’s status in the community, the individual becomes reluctant to jeopardize it by dissenting or taking a stand in any workplace conflict. For example, if an employee is asked by her manager to endorse a new medical insurance policy with which she disagrees, she may laugh nervously and use questions to expose her misgivings. If pressed, she will defer her opinion as being unimportant, or she may mention that she has heard that ‘some people’, who shall remain nameless, have labeled it discriminatory to single workers, but she will not be drawn further into the

debate. At home however, she may vociferously condemn the new policy and lack of employee input in forming it. Managers need to be aware of these subtle signals of discord in order to understand and predict employee behavior.

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Conflict and the Community in the Caribbean

Corporate social responsibility is of great interest to the Grenadian citizen. During the plantations’ heyday, slave owners were required by law to provide certain levels of food, clothing, and housing for their slaves. During the 19th century, as sugar and coffee plantations declined, and as their incomes declined, slaves were often freed to reduce expenses, yet the plantation owner was still required to pay an annuity to the former slave (Brizan, 1998). This fostered the tradition of looking to those in power for support of the common person. The sense of community in the Caribbean is strong, and this acts as the first level of behavioral control in a Caribbean society (Mills, 2002). Under the early colonial rules, blacks had access to the courts only when brought to trial by a white person. The laws were made to subdue them, not to handle their grievances. It was not until 1833 in Grenada that free blacks were allowed to give evidence in court and elect their own representatives (Brizan, 1998). The grievances held between slaves were settled within their own community in ways designed to stay unnoticed by the plantation managers. To this day, anecdotal evidence abounds of the punishment of crimes within a community by the people themselves, without requesting assistance from the authorities. A man who stole a neighbor’s computer might be seen days later with a broken arm and a black eye, sans the computer, and yet no one reports it to the authorities, who would have confiscated the computer as evidence and tied the matter up in court for months. It has been established by previous research that, within societies where the legal system

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is unreliable or undeveloped, citizens rely on personal connections for enforcement of obligations (Park & Luo, 2001). Given that most of the governments of the Caribbean were relatively recently established, upon their independence from colonial powers, it is natural that citizens continue to look to the community to play a role in the settlement of disputes. Additionally, the governments of the Caribbean are not the most transparent or the most ethical, according to the 2009 survey by Transparency International, an independent monitor of global corruption. Barbados has the highest rankings of the Caribbean nations, appearing just above the United States, as the 17th least corrupt nation. St. Vincent and the Grenadines appeared not far behind them in the 31st position, followed by Puerto Rico at 33rd and Dominica in the 44th slot. On the lower end of the scale appear Trinidad and Tobago, ranking 73rd, Jamaica ranked 87th, and Haiti far lower at 146th, as extremely corrupt (www.transparency. org). Workers may expect the corporate level of transparency to mirror what is experienced in society as a whole. For instance, a Grenadian newspaper reported that upper echelons of the police force were alleged to have ‘lost’ records pertaining to the arrest and indictment of several police officers accused of assault and battery of civilians. (Grenada Today, 2009). The degree to which one expects to receive justice when reporting a grievance will influence the frequency with which such reports are made. Likewise, an individual’s decision to trust established conflict resolution mechanisms is based on whether they had a positive impact on their individual selfinterest in previous conflicts (Pondy, 1969). This holds true for the workplace as well as for the larger society. Structural features related to jurisdiction and coordination have a proven impact on the frequency of conflict. The next section will discuss the role of jurisdictional ambiguity in promoting conflict and the importance of structured coordination mechanisms to eliminating territorial-based conflicts in the Caribbean workplace.

MANAGING WORKPLACE CONFLICT IN A CARIBBEAN BUSINESS Personal Status and Territorial Rights

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The degree of perceptible conflict is influenced by the relative power of the parties, whether legitimate power, referent power or even coercive power (Warren, in Pondy, 1969). The plantation managers in the West Indies during the 18th century were preoccupied with control of the slaves and the elimination of any possible resistance to colonial rule. It was a society where status mattered because the boss had absolute authority. The subordinate was a powerless entity, neither participating in management decisions nor free to disobey directives (Brizan, 1998). Passive resistance, subterfuge and sabotage emerged as the most viable options to express dissatisfaction and differences of opinion with authority. Traces of these practices still surface in business offices when the employees feel powerless to change reality in more positive ways. Nepotism and selfinterest influence decision-making. Conflicts in the workplace in Grenada may be settled based on who has the boss’s ear, rather than who is in the right. Using indirect means to obtain justice may be the preferred recourse. Consider a situation in which a young ambitious worker presents the boss, his uncle, with a dramatic new advertising idea, appropriated from a discussion with an older coworker. Rather than raise a fuss, the older man bides his time. The day the campaign is ready to launch, several embarrassing errors are found in the printed copy that ostensibly had been prepared by the younger worker. No conflict is visible on the surface. This response to anger, using actions rather than words, channeled in an indirect manner, parallels the response to unjust power found in Caribbean folk tales of Bre’r Anancy, a spider, who plays tricks on those in power and usually ends up with what he desires.

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There are many such subtleties at work in the Caribbean office. In a service-based economy such as Grenada’s, people are a very important resource. Yet in the West Indies, there is a general disrespect for the concept of punctuality. It is common for individuals, even in government offices, to arrive late with no apologies and no shame. Often tardiness is explained by ‘circumstances beyond our control’ (Marajh & Ali, 2004). This is a common source of conflict in inter-cultural management. Expatriate managers insisting on punctuality will be confronted with the patient, rueful expressions of workers who do not truly consider time under their control. Surely one cannot control the bus driver who arrived 10 minutes late, or the rain, which caused the washout in the road. Exhortations to plan for delays and arrive early to work are met with nods of agreement, signaling good intentions that may never become action. Simultaneously, employees who are punctual and who repeatedly handle the work of their late-arriving colleagues may resent any forbearance shown to miscreants. Barring severe consequences, such as termination for repeated tardiness, this type of conflict is difficult to resolve on a permanent basis. Firm enforcement of working hours as a condition for continued employment leads to an autocratic management style that is at odds with many corporate cultures. Additionally, the results of losing one’s temper with the tardy subordinate may have unintended consequences. Consider the example of the shuttle bus driver who was loudly chastised for arriving late along his route, making customers wait at the various hotels he served. For the next several days, although he arrived very close to on time for the first few stops, whenever a delay caused his timetable to deviate from the plan, he would skip any stop that did not have visible, waiting customers to get back on schedule. Passengers who had become accustomed to waiting in the lobby until the bus stopped at the curb were suddenly abandoned and were vocal in their disapproval of this new ‘punctuality’. A

more effective approach might be to remind the driver that the company’s performance bonus depends on positive customer feedback regarding ‘on time’ arrival. Conflict becomes a community event due to the collective nature of island society, formed in the days of the plantations. The sense of community is still a comfort as people rely on collective strength to meet the daily challenges. Yet it is sometimes the collective attitude of Caribbean society that causes conflict in the workplace, as every person feels free to pass judgment on the actions and decisions of any other person in the community. The bonding of workers into communities is the subject of the next segment.

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Intra-organizational conflict is a challenge to productivity, and has many causes. Departments within an organization often develop distinctive practices and competencies that evolve into role expectations for their members. When new personnel or ‘outsiders’ challenge these practices, they become sources of conflict (Wilson, 1966). Departments and their members may be criticized for these practices by those who don’t understand them, or their expectations may be thwarted by other departments with whom they are expected to collaborate and over whom they have no control. Organizational tension and conflict increase when the departments also compete for resources, status, or power. For example, the Payables Department has the power to control disbursements and insists on receiving all requests for expedited payment in writing using a specific form. Educating workers on the practices of other departments and the reason for them does not lessen the frequency of conflict. Instead, increased knowledge has been shown to undermine cooperation - perhaps because other individuals feel compelled to point out ‘improved’ ways of performing the function or reaching the goal rather than comply with existing mandates (Pondy, 1969).

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Grenadian workers score relatively high on the collectivism dimension as opposed to individualism (Charles, 2008). Although passionate about the right to speak and act individually, the average worker feels a need to belong and is quick to ask co-workers’ opinions in times of uncertainty. This collectivist outlook is well suited to a small nation that obtained independence only thirty years ago. Within a large firm, groups of employees create smaller communities based on departments, neighborhood affiliations, or other bonds. Within these sub-groups the business and the personal may blend together if socialization outside the office supplements on the job contact. This is common in many cultures. However, in the workplace, the natural tendency to share all joys and grievances with others in the group can lead to an expansion of conflict. A heated disagreement involving two individuals can grow in the telling to disrupt two departments. This is especially true when it is the manager who is in conflict with another manager. Loyalty to the group demands that all followers of the offended manager take equal offense, even though they were not a party to the original dispute. Consider the Payables example. If, rather than fill out the mandated hard copy form, the Purchasing Manager insists on emailing the requests for expedited payment, speeding up the process by eliminating inter-office mail, conflict develops. Perhaps the Payables Manager rebuffs an offer to create a softcopy version of the hardcopy form intended to mollify procedural hardliners. As repeated requests for the proper hard copy forms are ignored, expedited payments slow down, causing high tempers in Purchasing. Staff members in each department align with their managers, believing they have justice on their side and the firm’s best interests at heart. Pressures from superiors for efficiency are interpreted differently by each side and do not result in bringing the groups together. Given the natural vibrancy of the island cultures, expressions of their indignation may be vociferous and emotional. Moreover, there

may be political undertones. Because managers in the lesser developed nations of the Caribbean often hold their positions based on the quality of their connections rather than the quality of their experience, the ‘in-groups’ of office politics may be linked to interest-based ruling powers in the government. This disenfranchises those individuals who were connected to the ‘opposition’, and may lend additional fervor to the slightest disagreement, creating rich soil for the growth of conflict. Of course the ‘grapevine’ in any office is capable of enlightening the uninformed about any perceived grievance within a matter of hours. Given the typical organization’s integration of business processes across departmental boundaries, this type of contagion can wreak havoc on efficiency. Documents needed for a monthly report are suddenly hard to find. Information sought in order to solve a client’s problem is not immediately forthcoming. Channels of communication connecting disparate departments may suddenly collapse under the weight of secondhand grievances. Removing such barriers is not an easy chore for a manager. The dispute can easily spread to all other areas of interaction between the two departments. Managers need to take swift action to curtail the spread of discord before productivity is irreparably harmed. Addressing the root cause of the problem may not be simple. Personality conflicts, jealousy and other subjective causes are impossible to eradicate. Employees finding in their positions their single source of power in a world in which they generally feel powerless may cause the most difficulty in collaborative workplaces. They key to managing a collective work group is to create specific, clearly articulated goals, then allow the work group to set their own approach to accomplish those goals (Yooyanyong & Muenjohn, 2010). Criticism is directed at the group rather than the individual. Reward systems are aligned with group goals to reinforce collaboration by rewarding the group rather than the individual.

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One tactic that appears to work well in Grenadian firms is to hold short status meetings at the beginning of each work day to set priorities, air grievances or misgivings, and to reinforce the collective identity by focusing on group efforts required to be successful. Deadlines are reviewed, bottlenecks addressed, and customer service standards reinforced. Frequent feedback from management has been shown to be a motivational force in self-directed work groups as it provides direction as well as the emotional satisfaction of being ‘heard’ (Hawthorne, 1999). Given the colonial history in which workers had no voice, this is a valuable tool for management. Listening skills allow managers to act as mediators rather than judges and helps build the conflict resolution skills of their staffs.

In handling inter-personal disputes, it is common to bring in a higher level of management to act as mediator in order to refocus on common interests and to prompt a solution, whether it is procedural protocol or process improvement (Corwin, 1969). The role of the ‘mediator’ is to guide the parties to a resolution that satisfies the best interests of the firm. A manager who has legitimate power over both disputants may effectively arbitrate the resolution of the issue based on the power of the supervisor’s role. However, uncovering the root cause of the conflict to prevent reoccurrence is equally important. Unless the supervisor has taken time outside work to build social capital with the employees, they may not be willing to discuss the underlying issues. Using social activities such as company picnics or holiday parties to bond employees and build social capital pays off in the Caribbean, where a ‘good’ boss is often viewed as a paternalistic figure (Erickson, 1990). Social bonding gives a common frame of reference that can be useful for opening more candid conversations in the office. It may improve the supervi-

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sor’s ability to mediate conflict if the supervisor is perceived to have a benevolent attitude toward both disputants. When utilizing the third party method to resolve a conflict, the third party must be perceived as objective to be effective as a mediator. It also requires willingness on the part of the employees to listen to the other side of the issue and consider the issue from a new perspective. Often the parties talk past each other based on their different concerns. The mediator must listen carefully to draw out the key ‘interests’ that underlie the conflict and to restate them clearly before attempting to facilitate a solution. Moreover, the mediator is more effective when inducing the disputants to devise their own solution, rather than dictating what action is to be taken. This can be a challenge for expatriate managers who may find it difficult to check their own bias toward a specific resolution. Using a defined structure for the session may help overcome the tendency to intervene prematurely. Experts suggest using the following 6 step process to air the causes of conflict and create avenues for resolution (Beer & Steif, 1997).

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1. Set ground rules for the discussion, banning interruptions and stressing respect. 2. Allow each party in turn to state their issues and feelings. 3. Clarify and restate the issues of each party. 4. Request suggestions for possible solutions and test for acceptance. 5. Ensure the parties have adequate authority to implement the solution. If not, document the agreed solution and pursue its approval. If not approved, brainstorm for alternate solutions. 6. Advise parties to try this process on their own for future conflicts. Frequently, the root cause of the conflict will highlight structural or jurisdictional hot spots that require managerial attention. For example, Magda and Arkena shared the secretarial services of a

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junior clerk. When deadlines loomed, conflict arose as to whose work was to be completed first. Debate ensued concerning the issue of urgency vs. ‘first come, first served’ work flow in allocating the clerk’s time. Charges of favoritism muddied the issue and departmental harmony and productivity suffered. Multiple occurrences of similar scenarios soon disrupted collaboration. The disputants saw the problem as territorial rather than temporal and were thus unable to devise a win-win solution. A corollary of the situation above is that Magda and Arkena, believing they each deserve their own clerk, will disclaim responsibility for late work based on the inability of one clerk to handle both workloads simultaneously. Lateness thus becomes ‘management’s fault’ due to the lack of resources needed to meet the deadline. Accordingly, union grievances will follow any disciplinary action holding the parties accountable for the tardy work. An entirely different mindset is required to bring these three workers into believing that they have the power and responsibility to deliver a positive outcome.

Creating clear and definite job descriptions may minimize conflict by establishing one source of authority for each particular process. Jurisdictional ambiguity is a leading cause of inter-office conflict; one that is not mitigated by team spirit or social bonding (Walton, Dutton, & Cafferty, 1969). Although workers may prefer the flexibility conferred by self-managed work teams, they will not be successful in the Caribbean culture of topdown management without high organizational maturity levels and a clear comprehension of goals and priorities. The educational system in Grenada, for example, does not encourage team work or develop team skills outside the sports arena. Students entering the university who are expected to collaborate in self-managed teams often note a lack of self-discipline that results in recalcitrant team members. The groups also rely

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Policies and Practices for Success

excessively on the designated team leaders for decision making. Weaker students frequently copy the work of their more confident colleagues rather than ask for explanations. This aligns with the islands’ power distance ratings discussed earlier, indicating a sharp division between leaders and followers with formal, rather autocratic leadership. Supplementing this expectation of clear authority is a discomfort with uncertainty. The Caribbean ratings for risk avoidance in Charles’ study indicate a desire for clearly defined roles and responsibilities (2008). This is reinforced with the British bureaucratic systems left from the colonial era, in which, for example, three or four approval signatures are required for any expenditure of funds. A practice that offers beneficial results in a highly verbal culture such as Grenada is the use of frequent staff meetings to re-emphasize goals, track progress, discuss problems and reinforce guiding principles such as the vision, mission, or code of conduct. Staff training programs which focus on skill-building also add value to both the smooth operation of the business and the building of relationships across departmental boundaries. Although the younger workers in the Caribbean are very comfortable surfing the Internet and using email, the intimacy of face to face meetings is, in general, far more effective for conveying ideas, evaluating morale, setting priorities and building team spirit. The use of company-issued attire, such as shirts bearing the firm’s logo, is standard in many island firms. Company attire adds to the employees’ ability to identify with the organization and to feel part of a ‘team’. Inciting such emotions may assist managers in conflict resolution by reminding the disputants of common goals and the need to work together to achieve them, regardless of personal differences. If the organizational maturity level is high enough, managers would do well to ask disputants to devise their own solutions to the problem as a pre-requisite to presenting their issue(s) to the manager or supervisor. This allows a more endur-

The Impact of Culture on Workplace Conflict in the Caribbean

ing solution to be implemented than if the manager dictates what is to be done. Identifying a neutral third party to act as mediator during discussions can be useful in controlling emotional side effects, such as verbal abuse, and in focusing the discussions. However, it is critical that the third party not be drawn into the dispute or spread the dispute beyond its original scope (Beers & Steif, 1997). It is not unusual for the disputants to ask their friends to provide input on a suggested solution, thus increasing the stakeholders involved if the chosen course of action is unsuccessful. Conflict resolution processes should be detailed in the employee manual, apart from union-specific grievance procedures. For example, a mid-sized, Trinidadian firm operating in Grenada held a one hour workshop for mid-level managers on the topic of workplace conflict. In it managers raised the issue of interpreting and enforcing the employee dress code as a frequent source of disagreement. Discussions ensued on several irritants, including excessively tight skirts, overly baggy trousers and the image created by ‘trendy’ but ill-fitting garments. Managers found common ground on several issues and were resolved to hold similar group discussions with employees. The misperception among employees was that workers who did not have physical customer contact did not need to rigidly obey the dress code, whereas the managers’ view was that these workers would nonetheless reflect badly on the firm as they commuted to and from work. Additionally they offended other employees’ sense of ‘proper attire’. Male managers were also reluctant to discuss non-conforming attire with female subordinates. This had given rise to suppressed anger and frustration. Supplemental training in handling workplace conflict is rare but, if offered, can spur excellent discussion of common irritants and allow management to be pro-active in dealing with them.

SUMMARY Workplace conflict is a function of employee interaction and inter-dependence. The Caribbean cultures, affected by slavery and colonial traditions, lean toward the collective rather than the individualistic, and operate with many bureaucratic processes and autocratic leadership. Conflict is likely to arise from differing interpretations of policy, differing views on how to achieve designated goals or a perception of incompatible goals. Conflict may also stem from jurisdictional ambiguities or unclear role definition. In addition to removing the source of the conflict, the containment of the problem and its speedy resolution are key managerial concerns. In Grenada for example, its verbal traditions and the collective aspect of society is conducive to the spread of conflict throughout the workplace. News on the office grapevine travels faster than the speed of light. The fact that in island societies the social fabric is tightly woven exacerbates the impact of any dispute. Management success requires clearly expressed goals, roles, and responsibilities (Charles, 2008). Colonial traditions linger in creating an expectation of paternalistic leaders, ruling with strength and wisdom. Although Caribbean workers tend to be accepting of autocratic management, open communication concerning key decisions is recommended. Otherwise unexpressed disagreements may bubble beneath the surface and hinder accomplishment of organizational objectives. Based on cultural traditions begun in the times of island slavery, local workers may find subtle ways of sabotaging the manager’s plans if the perception is that the decision process or the reward scheme is unjust. Passive aggressive responses to unpopular decisions are more common than outright confrontation. Informal workshops to discuss goals and key issues provide forums for pro-active discernment of irritants and issues.

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Inter-personal conflicts and dissention may arise from perceptions of favoritism or from differing interpretations of codes of conduct or other guidelines. Clear rules, applied consistently, will build trust and minimize such conflict. The use of social activities, such as company picnics or holiday parties, to build bridges among employees and managers is an effective method of creating communication channels and goodwill that can be used in times of conflict. Traditional channels of communication between rank and file and top management may not encourage open expression of issues due to the power distance factor, which depresses the communication of bad news to superiors for fear of adverse repercussions. In firms with high organizational maturity, team leaders may be effective in tracking goal achievement and can act as mediators when conflict arises. Organizations carry their own unique cultures that moderate the national traits and create the processes for handling conflict. The Caribbean people have been exposed to multiple cultures throughout their histories and through global trade. As globalization continues, there will likely be further homogenization of island behavioral patterns, but the presence of office conflict will no doubt still remain.

Beer, J. E., & Steif, E. (1997). The mediator’s handbook. Gabriola Island, Canada: The New Society Publishers. Brizan, G. (1998). Grenada, island of conflict. London, UK: Macmillan Education, Ltd.

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Charles, R. N. (2008). Motivation and job satisfaction: The implications of context and national culture in Grenada, St. Vincent & the Grenadines and St. Lucia. Dissertation. Nova Southeastern University, 1-497.AAT 3334438

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Corwin, R. G. (1969). Patterns of organizational conflict. Administrative Science Quarterly, 14(4), 507–520. Retrieved from http://www.jstor.org/ stable/2391588. doi:10.2307/2391588

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Cova, B. (1996). The postmodern explained to managers: Implications for marketing. Business Horizons, (Nov-Dec): 15–23. doi:10.1016/S00076813(96)90032-4

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Hofstede, G. (1983). The cultural relativity of organizational practices and theories. Journal of International Business Studies, (Fall): 75–89. Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions and organizations across nations. Thousand Oaks, CA: Sage Publishers. House, R. J., Hange, P. J., Ruiz-Quintanilla, S. A., Dorfman, P. W., et al. (1997). Cultural influences on leadership and organizations: Project globe. Retrieved from http://www.thunderbird.edu/wwwfiles/sites/globe/pdf/process.pdf Lambert, E., & Hogan, N. (2009). The importance of job satisfaction and organizational commitment in shaping turnover intent. Criminal Justice Review, 34(1), 96–118. doi:10.1177/0734016808324230

Park, S. H., & Luo, Y. (2001). Guanxi and organizational dynamics: organizational networking in Chinese firms. Strategic Management Journal, 22(5), 455–478. .doi:10.1002/smj.167

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Ratten, V., & Suseno, Y. (2006). Knowledge development, social capital and alliance learning. International Journal of Educational Management, 20(1), 50–72. doi:10.1108/09513540610639594

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Steiner, I. (1972). Group process and productivity. New York, NY: Academic Press. Thomas, K. W. (1992). Conflict and negotiation processes in organizations . In Dunnette, M. D., & Hough, L. M. (Eds.), Handbook of industrial and organizational psychology (2nd ed., Vol. 3, pp. 651–717). Palo Alto, CA: Consulting Psychologists Press. Transparency International. (2010). Corruption perceptions index. 2010 results. Retrieved from http://transparency.org/policy_research/ surveys_indices/cpi/2010/results Tuckman, B. W. (1965). Developmental sequence in small groups. Psychological Bulletin, 63, 384–399. doi:10.1037/h0022100

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Immigrant Effect in International Expansion

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Maud Oortwijn Warwick Business School, UK

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The key problem for commitment to international business activities is the lack of knowledge about a host country and its (business) culture. A firm’s host country experience and its history of entry patterns in other countries shape entry preferences into a foreign country (Pan, 2000; Chung, 2001; Yiu, 2002; Li, 2008). In the past decade, scholars have become aware of the effect of a specific kind of international experience within the firm: the immigrant effect (Chung, 2001; Tadesse, 2008; White, 2008; Madhavan, 2009). The present chapter reports on the role immigrants fulfil in foreign entry plans and how their involvement relates to the outcome of the foreign entry go/no-go decision. Findings confirm that among the firms that continue in entry, the presence of immigrants in the firm is relatively high. But, and this is unexpected, the same is true for firms that cancel entry plans (Oortwijn, 2010).

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1. INTRODUCTION An obstacle to the development of international operations is a lack of knowledge of business practices in foreign markets and the related uncertainty for business performance (Johanson, 1977). Firms prefer countries and/or cultures with which they are familiar, as firm experience

and social networks in the foreign country support internationalization. Also, the professional experience and personal background of managers plays a role in foreign entry choices (Collinson, 2005; Oortwijn, 2010). In the past decade, scholars have become more aware of the effect of a specific kind of international experience within the firm: the immigrant

DOI: 10.4018/978-1-4666-0306-6.ch019

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Immigrant Effect in International Expansion

effect (Chung, 2001; Tadesse, 2008; White, 2008; Madhavan, 2009). Immigrant effect refers to the positive impact immigrant entrepreneurs, employees, and managers have on the success of international operations, principally when an organization engages in the immigrant’s country or region of origin (Hyde, 2002; Chung, 2004). The insight of multicultural entrepreneurs, employees, and managers supports development and realization of foreign entry strategies. This general insight that organizations learn from individuals and individuals from organizations (March, 1991) traditionally has been ignored in international business research.

1.1 Contribution This chapter adds a new angle to research on the immigrant effect. Two years’ internationalization plans of Dutch firms for China are followed in time even before final decisions on entry are made. This longitudinal study allows for unique insight in how entry plans evolve, or do not evolve. The contribution lies partly in the fact that some of the firms decide not to continue operating in China, while others cancel, alter, or postpone plans. Of the 54 plans under consideration, only 33 continue in a manner similar to what was intended. An important limitation of existing internationalization research is that data is gathered post-entrance. Due to the origin of the statistical data of previous work, the firms analyzed are those which decided on entry into the host country and are still operating. This study provides unique access before the entry decision. Of the 15 plans that involve immigrants from within the firm, five plans are cancelled and 10 continue as planned. Therefore, this study can report on the immigrant effect in relation to the Go/No-Go decision of foreign entry.

2. LITERATURE The perception of international business opportunities becomes more realistic, when based on experiential learning (Barkema, 1998; Delios, 1999; Petersen, 2008). Decisions on foreign entry are based on insight in local conditions and general international business know-how. These can be obtained through international business experience of the firm, by knowledge gathered through others outside the firm or by involving managers with in-depth knowledge of the host and home country (Oortwijn, 2006).

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Countries differ largely in the business environments they provide, a fact which increases the complexity of overseas business activities. Intercountry differences are more difficult for multinationals to access, harmonise or coordinate than the actual international transfer or dissemination of physical assets as such (Dunning, 2009). Not surprisingly, cultural differences and institutional differences are studied extensively as explanatory factors for patterns of internationalization (Pedersen, 1997; Xu, 2002; Henisz, P. J. Buckley, 2005; Chetty, 2006; Chan, 2007; Dow, 2007; Ellis, 2008; Jansson, 2009). Companies prefer activities in foreign countries with which they are familiar. Previous experience in a country supports new activities in the same host country and increases performance (Luo, 1999). Experience in a host country or in neighbouring countries provides managers insight in the new business environment and reduces uncertainty. It enables firms to make better judgements for entry and manage operations abroad with more success (Barkema, 1996).

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2.1 Host Region Experience

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2.2 Social Networks Firms are well able to acquire international knowledge from a social network (Chetty, 1998; Andersen, 2006). Learning about (opportunities in) foreign markets often occurs through local firms (Eriksson, 2003; Oortwijn, 2010). A local network helps reduce host country uncertainties by providing resources, access to a local business network, and knowledge of the business environment. An existing network in a host country facilitates business activities in the decision making phase, in the start-up phase and can help solve any dispute that might occur later on (Jensen, 2003; Chen, 2009). Network ties thus increase foreign firms’ expansion and profitability of activities abroad (Johanson, N. Hood, Vahlne, J.-E., 1988; Welch, 1996; Wilkinson, 2000; Griffith, 2004; Li, 2009). Analysis of business activities between countries shows how business activities are embedded in the history between countries, as the length of diplomatic ties (Tse, 1997) and the historical colonial ties (Dow, 2006) relate to more business activities in present times. A shared history between countries is often a motivation for immigration or travelling to a country.

Gao, 2003; Greaney, 2005). Additionally, firms established by immigrants originating from the host country tend to choose higher commitment Foreign Direct Investment (FDI) modes (Chung, 2001). Moreover, immigrants bring in business skills, knowledge of the foreign country, social networks and financial resources, which provides a foundation for international trade and foreign investments (Lever-Tracey, 1991; Duncan, 1997). The immigrant’s knowledge of their origin country is, among other considerations, manifested in the areas of culture, language, the legal system, market information, and business operations (Gould, 1994; Chung, 2002; Wagner, 2002; Chung, 2004). Their expertise may for instance facilitate the implementation and adaptation of product, promotion and marketing strategy or support positioning in distribution channels (Cavusgil, 1993; Chung, 2010). Knowledge in these areas increases the chance of success. The impact of immigrant presence becomes increasingly important with further business globalization and increased immigration worldwide (Andersen, 2006). So far, little academic work studies the subject in-depth, taking into account the business decisions in which immigrants are involved.

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2.3 Immigrant Effect

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Another approach to learn about foreign markets is through entrepreneurs, employees, and managers with a multicultural background. An immigrant within the firm can compensate a lack of firm experience in the host country and overcome any differences which might occur while working in cultural distant environments. Their experience with the home and host country supports cultural understanding and increases confidence in working across borders. In the past decade, the immigrant effect has been studied from various points of view (White, 2008). On a country level, the presence of immigrants relates positively to bilateral trade volume and investment flows (Gould, 1994;

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3. METHOD This study reports on the process and the outcome of the foreign entry decision process. During 2006 and 2007, a total of 25 Dutch firms were studied while they considered conducting business in or with China. This results in a comparative case study on a total of 54 entry plans for business activities in or with China, 15 of which involved immigrants in the process. Data was gathered by conducting several short telephonic interviews with the main decision maker during the time period, followed by an in-depth semi-structured interview of several hours conducted after choices for entry were made. Before any interviews were

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conducted, documentation on the company background was collected through desk research, (e.g., internet searches, company websites, and annual reports when available). The result was an analysis on the entry strategy process, the outcome of the “Go/No-Go” decision, and the demographics of managers involved in the decisions. The findings revealed four different outcomes of the Go/No-Go decision (e.g., cancel, postpone, continue, alter, and how these relate to the involvement of immigrants from the host country within the firm). There have not been any studies that report on the immigrant effect in relation to the Go/No-Go decision for foreign entry. The set of cases is well-balanced with regard to firm and investment characteristics (Eisenhardt, 1989; Bell, 2004). The selection criteria for the cases are well-known influencing factors for foreign entry choices (e.g., foreign entry motivation, firm size, industry, and level of international business experience of the firm). As a result, findings are grounded in varied empirical evidence (Eisenhardt, 2007).

before entry. During the field research phase several plans are cancelled, postponed or altered. Of the 54 plans under consideration, only 33 continue in a manner similar to what was intended. Seven plans are altered (e.g., continue in a different host country or with a different entry mode). Six plans are postponed, and eight plans are cancelled. Of the 15 plans from firms that involve immigrants, five plans are cancelled and 10 continue as planned. Immigrants are important for international business success. In interviews, decision makers spontaneously mention the role of an immigrant in the firm. The analysis shows how firms that postpone or alter plans have no managers or employees with family ties involved in the entry process (Figure 1). Ten of the 33 cases that do continue are from firms that involve immigrants in international business plans. There is an immigrant effect in these firms which supports a positive entry decision into a new host country. Decision making managers explain in interviews how the presence of multicultural employees is perceived an advantage for conducting business in China.

4. RESULTS

… He is Dutch but already lived in Shanghai for a while. Married a Chinese woman. Speaks Chinese. He did not even have a business background, but an entrepreneurial character and we just believed in him. We are lucky to have him… (General manager, Consumer products manufacturer)

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4.1 Outcome of the Go/ No-Go Decision Following firms in the entry process creates a unique setting for gathering insights on the continuation rate of international business plans, even

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This chapter reveals how Go/No-Go decisions relate to the involvement of immigrants and/or their family in China. The entry plans of firms with family ties are discussed in-depth below, covering the process and outcome of entry decisions. It reveals how these firms either cancel or continue plans, depending on the role of immigrants and their families in the entry strategy. Some firms benefit from family ties, while others do not.

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This particular company decides to increase commitment and continue plans for China. The analysis of the outcomes of the Go/No-Go decision also reveals an opposite effect. A large portion of plans that are cancelled are from firms who actively involve family ties. Actually, plans from firms with family ties in China, more often cancel than firms with only a business network or no social ties to China. From the 15 plans that involve employees, owners or managers with family ties in China, five out of 15 cancel plans.

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Figure 1. Outcome go/no-go decisions for 54 investment plans

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Decision making managers from firms which cancel in the end, initially explain in interviews how the presence of immigrants is perceived an advantage for conducting business in China.

CASE STUDY

I am not at all worried about manufacturing in China. My local partner will take care of that. That’s my brother. My family still lives in China, so it is quit simple to organize manufacturing locally. (Entrepreneur, Consumer products start-up)

The case reveals how limited experience in international business ends with a cancellation of plans, despite market opportunity, industry experience and available assets. The Dutch team relies strongly on Chinese family ties to overcome a lack of international business knowledge.

Firm 1 Cancelling: Start-Up in Consumer Products

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The question remains how within some firms the presence of immigrants leads to a positive entry decision, while in others it results in a NoGo decision. Below, the entrance process of firms that cancel (in §4.2) and firms that continue (in §4.3) are discussed.

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4.2 How Entry Plans are Cancelled Two firms involve Chinese persons from within their firms and then later on cancel in total five plans. The processes of the firms that cancel are compared below to discuss similarities. In addition, one of the two case studies is discussed in-depth in the Case Study.

1. Family Ties The case concerns a small start-up, founded by two Dutch brothers and a Chinese friend who lives in the Netherlands for some years now. They aim to enter the fast moving consumer goods market in China. The company develops their plans together with a Chinese family, which is the family of the Chinese founder in the Netherlands. The idea to conduct business in China actually originates from the perceived opportunity in these friendship and family ties.

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2. International Business Experience The start-up has no international business experience. None of the Dutch founders has relevant international business experience and neither does the family in China. One of the Dutch founders has industry experience and is thus involved in the assessment of commercial opportunities in China. Of course, the Dutch founder from China knows China as a country.

3. Objectives for Internationalization The main objective is to sell Western consumer products in China. As the Chinese family is involved in real estate investments, products can be sold from the high-end retail outlet they possess. This location serves as a retail outlet and as a distribution centre for business-to-business sales. Their plan is to export products from the Netherlands to China, while the Chinese family manages the retail outlet in China.

The personal relationship between a Chinese family and a Dutch family is what initially triggers the idea to conduct business in China:

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Last year, my brother and his Chinese friend talked again about starting a business in China. Then his Chinese family said they are buying retail real estate, for investment purposes more than anything. There was something physical in China that we could actually work with.

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When the Chinese family brings in a retail outlet in China, the Dutch entrepreneurs decide to give it a chance. All three Dutch entrepreneurs are able to bring in an amount similar to the investment brought in by the Chinese family, which makes them equal partners. The Dutch entrepreneurs slowly develop the business idea further. They visit the Dutch

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The friendship ties between the two families exist for six years now. These are strong ties, more important than the business opportunities itself. The powerful thing is: two families work together, a Dutch one and a Chinese one. We talk like we are one big family. But this is also a weakness. It is difficult to make business arrangements in a professional manner. Well, we will find a way to deal with that.

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During the visits to China, the Dutch entrepreneurs spend limited time gathering information at local authorities. They discuss business ideas and client propositions with the Chinese family, while strengthening personal ties. The retail outlet is assessed and appreciated as a perfect location for business. The partners try to discuss how to move forward, but while there are no disagreements, there is also no detailed business plan. They do agree on an equal partnership of four founders, in which everyone brings in a similar investment and shares equally in profit. In terms of governance, they prefer two separate businesses: a Dutch company and a Chinese company.

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4. Process of Decision Making

Chamber of Commerce and do research on market opportunities in China. The Dutch family together with their Chinese friend visit China on several occasions in two years time to exchange ideas with the Chinese family.

We can not be responsible for activities in China. Thus we shouldn’t own local business activities. Else, we should be actively involved in China instead of working with the Chinese family. Our model is based on working with the Chinese family. As a consequence, we see it as two companies. We agree to share investments and profit equally, so that requires a more careful calculation to assure profit is divided equally. We need contractual agreements on how to work together, including the delivery of products, pricing etcetera.

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How it should work in practice, is not clear let alone agreed on paper. And they so far do not discuss the legal structure of the companies, the main business processes, roles and responsibilities, a governance structure, or concrete plans to move forward. How the business model works for everyone involved is not arranged, nor who will do what to start-up business activities. There is no calculated business case with clear benefits for all parties involved. The agreements remain high-level and informal.

5. Outcome and Results When after two years limited progress is made, they decide to cancel plans. Their knowledge of China as a host country is still limited, e.g. they lack insight in the local laws and regulations, in entry mode options, and in import- and export requirements. A year before, one of the Dutch entrepreneurs already explains what is important to make an entry decision: a healthy relationship with a local partner, the laws and regulations, and the availability of a local manager with strong managerial capabilities. The Dutch brothers do not intend to manage a business in China themselves. And the local partner is not experienced in managing a consumer goods business. The realization depends highly on the local partnership with one specific Chinese family. In the end, activities are cancelled, despite the market opportunities, strong personal relationships and the perfect retail outlet location. The two firms which involve Chinese within the firm, cancel five plans in total. The first firm is discussed above. Both firms are shortly presented below. These small startups develop international business plan and would have been so-called “Born Globals”. The plans are based on an existing personal relationship in China. This personal relationship is considered a unique advantage,

and it actually triggers the intention to develop business activities in China. In Table 1 flow matrix presents the events that occur in order of appearance (Miles, 1984). Firms that cancel plans for China are all startups with limited international business experience and limited experience in China. The opportunities they pursue are triggered by a personal relationship. They have family ties in China with whom they want to conduct business. The family ties are perceived as a unique competitive advantage, and actually the main reason to start with business activities. The partnership is based on trust, which is why they focus less on the details of business arrangements. When later on the progress is dissatisfying, plans are cancelled entirely. They do not have the time, experience, or resources to develop opportunity independently of each other.

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4.3 How Entry Plans Continue The firms that continue to involve Chinese persons from within the firm continue with a total of 10 plans for China. The entry processes are discussed for all firms to reveal how plans evolve. The processes show similarities. In addition, one of the case studies is discussed in-depth in the Case Study.

CASE STUDY Firm 1 Continuing: Large Financial Services Firm A large financial services firm invests worldwide, but has no subsidiary in China. The highly experienced firm in international business prefers (1) informal partnerships, (2) participation in investment funds, and (3) investments on project bases. The case reveals how firms can realize

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Table 1. Event flow analysis for small firms cancelling plans Firm 1

Firm 2

Two Dutch brothers have a Dutch-Chinese friend with family ties in China.

The parents and brother of a Dutch Chinese immigrant entrepreneur still live in China (and are Chinese).

Share intentions business

The two Dutch brothers together with the Dutch-Chinese friend decide to start a business in China.

The brother in China is searching for a job opportunity in business, and his Dutch-Chinese sister wants to help.

Develop business context

The local family invests in retail real estate and offers this at no rent if their daughter can become (local) manager.

The Dutch entrepreneur meets an exporter of silk Chinese sjawls and develops a plan to import silk products.

Define opportunity

Decisions are made on the product category. The future position of the Dutch entrepreneurs (trade or retail) remains uncertain.

The Chinese operations are considered “easy”, as the family/brother takes care of everything in China.

Start implementation

After the retail location is bought by the local family, the Dutch entrepreneurs select an import agent in China.

After the brother agrees on a partnership, they together select the manufacturers in China.

Define business plan

Different business plans are developed. How the two firms divide roles and work together is still unclear: they do share intentions & trust eachother.

The Dutch entrepreneur starts developing the product positioning and a Marketing & Sales plan for the Dutch market.

Perceive hurddles

The family in China is not moving forward and this causes delays.

Marketing & Sales is difficult in a business sector they normally do not work in. It requires more effort.

Decide to cancel

The plan is cancelled entirely, as success depends on involvement of the local partner.

The entrepreneur hands over the plans to another Dutch entrepreneur (no family), due to a lack of time.

Become aware of network

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The main decision maker was born in The Netherlands from Chinese parents. He then lived in Hong Kong until the age of five. His family moved back to The Netherlands where he lived until he started working. His first job was in finance in Hong Kong. He now lives and works again in the Netherlands and works almost 10 years for this company. His job position is international business investment manager, with a focus on Chinese investment projects.

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projects worldwide with a minimum of presence by working closely with local partners. The Dutch decision making manager is very experienced in international business and perceives his Chinese background as an additional advantage.

1. Family Ties

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2. International Business Experience It concerns a large Financial services firm which invests worldwide. The firm is very experienced in international business. They are involved in international activities for over 25 years now and invested before in China and other countries in Asia. The decision maker is very experienced in international investments as well. For him this is business as usual. He knows China inside-out: he invested before in China, visited China frequently and has access to an extensive business network over there. … I see what is happening. I know both cultures. And I understand how people on the other side think [in China]…

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3. Objectives for Internationalization International business investments are the core business of this firm. Their international activities are aimed at countries in the process of (economic) development. They do not invest in mature markets, yet also avoid markets that are highly uncertain in terms of political and economical stability. Working with local partners is the main approach to realize projects. Moreover, they believe that a well maintained local partner network might be a better way to gain insights in market opportunities.

4. Process of Decision Making The firm deliberately works with local partners, e.g. banks, funds, and informal network partners. These partners bring project opportunities in China to their attention. The firm makes sure to keep in touch with informal partners and fund managers, so that whenever a suitable project opportunity arises, the local partner contacts them.

fund and (3) investments or loans that are project related. The limited physical presence abroad assures the organization structure remains simple. Of course it does require more travelling. The firm is most experienced in developing business activities with high involvement from a long distance through a network of partners. The firm experience and in-depth country knowledge of managers is what allows them to manage activities long distance. Of the firms who involve immigrants, five firms decide to continue a total of 10 plans (Table 2). The entry strategy process evolves according to varying patterns. What the plans have in common is that the Chinese manager/employee’s background plays a limited role. The firms do not rely on the immigrant effect, yet benefit from it. The in-depth knowledge of both the home and host country of immigrant managers is perceived an additional advantage. These are important differences with the plans which are cancelled. Another important difference is the firm size. The five firms who continue vary in firm size from medium-sized (2) to large firms (2) and a large corporation (1), while none of these firms is a small firm or start-up. Firms who continue plans often are able to involve a Chinese immigrant. However, the plan itself does not heavily depend on the involvement of the immigrant. The immigrant’s background is perceived as an additional advantage from which the firm benefits.

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We trust in them. And projects come our way. But that only happens when we frequently visit our local partners. In the end, you work with people you know well and people you like. We work hard to maintain our network.

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Any concrete project that the firm considers to become involved in, goes through a selection process within the firm. This is a multiple steps selection process, including an on paper evaluation of projects, a due diligence with local visits, negotiations on conditions with parties involved, followed by an in-depth evaluation within the case company to make a Go/No-Go decision.

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5. Outcome and Results The firm works with (1) a network of local informal partners, (2) a participation in a local investment

5. FINDINGS The chapter reports on the immigrant effect in the foreign entry Go/No-Go decision. It shows the isomorphic effect of the involvement of immigrants on the outcome of the Go/No-Go decision. An in-depth analysis of the cases reveals how the role of immigrants varies between firms who cancel and firms who continue activities in China. Immigrant managers do provide cultural awareness,

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Table 2. Involvement for immigrants and effect on entry for continuing plans Immigrant job position

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Firm 3

Firm 4

Firm 5

Responsibilities entry plan(s)

The decision making manager is Chinese, is born in the Netherlands and lived up to the age of 5 in Hong Kong. His parents are Chinese.

He is responsible for investment decisions in several foreign countries, among which China.

The manager considers it an added value in decision making that he knows both cultures well, understanding from both the European and Chinese point of view the business opportunities.

A Dutch new employee of firm, already lives in China before he is hired. He now permanently lives in China, speaks Chinese and is married to a Chinese woman.

He is hired to manage the office (and later on the factories) in China. The employee manages all operations in China on a daily basis and moves to new locations in China with his (Chinese) family according to firm needs.

A Dutch manager in China is considered very important for the firm. The firm is glad he is very flexible with regard to where he lives in China.

A Chinese-Dutch employee in the Netherlands, who lives in the Netherlands for >20 years now. While the firm already is active in China, the employee is never been involved in these other (older) activities.

This employee, though not formally responsible for foreign investments, proposes a new business idea, which is based on her knowledge of activities in China (her family in China are experts in this field).

The immigrant is a driving force behind the idea initially and provides a network of specialists in China. In the realization phase of the business idea the immigrant’s role is limited.

A Chinese man living in the Netherlands is hired to do sales towards China from the office in the Netherlands.

When business takes of in China and offices are opened in China, the presence of a Chinese manager in China becomes very convenient. He moves back to China with his family to run the business locally.

It is perceived as pure luck that the firm hires a Chinese person in The Netherlands. It later on turns out convenient, especially as the immigrant manager does not mind moving back to China.

A Chinese-Dutch employee works in the Netherlands in logistics department.

When new business plans are developed for China, she is identified as a suitable person to get the job done locally in China.

She is no decision maker for entry, but after entry is responsible for managing daily operations.

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Scholars discussed the positive effect of immigrants within firms in establishing international business activities (Gould, 1994; Bates, 1997; Chung, 2001; Chung, 2004; Chung, 2008; Tadesse, 2008; White, 2008). The present work contributes to this discussion the awareness of an isomorphic effect in the role of immigrants in entry success. For firms which continue the entry plan for activities in China, a relatively large proportion involves employees with a multicultural

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which is perceived as a unique “Value-Add”. Yet, sometimes it leads to overconfidence in business capabilities, while in other cases the immigrant effect is indeed related to business success.

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background (e.g., both Chinese and Dutch). An involvement of immigrant entrepreneurs, employees, and managers supports efficiency in the decision-making process as none of these firms decide to consider alternative solutions or postpone plans. This supports the notion that multicultural orientation brings insight, confidence or ‘direct knowing’ to the entry strategy process (Hadley, 2003; Andersen, 2006). An assessment of all entry plans considered, results in another conclusion. On average, entry plans of firms that involve immigrants are frequently cancelled. Across all firms, those who involve immigrant more often cancel in the entrance Go/ No-Go decision phase. This finding opens a new angle to the discussion on the immigrant effect.

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5.2 Entry Decision Making Process What the companies who cancel have in common, is that the family ties in China are what actually triggers the intention to conduct business with China. The perceived opportunity is based on the family ties of the entrepreneurs in China. These are seen is an unique competitive advantage for business. When the business relationship does not later develop according to expectations, these small firms do not search for new opportunities. This is different for those firms who do continue in China. The immigrant is seen as an added value, but it is not the reason to conduct business in or with China. Also, the entry strategy itself does not involve family ties of the immigrant in the host country. The firms solely benefit from the professional expertise of immigrant entrepreneurs, employees and managers and sometimes their business network. This is in line with findings from previous work which suggests business connections are more important in establishing business relations abroad than family or personal relationships (Millington, 2006). These cases suggest family ties more often relate to failure of business plans. In cases that cancel, the role of the immigrant is different. The Dutch-Chinese entrepreneurs want to start a business together with a relative in China. They both have an active role in strategy development and the future day-to-day operations. The business plans depend on the involvement of both the immigrant and their relatives. Yet, the business relationship so far is based on shared intentions and mutual trust. Firms that cancel investment plans are mostly small firms with limited international business experience and limited resources. This influences choices in both the decision making phase and the way they can run operations abroad. Our findings confirm previous studies that suggest young and small firms are often resource-con-

strained and have limited alternatives. They rely on collaboration with foreign partners to make initial entry into foreign markets (Shrader, 2001; Oviatt, 2005). Their local network is important for business success (Rhee, 2008). These firms depend strongly on the local partner in learning about the host country. When they face too many disappointments in this relationship, they are not able to explore alternative options to go forward alone, so the business plan is cancelled. For the firms who do continue, immigrant employees are actively involved and their contributions is valued. But the business opportunity does not depend on their involvement. Moreover, the immigrant entrepreneurs, employees and managers work directly for the parent company and are asked for participation in the business plan in a manner most beneficial for the company. They are valued as a unique competitive advantage.

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5.3 Suggestions for Future Research A more detailed process analysis of the entry strategy process is recommended, including roles and the behaviors / backgrounds of managers to understand how firms arrive at entry choices (Harris, 2000; Sarasvathy, 2001; Chandler, 2009). A limitation of this research is that it is conducted on foreign entry decisions of only 25 Dutch firms evaluating 54 business opportunities for China. Additional research is recommended with larger sample sizes including various home and host countries.

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Human Resource Management for the 21st Century Global Economy Julianne Seely Grantham University, USA

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The purpose of this chapter is to concentrate on Global Human Resource Management (GHRM) by demonstrating how the functional areas of Human Resource Management, such as talent acquisition, leadership capacity, training/development, and compensation/benefits, need to be fused with a higher level of strategic endeavor through cultural intelligence (CQ), system thinking, and the applications of related system archetypes. Understanding the role cultural intelligence plays in the global business community, knowledge of how systems and subsystems operate, and how variables impact the immediate landscape, as well as overall business performance, are the key drivers for competing successfully in the global marketplace.

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Unquestionably one the most critical issues facing globalization of the workforce today is that of talent acquisition – requisite skills, retention, leadership, and continued development of expertise necessary to compete in the complex world DOI: 10.4018/978-1-4666-0306-6.ch020

of unknowns. The skills and abilities we possess today will diminish in importance and application over time more quickly than ever before, and as M. Goldsmith reminds us in the best-selling book, What Got You Here Won’t Get You There, a new set of behaviors are therefore essential. How we question the underlying assumptions that our hiring and leadership decisions are based and how we forecast and then prepare for the next iteration

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of global business demands as well as the evolving expectations of the global marketplace, in a very large part will determine our position in a world economy. To that end, the objectives of this chapter are four-fold: 1. To examine how we currently address the issue of talent acquisition 2. To understand the radical changes that have taken place in the global economy and how these changes impact leadership knowledge, skills and abilities 3. To highlight and articulate the crucial role that cultural intelligence (CQ) demands for the entire workforce 4. To examine the role of systems thinking and application of system archetypes to act as the cohesive force that blends all of these variables in such a way as to position our economy in a place of leadership in the global community

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CAPABILITY 1: TALENT ACQUISITION, DEVELOPMENT, AND PROMOTION

Fifty years ago, the late P. Drucker coined the term “Knowledge Workers” to denote a class of business leaders whose value was based on what they knew. Knowledge Workers are required today more than in the past as business has become more complex due to technological advances and other factors; however, all employees need expertise that will enable them to function successfully in a global workplace. Knowledge and the ability to identify cultural differences and similarities as well the ability to respond appropriately is a necessary commodity that extends from the front line to the board room. A study conducted by McKinsey & Company identified a new concept that has been taking precedence over an older model. Knowledge and talent marketplaces are becoming the seedbeds for global talent – a place where networks of professionals foster a rich exchange of ideas; a place where resources and systems are identified and developed. The call for inspired leadership has never been louder. The global economy requires individuals who possess business savvy, cultural intelligence, and strategic thinking. A recent report issued by Development Directions International (DDI) found that, of the companies surveyed, the top priority of global businesses today is leadership development. Closely following leadership development was recruiting and retaining top talent. To begin this complex HR staffing journey, one needs to understand how to source the right talent, the right skill sets, and the right fit for the organization’s culture – locally, nationally, and globally. However, this is no easy task. We need to ask ourselves what mechanisms

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The role of Human Resource Management (HRM) has somewhat evolved from a “backroom” function to a respectable place in the boardroom – to that of a strategic partner. No longer can organizations compete in a global business economy with the mindset of constraints bound by administrative tasks. The critical business of HRM today is one of partnering with business leaders throughout the enterprise to hire the ‘right talent’, take an active role in advancing the skill sets of its organization, irrespective of organizational position, retain that talent as well as engage leaders who possess the insight and innovation required in this uncertain, global business world of the 21st century. To succeed in this seemingly overwhelming task, it is necessary to answer some very basic questions. How will this be accomplished given the level of complexity and change found in our boundary-less world? Who will have the capabili-

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ties to create a strategic HRM plan that incorporates the needs of a global organization? What tools will he/she use to craft and insure this strategy?

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are in place in those enterprises that are leading the world in a positive direction. Of particular note, even though we know that talent acquisition is a key factor, our rate of success has changed little over the past decade. In 1997, a study by McKinsey resulted in identifying a critical shortage of executives with global expertise, and unfortunate though it is, the 2008 McKinsey Report, The War on Talent, stated the problem was still acute and may have, in fact, escalated in importance. In 2002, Drucker re-emphasized the growing need for Knowledge Workers. With the retirement of the so-called “Baby Boomer” generation, this foreshadowing has become a stark reality. Even though identified to be a top priority of Chief Executive Officers (CEOs), sourcing talent remains to be an issue because of the one lack of a solid success rate. Not only is the talent shortfall evident at the higher ranks, but it also exists throughout all levels of any given organization. Given this scenario, the fundamental questions then become: “What shift in our organizational mindsets need to change for us to move from failing hiring practices to successful talent acquisition? What assumptions regarding cultural dimensions need to be challenged? How will lack of insight regarding cultural differences become a barrier for successful hiring? How do we equip our workforce to function successfully on a global scale?” These are but a few of the questions global business demands and which thought- leaders need to be asking themselves today. As our Knowledge Workers retire, especially in Europe and North America, emerging markets are producing a burgeoning supply of young workers. The opening statement in a paper written for Massachusetts Institute of Technology (MIT), Navigating the World of Work, Kochan, Ferguson, His, and Hammond state, “You will be some of the best-prepared young people in the world. You bring to work a world-class scientific, mathematical and technical education, and you will now complement that with knowledge of the economic and

social context of work and organizations. This is exactly the mix of technical and behavioral skills that employers look for in new recruits… With the advantages of your education come high expectations and considerable responsibilities. In short, as graduates of MIT, you are expected to be a leader in the economies of the future.” (2010). However, not to be dismissed is the fact that in developing economies, a serious talent shortfall has developed despite the global economic maladies since 2007. How we prepare and contend with this huge challenge will play out critically in the global business environment. Additionally, failure to perceive the role of HRM as a strategic partner is a significant drawback. The Saratoga Institute reported that less than two-thirds of all HR Directors report directly to the CEO (2005 – 2006). In fact, some research points to the fact that the impact of HRM is declining and has not traditionally been perceived in a strategic role. Only when HR representation at the senior level is commonplace will the needs of an organization be fully addressed. The initial challenge of sourcing for top talent will not be easily solved. Mantras of “Our people are our most important asset” need to be a core part of business strategy, not a catch-all slogan as is common in many organizations. Concentrating on high potential employees to the exclusion of the remaining workforce is shortsighted at best. These challenges are difficult enough without the addition of cultural differences in value systems and mores; differences in the perception of time and distance; differences in how life is viewed (doing vs. being). A corporate culture of inclusion builds solidarity and loyalty. Success working within a changing cultural landscape requires insight, skill, and behavior that is conducive to smooth working relationships. The creation of opportunities for all levels of employees to work on diverse teams provides exposure to divergent opinions and produces a broadening of experience and cultural intelligence. Engaging employees

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who can transcend siloed positions and cultural mindsets toward a holistic system of roles, responsibilities, and accountabilities is crucial.

Best Practices in Talent Acquisition To source the best candidate for any position, successful companies have identified some of the critical components that indicate practices, processes and procedures that work well. Of particular note is the result of McKinsey’s report of talent as a strategic priority (2006). This study indentified finding the right talent for the needs of the organization to be “the single more important managerial preoccupation for the rest of the decade.” In November, 2007, a subsequent study by McKinsey found that “nearly half of the respondents expect intensifying competition for talent – and the increasing global nature of that competition – to have a major effect on their companies over the next five years. No other global trend was considered nearly as significant.” We are in the fifth year since that study was conducted, but many organizations continue to view talent acquisition as a short term issue, and not part of the overall strategic business plan. What accounts for this lack of strategic vision is a short-term mindset, minimal collaboration and talent sharing among business units, ineffective line management and confusion about the role of HR professionals. (McKinsey, 2008). However, several key points have been identified as being important in competing in the global war for talent:

high performers in the organization, formal education, performance management. 2. Attracting more diversity in the workplace through altering the organizations branding strategy. Targeting populations to include Generations “X” and “Y” (both of which have a unique set of characteristics), women, older workers, and those from culturally diverse backgrounds, as well as opening the corporate door to those recent college graduates who, although do not have experience, do possess current business knowledge of global trends. 3. Elevating and broadening the role of Human Resources to successfully identify the staffing needs on all levels of the organization, not only the “A” players. Additionally, HR professionals themselves need to acquire solid business acumen skills. Exposure to line employees as well as “A” players through job shadowing will serve to enhance the HR Director’s skill set and foster a mindset that presents a strategic stance in promoting and supporting a strong people-centered culture.

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1. Development of productive “B” players (frontline staff, technical specialists, contractors, joint-venture partners) alongside the development and promotion of “A” players. Employee development in a global context can be accomplished in many ways: diverse job assignments, work on a cross-functional and/or cross-cultural team, shadowing of

In the Harvard Business Review article, Winning the Race for Talent in Emerging Markets, it is stated, “All three of us have spent decades studying talent management and leadership development, but this war for talent is like nothing we’ve ever seen before.” (Ready, Hill, & Conger, 2009). Very succinctly, they identify four factors that differentiate successful global businesses from less successful global businesses. These factors are brand identity, opportunity, purpose, and culture. Brand is particularly inviting because it has the power to open the door to personal advancement and promotion. Opportunity encompasses challenging work assignments, ongoing training and development, competitive pay, and an accelerated career track to senior positions. Purpose translates to playing a part in the strategic direction of the company to maximize its impact on the global economy and be viewed in terms of

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“global citizenship”. Culture refers to recognition for individual accomplishments as well as strong team affiliations and a message that each employee feels they are critical to the success of the business. Ready, Hill, and Conger use the word “talent-centric” in describing this attribute of the company’s culture. They conclude their report by saying, “Most companies continue to believe that a big salary and name brands will suffice to meet their needs, but a local company that creates genuine opportunities and exhibits desirable cultural conditions will often win out over a Western multinational that offers higher pay.” (Ready, Hill, & Conger, 2009).

Capability 2: Global Leadership “To distinguish leadership from management, one can argue that leaders create and change cultures, while managers and administrators live within them.” (Schein, 2010). For decades, we have been preoccupied with the importance of leadership as the fundamental contributor to business success. PriceWaterhouseCooper’s Saratoga’s Institute of 2005 – 2006 found that three in 10 leaders do not possess the key qualities necessary for effective leadership today. In the five years since that study was completed, we no longer speak of leadership in effective terms. Leadership today, in order to be effective, must be strategic, creative, intuitive, and possess emotional and cultural intelligence. If, as a leader, one does not demonstrate these elements of leadership, results are only marginally effective. In the 2010 IBM report, Capitalizing on Complexity – Insights from the Global Chief Executive Officer Study, nine qualities were identified as significant for today’s global leader. In order of importance, they include:

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Openness Dedication Sustainability Humility Fairness

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The positioning of creativity at the top of the list not only implies but demands that beliefs of the past can no longer be applied to current global business scenarios. Original and creative solutions must replace traditional thinking. Many CEO’s have described creativity as it relates to leadership as the ability to create “disruptive innovation and continuous re-invention.” (IBM, 2010). As uncomfortable as it seems, examining the current states of affairs through the lenses of complexity and change, will be a key skill for the global leader. The ability to re-focus and reinvent on a continual basis has taken on a pivotal role in corporate success. This elevated role of leadership, imbued with a higher level of thinking, must evolve into the norm for economic sustainability throughout the next decade and beyond. Corporations will need the ability to tolerate disruption in order to adjust and compete with a current business environment. This is no simple matter. New leaders will be asked to respond immediately without time to deliberate and research. This means insight, tolerance for disruption, and the ability to collaborate instantly with essential business colleagues and partners will become a necessary norm. S. Sumi, President and CEO of Tokio Marine Holdings, Inc. states, “The management environment is rapidly becoming more complex. In these uncertain times, the need for effective and swift decision making is more important than ever.” The use of business analytics will aid global leaders with the ability to make quick, informed business decisions. The windows of opportunity and tolerance for a margin of error in the 21st century global economy are both very small. Workable business models need to undergo continual scrutiny in order to keep abreast of complexity and change.

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In the words of I. Tyler, CEO of Balfour Beatty, PLC, “The day of the business tycoon is gone. Managers are appointed; leaders are elected. It’s not a question of people following you – they need to be a part of you”. The command and control style of management that pervaded past decades is no longer productive. Leaders must use skills of persuasion, coaching, recognizing and rewarding the behavior endorsed by the newer global organizational culture. The rise in alternative channels of communication will aid in defining this new evolving culture. Experimentation in social networking and digital media are currently being piloted to assess the effectiveness of communicating in a new way. CEO and President of Virgin America Airlines, D. Cush, states, “We need to build a multigenerational communication strategy to weave our diverse workforce together.” In the same IBM study, three recommendations are offered: 1) Embrace ambiguity – this can be done by reaching across functional silos, rewarding breakthrough thinking, and taking calculated risks. 2) Disrupt legacy business models – pilot radical innovations and question industry practices, continually examine and fine tune your business model, learn from the best practices other companies. 3) Rise above traditional management styles – develop and strengthen your ability to influence, develop the ability to coach and mentor others and employ a wide range of communication vehicles. As reported in the IBM study, there are several self reflective questions to ask in order to help assess your level of leading creatively. These questions do not have simple, straight-forward answers but are questions that will impact your business now and in the future. Each executive leadership team needs to consider:





In what ways can you explore, reward and globally integrate diverse and unconventional points of view? What is your approach to challenge every element of your business model to get the most from currently untapped opportunities? How will you leverage new communication styles, technologies and tools, both to lead a new generation of talent and encourage breakthrough thinking?

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A case study by Axiata Group reports positive results from implementing answers to some of these questions. Axiata, a large Asian telecommunication company, employs 25,000 and has 120,000 service subscribers. The vision for the Axiata group was to “be a regional champion by 2015, by piecing together the best throughout the region in affordable connectivity, innovative technology and developing talent, and uniting them toward a single goal and greater purpose: advancing Asia.” The journey began with the exit from retirement of J. Ibrahim in March, 2006. CEO Ibrahim was named “Malaysia’s CEO of the Year” in 2009. The first item on the agenda for Ibrahim was to create one team from all groups to develop a shared vision for Axiata. From a shared vision come shared purpose, accountability, and success. Key stakeholders were invited to a leadership summit held in Tokyo. A traditional approach to creating this shared vision would have been many discussions on organizational issues. However, Ibrahim took a much different approach by encouraging each participant to create a futuristic view of Axiata via creation of a Press Release. This collaborative approach for building a common vision delivered astonishing results. Axiata reported tripling net profits from 2008 – 2009. This exercise of creating a futuristic press release opened up a dialogue so that its leaders could create and agree on a shared vision. This simple vehicle provided the opportunity to share differing viewpoints and

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resolve conflict through a creative medium: the Press Release. Top leaders are charged with the responsibility of creating and continually re-evaluating the organizations business operating model. What many businesses sorely need is a new organizational model, one that involves streamlining cumbersome structures, discarding inefficient processes and relationships (committees and nonproductive teams) and on the positive side, developing marketplaces that foster talent, knowledge, diverse relationships and the creation of an empowering, collaborative organizational culture. In their essay, The 21st Century Organization, Bryce and Joyce coined the term “dynamic management”. “What we call dynamic management can help: a combination of disciplined processes, decision-making protocols, rolling budgets, and calendar-management procedures makes it possible for companies to manage the portfolio of initiatives as part of an integrated senior-management approach to running the entire enterprise.” One of the higher level positions on the Human Resource Management team is that of a change agent. Essentially, it would be exceptional for a company to report that every employee is a change agent. Although we know this is not true given the organizational structures and business models that pervade the business world today, change agents are a critical part of the 21st Century Global Human Resource Management team. The title is a familiar one, but the role certainly is not. Change agents are leaders who cut across the organization and its business units without regard to traditional hierarchies. Their function is extremely important. Since organizations are continually being asked to ‘reorganize’ or re-invent themselves, the change agent takes on paramount importance. A change agent can be looked upon to perform in several capacities: Subject Matter Experts (SME’s), coaches, or communication consultants. In fact, a change agent team would require the skills of all the aforementioned roles. This team should have direct reporting responsibility to senior staff.

A centralized change agent team can foster the development of new ideas and propose a set of solutions to organizational issues that transgresses the smaller system and subsystems. The skills a change agent must possess are many but most importantly, a change agent must possess excellent interpersonal skills since the most important aspect of the change agent role is to lead through a murky world of complexity and change. This is the individual who is comfortable with ambiguity, conflict and challenge. This is the individual who has the wherewithal to challenge assumptions that maintain outdated mindsets and restrict progress. A combination of academic credentialing and broad based business experience can ensure an excellent fit for this important role. A rather nebulous trait of a change agent is that of charisma. What more important position than that of CEO requires charisma! Warren Bennis states, “The most dangerous leadership myth asserts that people simply either have certain charismatic qualities or not. That’s nonsense; in fact, the opposite is true. Leaders are made rather than born.” The true value of a charismatic leader is that they have the power to engage employees on a personal level. They inspire loyalty and pride in accomplishment. To better understand the quality of charisma it is helpful to examine the performance of business leaders who are respected globally for their contribution to society and to the stellar success of their businesses. One has only to look at Steve Jobs, the founder of Apple Inc., J. Welch, the former chairman and CEO of General Electric, J. Bezos, founder of Amazon.com, M. Whitman, former president and CEO of eBay, to name a few. There is little doubt that the successes of the companies they founded and managed in a large part depended on their ability to engage their workforce, and one of the key skills of a charismatic leader is that of engagement. In order to compete in a global business environment, organizations need high performance at every level of the organization. Talent management

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and succession planning are known to be critical performance drivers in robust organizations. As reported in the Society of Human Resource Management (SHRM) work titled, Developing Leadership Talent: A guide to Succession Planning and Leadership Development, formal succession plans were likely to include: • • • • • •

Identifying employees with potential to fill future leadership vacancies Taking into account the organization’s long term goals and objectives Identifying potential leadership talent gaps Integrating succession planning into the organization’s strategic planning process Emphasizing the role of diversity in the global marketplace Promoting the visibility of women in leadership positions

the measurement of success for developmental opportunities has been found in the impact on the organization’s bottom line. Along with this measurement we need to take into account learning and application of learning back on the job. Research indicates that executive coaching provides about six times the return on investment compared to the cost of coaching. This is a startling finding because traditionally, most leadership initiatives take place in a classroom setting with little to no follow-up or follow-through after the event. The creation and implementation of stretch goals also plays an important part in fashioning cross-cultural leadership opportunities. The Center for Creative Leadership (CCL) has proposed a model that can be used as a guiding force for crafting a leadership development opportunity. The ACS model includes the elements of Assessment, Challenge and Support. Assessment provides a current snapshot of leadership abilities at a given point in time. Challenge often takes the form of a ‘stretch goal’ both in thinking and acting. Challenges provide a ‘sandbox’ environment for experimentation with new ways of accomplishing goals (getting the work done) as well as encouraging risk-taking in an unfamiliar territory. Support, which underlies the success of this model, calls for positive reinforcement for new learnings and ways of thinking. Upon completion of this stretch assignment, return to the former way of thinking and doing things is counterproductive and will not impact the bottom line in a positive manner. As is stated in the CCL study, “…sending a changed person into an unsupportive interpersonal environment is one way that organizations waste their resource investments in development.” The Kirkpatrick scale of measurement can be a useful tool in assessing the success of a ‘stretch’ assignment. Outcomes of a ‘stretch’ assignment can be evaluated on four separate levels: reactions, learning, transfer and results. The most significant measure is results which can be evaluated through gains in productivity, customer satisfaction, employee morale (employee satisfaction) and profit-

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Being able to forecast leadership needs in the next one to four years seems to be a strong indicator separating the more successfully competitive organizations from others. Forecasting beyond four years is extremely difficult. This research prompted a discussion regarding the identification of leadership competencies and although the questions were highly controversial, this report states that “The solutions to adaptive challenges lie not in technical answers but with the people themselves.” What vehicles are used to develop leaders? Experts estimate that 80% of leadership development comes from learning and leadership development initiatives; 10% comes from classroom education and training and the remaining 10% comes from coaching and mentoring. Given these statistics, providing opportunity for leadership in a crosscultural context that is job related is invaluable if these skills and learnings are then applied back to the job as well as the transmission of this knowledge forward to the larger organization. This significantly reduces the impact of time and distance on developing leadership abilities. Traditionally,

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ability. To be sure, some of these indicators will not apply for all ‘stretch’ assignments. The CCL study also states that the more variety in assessing the results, the more powerful the results. Reliance on one indicator is short-sighted. Lastly, these ‘stretch’ assignments should take place in an organizational context. Using the “Best Practices” of other organizations may not fit with the existing global organizational culture. When considering the 21st Century Global Business Environment, given the choice of methods - education, assessment, coaching or experiential learning - that of experiential learning is the favored potent approach for leadership development. In a separate study, Fast Company (2007) took a broad view and divided leadership into two distinct categories: High-Potential Employees and Emerging Leaders (see Figure 1). When line leaders were asked to identify the characteristics for a senior leader the results of this study identified five characteristics of High-Potential Employees and Emerging Leaders. One of the managers interviewed remarked that an effective senior manager needs to have a ‘big picture’ mindset and be able to consider many complex dimensions of an issue simultaneously.

High-Potential Leadership defines Track Record as results achieved; Broad View denotes being able to consider a variety of issues and viewpoints when making decisions; Empathy is defined as the ability to build relationships as one achieves results; Ability to Execute denotes the ability to manage large organizational change initiatives successfully; Active Listening refers to being engaged and present in conversation to build mutual understanding. Emerging Leaders define Shines as the ability to stand out and above (influence); Track Record is defined as ability to achieve results; Passion and Ambition refers to engagement with the job and people; Broad View of the organization is defined as being able to consider a variety of issues and viewpoints when making decisions; Team Player denotes the quality of being able to subordinate personal aspirations and works in a coordinated effort in striving for a common goal. Of particular interest is that these qualities all contain some dimension of relationship building and the ability to influence. When asked to identify Emerging Leaders; questions such as: Has the person performed well in ‘stretch’ assignments? Does the individual perform well in ambiguous

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Figure 1. Characteristics of two types of leadership

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situations? Is the individual able to influence peers to a positive view? Does this person possess a sense of urgency? Does this person have passion for continual learning? Another issue considered for high-potential and emerging leaders is that of opportunity. What types of development opportunities/activities seem to provide the best results and are considered to be most meaningful? Line leaders ranked action learning first, cross functional job rotation second and 360 degree feedback third. The first two are experiential in nature whereas the third is the result of an assessment process. The SHRM (Society of Human Resource Management) study identifies seven key recommendations for leadership development: 1. The goal of leadership development is to promote leadership effectiveness. 2. Leadership development is driven by organizational strategy within that particular organizational context. 3. Leadership development contains a strong performance goal orientation. 4. The meaningfulness of any experience can be made more powerful when adding greater levels of ACS (Assessment, Challenge, and Support). 5. Individual development is strongly influenced by a motivation to learn. 6. Tailor the development opportunity to the organization’s goals and strategies. 7. Explore external as well as internal avenues for leadership development (corporate universities, training seminars, shadowing, coaching, and mentoring).

across Cultures. Additionally, Earley and Mosakowski published an article in the Harvard Business Review (October, 2004) listing cultural intelligence a business core capability. Cultural Intelligence (CQ) can be defined as “an outsider’s seemingly natural ability to interpret someone’s unfamiliar and ambiguous gestures the way that person’s compatriots would”. The key phrase here is “seemingly natural ability”. An assessment developed by Earley and Mosakowski can be used to gather baseline data on Cultural Intelligence. This self-assessment is separated into three categories: Cognitive CQ, Physical CQ, and Emotional/Motivational CQ. Each of these categories contains important questions regarding an individual’s strengths and areas of development. The results of this assessment generate a profile for an individual that provides direction to increase cultural intelligence. There are four CQ capabilities that indicate a person’s strength as well as needs. These are: CQ Drive, CQ Knowledge, CQ Strategy and CQ Action (see Figure 2). A study reported by D. Livermore for Forbes. com indicated that leaders with high CQ understand how to proceed in a culturally ambiguous situation more successfully than those leaders who have a low CQ. CEO’s with a high CQ have learned how to adapt to diverse markets without surrendering their brand identities. Human Resource managers with high CQ understand how to accommodate differing religious and ethnic requests. Business leaders with low CQ do not see the relationship between CQ and the bottom line. Additionally,” those business leaders that have high CQ are more consistently effective and enjoy greater personal satisfaction and less burnout in all kinds of multicultural situations.”

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Capability 3: Cultural Intelligence (CQ) In 2003, the concept of cultural intelligence was introduced to the business world by two researchers, S. Ang and C. Earley in their book, Cultural Intelligence: Individual Interactions

Capability 4: System Thinking/ System Archetypes The author’s purpose for this chapter is to bring current and relevant information on crucial aspects of 21st Century Global Human Resource Manage-

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Figure 2. Four capabilities of cultural intelligence

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ment, all of which are of utmost importance today. However, a powerful tool for dealing with the complexity of a global business environment has been overlooked in many organizations. Systems Thinking can be defined as “a worldview based on the perspective of the systems sciences, which seeks to understand interconnectedness, complexity and wholeness of components of systems in specific relationship to each other.” (wordIQ.com). Another component of systems thinking is monitoring behavior over time. System thinking is in stark contrast with traditional analytical problem solving techniques. An essential component of systems thinking is that of feedback, feedback loops (balancing and reinforcing) over time. This model can be applied to every organizational issue whether it be merger and acquisition, leadership development, staffing, problem solving, and so on. The system thinking model has been in existence for fifty plus years. This model has been used in high performing organizations with great success. When considering

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the complexity of a global environment it makes sense to employ every tool that can be used to clarify complex and ambiguous scenarios. System thinking should be one of the highly chosen tools. This begs the question, When is it appropriate to consider the use of system thinking to understand complex scenarios? Employing systems thinking requires us to think in new ways. In the article, Prying Management Away from the Old by T. Babbitt states that systems thinking as a discipline would provide revolutionary change to the ways we think about how work is done and how we need to manage workers. The functional structure of the past no longer fits the complexity of today’s global business environment. Too often the worker is held accountable for what is out of his control when in actuality it is a faulty organizational structure/ system that is the culprit. Babbitt states that, “A systems thinker understands that organizational design flaws are rooted in management thinking and the assumptions on which the design are based.” What is most likely to change are the

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assumptions, not the fundamental thinking that underscores adherence to a faulty system. Some indications that system thinking can provide great insights into organizational issues can be found in the understanding of system archetypes (see Figure 3). The more commonly applied systems archetypes are: 1) Limits to growth; 2) Shifting the Burden; 3) Eroding Goals; 4) Escalation; 5) Success to the Successful; 6) Tragedy of the commons; 7) Fixes that fail; 8) Growth and underinvestment. Use of these archetypes forces one to identify the root cause of organizational dilemmas, for instance, why is the desired state (the outcome) not occurring? (Limits to Growth). An example of the Shifting the Burden archetype occurs when solutions to issues are attempted to be solved with simple explanations. The true source of the issue is never identified, hence resulting in shifting the burden to a lesser factor, one that has little to no bearing on the problem. The Eroding Goals archetype is a type of shifting the burden archetype where long term strategies are overlooked or abandoned in lieu of an immediate fix. With the

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Figure 3. Common systems archetypes

Escalation archetype an adversarial game between two players declares that there can only be one winner. This often dissolves into destructive behavior. Success to the Successful can be identified when one of the two players becomes more successful than the other which prompts more resources to be funneled to the successful party. This in turn deprives the second party of necessary resources, thereby continuing to reduce the success rate of the ‘underdog’. Fixes that Fail is one of the most common archetypes put into action. This occurs when an organizational problem is solved quickly and has a beneficial effect only to find that the fix did not solve the underlying issue. L. Bryan of McKinsey Consulting states in Dynamic Management: Better Decisions in Uncertain Times, “…progressive strategists have been undertaking noble experiments (such as shorter financial-planning cycles) while dropping the pretense that they can make reasonable assumptions about the future. My sense, though, is that achieving truly dynamic management will prove elusive for most organizations until they can figure out how to get their senior leadership

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(the top 150 managers, for example) working together in a fundamentally different way.” Ways to encourage managers to think in different ways would be to promote the use of systems thinking to make actual decisions. Having the knowledge of and being aware of system archetypes before engaging in a strategic planning session would allow managers to begin the process with a new prospective, one that avoids being trapped in ‘decision by assumption’. A perfect application for systems thinking can be found at Millipore, an international supplier of products and services to the pharmaceutical industry, biotechnology companies, and life sciences research. Millipore employs approximately 6,000 people and reports consolidated sales of $1.6 billion USD. Wrestling with expansion through merger and acquisition, the central challenge for Millipore was to integrate and centralize the handling of products and services through a Shared Service Center (SSC). Prior to 2005, Millipore had a decentralized structure. Having a centralized structure with a single point of contact which would significantly improve service and operations was very attractive to management at Millipore. In 1998, Millipore decided to open a Shared Service Center near Strasbourg. After ten years management at Millipore attests that the SSC (Shared Service Center model) was more successful than they had imagined. The single point of contact concept, it was felt by Millipore management, provided the company with a strong competitive advantage. D. Kauffer of Millipore remarked that the SSC concept enabled them to “react more quickly to turbulent economic conditions.” He also states that the future lies in the globalization of more of our processes. This trend of opening up Shared Service Centers is thought to provide opportunities for career development for talented employees and consequently provides a definite attractor for rich talent. LaFarge is a world leader in construction materials. This company employs 54,000 people and has annual sales of $19 billion. As was illustrated

in Millipore, LaFarge also had a decentralized business model largely due to the fact that its products (cement, etc.) needed to be manufactured and sold locally. Spokesperson, M. Soule, relates that management made the decision to open its first Shared Service Center in 2000 in Toronto, followed by Detroit, and in 2008 four additional centers were opened in France, England, Russia, and China. The decision to move to a SSC was one of shared vision and dynamic leadership which resulted in immediate benefits, largely pertaining to economies of scale. Leadership in the center was equally important in that the goal was to create an organizational performance culture. Soule’ also stated there is a need in the centers for “not only talented experts mastering highly computerized processes, but also for team leaders who know how to motivate and challenge people, in order to avoid a certain level of monotony and repetition of tasks.” Clearly, Shared Service Centers represent a newer way of doing business, a new way of thinking that incorporates the four elements that is the focus of this chapter. Taken as a whole, these individual elements - talent acquisition, leadership, cultural intelligence and systems thinking - provide a powerful framework for achieving sustainability and success in the 21st Century Global Economy. Human Resource Management will experience a significant increase in importance, involvement and challenge in providing avenues for these four crucial elements to become standard fare in this continually evolving, complex, boundaryless world of business.

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Bryan Christiansen has, since 2004, been the President of PryMarke, LLC, a Business Analytics and Management Consultancy based in Michigan, USA. He has also been an Adjunct Business Professor since 2003 at Capella University and Ellis University (formerly Ellis College of New York Institute of Technology). Born in Washington, DC and raised in Asia, Bryan is fluent in Chinese, Japanese, and Spanish, and has traveled to 35 countries during his 25-year business career with Global 500 firms and smaller.Bryan is an avid writer on business and education subjects, and currently lives in Istanbul, Turkey where he is doing research for future books on these topics. Bryan holds a Bachelor’s degree in Marketing from the University of the State of New York, and an MBA degree from Capella University. He is completing his PhD in Applied Management & Decision Sciences at Walden University.

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Diana Bank was born and raised in Mexico City, Dr. Bank has traveled, lived, worked (government and private sector), and studied in Israel and the USA. She has also studied in Austria and France. Diana is fluent in five languages (English, Spanish, French, German, and Hebrew), and holds two Master of Arts degrees: one in International Relations from Webster University in Vienna, Austria (1987), and the other in Diplomacy from Diplomatische Akademie in Wien, Austria (1989). She also holds an MBA degree from Columbia University in New York, USA (1995), and a PhD in International Business & Marketing from Bar Ilan University in Ramat Gan, Israel (2010). Since 2008, Diana has been living in the southern Mexican city of Puebla where she taught management at the Tecnológico de Monterrey; she is currently teaching at the University of the Americas in Puebla (UDLAP). Her teaching and publishing interests include business diplomacy and business in emerging economies, as well as development and educational issues in these countries.

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Andrea Banto has been an Adjunct Business Professor since 2010 at Argosy University in Atlanta, Georgia. She also teaches at Strayer University and Shorter University in Atlanta. Born in Romania, Andrea is fluent in Romanian, Hungarian, and French. Andrea writes articles and participates at conferences on international business related topics and other subjects. Andrea holds a Bachelor’s degree in Economics and an MBA degree from Babes-Bolyai University in Romania. In 2010, she graduated from Argosy University with a PhD degree in Business Administration with an International Business concentration.

About the Contributors

Magdalena Bielenia-Grajewska is an Assistant Professor at the University of Gdansk’s Institute of English, Department of Translation Studies and Intercultural Communication. She is a linguist (Master of Arts in English Studies at the University of Gdansk), an economist (Master of Arts in Economics at the Gdansk University of Technology) and a specialist in Project Management (postgraduate studies in Project Management at the Gdansk University of Technology). Her PhD thesis was of an interdisciplinary character, being devoted to intercultural communication, translation and investment banking. She is a member of the Editorial Board of International Journal of Actor-Network Theory and Technological Innovation (IJANTII) and serves as an ad hoc reviewer in some international journals. She is an author of over 50 articles and book chapters. The titles of some publications include: The role of metaphors in the language of investment banking (Special Issue of Iberica 2009) and The linguistic dimension of expatriatism- hybrid environment, hybrid linguistic identity (European Journal of Cross-Cultural Competence and Management, 2010). Her scientific interests include organizational discourse, intercultural and business communication, corporate and organizational identity, sociolinguistics, technological innovation and diffusion, and symbolism in management studies.

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Anabella Davila is the Research and PhD Program Director and Professor of Organizational Theory at EGADE Business School, Tecnológico de Monterrey, Mexico. She holds a PhD from Pennsylvania State University in the USA. She has co-edited the books European & Latin American Caribbean Strategic Partnerships: Unleashing the Potential (with Ramirez, Zapata & Blasco, India: Macmillan, 2011); Best HRM Practices in Latin America (with Elvira, Routledge, 2008); and Managing Human Resources in Latin America (with Elvira Routledge, 2005), two special issues on the same topic (with Elvira, 2005, 2007) and the book Cultura en Organizaciones Latinas [Culture in Latin American Organizations] (with Martínez, Siglo XXI-ITESM, 1999). She holds the Research Chair in Culture, Human Resources, and Society. Her main research interests include culture and management practices in Latin American organizations, social networks, and structure and power in organizations. Her work examines the cultural and social logic that govern Latin American business organizations. She is a member of the Mexico’s National Researchers System, Tier II.

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Marta Elvira is Professor of Management and PhD Programme Associate Director at IESE Business School, Spain. She holds a PhD in Organizational Behavior and Industrial Relations at the University of California – Berkeley’s Haas School of Business. She has co-edited two books: Managing Human Resources in Latin America: An Agenda for International Leaders (with Davila, Routledge, 2005) and Best Practices in HRM in Latin America (with Davila, Routledge, 2008), as well as two special issues on research in Latin America. Besides human resource practices and incentives in organizations, her research interest is on social inequality and human capital development. Her work examines the political and economic processes involved in designing organizational reward structures, and the joint effects of incentive pay and promotion systems on employee earnings and performance. Her articles have appeared in leading journals including Academy of Management Journal, Organization Science, Work and Occupations, Industrial Relations, and Group and Organization Management. She had been editorial board member of the Academy of Management Journal and is currently appointed to the boards of the Business Journal Hispanic Research as well as the Academy of Management Review.

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About the Contributors

Fabrício Foganhole has been working for Banco do Brasil since 1998 and since 2005 he holds the position of an analyst at the People Management Area. From 2004 to 2006, he conducted a corporate research on Banco do Brasil´s organizational culture. The research relates the organizational culture to the dimensions of cultural values, features and characteristics of the Brazilian culture and its influence on administrative practices adopted by the company. Mr. Foganhole dos Santos holds a BA and a MA in Business Administration from the School of Economy, Business and Accounting of the Universidade de São Paulo-USP. He is a professor for undergraduate and graduate programs and has published national and international articles on topics such as Brazilian culture, organizational culture, international human resources management, competency management and education.

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Suzanne Gagnon is Professor of Practice in Organizational Behaviour in the Desautels Faculty of Management, McGill University. She conducts research in identity and subjectivity in international organizations with a particular interest in how firms build identification among globally diverse workforces. Related research involves international leadership development, and the study of intercultural competence through experts’ practice. Professor Gagnon teaches courses in Cross-Cultural Management to both Bachelor of Commerce and MBA students, as well as Advanced Organizational Behaviour. She has conducted executive seminars in a range of areas and is an active member of the American Academy of Management and the European Group for Organizational Studies. She has taught, consulted and lived in a number of countries. She holds a PhD from Lancaster University and a Masters degree from Oxford University in the United Kingdom.

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Parissa Haghirian is Associate Professor of International Management in the Faculty of Liberal Arts at Sophia University in Tokyo, Japan. She is also a visiting Professor at Groupe HEC in Paris, Aalto University, and Keio Business School and an Adjunct Professor at Temple University in Tokyo. She holds a Master’s degree in Japanese Anthropology at the University of Vienna in Austria, and a Master’s degree and a PhD in International Management at the Vienna University of Business in Austria. Since joining Sophia University, Dr Haghirian has taught undergraduate, graduate, and MBA classes on Japanese business practices, and has researched and consulted on numerous aspects of this subject with Western and Japanese companies in Tokyo. She has published several books and articles on the topic, and is the editor of J-Management: Fresh Perspective on the Japanese Firm in the 21st Century and Innovation and Change in Japanese Management.

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Pfohl Hans-Christian studied industrial management and engineering from 1962 to 1968 at the Technische Universität Darmstadt in Germany. From 1975 to 1982, he held the Chair of Business Administration with responsibility for “Organization and Planning” at the University of Essen. Since 1982, he has held the Chair in Management & Logistics at the Technische Universität Darmstadt, and since 2000 he has also been a professor at the Chinese-German School for Postgraduate Studies (CDHK) in Shanghai, China. In 1996, he received an honorary PhD degree from the University of Veszprém in Hungary. He is also a Guest Professor and lectures at the University Veszprém (Hungary), Ecole Supérieure de Commerce Montpellier (France), and the University Alcalá (Spain). Hans-Christian contributes very actively through his research activities to the fields of strategic management and logistics. He also cooperates intensively with companies of all sectors in applied research and consulting projects. Furthermore, he is a member of the Advisory Board of the VDI – Society for Materials Handling, Materials Flow and

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Logistics Engineering (VDI-FML), the head of the Scientific Advisory Board of the German Logistics Association (BVL), and the head of the Research & Development Committee of the European Logistics Association (ELA) where he also serves as board member. Andreas M. Hartmann has, since 2006, been an Associate Professor at Tecnológico de Monterrey in Monterrey, Mexico, where he is teaching in the fields of strategic management, cross-cultural management, and international negotiation. His research focuses on multinational companies, knowledge-based firms, and cross-cultural aspects of management. A native German, he is fluent in English, Spanish, and French. Prior to his current position, he worked as a language teacher and as a free-lance translator and conference interpreter in Europe and Mexico. Dr. Hartmann holds a PhD in International Business, and an MBA from the Tecnológico de Monterrey, in addition to a double Master’s degree in Translation and Conference Interpreting from the University of Heidelberg in Germany.

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Kathrin Kiesel earned her Bachelor Degree in Business Administration at the Katholische Universität Eichstätt-Ingostadt in Germany. Her Master’s degree was completed partly in Germany and partly at Sophia University in Tokyo, Japan. She wrote her thesis, Japanese biculturals and their impact on team efficiency in multinational corporations at Sophia University.

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Ayub Mohammad Khan is Professor of International Business Department and the Director of University Honors Program at TEC de Monterrey, Campus Monterrey, Mexico where he teaches business and management courses at the graduate and postgraduate levels. He is Director of the International Business Department at TEC de Monterrey. Ayub is also Tutor Professor of Global MBA for Latin American Managers offered by Thunderbird University in Arizona, USA, and TEC de Monterrey, Mexico. He is a Tutor Professor of the Course Leading Change from the Middle of Stanford Advanced Project Management Certificate (an online Program) offered for students of TEC de Monterrey. Dr. Khan obtained his MBA degree from Peshawar University in Pakistan, an International MBA (IMBA) from Glasgow University in Scotland, and a PhD from Trident University International in California, USA. He has obtained a Certificate in Advanced Management from Aarhus Business School in Denmark, a Certificate in Business from Monterey Institute of International Studies in California, USA, and a Certificate in Spanish from TEC de Monterrey, Mexico. He writes in the fields of business and business education, and has participated in several international conferences.

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Omar J. Khan is Associate Professor of Marketing and International Business at the Earl Graves School of Business at Morgan State University in Baltimore, Maryland. He has published academic research in leading marketing and international business journals including the International Marketing Review and the Journal of Global Marketing, and taught undergraduate and graduate courses previously at University of Maine and Saint Louis University. His main streams of research are: (i) regionalization of firms and countries, mode-of-entry, and emerging markets; and (ii) online consumer behavior and knowledge management. He has also worked on global supply chain projects. Dr. Khan was schooled in England, United States, Saudi Arabia, and Pakistan – and has traveled extensively around the world. He received his PhD in International Business and Marketing from St. Louis University. He also holds an MBA degree, and did his undergraduate work in Economics, Statistics, and English Literature. His industry experience in multinationals is diverse, including banking, hotels & entertainment, and oil &

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About the Contributors

gas – most recently as Business Analyst for El Paso Energy in Houston. Away from academia, he enjoys writing poetry and short stories, and has an incurable addiction to the sport of cricket. He also serves as Faculty Advisor to the Morgan Chapter of the American Marketing Association. Pamela Lirio is an Assistant Professor of Management at EDHEC Business School in Lille, France. She holds a PhD degree from McGill University in Montreal, Canada, an MBA degree in International Management from the Monterey Institute of International Studies in California, USA, and a Bachelor of Arts in Communication from Boston College. Her research investigates emerging configurations of global work among dual-career global managers of Generation X (“Global Gen Xers”) and how these Global Gen Xers address their professional, family, and personal demands while working in today’s 24/7 global economy. She is also examining current Human Resource (HR) practices to recruit, retain, and develop global talent. Recent publications have appeared in Human Resource Management, International Journal of Human Resource Management, Career Development International, the Sloan Work and Family Encyclopedia and various edited books. In her global career, Pamela has also worked in finance, marketing, and consulting in North America and Europe. Fluent in English and French, Pamela has working knowledge of Spanish and some Filipino.

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Irene K. Miura has earned three degrees at the University of Sao Paulo in Brazil: a PhD degree in Business Administration in 2006, a Master’s degree in Social Psychology in 1997, and a Bachelor’s degree in Psychology in 1992. She became a Faculty Member at the same institution in 2006. She is currently an Assessor of International Relations at the São Paulo State Secretariat of Education. Dr. Miura has extensive experience in management with an emphasis on Personnel Administration and Cultural Management. She has developed research on the following topics: cultural values, expatriate executives, distance learning (quality), and the internationalization of Higher Education.

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Maud Oortwijn obtained a Master of Science degree in Industrial Management and an Master in Arts degree in Philosophy before she started her career in management consulting. As a management consultant she worked for Gemini consulting, Capgemini Strategic Consulting, and as an independent consultant. Maud performed consulting projects in the Netherlands, China, France, Belgium, and the United Kingdom (UK) in areas of international expansion, strategy, recovery, portfolio management, market entry and value chain analysis. Maud obtained a Master of Philosophy degree in Management Research from Cambridge University in the UK before she started on her PhD research. She translated her in-depth insight in International Business activities into a PhD thesis at Warwick Business School (UK). Maud presents her work at conferences worldwide.

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Manuela Presutti was born in Pescara, Italy, and earned her Bachelor in Management from the Luiss Guido Carli University in Rome, Italy in 1997. In 2003, she earned a PhD in Management at the University of Bologna in Italy. In 2004, Dr. Presutti joined the Department of Business Studies, University of Uppsala in Sweden as a Visiting Scholar. Between 2005 and 2010, she was an Assistant Professor at the Faculty of Economy of the University of Bologna. Since 2010, she has been an Associate Professor of Management at the Faculty of Economy at the University of Bologna. She teaches Management, and International Business and Marketing at the Faculty of Economy of Rimini in Bologna, Italy.Dr. Presutti’s main research activity originally focused on small firms and internationalisation process. However, her

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most recent research interests have included the analysis of social networks, the ties between social capital and new firm creation, and industrial clusters. Most of her scientific production is about New Business Development, Entrepreneurship, and Social Capital. She has publications in national journals and international journals regarding these topics.

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Keikoh Ryu is an executive in charge of Chinese business promotion at a major Japanese multinational corporation in Tokyo, Japan, and a visiting Research Fellow at the Institute of Public Policy in Waseda University in Japan. Before graduating from Waseda University with a PhD in public management, Dr. Ryu received his Master’s degree in International Finance and Business from Columbia University in New York, USA. His research has primarily focused on cross-cultural research methodology in international business and the management of multinational firms. In 2010, Waseda University Press published Dr. Ryu’s monograph, Creating Public Value: The Challenges of Localization for Japanese Corporations in China, which was also selected as a winner of the 2010 Emerald/EFMD Outstanding Doctoral Research Awards. He has published in Rikkyo Business Review, Corporate Communication Studies, Journal of International Business, and other scholarly journals. Recently, he served as a member of the editorial board for the Annals of the University of Bucharest.

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Sasa Saric completed his PhD at the Technische Universität Darmstadt in Germany while a DAAD visiting scholar at Tongji University in Shanghai, China. Prior to this, he studied Business Management with Computer Science at the Technische Universität Darmstadt specializing in International Business, Strategic Management, and Organization. Dr. Šarić went to Shanghai in the beginning of 2007 as a scientific assistant at the DHL-Chair of Global Supply Chain Management at the Chinese-German Institute for Postgraduate Studies. He has managed numerous consulting and research projects for “blue-chip” multinational companies in the high-tech, chemical, pharmaceutical, and logistics industry. Additionally, Dr. Šarić is a regular lecturer on general and international management at Tongji. Sasa has also been a guest lecturer for the EMBA branch of the University of St. Gallen, the Kuehne Business School of Hamburg, and the executive training of the European Logistics Association (ELA) in Shanghai. His main research combines the study of Strategic Management with Entrepreneurship focusing on the competitive dynamics in China’s industrial clusters. As a member of the Academy of International Business, his work is internationally recognized and regularly presented at conferences across Europe and the USA.

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Susan I. Scott began her academic career in 2009 at St. George’s University in Grenada, teaching business management to undergraduate students. In her classrooms, she cites examples from her 20 years of industry experience as a supply manager for firms such as Genzyme and New Balance, and the 10 years she spent as an executive trainer and consultant. She has worked with clients in the private and public sectors to create and implement sourcing strategies, to improve operational efficiency, and to educate personnel across the globe. Susan holds a Bachelor’s Degree from the University of Massachusetts, Amherst, and an MBA degree from Suffolk University in Boston. She is currently pursuing a Doctorate in Business Administration at Nova Southeastern University. Susan has been a Certified Purchasing Manager (C.P.M.) since 1985, and is also Certified in Integrated Resource Management (C.I.R.M.) by APICS. Ms. Scott has written several articles on global economics and procurement for publication in professional journals and textbooks. She is past president of the Purchasing Management Association of Boston and in 2002 was awarded their Harry Graham Award for outstanding service.

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About the Contributors

She has been active in the Institute of Supply Management and its affiliates as a conference speaker and committee chair. She has also served as an examiner for the Massachusetts Excellence quality award. She is conversant in three languages: English, French, and German. Julianne M. Seely began her career in education and transitioned to corporate America to consult small, start-up business ventures as well as to Fortune 500 companies. She has a blend of education and business skills that make her a very powerful influence for today’s changed business world. Her particular interest is in leadership development and has worked with small to very large corporations to solidify Human Resource practices and expand leadership knowledge, skills and abilities. Julianne hold a Bachelor’s degree in Education, a Master’s degree in Management of Human Resource Development, and an Advanced Certificate in Organization Development with an emphasis on Change Management. In addition, she has had the privilege to work with employees from widely differing cultures which brought an understanding of the role culture plays in Human Resource Management, particularly talent acquisition, leadership development and executive coaching.

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Yongjiang Shi is the University Lecture of Industrial Systems in Engineering Department, and Research Director of the Centre for International Manufacturing in the Institute for Manufacturing at Cambridge University in the United Kingdom. He has been studying management of international manufacturing network and supply chain for over 15 years. His recent research interests have covered global manufacturing strategy, network system design, technology transfer in the contexts of intra-company coordination and inter-company collaboration, and emerging Chinese manufacturing companies including the Shangzhai Phenomenon, indigenous innovation, industrial upgrading, and Chinese outward Foreign Direct Investment (FDI). He is working on several research projects – Global manufacturing virtual network (GMVN) to develop new manufacturing architecture for collaborative manufacturing network between companies; and Post Mergers and Acquisitions (M&As) Integration to help company achieve synergy; emerging nations’ multinational corporations development; and different countries’ culture characteristics and their impacts on global supply network development.

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Ekaterina Turkina has been with HEC Montreal in Canada since 2010. Her main research areas are state business relationship, inter-firm networks, and socio-cultural and politico-economic factors in international business. She teaches various courses in the domain of international affairs such as international management; multinational firms, culture and human resources; global governance and she is actively involved in research group in international affairs (GRAI). Dr. Turkina has also extensive experience working in international organizations including International Marketing Solutions, American Councils, and Council of Europe. She holds a Master of Arts and a PhD degree from the Graduate School of Public and International Affairs at the University of Pittsburgh.

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Nigel L.Williams is a Senior Lecturer in Project Management in the Business Systems Department at the University of Bedfordshire. Nigel completed a PhD in 2010 at the Institute for Manufacturing, University of Cambridge in the United Kingdom where he examined the international evolution of Small Manufacturing firms from Trinidad and Tobago. His current research interests include SME Production Systems, Organizational Project Management and Festival Internationalization. Before joining the

391

About the Contributors

University, Nigel worked for 15 years as an Engineer, Project Manager and Business Consultant for organizations in the Caribbean Region. A member of the Project Management Institute, he holds the Project Management Professional (PMP) certification along with the Prince 2 qualification. Gang Yang is the head of the DHL-Chair of Global Supply Chain Management at the Chinese-German School for Postgraduate Studies, Tongji University in Shanghai, China. He graduated from Berlin University of Technology and majored in Industrial Management and Logistics. After his graduation, Gang pursued his PhD and his research focused on the Supply Chain and Production Management of a German blue-chip chemical and pharmaceutical company. Prior to accepting the call for professorship at Tongji University, he worked as Top Management Consultant for McKinsey and Ernst & Young in Germany. In China, Gang acts as the leading lecturer in academic, vocational, and executive management courses in the fields of Global Supply Chain Management, International Management, and Logistics Management. The list of companies he advises includes well-known Fortune 500 as well as emerging Chinese multinationals. Besides his academic function, Dr. Yang is the acting General Manager (China) of a leading German equipment manufacturer in the global paper industry.

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Lucrezia Zambelli was born in Venice, Italy. She earned her Bachelor in Management from the Faculty of Economy of Rimini in Bologna, Italy in 2010. During the university, she participated to different international project works such a IP Marketing and Management Strategies in small and medium sized hotels of the Second and Third editions. Since 2010, she has collaborated with the Department of Management on numerous research activities. From July, 2009 to December, 2009, she worked in Marketing and Sales for the Globus Family Brands in Toronto, Canada. While working directly with the Managing Director of that global company, she had the opportunity to be an active participant in a wide range of areas within the organization such as marketing, inside sales, competitive analysis and change management. Now she has obtained the Leonardo European Project and she is working in Commercial Area and marketing area of All Travel in Granada. She is engaged in different projects in marketing, including the start-up of a new brand of the company.

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Liu Zheng obtained a Bachelor of Engineering degree in Automation at Tsinghua University, China. She later completed a Master of Philosophy degree in Industrial Systems, Manufacture and Management at the University of Cambridge in the United Kingdom. She joined the Centre for International Manufacturing (CIM) of Institute for Manufacturing, University of Cambridge in 2006, and obtained her PhD degree in 2011. Her doctoral thesis is The development inter-firm trust in different national culture contexts: cases from the animation game industry. The study involves intensive case studies and interviews into animation and game companies around China, UK, and the USA in which she provides dimensions of trust, process model of trust, and trust in different national culture backgrounds. Her research interests include cross-culture management, global supply chain, emerging markets and creative industry.

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393

Index

A Active Listening 330 Actor Network Theory (ANT) 235 adaptability 65 adaptability hypothesis 285 affective culture 283 ainoko 46 anti-Japanese propaganda 182 anti-Japanese sentiment 182-183 Anti-monopoly Law 187 Association of Southeast Asian Nations (ASEAN) 95 assymetry 77 Autocratic management 293, 299, 303 autonomy culture 284

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A B

B

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backing 106 Bank of Brazil 144-156, 159-160, 162-163 being-in-becoming 3 bicultural buffer 51 bicultural competence 44-45, 47, 51-52, 55 bicultural individuals 24-25, 27, 36-38, 44, 46, 4950, 52-53 biculturalism 27 bicultural skills 43, 45, 49-50, 53-54 Black matrix 127 Born Globals 105, 107, 111, 115, 313 Brazil, Russia, India, China (BRIC) 117 Business Performance Management (BPM) 230-231

I G

I

C calibrated corporate linguistic identity 230-231, 237, 239 Cargo Carrying Unit Manufacturer (CCUM) 110

O R

Center for Creative Leadership (CCL) 329 cognitive dimension 264, 270-274 collective orientation 271, 273-274, 295-296 collectivist cultures 210, 293 collectivist thinking 295 communitarianism 5, 150, 283 Competence-Based Management Theory (CBMT) 232 Competing Values Framework 62, 290 Conflict avoidance 294 conflict management 292-293, 295, 305 Confucian Dynamism 4, 8, 21, 208, 282 conservatism 6, 283 consistency 65 consistency hypothesis 285 contradictory processes 94 corporate culture 284 corporate linguistic allostasis 230-231, 234-235, 239 Corporate Performance Management (CPM) 231 Council for Mutual Economic Assistance (COMECON) 82 Cross-Border Cooperation programs (CBS) 78 cross-border inter-firm networks 72-73, 80-81, 84 cross-border regional headquarters (RHQs) 91 cross-border relationships 295 cross-cultural business 1, 7, 45, 68, 216, 292 cross-cultural interaction 13, 48 cross-cultural psychology 14, 19-20, 38, 41, 45, 5455, 161, 291 cultural distance 10, 15, 20, 165, 167-170, 173, 177178, 181, 290, 321 cultural intelligence (CQ) 24, 322-323, 331 Cultural Latin America 210 cultural sociology 280 culture 2 culture analysis 280 culture in the Middle East 198

Index

Culture Theories Hall’s classic patterns 280 Hampden-Turner and Trompennars’ cultural dilemmas 280 Hofstede’s cultural dimensions 18, 280, 282 Schwartz value inventory 280, 283 Cytokines 235, 243

Foreign Direct Investments (FDI) 57 foreign entry 172, 177-178, 180-181, 307-310, 315, 317-318 free-riding 75 Free Trade Agreement of the Americas (FTAA) 215

D

global citizenship 326 global economy 91, 116, 258, 322-323, 325-326, 334 Global Human Resource Management (GHRM) 322 Globalization 197, 245, 249, 257, 293 Globalized Latin America 209 Global managers 38, 292 GLOBE project 3, 6, 8, 22, 284, 296 GLOBE study 1, 6-9, 12-13, 17, 21, 70, 291 Globus Family of Brands (GFB) 263, 273 goal-seeking open systems 232 Go/No-Go decision 308 guanxi 2, 305, 320

daburu 46 decolonization 103 defederation 103 Denison’s model of organizational culture 56, 62-63, 65 Development Directions International (DDI) 323 diagonal alliance 74 Discrete Knowledge-Based Resources (DKBR) 108 Discrete Property-Based Resources (DPBR) 108 disruptive technologies 245-246, 257, 261 dynamic management 328

H

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F Fixes that Fail archetype 333 Foreign Direct Investment (FDI) 67, 94, 103, 170, 183, 210, 309

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E Economic Value-Added (EVA) 223 efficiency 77 Egalitarianism 6, 130, 284 embeddedness culture 284 Emergency Response Law 187 Emerging Leaders 330-331 emic approach 2 Employment Contract Law 187 Enterprise Performance Management (EPM) 231 Entrepreneurship 245, 251 entrepreneurship theory 113, 178, 250, 252, 255, 258 entry mode 113, 165-171, 173-175, 177-181, 310, 313, 318-321 Eroding Goals archetype 333 Escalation archetype 333 etic approach 2 European Union (EU) 73, 78, 197, 206, 214 Europe, Middle East, and Africa (EMA) 67 experience host country 173 external adaptation 289 externally oriented-internally oriented 123

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G

hafu 46, 55 half-way house 91, 94 Harmonious society 182-186, 190-191, 193, 195 high commitment 173, 175, 177 high-context communication 3 high control mode 174 High-Potential Employees 225, 330 horizontal collectivists 5 horizontal individualists 5 human nature 3 Human Resource Management (HRM) 323

I IE models 107 immigrant effect 170, 180, 307-310, 315-316, 318 indirect export 167 Individualism 283 individualism/collectivism (IDV) 19, 59, 80, 291 individualism-communitarianism 123 individualism vs. collectivism (IDV) 282 Inglehart-Welzel Cultural Map of the World 5 in-group collectivism 6, 12 Inner direction 283 intellectual autonomy 6, 283 intercultural competence 14, 23-27, 35-37, 39 inter-cultural management 299 inter-firm cooperation 73-76, 78-84

Index

N

inter-firm relationship 278, 286, 289 internal integration 289 International Grocers Alliance (IGA) 67 Internet City 201, 205 interpreter 52, 215 involvement 64 involvement/participation hypothesis 285 isomorphic immigrant effect 180, 316

national culture 11-12, 15-16, 18-20, 25, 56-62, 68, 70-71, 87, 117-122, 125-127, 135, 138, 142144, 147, 155, 157-158, 160, 164, 178, 180, 207-208, 210, 214, 217-218, 278, 280, 283286, 288-290, 295, 304 nationality 46, 118, 208, 218 necessity 77 Net Present Value (NPV) 254 neutral-affective 123 neutral culture 283 new business strategy 92, 101

J Japanese-style management 182, 188-189 Jeitinho 131-133, 137, 152-155, 157-159 Joint Venture (JV) 110, 165-167

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O

K

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knowing-in-practice 23-27, 29-30, 36, 38 knowledgeabilities 27 Knowledge Workers 323-324 konketsuji 46

organizational culture 60 Organizational Culture Assessment Instrument (OCAI) 62 Original Equipment Manufacturer (OEM) 191 Outer direction 283

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A B

Lean Manufacturing 225, 227 legitimacy 77 local partners 166, 168-171, 173, 175, 180, 268, 314-315, 320 long-term orientation/ short-term orientation (LTO) 60 long vs. short-term orientation (LTO) 282 low-context communication 3

M

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machismo 2 Management By Objectives (MBO) 222 management style 48, 141, 145, 299 Manufacturing Resource Planning (MRP) 285 masculinity/feminity (MAS) 59 masculinity vs. feminity (MAS) 282 Mercosur membership 214 Mergers and Acquisitions (M&As) 278 mission 64 mission hypothesis 285 mode of activity 3 monochronic cultures 3 monochronic time concept 281 multilatinas 209 Multinational Corporations (MNCs) 53, 57 Multinational Enterprises (MNEs) 90-91, 166, 183, 262

I

particularism 282 performance management (PM) systems 219 polychronic cultures 3 Portuguese matrix 126 power distance 4 power distance dimension (PDI) 59 power distance (PDI) 282 proxemics 3, 12 pyramid of people 4

Q qualifier 106

R rebuttal 106 reciprocity 77 regio-centric 90 regional trading bloc (RTB) 96 Regional Trading Blocs (RTBs) 91 Resource-Based View (RBV) 107, 246 return on assets (ROA) 64 roguery 159

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Index

S

T

sales abroad 172 Schwartz Value Inventory (SVT) 283 sequential time 283 Shared Service Center (SSC) 334 Shifting the Burden archetype 333 Six Sigma 225 Small and Medium Enterprises (SMEs) 103 small developing countries 102 SME internationalization framework 106 social baggage 119 social capital concept 263, 273 social networks 309 societal collectivism 6, 12 Society of Human Resource Management (SHRM) 329 specific-diffuse 123 stability 77 status achieved-status attributed 123 Stovetop (ST) 109 Strategic Entrepreneurship 245-247, 252-253, 256259 strategic management 245, 247 Subject Matter Experts (SME’s) 328 Success to the Successful archetype 333 synchronic time-sequential time 123 synchronous time 283 Systemic Knowledge-Based Resources (SKBR) 108 Systemic Property-Based Resources (SPBR) 108 Systems Theory 231-232, 242 Systems Thinking 332

talent acquisition 322-325, 334 theory of cultural dimensions 1-3, 7, 10-13 time orientation 289 Total Quality Management (TQM) 225, 285 Tragedy of the commons archetype 333 translator 52

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U

U Model 104, 107 uncertainty avoidance 2, 4, 6, 8-9, 59, 105, 208, 210, 282, 285, 289, 296 uncertainty avoidance (UAI) 282 Universalism 282 universalism-particularism 123

V

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vertical collectivists 5 vertical individualists 5 Viable System Model 232, 243

A B

I G

I 396

O L G

O R

W

warrant 106 wholly owned enterprise (WOE) 165 workplace conflict 292-295, 297-298, 303 World Trade Organization (WTO) 184, 201, 212

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