Strategic Alliances, Mergers and Acquisitions: The Influence of Culture on Successful Cooperation

Strategic Alliances, Mergers and Acquisitions

Strategic Alliances, Mergers and Acquisitions The Influence of Culture on Successful Cooperation

Edited by

Jan Ulijn Professor of International Entrepreneurship, Innovation and Culture, Open University and Emeritus Jean Monnet Chair, Eindhoven University of Technology, the Netherlands

Geert Duysters Professor of Innovation Management, Eindhoven University of Technology, Tilburg University and UNU-MERIT, the Netherlands

Elise Meijer Eindhoven University of Technology, the Netherlands

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Jan Ulijn, Geert Duysters and Elise Meijer 2010 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009938399

ISBN 978 1 84844 336 5

02

Printed and bound by MPG Books Group, UK

Contents List of contributors Preface: filling the gap in strategic alliances, mergers and acquisitions by Cary L. Cooper Acknowledgements Culture, strategic alliances, mergers and acquisitions: an introduction Elise Meijer, Geert Duysters and Jan Ulijn 1

Strategic alliances and culture in a globalizing world Rajesh Kumar and T.K. Das

2

Why do international alliances fail? Some insights from culture and human social biology Gert Jan Hofstede

3

Creating a supportive culture for corporate entrepreneurship: balancing creativity and discipline for the development of radical innovation by interfirm cooperation Bob Walrave, Victor A. Gilsing and Michiel F. de Jager

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1 13

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Culture and its perception in strategic alliances: does it affect performance? An exploratory study into Dutch–German ventures 96 Jan Ulijn, Geert Duysters and Jean-Marie Fèvre

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Cultural differences and homogeneity in strategic alliances: the case of Trimo Trebnje (Slovenia) and Trimo VSK (Russia) Metka Tekavčič, Vlado Dimovski, Darja Peljhan and Miha Škerlavaj

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Strategic importance of organizational culture in the context of organizational growth through acquisitions: the case of the Helios Group Nada Zupan and Robert Kaše Cross-border marriages: Dutch–Japanese and Dutch–American combinations Frits Grotenhuis v

121

150

184

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Managing potential conflicts in a European banking alliance in ICT: study of intro- and mutual perception combined for a cultural fit Jan Eppink, Jan Ulijn and Beatrice van der Heijden Portrait of an odd-eyed cat: cultural crossing as a trademark for a Dutch–Thai strategic alliance Nantawan Noi Kwanjai and J. Friso den Hertog Resistance to the transfer of management knowledge in international ventures: steps towards a pathologic interpretation Gerhard Fink and Nigel J. Holden

Index

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Contributors Cary L. Cooper, CBE, Distinguished Professor of Organizational Psychology and Health at Lancaster University Management School, UK. T.K. Das, Professor of Strategic Management at the City University of New York, USA. Vlado Dimovski, Professor of Management and Organization at University of Ljubljana, Slovenia. Geert Duysters, Professor of Innovation Management at the Eindhoven University of Technology, Tilburg University and UNU-MERIT, the Netherlands. Jan Eppink, Professor of Strategy and Environment at VU University Amsterdam, the Netherlands. He is also a member of a number of supervisory and advisory boards of companies and foundations. Jean-Marie Fèvre, Senior Lecturer for Management Sciences at the University of Metz, France. Active in the field of cross-cultural management in different countries and positions for decades, he was awarded the Cross of Merit of the German Federal Order of Merit in 2000 and was made a Knight of the French National Order of Merit in 2008. Gerhard Fink, Jean Monnet Professor for applied microeconomics in European integration and director of the doctoral programmes at Wirtschaftsuniversität Wien, Austria. Victor A. Gilsing, Associate Professor at the Department for Organization Studies at Tilburg University, the Netherlands. He is also a Core Fellow of the Centre for Innovation Research (CIR) at Tilburg University. Frits Grotenhuis, independent consultant in the field of strategic collaboration and innovation. He obtained a PhD degree at the University of Groningen, the Netherlands, in collaboration with Eindhoven University of Technology and Waseda University in Japan. Beatrice van der Heijden, Professor of Strategic HRM at the Open University of the Netherlands. She is the Head of the Department of Organizational Behavior/HRM, and Director of Research and Doctoral Programs at the vii

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Maastricht School of Management, the Netherlands. Moreover, she is affiliated with the University of Twente at the Department of HRM. J. Friso den Hertog, Professor of Technology, Organization Policy and Organization Design, Maastricht University and Professorial Fellow at UNU-MERIT, the Netherlands. Gert Jan Hofstede, Associate Professor at the Logistics, Decision and Information Sciences section, Department of Social Sciences at Wageningen University and at the Man–Machine Interaction Group at Delft University of Technology, the Netherlands. Nigel J. Holden, Director of the Institute of International Business, Department of Strategy and Innovation, Lancashire Business School, University of Central Lancashire, UK. Michiel F. de Jager, former graduate student at the Eindhoven University of Technology, the Netherlands. He is currently working as a consultant at Deloitte Enterprise Risk Services. Robert Kaše, Assistant Professor of Management at the Faculty of Economics, University of Ljubljana, Slovenia. He is also the president of the regional association for HRM in Ljubljana and a member of several professional and research networks. Rajesh Kumar, Associate Professor of International Business Strategy at the University of Nottingham, UK. His research encompasses the management of alliances, India as an emerging market, and international negotiations. Nantawan Noi Kwanjai, Doctoral Candidate in Innovation, global business strategies and host-country development, UNU-MERIT Maastricht, the Netherlands. Elise Meijer, Doctoral Candidate at the Department of Innovation, Technology Entrepreneurship and Marketing, Eindhoven University of Technology, the Netherlands. Her research encompasses open innovation, strategic alliances, alliance teams, alliance portfolio diversity and alliance capabilities. Darja Peljhan, Assistant Professor at the Department of Management and Organization at the Faculty of Economics, University of Ljubljana, Slovenia. She is also the associate member of the Department of Accounting at the same university. Miha Škerlavaj, Assistant Professor at the Department of Management and Organization at the Faculty of Economics, University of Ljubljana, Slovenia.

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Metka Tekavčič, Full Professor at the Department of Management and Organization at the Faculty of Economics, University of Ljubljana, Slovenia. She is the Head of the Institute of Management and Organization at the same university as well as an associate member of the Department of Accounting. Jan Ulijn, Professor of International Entrepreneurship, Innovation and Culture at the Open University and Emeritus Jean Monnet Chair at the Eindhoven University of Technology, the Netherlands. Bob Walrave, Doctoral Candidate at the Department of Innovation, Technology Entrepreneurship and Marketing, Eindhoven University of Technology, the Netherlands. Nada Zupan, Associate Professor of Management at the Faculty of Economics, University of Ljubljana, Slovenia. She is also a regular programme director for different management training courses at Center for Management Training and Development at the Faculty of Economics, University Ljubljana (CISEF).

Preface: filling the gap in strategic alliances, mergers and acquisitions Cary L. Cooper, CBE The growth of strategic alliances, mergers and acquisitions (M&A) during periods of growth has been monumental but, given the period of economic downturn that started in 2007 and will continue throughout 2010, it is likely to grow even faster, as more and more companies will need to develop strategic alliances, acquire or merge to survive. We have already seen this in the financial sector, the construction industry, pharmaceuticals, information and communication and technology companies. Before this period of recession, motivations were varied: to grow by acquisition, to fulfil the ambitions of larger market share, and so on, but now it is for survival, to reduce costs and to be stronger in order to compete in a declining market. There has been a great deal of research into strategic alliances, mergers and acquisitions, as can be seen for example by the annual Advances in Mergers and Acquisitions (Cooper and Finkelstein, 2008). What has been missing from much of this research, which has encompassed a range of disciplines from economics to finance to human resource management to legal issues, has been a systematic focus on the cultures of prospective allies (Kusstatscher and Cooper, 2005). Although a great deal has been done on the impact of strategic alliances and M&A on organizational performance and their impact on the individual, very little systematic work has been done on predicting their success based on the match between the different cultures involved. What cultures work in strategic alliances and M&A, and which combinations either do not work or require a great deal of support after closing the deal? This book helps to fill this important gap, by bringing together some of the leading international researchers and thinkers in the field, to provide the science reviews needed to help us understand the significance of the influence of culture on successful cooperation. The contributions take an international perspective and range the globe from the US to Europe to the Far East. This is truly an outstanding contribution to the literature and should provide the necessary building blocks of science in strategic xi

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alliances and M&A to help future researchers, as well as practitioners, in the selection of potential compatible partners and in facilitating a more successful change process in managing these major organizational events. This is a ‘must’ read for those working in the field of strategic alliances and M&A.

REFERENCES Cooper, C.L. and S. Finkelstein (2008), Advances in Mergers and Acquisitions, Bingley, UK: Emerald. Kusstatscher, V. and C.L. Cooper (2005), Managing the Emotions in Mergers and Acquisitions, Cheltenham, UK and Northampton, MA, USA Edward Elgar Publishing.

Acknowledgements We would like to thank UNU-MERIT, a joint institute of the United Nations University and the University of Maastricht specializing in economic research on innovation and technology in Maastricht (the Netherlands) and the School of Management of the Open University of the Netherlands, OUNL, for hosting and facilitating a conference of the authors of this book and some external experts, such as Professor Herman van den Bosch of OUNL and Dr Bob Hoekstra, former research and development (R&D) director of Philips Bangalore (India). Its focus, coherence and unity has greatly benefited from a careful internal peer review by both editors and authors based on a fair discussion to reach the right balance of scientific quality and relevance for the business world. Apart from this we are grateful to external reviewers, such as Professor George Tovstiga of the Henley Management College of the University of Reading, UK. To the extent that the above elements are absent from this volume, the editors assume sole responsibility.

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Culture, strategic alliances, mergers and acquisitions: an introduction Elise Meijer, Geert Duysters and Jan Ulijn Over the past decades, we have witnessed a sharp upheaval in the number of external organizational modes such as strategic alliances and mergers and acquisitions (M&A).1 A large strand of literature has already reported on the benefits of these modes, for example the sharing of costs and risks, the learning of new skills and technologies and their role in international efforts of companies. In spite of the noted benefits, however, the track record of these external organizational modes paints a black picture. Most studies show that more than half of the strategic alliances and M&A do not prove to be successful. Traditionally, scholars focused on ‘hard’ factors like financial and strategic factors for explaining the success or failure of these external modes. More recently, however, research into more ‘soft’ factors such as organizational and human resources-linked subjects have increased in importance (Larsson and Finkelstein, 1999; Stahl and Voigt, 2008). This has led to a growing and emergent body of literature on the importance of culture for the success of strategic alliances and M&A.2 According to Hofstede (2001), culture can be treated as ‘the collective programming of the mind that distinguishes the members of one group or category of people from another’ (p. 9). As argued by among others Stahl and Voigt (2008), scholars have sought to explain the (under)performance of these external modes by variables such as cultural distance (Morosini et al., 1998; Simonin, 1999; Shenkar, 2001), cultural diversity (Parkhe, 1991), cultural compatibility (Cartwright and Cooper, 1996; Sarkar et al., 2001), cultural fit (Datta and Puia, 1995; Child and Faulkner, 1998; Weber et al., 1996), management style similarity (Larsson and Finkelstein, 1999), organization (cultural) congruence (Brown et al., 1988; Barkema et al., 1996; Park and Ungson, 1997), cultural change (Kavanagh and Ashkanasy, 2006), cultural convergence (Birkinshaw et al., 2000), or acculturation (Nahavandi and Malekzadeh, 1988; Larsson and Lubatkin, 2001).3 Much of this research has investigated the impact of national culture on the performance or longevity of strategic alliances and M&A. Different 1

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national cultures lead to extensive differences between the people who are part of the strategic alliance or merger and acquisition because they are subject to fundamentally different sets of social institutions, including education systems, labour markets and geographical mobility (Calori et al., 1997; Whitley, 1992; Hambrick et al., 2001). These differences in national culture can create a source of conflict and misunderstanding that prevents the partners from successful cooperation (for example Parkhe, 1991; Datta and Puia, 1995; Lyles and Salk, 1996). This is in line with Hofstede’s (1980) hypothesis of cultural distance in which he argues that the difficulties, costs and risks associated with cross-cultural contact increase with growing cultural differences between individuals, groups or organizations (Stahl and Voigt, 2008). Barkema and Vermeulen (1997), for example, found that differences in uncertainty avoidance and long-term orientation between home and host country (rather than differences in power distance, individualism and masculinity) have a negative impact on international joint venture survival because these make organizations perceive the opportunities and threats differently, which may result in different actions by the organizations (Schneider and De Meyer, 1991). However, the opposite view, that differences in national culture between the partnering organizations can be beneficial, leading to a source of value creation and learning, has also been advanced and empirically supported (Shenkar and Zeira, 1992; Park and Ungson, 1997; Stahl and Voigt, 2008). Morosini et al. (1998), for example, found that national cultural distance enhances cross-border acquisition performance ‘by providing access to the target’s and/or the acquirer’s diverse set of routines and repertoires embedded in national culture’ (p. 137). These inconclusive results of the effect of cultural differences on performance may imply that the role of national culture has been overstated: most studies have not taken into account the impact of organizational cultural differences as well (Pothukuchi et al., 2002; Sirmon and Lane, 2004). Pothukuchi et al. (2002) even found that the apparent negative effects of partner dissimilarity on international joint venture performance ‘originates more from differences in organizational culture than from differences in national culture because organizational culture distance captures the ongoing operational differences in the norms of organizational practices and behaviors’ (p. 259) negatively influencing the implementation of the joint venture. Whereas national culture is first and foremost related to inherent values, organizational culture primarily relates to common beliefs in organizational practices and processes (Hofstede et al., 1990). According to Hambrick et al. (2001) each parent firm will have its own internal culture, including management selection and staffing practices, giving way to a distinctly skewed set of managers who are responsible for the strategic alliance or M&A. Research in strategic alliances and M&A has consistently

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shown negative effects of organizational culture differences (Cartwright and Cooper, 1993; Pothukuchi et al., 2002). For instance, Weber et al. (1996) showed that differences in organizational cultures between acquirer and acquired firm negatively influenced cooperation among the top managers and enhanced negative attitudes toward the merger. Additionally, Simonin (1999) showed that differences in management styles and business practices amplify ambiguity in the process of knowledge transfer. However, there is one cultural level out of the three generally distinguished that has often been overlooked and may also affect strategic alliances and M&A, namely professional culture (Ulijn and Weggeman, 2001; Sirmon and Lane, 2004). According to Sirmon and Lane (2004, 311) a professional culture exists ‘when a group of people employed in a functionally similar occupation share a set of norms, values and beliefs related to that occupation’. According to Lane and Lubatkin (1998) individuals with different occupational socialization and resulting professional culture lack a common basis from which to interact effectively and from which the relationship can develop and produce value. Therefore, it is not very suprising that Lajara et al. (2003) found that technology (research and development, R&D) alliances are the alliances with the lowest level of cultural conflict, due to the fact that the habits of scientists and engineers are practically the same on a worldwide basis. Problems start to occur when the cooperation is extended to commercialization and distribution because people from different professional cultural backgrounds start working together who do not agree on certain points (Schultz, 1998). On the other hand, different mental models or different ‘thought worlds’ belonging to the different professions may facilitate the dynamic process of combining diverse competencies which boosts team collective creativity, leading to the successful development of new products (Olson et al., 1995). So far, little attention has been paid to the level of professional culture in strategic alliances and M&A. Most studies on the role of culture, strategic alliances and M&A have focused on national and corporate culture. However, successful cooperation also requires that different professions of the partnering companies are able to interact with each other. Therefore the essence of our book is that both national and corporate culture as well as professional culture may affect the success of strategic alliances and M&A (see also Sirmon and Lane, 2004). That is, individuals in strategic alliances and M&A can utilize several different social identities (namely national, organizational and occupational) as sense-making mechanisms (see for example Salk and Shenkar (2001)). Consequently, we will deal in this book with three different levels of culture, namely national culture, organizational (or corporate) culture and

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professional culture. Given the kaleidoscope of the influence of culture on strategic alliances and M&A we had to adopt several guidelines for the order of the chapters in this book. First, the level of culture involved, from national to corporate to the broadly underestimated professional culture. Second, being mostly a mix of different levels of culture, the chapters are also presented in an order going from rather conceptualizing with some illustrating case study examples, to rather empirical studies. Chapter 1, ‘Strategic alliances and culture in a globalizing world’ by Kumar and Das examines how micro behavioural processes in alliances are affected by national culture. They discuss two significant frameworks of alliance functioning, namely, those of discrepancy and legitimacy, and argue that the impact of culture is manifested differently in the two frameworks. While the discrepancy framework stresses the importance of expectations, the legitimacy framework highlights the relevance of appropriate behaviour. Although expectations and behaviour are no doubt related, they are also quite distinct, and this distinction is important in understanding the genesis of the stability problems in an alliance. Chapter 2, ‘Why do international alliances fail? Some insights from culture and human social biology’ by Hofstede combines alliance literature with basic insights from human social biology and culture to explain why international alliances frequently fail. In particular, the work of Hofstede is brought to bear upon the processes that occur in alliances. First, he argues that alliances often fail for many other reasons than culture. Hereafter a number of frameworks from the alliance literature are introduced. Kumar and Nti’s framework about the evolution of discrepancies is the most important of these, as it can explain the dynamics of cross-cultural conflicts. The importance of alliance formation has been considered to be a basic ability of human groups. After this, Hofstede’s framework of five basic issues of culture is introduced, and national culture is briefly positioned against professional and organizational culture. These various theories are integrated in a discussion about three boundaries that alliances have to cope with: the issues of authority, of joint group membership and of fairness. The insights from culture theory are used to elucidate how issues from the alliance literature can play out in different cross-cultural situations. Two case studies taken from the international agro-food sector illustrate the argument. Chapter 3, ‘Creating a supportive culture for corporate entrepreneurship: balancing creativity and discipline for the development of radical innovation by interfirm cooperation’ by Walrave, Gilsing and De Jager, addresses the question of whether entrepreneurial corporate activities and/ or ventures are required to deviate from established practices that come with the dominant corporate culture. To answer this question they analyse

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the key features of culture of an organizational unit that specializes in corporate entrepreneurship (CE) activities, using Hofstede’s dimensions of corporate culture. They illustrate this analysis with empirical findings on the culture of various CE units within two large, high-tech companies. Moreover they discuss how such a CE-‘friendly’ culture may be created. Here, they specifically discuss the role of strategic alliances as a means to accomplish a CE culture in such a way that it indeed differs in essential ways from the dominant parent culture. In Chapter 4, ‘Culture and its perception in strategic alliances: does it affect performance? An exploratory study into Dutch–German ventures’, Ulijn, Duysters and Fèvre consider both national and corporate culture. This exploratory study examines the fit, that is, the degree of fruitful compatibility, of six national culture (NC) and six corporate culture (CC) (the dimensions of Hofstede) parameters in 12 Dutch–German cooperation processes. Twenty-four firms were asked to verify the nature of their cultural fit and to relate this perception to the perceived alliance performance. There appears to be a strong (not necessarily causal) relationship between the perception of cultural fit and the corresponding alliance performance. This finding may have important implications for alliance management. Instead of its general preoccupation with strategic and operational fit among alliance partners, more attention should be paid to cultural fit. The inclusion of cultural fit indicators in the overall partner selection process might well pay off in terms of increased alliance performance. In Chapter 5, ‘Cultural differences and homogeneity in strategic alliances: the case of Trimo Trebnje (Slovenia) and Trimo VSK (Russia)’, Tekavčič, Dimovski, Peljhan and Škerlavaj pinpoint the issue of national, organizational and professional cultures within a strategic alliance. The study presents the case of Trimo Trebnje d.d., a Slovenian construction company, and its greenfield joint-venture investment Trimo VSK Kovrov from Russia. Using the Trompenaars measurement instrument they show that in terms of national cultures (as perceived by members of these two organizations) Slovenian and Russian companies differ significantly only in terms of in terms of specificity, achievement orientation and sequence. A relatively homogeneous organizational culture was developed and is still developing due to a strong training effect. Interactions among professional and national cultures prove that professional cultures have a bigger impact on employees’ dedication than the organizational culture. They explain homogeneity in the manufacturing department in terms of the professional culture effect as well as good communication of values and practices in the past. Chapter 6, ‘Strategic importance of organizational culture in the context of organizational growth through acquisitions: the case of the Helios Group’ by Zupan and Kaše, aims to analyse the cultural fit among

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the three largest companies in the Helios Group: the mother company Helios (Slovenian), and the acquired companies Zvezda Helios (Serbian) and Color (Slovenian as well) using the above-mentioned Trompenaars method. Cultural fit between the companies involved in an acquisition has been known to be one of the important factors determining the success of the acquisition. With the growing number of acquisitions, the Helios Group top management has also recognized this issue to be important for further development as a modern international corporation. They argue that companies should focus on the optimal cultural fit rather than absolute cultural fit. Some differences in organizational culture could be beneficial because they better suit either national (especially at lower firm levels) or professional cultures and could actually contribute positively to company performance. However, when it comes to lower firm levels, where the effect of national culture seems to be stronger, a careful consideration as to which organizational culture changes are really needed is crucial, because it would not be effective to go against national culture contexts or to break away too abruptly from traditions and thus risk a higher resistance to change. Chapter 7, ‘Cross-border marriages: Dutch–Japanese and Dutch– American combinations’ by Grotenhuis, deals with cultural differences within cross-border mergers. Several reasons for failure have been brought up in the literature; however real-life cases of the ‘how’ and ‘why’ are limited or fragmented, especially for processes of cultural integration. The cases described in this chapter concern combinations of Dutch–Japanese and Dutch–American organizations. Grotenhuis uses three in-depth case studies to illustrate cultural integration patterns. Based on these in-depth cases between Dutch–Japanese and Dutch–American mergers, and a literature review, he concludes that cultural differences can play a major role in the success of a merger, but not necessarily. This is related to several factors – amongst others, the degree of integration – but also to the way in which management deals with the differences. Based on the case studies, four different patterns of acculturation could be discerned: ‘marriage after engagement’, ‘shotgun wedding’, ‘living apart together’ and ‘divorce’. In Chapter 8, ‘Managing potential conflicts in a European banking alliance in ICT: study of intro- and mutual perception combined for a cultural fit’, Eppink, Ulijn and Van der Heijden go into some other factors that may impact upon the success of the strategic cooperation beside cultural (mis)fit. In this respect they draw attention to the appropriateness of the chosen aims for the alliance, the appropriateness of the chosen form relative to the aims, and the stages in the evolution of an alliance that may require adaptation of the alliance competences to the new situation. In the empirical part of the chapter, they investigate the role of culture in the strategic alliance within the Information and Communication Technology

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(ICT) area between seven European banks. Hall’s (1995) cultural dimensions are used. They find that assertiveness and responsiveness play a major role, but uncertainty avoidance and power distance far less. Such factors have an impact on expectations for the cooperation, and also on the ways conflicts are resolved. Chapter 9, ‘Portrait of an odd-eyed cat: cultural crossing as a trademark for a Dutch–Thai strategic alliance’ by Kwanjai and den Hertog, presents the case of a Dutch–Thai joint venture that thrived, by weaving together the many intricate cultural webs, to achieve a unique pattern of partnership which, metaphorically speaking, became its indispensible trademark. The case illustrates how the three levels of culture expounded in this book – national, organizational and professional cultures – could all interlace in a real-world setting and serve as an instrumental force of success amidst tension in one particular cross-border strategic alliance. In Chapter 10, ‘Resistance to the transfer of management knowledge in international ventures: steps towards a pathologic interpretation’, Fink and Holden consider a longitudinal stylized case of Austrian firms taken over by a well-established and successful US firm with a clear and explicit corporate culture. After three to four years almost all original members had left the firm and were replaced by new ones who better fitted the corporate culture of the US firm. Why did a pattern like that emerge? Fink and Holden propose that it is not so much about differences in national culture, but a factor that is not necessarily visible and is almost certainly discounted until it is too late: psychological reactions to the disorienting impact of the change processes, which often are misinterpreted as staff resistance, but which are symptomatic of the very pathology of crosscultural business encounters. To support this proposition, they develop concepts of collective culture shock and cultural stretch. Their starting point is a consideration of four cases involving prominent organizations in their quest to find ‘common cognitive ground’ (Nonaka and Takeuchi, 1995) with protagonists in a variety of cross-cultural interactions, all of which have evolved over several years. What are the outcomes of these chapters with regard to the relative impact of respectively national, corporate and professional culture on the performance of strategic alliances and M&A? What progress could this book make, in following on from that by Cartwright and Cooper (1996) on the human factor in strategic alliances and M&A? What research outcomes are to be expected, based upon some recommendations for future studies in this respect? Increasingly it has been suggested in the literature that professional culture might easily overrule the effect of corporate culture or even national culture (Ulijn and Weggeman, 2001). For example, Sirmon and Lane (2004)

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argue that the level of culture that predicts individual behaviour most accurately is key to strategic alliance success. Leung et al. (2005) suggest that sources of self-identity like educational or professional affiliation may be more crucial in defining who people are, what motivates them and what they value as important than for national culture. According to Schultz (1998) the experiences of professionals of partnering organizations working together overshadow the differences in organizational and managerial preferences between the different organizations. This may imply that professional culture plays a very important role for successful cooperation. The outcomes of the chapters of this book could not exactly confirm this. Although national culture and corporate culture received extensive attention, professional culture, however, gained remarkable interest from the authors: six out of the ten chapters include elements of it. For example, Walrave et al. (Chapter 3) investigated the parochial versus professional dimension as part of the corporate culture concept of Hofstede; Ulijn et al. (Chapter 4) added innovation drive as interaction between the professional culture of marketers and engineers and the organization-bound– professional distinction between national culture and corporate culture; Tekavčič et al. (Chapter 5) were able to include differences among the departments of the investigated companies in the steel sector; Zupan and Kaše (Chapter 6) examined differences among the different departments within the acquiring and acquired firms in the painting business; Eppink et al. (Chapter 8) considered several sectors including the ICT banking sector; and finally Kwanjai and den Hertog (Chapter 9) investigated a Dutch–Thai case of a civil engineering alliance. In sum, this book covers a complete range of cultural levels involved in strategic alliances and M&A. But a lot remains to be done. Future studies on strategic alliances and M&A should focus on all levels of cultural fit including professional culture, as has been argued in this book. Obviously, an important next step in this line of research would be the empirical testing of professional culture (and the relative importance of professional culture compared to national and organizational culture). A variety of different measures could be used to investigate professional culture, such as the different types of expertise among the professionals involved (see Van der Vegt and Bunderson, 2005) or, as suggested by Sirmon and Lane (2004), the form and duration of professional training, or the number of occupational memberships that the individuals gain. Moreover, most scholars and practitioners intuitively feel that cultural differences matter in strategic alliances and M&A, but when they matter, under what conditions they matter, and how they matter are at the moment poorly understood (Gibson et al., 2006; Stahl and Voigt, 2008; see also Grotenhuis, Chapter 7 in this book). Therefore, future research

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should pay attention to conditions that serve to moderate the culture– performance relationship in strategic alliances and M&A (Leung et al., 2005; Gibson et al., 2009). For example, the different forms of cooperation, namely strategic alliances and M&A, ranging from relatively high levels of integration to relatively low levels of integration, may have different consequences for culture. Cultural issues happen to be particularly relevant in M&A of firms because different cultures must be integrated into a single one, or one culture has to be absorbed by the other (Pablo, 1994). Likewise, cultural conflicts are more ordinary in joint ventures, in which a closer contact between the partnering organizations is required, than in contractual alliances. Also, researchers have paid relatively little attention to the process by which cultural differences affect the performance of firms engaging in strategic alliance or M&A activity. More attention should be paid to micro behavioural processes (see Kumar and Das, Chapter 1 in this book) and opening up the black box of ‘culture clash’ (Li and Hambrick, 2005). Most research involving alliances and M&A is at the firm or inter-firm level, while we know relatively little about behavioural issues such as decisionmaking, communication and conflict processing (Leung and White, 2005). Li and Hambrick (2005) emphasize that more attention should be paid to the small groups of people that implement the alliance, instead of purely concentrating on whether the two extensive entities are ‘compatible’. Indeed, analysts who attribute the failure of interorganizational collaborations or combinations (mergers, joint ventures, bilateral peacekeeping forces, interdepartmental task forces) to an amorphous ‘culture clash’ typically overlook the reality that collaborative efforts are played out in conference rooms, hallway conversations, e-mail exchanges, and phone calls in which small groups of people from two sides are trying to hammer out joint products. If enough of these small groups experience stereotyping, emotional conflict, and behavioral disintegration, then the overall collaborative enterprise is jeopardized. (Li and Hambrick, 2005, 810)

Overall we feel this book contributes to our current knowledge about the relationship between external modes such as strategic alliances and M&A and culture because we show that all levels of culture can have a strong effect on the performance of strategic alliances and M&A. However, their specific effect is contextual and the levels seem to be interrelated strongly.

ACKNOWLEDGEMENT The authors would like to thank Wim van Ravenswaaij, an industrial engineering MSc graduate from Eindhoven University of Technology, for his

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study on the impact of national, organizational and professional culture in R&D alliances.

NOTES 1. In cases of mergers and acquisitions, the formerly independent companies form a new legal entity. We speak of a merger when the companies are more or less equal. In an acquisition the larger or stronger company buys the smaller one. We define strategic alliances as a cooperation between two or more independent organizations to accomplish common and individual goals while keeping their own identity, including joint ventures. 2. Although we suggest that cultural differences play an important role for the success of alliances and M&A, we are aware of the fact that numerous variables have been proposed to influence the success of strategic alliances and M&A, cultural differences being only one of them. 3. This enumeration of variables regarding culture that has sought to explain the (under) performance of strategic alliances and M&A is partly based on Stahl and Voigt (2008).

REFERENCES Barkema, H.G., J.H. Bell and J.M. Pennings (1996), ‘Foreign entry, cultural barriers, and learning’, Strategic Management Journal, 17, 151–66. Barkema, H.G. and F. Vermeulen (1997), ‘What differences in the cultural backgrounds of partners are detrimental for international joint ventures?’, Journal of International Business Studies, 28 (4), 845–64. Birkinshaw, J., H. Bresman and L. Håkanson (2000), ‘Managing the postacquisition integration process: how the human integration and task integration processes interact to foster value creation’, Journal of Management Studies, 37, 395–425. Brown, L., A. Rugman and A. Verbeke (1988), ‘Japanese joint ventures with western multinationals: synthesizing the economic and cultural explanations of failure’, Asia Pacific Journal of Management, 6, 225–42. Calori, R., M. Lubatkin, P. Very and J.F. Veiga (1997), ‘Administrative heritages: a historical institutional analysis of French and British firms’, Organization Science, 8 (6), 681–96. Cartwright, S. and C.L. Cooper (1993), ‘The role of culture compatibility in successful organisation’, The Academy of Management Executive, 34, 67–80. Cartwright, S. and C.L. Cooper (1996), Managing Mergers, Acquisitions and Strategic Alliances: Integrating Peoples and Cultures, 2nd edn, Oxford: Butterworth-Heinemann. Child, J. and D. Faulkner (1998), Strategies of Co-operation: Managing Alliances, Networks, and Joint Ventures, Oxford: Oxford University Press. Datta, D.K. and G. Puia (1995), ‘Cross-border acquisitions: an examination of the influence of relatedness and cultural fit on shareholder value creation in US acquiring firms’, Management International Review, 35, 337–59. Gibson, C.B., M.L. Maznevski and B.L. Kirkman (2009), ‘When does culture matter’, in R.S. Bhagat and R.M. Steers (eds), Cambridge Handbook of Culture Organizations, and Work, Cambridge: Cambridge University Press, pp. 46–68.

An introduction

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Hall, Wendy (1995), Managing Cultures: Making Strategic Relationships Work, Chichester, UK and New York: Wiley. Hambrick, D.C., J. Li, K. Xin and A.S. Tsui (2001), ‘Compositional gaps and downward spiral in international joint venture management groups’, Strategic Management Journal, 22, 1033–53. Hofstede, G. (1980), Culture’s Consequences: International Differences in WorkRelated Values, London: Sage Publications. Hofstede, G. (2001), Culture’s Consequences: Comparing Values, Behaviours, Institutions and Organizations across Nations, 3rd edn, London: Sage. Hofstede, G., B. Neuijen, D.D. Ohayv and G. Sanders (1990), ‘Measuring organizational cultures: a qualitative and quantitative study across twenty cases’, Administrative Science Quarterly, 35, 286–316. Kavanagh, M.H. and N.M. Ashkanasy (2006), ‘The impact of leadership and change management strategy on organizational culture and individual acceptance of change during a merger’, British Journal of Management, 17, 81–103. Lajara, M.B., F.G. Lillo and V.F. Sempere (2003), ‘Human resources management: a success and failure factor in strategic alliances’, Employee Relations, 25 (1–2), 61–80. Lane, P.J. and M. Lubatkin (1998), ‘Relative absorptive capacity and interorganizational learning’, Strategic Management Journal, 19 (5), 461–77. Larsson, R. and S. Finkelstein (1999), ‘Integrating strategic, organizational, and human resource perspectives on mergers and acquisitions: a case survey of synergy realization’, Organization Science, 10, 1–27. Larsson, R. and M. Lubatkin (2001), ‘Achieving acculturation in mergers and acquisitions: an international case study’, Human Relations, 54, 1573–1607. Leung, K. and S. White (2005), ‘Exploring dark corners: an agenda for organizational behavior research in alliance contexts’, in O. Shenkar and J.J. Rever (eds), Handbook of Strategic Alliance, Thousand Oaks, CA: Sage, pp. 199–218. Leung, K., R.S. Bhagat, N.R. Buchan, M. Erez and C.B. Gibson (2005), ‘Culture and international business: recent advances and their implications for future research’, Journal of International Business Studies, 36, 357–78. Li, J. and D.C. Hambrick (2005), ‘Factional groups: a new vantage on demographic faultlines, conflict and disintegration in work teams’, Academy of Management Journal, 48 (5), 794–813. Lyles, M.A. and J.E. Salk (1996) ‘Knowledge acquisition from foreign parents in international joint ventures: an empirical examination in the Hungarian context’, Journal of International Business Studies, 27 (5), 877–903. Morosini, P., S. Shane and H. Singh (1998), ‘National culture distance and crossborder acquisition performance’, Journal of International Business Studies, 29 (1), 137–58. Nahavandi, A. and A.R. Malekzadeh (1988), ‘Acculturation in mergers and acquisitions’, Academy of Management Review, 13, 79–90. Nonaka, Ikujiro and Hirotaka Takeuchi (1995), The Knowledge-Creating Company, New York: Oxford University Press. Olson, E.M., O.C. Walker Jr and R.W. Ruekert (1995), ‘Organizing for effective new product development: the moderating role of product innovativeness’, Journal of Marketing, 59 (1), 48–65. Pablo, A.L. (1994), ‘Determinants of acquisition integration level: a decisionmaking perspective’, Academy of Management Journal, 37(4), 803–36. Park, S.H. and G.R. Ungson (1997), ‘Reexamining national culture, organizational

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complementarity and economic motivation on joint venture dissolution’, Academy of Management Journal, 40 (2), 279–307. Parkhe, A. (1991), ‘Interfirm diversity, organizational learning and longevity in global strategic alliances’, Journal of International Business Studies, 22 (4), 579–601. Pothukuchi, V., F. Damanpour, J. Choi, C.C. Chen and S.H. Park (2002), ‘National and organizational culture differences and international joint venture performance’, Journal of International Business Studies, 33 (2), 243–65. Salk, J.E. and O. Shenkar (2001), ‘Social identities in an international joint venture: an exploratory case study’, Organization Science, 12 (2), 161–78. Sarkar, M.B., R. Echambadi, S.T. Cavusgil and P.S. Aulakh (2001), ‘The influence of complementarity, compatibility, and relationship capital on alliance performance’, Journal of Academy of Marketing Science, 29, 358–73. Schneider, S.C. and A. De Meyer (1991), ‘Interpreting and responding to strategic issues: the impact of national culture’, Strategic Management Journal, 12, 307–20. Schultz, M. (1998), ‘European cultures in collaboration: do cultural differences matter?’, in G. Sevón and K. Kreiner (eds), Constructing R&D Collaboration: Lessons from European EUREKA Projects, Copenhagen: Copenhagen Business School Press, pp. 85–133. Shenkar, O. (2001), ‘Cultural distance revisited: towards a more rigorous conceptualization and measurement of cultural differences’, Journal of International Business Studies, 32, 519–35. Shenkar, O. and Y. Zeira (1992), ‘Role conflict and role ambiquity of chief executive officers in international joint ventures’, Journal of International Business Studies, 23 (1), 55–75. Simonin, B.L. (1999), ‘Ambiquity and the process of knowledge transfer in strategic alliances’, Strategic Management Journal, 20, 595–623. Sirmon, D.G. and P.J. Lane (2004), ‘A model of cultural differences and international alliance performance’, Journal of International Business Studies, 35, 306–19. Stahl, G.K. and A. Voigt (2008), ‘Do cultural differences matter in mergers and acquisitions? A tentative model and examination’, Organization Science, 19 (1), 160–76. Ulijn, J. and M. Weggeman (2001), ‘Towards an innovation culture: what are its national, corporate, marketing and engineering aspects, some experimental evidence’, in C. Cooper, S. Cartwright and C. Early (eds), Handbook of Organisational Culture and Climate, London: Wiley, pp. 487–517. Van der Vegt, G.S. and J.S. Bunderson (2005), ‘Learning and performance in multidisciplinary teams: the importance of collective team identification’, Academy of Management Journal, 48 (3), 532–47. Weber, Y., O. Shenkar and A. Raveh (1996), ‘National and corporate cultural fit in mergers and acquisitions: an exploratory study’, Management Science, 42, 1215–27. Whitley, Richard D. (ed.) (1992), European Business Systems: Firms and Markets in their National Contexts, London: Sage.

1.

Strategic alliances and culture in a globalizing world Rajesh Kumar and T.K. Das

INTRODUCTION Alliance instability is an endemic feature of organizational life and scholars have offered various explanations for its causes (for example, Das and Teng, 1998, 2000, 2003; Doz, 1996; Kumar and Nti, 1998, 2004; Ring and Van de Ven, 1994). Alliance instability has been linked to internal tensions that characterize an alliance (Das and Teng, 2000), lack of confidence in partner cooperation (Das and Teng, 1998), the existence of process and outcome discrepancies (Kumar and Nti, 1998), and the failure of alliance partners to achieve equity and efficiency (Ring and Van de Ven, 1994). Yet many of these frameworks, barring a few exceptions (for example, Kumar and Nti, 2004), are silent on how national culture may impact upon alliance evolution. The debate among scholars has tended to be about the importance of national culture in shaping alliance evolution. Many studies have held that national culture is important (for example, Barkema and Vermeulen, 1997; Kumar and Nti, 2004; Li and Guisinger, 1991; Meschi and Riccio, 2008; Steensma et al., 2000), whereas others have challenged this importance relative to corporate and professional culture (for example, Pothukuchi et al., 2002; Sirmon and Lane, 2004). In our view, the relative importance of national, corporate or professional cultural differences remains an empirical matter, and not one that is amenable to clear-cut generalizations. While corporate and professional cultures may well influence some aspects of alliance evolution, they do so in the context of the national cultural distance that separates the partners. In other words, national cultural differences are the salient overriding factor within which the other differences may exert their own influence; that is, the influence of other variables may be less determinative relative to that of national culture. We will therefore primarily look at the impact of national cultural differences among alliance members in shaping alliance evolution. Many alliances cross national boundaries and this already brings into 13

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play the role of national culture, although it is fair to say that the impact of national culture may be more salient in some alliance contexts than in others. For example, Dong and Glaister (2007), in a study of the impact of national and corporate cultural differences in international strategic alliances between Chinese and foreign partners, noted that the impact of national cultural differences was stronger the lower the longevity of the alliance. In a similar vein, Kwon (2008) in a study of joint ventures between Korean, Japanese and Western companies (US and European firms), found that trust and commitment played a greater role in alliances between Korean and Japanese companies relative to alliances between Korean and Western companies. A study of international joint ventures between Chinese companies and firms from Western and other Asian countries revealed that legalism was positively associated with satisfaction among Western international joint venture partners in contrast to joint venture partners from other Asian cultures (Lin and Wang, 2008). Gill and Butler (2003), in a study of Japanese joint ventures with British and Malaysian companies, found that for the Japanese trust was the most important factor in determining joint venture stability, whereas for the British stability was a function of dependence, and for the ChineseMalaysians both trust and dependence played a critical role. Many of the alliance frameworks that we alluded to earlier neglect the impact of micro behavioural processes in shaping alliance evolution. This neglect is a generic limitation in the alliance literature, and is particularly unfortunate in the context of international alliances because these alliances bring together managers who have been socialized in different cultures. The decisions that are taken or not taken, and the manner of their implementation, are necessarily influenced by cultural differences, so that they have an important bearing on how an alliance develops over time. We contend that understanding the role played by micro behavioural processes is particularly important for several reasons. First, micro behavioural processes are the proximate determinant of how alliance partners manage the expectational gap in an international alliance. Secondly, micro behavioural processes may instigate emotions and strengthen or weaken confidence in partner cooperation in alliances (Das and Teng, 1998). Finally, micro-behavioural processes determine how alliance managers make decisions in situations characterized by ambiguity and uncertainty. When an alliance fails to live up to its potential, the alliance managers have to make attributions as to the causes of unsatisfactory alliance performance, including whether it is due to situational factors or factors internal to the alliance (Das and Teng, 2000; Kumar and Nti, 2004). Micro behavioural processes, in turn, are no doubt shaped by a number of different factors such as the strategy and capabilities of the alliance partners.

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However, for purposes of this chapter, we focus on the role of national culture in influencing micro behavioural processes. We will examine how micro behavioural processes are impacted upon by national culture by discussing two significant frameworks of alliance functioning, namely, those of discrepancy and legitimacy (Kumar and Das, 2007; Kumar and Nti, 2004). We argue that the impact of culture is manifested differently in the two frameworks. The discrepancy framework stresses the importance of expectations while the legitimacy framework highlights the relevance of appropriate behaviour. Although expectations and behaviour are no doubt related, they are also quite distinct, and this distinction is important in understanding the genesis of the stability problems in an alliance. We begin by outlining the concept of micro behavioural processes and its relevance to alliance development. We then discuss the concept of national culture, outlining the ways in which differences in national culture might affect alliance functioning. Next, we discuss the relevance of national culture in the context of two extant models in alliance theorizing, namely that of discrepancy detection, attribution and reaction (Kumar and Nti, 2004), and of interpartner legitimacy (Kumar and Das, 2007). Finally, we discuss the theoretical and managerial implications of these two alternative but complementary perspectives for studying the impact of national culture on alliance development.

MICRO BEHAVIOURAL PROCESSES The micro behavioural processes that we are alluding to are all critically implicated in alliance decision-making. Alliance managers (those within the alliance and others in the parent companies) continuously have to make various kinds of decisions. These decisions centre on issues of commitment, restructuring the alliance, governance structures and the decision to continue with or exit the alliance. These decisions are also critically impacted upon by factors such as the level of trust, attributions, legitimacy, harmony and the existence of emotions. Such impact is relevant to the managerial behaviour in the partner firms as well as expectations about how their counterparts might behave (Das and Kumar, 2009; Das and Teng, 1998; Kumar 2008; Kumar and Das, 2007). It is also the case that these variables are crucially shaped by culture. Micro behavioural processes therefore refer to the impact of these variables on alliance managers’ decision-making. Micro behavioural processes may determine whether any conflict cycle gets instigated and, if so, whether the conflict cycle will then escalate or

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de-escalate. These processes are also determinative of the consequences of conflict resolution, that is, whether conflict resolution strengthens, weakens or leaves the relationship between alliance partners unchanged. Finally, micro behavioural processes highlight the importance of human agency in decision-making and learning in alliance management (Das and Kumar, 2007).

NATIONAL CULTURE In an increasingly interdependent world economy cross-cultural managerial interactions are unavoidable. While such cultural influences are inevitable, there is now increasing recognition that culture, relevant as it is, may not matter in a predictably consistent manner. As Leung et al. (2005, 368) note: ‘scholars have argued that instead of addressing whether national culture makes a difference it is more useful to address the issue of how and when it makes a difference’. Alliances provide a fertile ground for examining the impact of culture because an essential characteristic of alliances is their ambiguity and uncertainty. Scholars have noted that under conditions of uncertainty and ambiguity individual behaviour is often shaped by culturally shaped responses (for example, Meglino et al., 1989), and also that uncertainty leads to rigidity (for example, Staw et al., 1981). The central idea in the many definitions of national culture (for example, Hofstede, 2001; Kluckhohn and Strodtbeck, 1961) is that culture consists of the dominant assumptions, values, beliefs and behaviours that are transmitted intergenerationally in different societies. It is also widely recognized that culture exists at both an overt and a covert level. At the overt level culture manifests itself in the manner in which people behave. However, at a deeper and covert level, culture manifests itself in unconsciously held assumptions that govern an individual’s perceptions and behaviour. It is at the covert level that cultural influences are both more insidious and powerful, for the very simple reason that individuals may not even be aware of the fact that culture is influencing their behaviour. If individuals or managers are unaware of the role that culture plays, they may both be oblivious to the consequences of their culturally shaped behaviour and be overly sensitive to the behaviour of their partner as they will not have considered the role of culture in shaping their partner’s responses. National cultural differences have been linked to differences in communication styles (Hall, 1959), decision-making processes (Adler, 2001), negotiation styles (Kumar, 1999) and attributional processes (Markus et al., 1996). Scholars note that alliances go through several stages of development,

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such as formation, operation and outcome (Das and Teng, 1997, 2002). The formation stage of the alliance involves partner selection, negotiation and contract formalization. The operation stage of the alliance is when the formalized commitments of the alliance partners become operational. At this stage the partner firms put in the necessary investments of both financial resources and managerial personnel. It is also the stage where the alliance commences operations. Finally, the evaluation stage of the alliance is when the alliance partners evaluate the performance of an alliance at some agreed point in time. National cultures influence alliance development at all of these different developmental stages. In this chapter, the impact of national culture will be assessed through the lenses of two alternative theoretical frameworks, one focusing on discrepancies and the other on legitimacy management. We will highlight the major points of contrast between these two frameworks and discuss both theoretical and managerial implications.

NATIONAL CULTURE AND DISCREPANCY MANAGEMENT IN INTERNATIONAL ALLIANCES This discrepancy framework is premised on the idea that every alliance is potentially subject to two types of discrepancies (Kumar and Nti, 1998, 2004). The discrepancies may be favourable or unfavourable and may represent either a process or an outcome discrepancy. The focus is on unfavourable discrepancies because these discrepancies threaten alliance stability. For example, in an alliance characterized by high levels of conflict and the inability to attain performance-related goals, instability may well be the logical outcome. Process discrepancies are indicative of the fact that the interaction among alliance partners is dysfunctional, that is, there are high levels of conflict, opportunistic behaviour and lack of timely and relevant communication. Outcome discrepancies, by contrast, are indicative of the failure of the alliance to achieve performance-related goals. These could represent the failure to attain the desired level of market share, low levels of profitability, or failure in product development in the context of an R&D alliance. This framework rests on the implicit assumption that unfavourable discrepancies are unsustainable over the long term, and the fact that there is an interlinkage between the two sets of discrepancies, so that unresolved process discrepancies may create outcome discrepancies and vice versa. National cultural differences play an important role in this framework. National cultural differences may lead alliance partners embedded in different cultures to have conflicting perceptions about the existence of

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a discrepancy. For example, firstly, one of the alliance partners may perceive a discrepancy and the other partner may not. Alternatively, one of the partners may be more sensitive to a process discrepancy whereas the other partner is more sensitive to an outcome discrepancy. This is referred to as an interpretational conflict. Secondly, even when partners agree that there is an unfavourable discrepancy, they may differ as to the origins of such a discrepancy. Is the unfavourable discrepancy due to internal factors (for example, the partner not putting in the necessary effort) or is it due to external factors (for example, the market environment is not supportive of the alliance)? This is referred to as an attributional conflict. Finally, the alliance partners may differ as to how to deal with the unfavourable discrepancies. Should the partners put in greater effort or should they exit from the alliance? This is referred to as a behavioural conflict. An example of a behavioural conflict between members of different cultural groups is the Anglo-Korean joint venture, Korea Beral (Butler and de Bettignies, 1997). T&N was a Manchester-based company engaged in high-technology automotive components, engineered products and industrial materials. The company responded to a licensing request from Korea to manufacture commercial vehicle linings and disc brake pads. Ron Cooke, who led the T&N team, was impressed by the Koreans and this led Beral Gmbh, recently acquired by T&N, to conclude a technical assistance agreement with the Koreans in March 1986. The joint venture factory began operations in September 1987. Korea Beral soon became a major player in the market, supplying 30–40 per cent of Hyundai’s needs. Later, however, the Koreans became very aggrieved when their request for access to a wide range of technologies was turned down by their British partners. The Koreans became emotionally aggressive because they felt that the British were not fulfilling their obligations. The British, by contrast, did not take kindly to the Korean tantrums and neither did they appreciate the Koreans’ disdain for completing the necessary paperwork. In the Confucian-oriented Korean culture the fulfilment of obligations is very important, whereas in the more individualistically oriented British culture, the only obligations that count are those stated in the contractual agreement. It is not surprising therefore that the cultural and strategic gap between the partners accentuated over time, illustrating the nature of a behavioural conflict. The discrepancy framework has a number of key attributes. First of all, this is a decision-making framework that demonstrates that cultural problems may originate either at the interpretational stage, the attributional stage, or at the behavioural stage of alliance evolution. A key implication of this is that the earlier a potential problem is detected, the more likely it is that it will be satisfactorily resolved. When problems are detected at an

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earlier stage, potential conflict can be avoided, or even if a conflict were to have emerged it may not have escalated to any significant degree. By contrast, if problems are detected a little later, the detection may have occurred in the context of a perception of shared expectations, and any such problem may not only be more consequential, given the already undertaken commitments, but may also be more conflict-provoking, given that the alliance partners may not expect such problems to arise at this stage. A number of scholars have highlighted the importance of trust in international strategic alliances (for example, Kauser and Shaw, 2004; Kwon, 2008; Robson et al., 2008) with the implicit argument that high levels of trust may allow the alliance partners effectively to bridge the cultural gap between them (Das and Teng, 1998). There is much to commend in this line of reasoning, and while it is certainly plausible to argue that trust creates the motivation to bridge differences, it is not so clear whether it also creates at the same time the ability to bridge such differences. The discrepancy framework clearly illustrates the barriers in bridging these differences, with their focus more on the ability than on the motivation of the alliance partners. The barriers revolving around ability are related to the partners’ unconsciously held assumptions. Till the time that managers recognize the constraining impact of these assumptions, not much is likely to change. A good example of this is the conflict that occurred between Deutsche Elektro-Informatica (DEI) a German electronics company, and Rural Red Star, a Chinese state-owned electronics firm (Bjorkman, 1999). Their 50:50 joint venture, Guangdong Electronics Co. Ltd, was established in 1991 and started its operations a year later. Rural Red Star was not the preferred partner for the German firm but it had to live with this constraint. During the period 1992–96 the joint venture grew fairly rapidly although the financial performance remained sub-par. When the German company decided to integrate the joint venture into its global operations, problems began to emerge. The Germans wanted to institute stricter control on the venture and one consequence of this was a greater number of German expatriates in the operations. Unfortunately, many of the German expatriates lacked the skills necessary to bridge the cultural divide that existed between an individualistic (German) culture and a collectivistic (Chinese) culture. While they may have been motivated to bridge this gap, the case reveals that they were not particularly adept at it. The Chinese collectivistic culture values relationships, affective trust development, frequent interpersonal contact, indirect communication and sensitivity to face. By contrast, the German individualist culture does not prioritize relationships, is oriented

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to the cognitive basis of trust, values direct communication and is less sensitive to issues of face. In particular, the German general manager, Herbert Klein, was communicating with his Chinese colleagues through letters, could not control his temper, and took away the authority of the Chinese deputy GM to sign contracts on behalf of the company. The latter became furious and refused to cooperate. The Germans did eventually replace general manager Klein, but the case clearly illustrates the barriers to bridging the cultural gap. The second attribute of the discrepancy framework is concerned with the decision-making processes that are at the heart of this framework. These processes may lead to distrust and negative emotions. As each alliance partner evaluates the other from its own cultural perspective, it may either begin to perceive discrepancies or may find it difficult fully to comprehend the actions of its partner. This not only amplifies the ambiguity and uncertainty inherent in alliances, but it also makes the managers want to shield themselves from such conditions, either by resorting to their culturally programmed course of action or by instituting actions that may give them a greater sense of control. As each partner seeks to reassert control by engaging in defensive manoeuvres, the cultural gap is only likely to be exacerbated, fuelling both distrust and negative emotions. The constraining impact of trust or lack of it, and of emotions, in shaping alliance dynamics is now widely discussed in the literature (Das, 2005; Das and Teng, 1998; Kumar, 2008), but the origins of these micro behavioural factors are not adequately recognized in the literature. The discrepancy framework (Kumar and Nti, 2004) goes some way to explaining the origins of such dysfunctional developments. The discrepancy framework also highlights the fact that problems emerge in international alliances due to conflicting expectations that may not be sufficiently recognized by the alliance partners. As the alliance partners begin the process of sense-making with the expectation or hope that they will be able to forge an agreement, they are likely to focus more on what unites them than what separates them. There is also likely to be an underlying sense of optimism and, when coupled with the fact that the managers who negotiated the alliance are often not the ones who will run the alliance on a day-to-day basis, the expectational gap may not be easily bridged. The expectational gap, as this framework suggests, is pervasive throughout the alliance life cycle (interpretation, attribution and behavioural phases). A key implication of this is that for an alliance to function smoothly, the expectational gap among the alliance partners needs to be bridged effectively. An associated implication of this framework is that while accurate expectations may impede the emergence of conflict in the

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first instance, a recalibration of expectations may effectively contain or diffuse the conflict once it has arisen. A focus on reducing or eliminating the expectational gap among alliance partners also sidesteps the issue as to which partner should do more of the adapting in an international alliance. Often enough, the issue of adaptation is linked to the issue of the alliance partners’ bargaining power, with the partner with the lesser bargaining power having to make the necessary adaptation. Our framework suggests that for an international alliance to succeed, even the more powerful partner may need to engage in sense-making with the objective of reducing the expectational gap, for it is only under these circumstances that even the more dominant partner can effectively exercise power.

NATIONAL CULTURE AND LEGITIMACY MANAGEMENT IN INTERNATIONAL ALLIANCES Kumar and Das (2007) have developed the concept of interpartner legitimacy and have suggested that alliance partners need to establish and maintain interpartner legitimacy during alliance functioning. This is a framework that is not cultural in origin or content but, as we argue here, a cultural extension of this framework is warranted for better understanding of alliance dynamics. Interpartner legitimacy is defined by Kumar and Das (2007, 1430) as: ‘the mutual acknowledgement by the alliance partners that their actions are proper in the developmental process of the alliance’. An alliance partnership that is characterized by perceptions of appropriateness on the part of either partner is likely to be more durable over time. Such a partnership may also more easily withstand the vicissitudes of the external environment, that is, it will not be unduly susceptible to exogenous shocks that are beyond either partner’s control. Furthermore, appropriateness goes hand in hand with commitment, with the implication that alliance partners will put in all the necessary effort to sustain the relationship. The outcomes of such efforts may not always be positive, but rather, and more to the point, the effort and the commitment will not be lacking under conditions of interpartner legitimacy. The framework of Kumar and Das (2007) also draws a distinction between three types of interpartner legitimacies. These are referred to as pragmatic, moral and cognitive interpartner legitimacies. Pragmatic interpartner legitimacy implies that the alliancing firms view their efforts and commitment to the alliance as furthering their interests and that of the larger alliance as well. Without the attainment of pragmatic interpartner legitimacy, the alliance may not come into existence, or even if it does, it

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may not survive the test of time. Moral interpartner legitimacy refers to the judgements made by the alliancing firms about the appropriateness of the alliance, that is, is it the right thing to do? This judgement is in large part based on the actions of the partner firm, that is, does the partner behave or act in a way that conforms to the tenets of moral legitimacy? Finally, cognitive interpartner legitimacy means that the decision to enter into the alliance is something that is seen as natural or inevitable, given the strategic orientation of the partner firms. The authors have also suggested that the saliency of the different types of interpartner legitimacies varies across the formation, operation and outcome stages of the alliance. Pragmatic interpartner legitimacy is the most salient at the formation stage of the alliance, as in its absence the alliance may not even come into existence. However, it remains equally true that pragmatic interpartner legitimacy may become an issue during the operation and outcome stages of the alliance. Moral interpartner legitimacy is most important during the operational and outcome stages of the alliance, as an alliance partner’s behaviours and commitments are most explicitly tested here. Cognitive interpartner legitimacy also becomes salient at the operation and the outcome stages as the alliance evolves over time. This is so because over time commitments may get strengthened, or may wither away. In other words, cognitive interpartner legitimacy is either reinforced or, alternatively, undermined as the alliance evolves over time. This is a framework that is easily amenable to cultural extension. Interpartner legitimacy deals with the issue of appropriateness and so does the concept of national culture, although the levels at which the concepts are applied in the first instance are no doubt different. Interpartner legitimacy deals with appropriateness of behaviour at the interfirm level while national culture focuses on societal values. It is clear though that societal values constrain or shape behaviour at the micro level. Given this interlinkage it follows that in international alliances national cultural differences are an important, although not necessarily the exclusive, determinant of interpartner legitimacy. We now outline the linkages through which national culture influences interpartner legitimacy. We have noted that interpartner legitimacy can be distinguished into pragmatic, moral and cognitive legitimacy. While all of these legitimacies are important in all cultures, the saliency of different kinds of legitimacies may be culturally dependent. In other words, in some cultures pragmatic interpartner legitimacy may be the most important, whereas in other cultures moral or cognitive interpartner legitimacy may be so. Why might this be the case and what cultural values may explain the relative dominance of one type of interpartner legitimacy over another? As we have

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pointed out earlier, national cultural values represent the preference of a group for a particular set of assumptions over alternative assumptions. For example, in North American and European cultures the dominant assumption is that time is money, whereas in Latin American cultures there is a more elastic view of time (Lane et al., 1998). When an assumption varies, then so does an alliance firm’s behaviour and its perceptions or interpretations of its partner’s behaviour. In other words, unconsciously held assumptions are likely to shape an alliance firm’s expectations of the appropriateness of its partner’s behaviour. Alternatively put, these assumptions may hinder or facilitate the attainment of interpartner legitimacy. Scholars note that the individualism–collectivism dimension is one of the most important dimensions along which cultures vary (Chen et al., 1998). Individualists are most fundamentally concerned with achieving their own goals, whereas collectivists give greater priority to group over individual goals. Collectivistic cultures also stress the importance of harmony management, and while individualists may not necessarily like open conflict, they are much less averse to conflict should it occur. Individualists also tend to be task-oriented while collectivists have a strong relationship orientation. This relatively brief description of differences between an individualist and a collectivist culture already suggests to us that in individualistic cultures, for example, it is pragmatic interpartner legitimacy that will be most salient whereas in collectivistic cultures it is moral interpartner legitimacy that will be more dominant. The reason for this is fairly simple. Individualistic cultures are goal- and outcomeoriented and pragmatic interpartner legitimacy is directly tied to issues of goal attainment. Collectivistic cultures, by contrast, are much more process- and harmony-oriented, and this has the implication that moral interpartner legitimacy takes on greater salience. Thus when an alliance firm from an individualistic culture gets together with a partner firm from a collectivistic culture, we can easily anticipate the conflicts that may occur, and why attaining interpartner legitimacy may be made that much more difficult. The alliance firm from an individualist culture will focus its attention on attaining pragmatic interpartner legitimacy, while its partner from a collectivistic culture will be focused more on attaining moral interpartner legitimacy. A good illustration of the above situation is the joint venture ChiangSho Ltd (CSL) that was established in 1993 between Chengdu, a subsidiary of the Zhang group of China, and Globe Engine Company of Germany (West, 2004). As a consequence of the joint venture the Chinese company would gain access to new technology while the German company would become a dominant player in China. Problems in the partnership began

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to emerge when the first invoice was sent to Chengdu by CSL, in which the cost of a single engine was greater than the cost of the entire tractor. Chengdu executives were unhappy with the costs as well as with the performance-related problems that began to emerge. The Chinese felt that the negotiated agreement lacked moral legitimacy and pressed for a renegotiation. This second round of negotiations led to the German company reducing its margins on components and on the royalty from the joint venture, while the Chinese company agreed to discount further the price of castings and forgings that it supplied to the joint venture. Although many managers in the German company were positive about the renegotiation, this sentiment was not universally shared. The German company’s willingness to renegotiate demonstrated its willingness to be responsive to the Chinese partner’s moral legitimacy concerns. However, this was not to be the end of the story, because a little later the Chinese put pressure on Globe to reduce the price of its engines further. It seems that the moral interpartner legitimacy concerns of the Chinese had not altogether been allayed. Globe, by contrast, also began to feel over time that Chengdu did not suitably express appreciation for Globe’s efforts, and to that extent felt that not only was the pragmatic interpartner legitimacy of the venture threatened, but so also was its moral interpartner legitimacy. A related point on cultural differences is that the speed with which the different types of legitimacies are attained may also vary across cultures. In individualistic cultures the alliance partners may be much quicker in determining whether the alliance has or has not attained interpartner legitimacy. They may also put in considerable effort from the beginning to ensure the success of the venture. Alliance partners from individualistic cultures are very strongly goal-focused and this means that the determination of whether an alliance has achieved pragmatic interpartner legitimacy is very important to them. Partners from collectivistic cultures are likely to be more cautious in making such a judgement. Collectivists do not enter into relationships easily and nor do they like to terminate them on a whim. This means that they will take their time in making the relevant judgements. This is likely to be true for the assessments that they make about moral interpartner legitimacy as well. It is also the case that even within individualistic cultures there may be a difference in that cultures that are strongly individualistic will want to complete the process of legitimation at the earliest possible time. An example of this is the alliance between the Dutch company Avebe and the American company Noveon (Wahyuni, 2007). This was a product development and distribution alliance in which the partner firms were developing and planning to distribute a ‘high-performance thickener for textile printing applications’. The alliance initially began well, with

Strategic alliances and culture in a globalizing world

25

high levels of trust and a shared vision. This led to extensive information exchange and intensive discussions among managers involved in the project. The case writer notes that both internal and external factors affected the development of the alliance adversely. However, she also notes that cultural differences had a detrimental impact on the alliance. She goes on to observe that: ‘Americans tend to be more aggressive in achieving their goals. This different attitude in business was one of the reasons why Noveon had given up sooner than Avebe’ (Wahyuni, 2007, 16). In a similar vein the Noveon vice-president of technology noted: ‘I think Avebe wanted a result but they were willing to wait longer. We were expecting the result much faster than perhaps Avebe could or understood what we wanted’ (Wahyuni, 2007, 16). In other words, the Americans got frustrated by their inability to achieve pragmatic interpartner legitimacy and probably decided to refocus their efforts elsewhere. The stability of legitimacy judgements made by alliance partners from individualistic and collectivistic cultures is also likely to vary. The goaloriented individualist may be quick to make judgements but by the same token may also be quick in discarding them in response to environmental shifts. Instability in judgements arises whenever goal attainment is threatened. The process-oriented collectivist, by contrast, may be slower in making judgements, but is likely to stick with them once the judgements are made. Concerns of face and harmony maintenance (Das and Kumar, 2009) impel the firm embedded in a collectivistic culture not to discard their partners peremptorily. Alliance partners embedded in individualistic and collectivistic cultures may also differ in the way they deal with the emergence of any kind of legitimacy crisis. For example, when an alliance experiences the crisis of pragmatic interpartner legitimacy, an alliance partner from an individualistic culture will seek to deal with the problem in a very direct and upfront manner. After a thorough and speedy analysis the partner may either wish to put in greater effort, re-evaluate the expectations, or seek to exit from the alliance. These decisions are likely to be made in a calculative manner, although emotions may also play some role. By contrast, an alliance firm in a collectivistic culture will deal with the problem in a much more careful and measured way so as to avoid disrupting harmony and upsetting its partners. Relatedly, alliance partners may also differ in their assessment of what they might consider to be a satisfactory resolution to any form of interpartner legitimacy crisis, be it pragmatic or moral. Alliance partners from an individualistic culture will want to see tangible results that are indicative of problem resolution, whereas alliance partners in collectivistic cultures may be willing to accept a certain degree of ambiguity in this regard.

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Strategic alliances, mergers and acquisitions

FUTURE RESEARCH AND MANAGERIAL IMPLICATIONS In this chapter we have highlighted the relevance of micro behavioural processes in understanding international alliance evolution, making the argument that a neglect of the micro behavioural processes is a crucial shortcoming of the existing literature on strategic alliances. We have also stated that national culture is always either implicitly or explicitly a factor in international alliances, and we therefore need to deepen our theoretical understanding of how national culture influences alliance evolution. We have drawn on two theoretical frameworks – discrepancy (Kumar and Nti, 2004) and legitimacy (Kumar and Das, 2007) – for this endeavour and demonstrated the relevance of these frameworks in explaining the role played by national culture. We would like to add here that these two frameworks complement each other, with the discrepancy framework relying more on the linkage between culture and expectations and the legitimacy framework on the linkage between culture and behaviour. In any international alliance both are undoubtedly intertwined, but from an analytical and a managerial standpoint it is perhaps helpful to discuss them separately. If expectations shape alliancing firms’ motivational orientation, behaviour reflects the consistency between the firms’ motivational orientation and their ability to enact such an orientation. The two may not necessarily be synchronous, for reasons that may range from an incomplete understanding on the part of top management regarding what it takes to make an alliance successful, to a gap between the top managers who initiated the alliance and middle-level managers in charge of day-to-day operations. Several other implications follow. First, while cultural conflicts may be inevitable in international alliances, these conflicts may have their roots either in conflicting expectations or in conflicting behaviours. Conflicts rooted in conflicting expectations are not immediately discernible whereas conflicts rooted in conflicting behaviours are clearly visible. This has the obvious implication that conflicts relating to conflicting behaviours may attract the attention of alliance managers more readily than conflicts relating to conflicting assumptions. Secondly, the assumptive and the behavioural roots of conflict may also vary as a function of the developmental stage of the alliance. In the formation stage of the alliance, assumptive conflicts may be more salient, whereas at the operation stage behavioural conflicts may be more dominant. Thirdly, alliance management involves interaction among partner firms at different levels (Das and Kumar, 2007; Kumar and Andersen, 2000).

Strategic alliances and culture in a globalizing world

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There is the interaction between top management of the partner firms, interaction between alliance managers where the partner firms have seconded a manager from their firm to the alliance, and then there is the interaction at the operational level between the partner firms. We would surmise that while both assumptive and behavioural conflicts are likely to manifest themselves at all of the different levels, the relative salience of these conflicts may vary as a function of the management level. In other words, assumptive conflicts may fall into the lap of top management whereas behavioural conflicts may be more dominant at the level of interactions between alliance managers or at the operational level. This suggests that the decomposition of conflicts rooted in either expectations or behaviour has important managerial implications. Managers involved in international alliances must of course develop cultural sensitivity, but beyond that they must also develop the ability to assess accurately the impact of culture and to discern whether the dominant impact is through expectations or behaviour. The arguments advanced in this chapter also suggest future research directions for the study of international alliances. First, it might be useful to integrate the two models and develop and test propositions that incorporate the interface at multiple organizational levels in alliances. Second, while both expectations and behaviour are affected by national culture, the issue is whether their impact is similar for all types of alliances, or whether their effects depend on the type of alliance under consideration, such as equity joint ventures, minority equity alliances and non-equity alliances. It would also be interesting to assess the interlinkages between expectations and behaviour and the variables of trust and commitment that often enough occupy centre stage in the study of alliances. Studies along these lines will not only help us develop a strong theoretical foundation for understanding international alliances but they may also provide useful guidelines for alliance managers.

REFERENCES Adler, N.J. (2001), International Dimensions of Organizational Behavior, Cincinnati, OH: Southwestern Publishing. Barkema, H.G. and F. Vermeulen (1997), ‘What differences in cultural backgrounds of partners are detrimental for international joint ventures?’, Journal of International Business Studies, 28, 845–64. Bjorkman, I. (1999), Guangdong Electronics (Case # 300-007-1), Fontainebleau, France: INSEAD-EAC. Butler, C. and H.-C. de Bettignies (1997), Korea Beral (A) (Case # 399-056-1), Fontainebleau, France: INSEAD-EAC.

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Chen, C.C., X.P. Chen and J.R. Meindl (1998), ‘How can cooperation be fostered? The cultural effects of individualism–collectivism’, Academy of Management Review, 23, 285–304. Das, T.K. (2005), ‘Deceitful behaviors of alliance partners: potential and prevention’, Management Decision, 43, 706–19. Das, T.K. and R. Kumar (2007), ‘Learning dynamics in the alliance development process’, Management Decision, 45, 684–707. Das, T.K. and R. Kumar (2009), ‘Interpartner harmony in strategic alliances: managing commitment and forbearance’, International Journal of Strategic Business Alliances, 1, 24–52. Das, T.K. and B. Teng (1997), ‘Sustaining strategic alliances: options and guidelines’, Journal of General Management, 22 (4), 49–64. Das, T.K. and B. Teng (1998), ‘Between trust and control: developing confidence in partner cooperation in alliances’, Academy of Management Review, 23, 491–512. Das, T.K. and B. Teng (2000), ‘Instabilities of strategic alliances: an internal tensions perspective’, Organization Science, 11, 77–101. Das, T.K. and B. Teng (2002), ‘The dynamics of alliance conditions in the alliance development process’, Journal of Management Studies, 39, 725–46. Das, T.K. and B. Teng (2003), ‘Partner analysis and alliance performance’, Scandinavian Journal of Management, 19, 279–308. Dong, L. and K.W. Glaister (2007), ‘National and corporate culture differences in international strategic alliances: perceptions of Chinese partners’, Asia Pacific Journal of Management, 24, 191–205. Doz, Y.L. (1996), ‘The evolution of cooperation in strategic alliances: initial conditions or learning processes?’, Strategic Management Journal, 17, 55–83. Gill, J. and R.J. Butler (2003), ‘Managing instability in cross-cultural alliances’, Long Range Planning, 36, 543–63. Hall, E.T (1959), The Silent Language, New York: Doubleday. Hofstede, G. (2001), Culture’s Consequences, 2nd edn, Thousand Oaks, CA: Sage. Kauser, S. and V. Shaw (2004), ‘The influence of behavioral and organizational characteristics on the success of international strategic alliances’, International Marketing Review, 21 (1), 17–52. Kluckhohn, F.R. and F.L. Strodtbeck (1961), Variations in Value Orientation, Evanston, IL: Row Petersen. Kumar, R. (1999), ‘Communicative conflict in intercultural negotiations: the case of American and Japanese business negotiations’, International Negotiation, 4 (1), 63–78. Kumar, R. (2008), ‘Contested meanings and emotional dynamics in strategic alliances’, in N.M. Ashkanasy and C.L. Cooper (eds), Research Companion to Emotion in Organizations, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 561–74. Kumar, R. and P.H. Andersen (2000), ‘Interfirm diversity and the management of meaning in international strategic alliances’, International Business Review, 9, 237–52. Kumar, R. and T.K. Das (2007), ‘Interpartner legitimacy in the alliance development process’, Journal of Management Studies, 44, 1425–52. Kumar, R. and K.O. Nti (1998), ‘Differential learning and interaction in alliance dynamics: a process and outcome discrepancy model’, Organization Science, 9, 356–67.

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Kumar, R. and K.O. Nti (2004), ‘National cultural values and the evolution of process and outcome discrepancies in international strategic alliances’, Journal of Applied Behavioral Science, 40, 344–61. Kwon, Y.-C. (2008), ‘Antecedents and consequences of international joint venture partnerships: a social exchange perspective’, International Business Review, 17, 559–73. Lane, H.W., J.J. DiStefano and M.L. Mazneveski (1998), International Management Behavior, 3rd edn, Cambridge, MA: Blackwell Publishers. Leung, K., R.S. Bhagat, N.R. Buchan, M. Erez and C.B. Gibson (2005), ‘Culture and international business: recent advances and their implications for future research’, Journal of International Business Studies, 36, 357–78. Li, J. and S.E. Guisinger (1991), ‘Comparative business failure of foreigncontrolled firms in the United States’, Journal of International Business Studies, 22, 211–28. Lin, X. and C.L. Wang (2008), ‘Enforcement and performance: the role of ownership, legalism, and trust in international joint ventures’, Journal of World Business, 43, 340–51. Markus, H., S. Kitayama and R.J. Heiman (1996), ‘Culture and basic psychological processes’, in E.T. Higgins and A.W. Kruglanski (eds), Social Psychology: Handbook of Basic Principles, New York: Guilford, pp. 856–913. Meglino, B.M., E.C. Ravlin and C.L. Adkins (1989), ‘A work values approach to corporate culture: a field test of the value congruence process and its relationship to individual outcomes’, Journal of Applied Psychology, 74, 424–32. Meschi, P-X. and E.L. Riccio (2008), ‘Country risk, national cultural differences between partners and survival of international joint ventures in Brazil’, International Business Review, 17, 250–66. Pothukuchi, V., F. Damanpour, F. Choi, C.C. Chen and S.H. Park (2002), ‘National and organizational culture differences and international joint venture performance’, Journal of International Business Studies, 33, 243–65. Ring, P.S. and A.H. Van de Ven (1994), ‘Developmental processes of cooperative interorganizational relationships’, Academy of Management Review, 19, 90–118. Robson, M.J., C.S. Katsikeas and D.C. Bello (2008), ‘Drivers and performance outcomes of trust in international strategic alliances: the role of organizational complexity’, Organization Science, 19, 647–65. Sirmon, D.G. and P.J. Lane (2004), ‘A model of cultural differences and international alliance performance’, Journal of International Business Studies, 35, 306–19. Staw, B.M., L.E. Sandelands and J.E. Dutton (1981), ‘Threat-rigidity effects in organizational behavior: a multilevel analysis’, Administrative Science Quarterly, 26, 501–24. Steensma, H.K., L. Marino, K.M. Weaver and P.H. Dickson (2000), ‘The influence of national culture on the formation of technology alliances by entrepreneurial firms’, Academy of Management Journal, 43, 951–73. Wahyuni, S. (2007), Learning from Failure: Avebe and Noveon Alliance (Case # 307-326-1), Graduate School of Management, University of Indonesia; case distributed by Cranfield University, Wharley End, Beds, UK: ECCH. West, J. (2004), Chiang-Sho Ltd (Case # 9-602-100), Cambridge, MA: Harvard Business School Press.

2.

Why do international alliances fail? Some insights from culture and human social biology Gert Jan Hofstede

INTRODUCTION In recent decades, enterprises in many sectors have been globalizing. Pressures to innovate have intensified. When two or more partners in several countries have complementary skills or advantages, this gives rise to international collaborative ventures. Das and Teng (2000) define them as ‘inter-firm cooperative arrangements aimed at pursuing mutual strategic objectives’. These can have various configurations, for example joint ventures, research and development (R&D) alliances or supply networks. In the management literature the term used most frequently is ‘strategic alliances’; we shall say ‘alliances’ for short. These have in common that they are voluntary, long-term collaborative efforts by a number of independent organizations. Such an effort requires investing in mutual relationships, and crucially, dividing risks, rewards, property rights and decision rights, in order to function. The number of international alliances is sharply on the rise. De Man and Duysters (2007) present data from 200 global companies across sectors and countries showing a rise from 200 to 2750 in the period 1996–2006. Alliances frequently fail though; average success rates are around 50 per cent. About 10 per cent of companies succeed in almost all their alliances, while another 10 per cent fail in almost all their alliances. Among NonChinese companies that ally with Chinese companies, this distribution is different: 30 per cent fail in almost all their alliances, while 25 per cent are almost always successful in their alliances. This distribution suggests that those non-Chinese partners either get it really right, or entirely wrong. Why? This chapter will look into culture as one of the factors that can explain failure of international alliances. In this chapter we focus in particular on culture and its effect on alliance management. Cultures in various parts of the world differ enormously in 30

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their attitudes towards collaboration and hierarchy. Culture, defined as the hidden rules of the social game, thus can be expected to have far-reaching effects on the viability of alliances. It predicts mindsets of the leaders and followers who are involved, which means that leadership also has to vary across cultures. Culture also influences institutional rules such as enforceability of contracts or expectations about stability of relationships, as well as about symmetry of power balances that could be possible, and of the roles of the partners. In brief, culture sets the unwritten rules of the games of collaboration and competition that prospective alliance partners play. But the ground has to be prepared first. The chapter first makes the point that culture is but one among many factors that can cause an alliance to fail. It then discusses some selected literature about alliance management, and about the institutional side, that indicates the state of the art related to culture and alliance success. Next it plunges into the basic drives and motivations of humans. This might seem overdone but it is necessary to reach a level of analysis at which the various, disparate theoretical approaches can be brought together. The chapter then introduces the issues that national cultures are concerned with, taking Hofstede’s work (Hofstede and Hofstede, 2005) as its inspiration. This leads to a discussion of the culture required for an alliance. Professional and organizational cultures are also discussed. Then, using all of the theoretical perspectives, practical issues of leadership and cohesion in an alliance are tackled. Two cases from international food supply networks, abbreviated ‘netchains’, illustrate the argument. Finally, conclusions are drawn.

ALLIANCES Why Can an Alliance Fail? Of course, alliances could fail for reasons that have nothing to do with culture. In any real-world case, difficulties in building alliances are a consequence of many elements. These include: ● ● ● ●

Business aspects. For instance, was it a sound idea anyway? Was there a hidden agenda behind the creation of the alliance? Context factors. For instance, what about the economy? Personal factors. For instance, were good people available? Did anybody die or leave at the wrong time? Interpersonal dynamics. For instance, were key people outcompeted by others, and could they now hold a grudge?

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Strategic alliances, mergers and acquisitions ●

Culture. For instance, are there groups of people who might form a communication island? Are cross-cultural misunderstandings possible?

In this picture, culture is no more than one of the contributing elements; no more, no less. It interacts with the other issues: for instance, what is a ‘good person’, how does one gauge the economic situation, how does one deal with interpersonal competition – almost any issue is culturally framed. Consider an incident that occurred in a US-based manufacturing multinational with a Singaporean plant. The context, if not this particular incident, is described in Dooley (2003a, 2003b). Though this was formally not an alliance but a single company, the dynamics could have happened in an alliance, and they indicate what might happen in collaboration between people with Chinese and Western mindsets. Mr Li, manager of a production facility in Singapore, was dependent upon the Silicon Valley-based design lab for software code with which to feed his production process. One day the code for the next batch was missing. Mr Li called up the designer, John Mikkelsen, who was of lower rank than himself, and told him to send the code straight away. Mikkelsen refused, arguing that there was still a bad bug that needed to be fixed. Li then sent an email to Mikkelsen copying a whole circle of managers at Li’s level, including Mikkelsen’s boss. This email ordered Mikkelsen to send the code immediately. Mikkelsen responded by emailing Yap and Tan, two subordinates of Mr Li. Yap and Tan however did nothing, and Mikkelsen’s boss then forced him to send the code without waiting for the bug to be fixed. In the aftermath of the incident, Mikkelsen asked, and was granted, to be relocated so that he might avoid Mr Li. The question is: what caused this incident? Certainly, all of the five points above could have contributed, and on the basis of one single incident one cannot quantify. However, anybody with experience in both societies can reliably predict that had Li been American and Mikkelsen Chinese, the episode would have had a very different course. In what follows we shall first make some general points about alliances using the literature, then turn to culture, and subsequently return to the episode with Li and Mikkelsen. Alliance Management The management literature on alliances is blooming. It is in a phase where many theoretical frameworks are being proposed and testing them is still in its infancy. Some frameworks that seem relevant for the present chapter will be introduced here.

Why do international alliances fail?

Table 2.1

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Interpreting the Li–Mikkelsen incident using Kumar and Nti (2004)

Phase

Mr Li

John Mikkelsen

Detection Attribution Reaction

Code is late Insubordination of subordinate Direct order involving peer group

Code is not ready yet Bug in code Try to convince; exit relationship

Culture and process in alliances Cultural values can play a prominent role if the partners have different value systems. This is the position taken by Kumar and Nti (2004). They operationalize this idea into a model that describes the process of how things can go wrong, or can be resolved, in an alliance. Their model has three main phases. First, one or more partners experiences a discrepancy in the process or outcome of interactions. Second, they make an attribution. Thirdly, they react to this attribution. This model is very well suited to explaining culture-bound processes, because it acknowledges that each alliance partner is unique in terms of what they will detect, to what they will attribute the discrepancy, and what action they will take. Notably, Kumar and Nti distinguish between dispositional and situational attribution and action. The former involves the intentions of individuals, while the latter involves the wider context. We can revisit the incident with Li and Mikkelsen using this model, as shown in Table 2.1. Mr Li makes a situational detection, a situational attribution, and takes situational action involving the wider group. Mikkelsen operates through attribution: he responds by arguments that disregard the social context, tries to involve individuals, and finally succeeds in staying away from Mr Li as an individual. Alliance instability In a meta-analysis of empirical studies about alliance stability, Das and Teng (2000) posit that alliances have to struggle with three inherent types of tension that derive from their nature as interfirm collaborations. These are: ●

Cooperation vs competition: when firms are too competitive, mutual trust is destroyed and the alliance is doomed; when they are too cooperative, one partner may gain the knowledge to renegotiate or terminate the alliance.

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●

Rigidity vs flexibility: a single organization is rigid, while a market is flexible. Alliances have to strike a balance, or their raison d’être vanishes. Long-term vs short-term orientation: a long-term orientation provides commitment to a good working relation, while a short-term orientation stresses prompt results. A balance is needed, because the alliance can only survive if both working relationships and results are in order.

For each of the three tensions, the first extreme tends to closer collaboration while the second tends to dissolution. Thus a cooperative, rigid, longterm-oriented alliance will tend to result in a merger while a competitive, flexible and short-term-oriented alliance will tend to dissolve. This framework is intuitively appealing. We shall later think it through in the light of theory on culture. Trust, control and cultural blending Some authors have already attempted to bring culture to bear on alliances. Das and Teng (1998) review the literature and suggest that trust and control are important and mutually moderating elements in successfully managing alliances. They distinguish formal control from social control, and hypothesize that while deploying formal control mechanisms will undermine trust, deploying social control will enhance it. Any control mechanism will be more successful if trust exists. It follows that building trust is essential. To this effect, the necessity for ‘cultural blending’ of alliance partners is argued. They define organizational culture as: ‘a system of shared values and norms that define appropriate attitudes and behaviours for organizational members’. Their argument then stresses that (Das and Teng, 1998, 507): ‘whereas in a merger/acquisition it is acceptable for one organizational culture to prevail, in alliances this is rarely so, for partners in alliances are still independent firms so that both are concerned about losing their own organizational identity in an alliance’. The present chapter takes issue with this combination of quotes. These two quotes show that the authors do not distinguish between organizational culture and organizational identity. The difference is that one is not normally aware of one’s culture, while one is acutely aware of one’s identity. This is crucial, because it suggests that working on achieving a common identity through shared symbols, heroes and rituals could be a very effective way of improving the chances of success for an alliance. In contrast, attempts at actively changing culture are likely to fail because culture is largely unconscious and also taboo-ridden. The actual suggestion made by Das and Teng (1998, p. 507) is for ‘socialization and training of alliance managers’,

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suggesting that this enables cultural blending. My own experience is that this is good advice, but because it enables friendships and loyalties and the emergence of common rituals and symbols, not because it causes the protagonists’ value systems to shift. Justice Alliances are supposed to bring mutual benefit. Discrepancies in the sense of Kumar and Nti (2004) will often affect the perceived benefits: one partner might think that the other acts in a way that is detrimental to its interests, or appropriates too large a part of the benefits. Perceived justice is an important concept to explain discrepancies. Whereas Kumar and Nti distinguish process and outcome discrepancies, Luo (2007) distinguishes three categories of justice: distributive, procedural and interactional. While Luo’s notions of distributive and procedural justice correspond to Kumar and Nti’s outcome and process categories, Luo’s interactional justice is new. It refers to ‘the perceived fairness of the nuances of interpersonal treatment’. Luo analysed 127 US–Chinese alliances with a questionnaire and found that all three forms of justice significantly affected alliance performance in terms of asset turnover. Procedural and interactional justice were more important than distributive justice, and with increased interactional justice, the influence of procedural justice on performance becomes greater. This could be rephrased to state that if interactional justice is good, partners are ready to interpret procedures as just. The Li–Mikkelsen incident clearly hints at the importance of interactional justice: Mikkelsen would probably have agreed that the bluntness of Mr Li’s conduct was what most irritated him, while Mr Li would have mentioned the blatant disrespect that Mikkelsen showed. Alliances as Economical Entities From the point of view of institutional economics, alliances are a complex way of organizing transactions (Hendrikse, 2003). Neoclassical economics has traditionally described either markets or hierarchies as preferred institutional arrangements. Alliances are a form of what Ménard (2004) calls hybrid organizations. They combine some of the properties of markets with some of those of hierarchies. Of markets they have the voluntary choice of partners and lack of central ownership. Of hierarchies they have the longer-term relationship. They are held together by contracts, but these are embedded in relationships. Contracts can never cover every last eventuality. Ménard hypothesizes that alliances are the preferred coordination mechanism in a certain range of conditions; see Figure 2.1.

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Transaction costs

Hybrids

Markets

Hierarchies

Trust

LeaderRelational ship Network

Formal Government

Asset Specificity

Source:

Ménard (2004), reproduced with permission.

Figure 2.1

Hybrid organizations as a function of asset specificity and transaction costs

Figure 2.1 shows that under low asset specificity, (spot) markets are the most attractive governance mechanism because their transaction costs are the lowest. Under very high asset specificity, that is, if product-specific investments are needed, a hierarchy is most suited. It reduces the risk that the investment will have been made in vain. The intermediate range is what Ménard calls a hybrid. Alliances are instances of such hybrids. Analogously to Das and Teng’s (2000) flexible–rigid tension, Ménard proposes four possible mechanisms of coordination: trust, relational network, leadership and formal government. These constitute a range that gradually moves from a market-like or flexible to a hierarchy-like or rigid configuration. Ménard adds that Figure 2.1 is a ‘simplifying’ figure that requires at least two important qualifications: first, a third variable, ‘uncertainty’, should be brought into the picture since reducing uncertainty of future transactions is one of the central drivers towards integration. Second, the figure suggests that optimum situations can be found. In reality, different institutional arrangements can exist side by side over prolonged periods in the same sector. There are cross-national differences; for instance, in some countries family enterprises dominate while others spawn multinationals. This state of affairs might bring to mind cultures in different countries: they too differ and have existed side by side over prolonged periods of time. If cultures can keep themselves distinct over generations, perhaps they can also help to explain the coexistence of different institutional arrangements.

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Alliances as Part of Human Nature According to all the authors reviewed so far, both on the management and on the institutional economics side, social and interpersonal process in alliances are important. This is confirmed by work on human social biology. Evolutionary biologists Richerson and Boyd (2005) argue that humans are special for their ability to associate and collaborate with total strangers. This ability has resulted from a million years of co-evolution of our genes – including our psychologies – and our cultures. It is this propensity that has brought us to where we are today, managing large-scale anonymous societies and companies. We are still loyal to close relatives, but we also live in larger, more flexible wholes that employ symbolic clues of group membership, and this tendency has been on the increase throughout our evolution. We construct our identities from, for example, ethnic, religious, national, professional or organizational markers. Throughout human evolutionary history, intergroup competition has operated to select in favour of groups that can control infighting and improve prosocial behaviour. As a result, the wholes in which we participate have been growing steadily bigger throughout the millennia. The impetuous increase in the numbers and economical importance of alliances is, in this author’s view, a manifestation of that tendency. Evolutionist Wilson (2007) coins the term ‘moral circle’ to indicate a community of beings who act pro-socially towards one another. We humans have evolved to feel emotions about membership in groups that are not exclusively kinship-based. We can feel loyalty, pride, shame and guilt based on the interests of our tribe, team, country or organization. Today, being able to extend the moral circle beyond the boundaries of organizations, notably through alliances, is a potential next frontier in the evolution of organizations. An alliance requires that two distinct moral circles merge, at least partially. Three boundaries What exactly are the emotional boundaries that organizations must cope with if they wish to enter into an alliance? The work of Maslow (1970) on basic human needs can be of help here. Maslow noted that we have an innate need for belonging to a group and for esteeming that group above all others. He also noticed our innate tendency to need esteem, or in a biological term, dominance. From the point of view of these basic human drives for belonging and dominance we can pose that the following are crucial: 1.

Leaders of the participating organizations must agree to share authority of the alliance with other actors for the duration of the alliance,

38

2.

3.

Strategic alliances, mergers and acquisitions

relinquishing entrepreneurial authority. Being one’s own boss is a strong motive for people, so that this is a tall order. Between the leaders of the participating organizations and the alliance, mutual adjustment will be needed. Incidentally, similar problems occur with mergers. The alliance partners must consider one another as belonging to the same group. This is because they both have to invest in the alliance, thereby incurring vulnerability to opportunistic behaviour. Each actor in the alliance can hurt the others through errors, deceit or withdrawal. In other words the partners need to trust one another, since control alone cannot guarantee upstanding behaviour. Das and Teng (1998) confirmed this, as discussed above. The necessary mix of trust and control might vary, for instance with culture. From the outset, and all through the alliance’s life cycle, the issue of fair division of costs and benefits is crucial. An alliance is explicitly based on the assumption of mutual benefit. This issue of fairness, or justice, is of course related to the first two. If one partner perceives the other as unjust, for example abusing power, or behaving opportunistically, the alliance is in danger.

These preconditions clearly call for an engagement at the interpersonal level. An alliance requires fine-tuning of equilibriums related to dominance and to group membership. This brings to mind the internal tensions model of Das and Teng (2000). But this does not necessarily agree with the mindsets of the average executive or employee in various parts of the world. Yet the alliance must achieve a sense of identity, or community, if it is to function. This is achieved partly through the acceptance or refusal of the alliance by its personnel, but these take their cues mainly from their leaders. Their attitudes and the example that their behaviours set will be crucial. Alliances and leadership From the above it is obvious that leadership in an alliance is crucial. Figure 2.1 sees it as one of the main mechanisms that make a hybrid organization work. The three factors mentioned above all constrain leadership. The sharing of authority implies that a delicate balance must be achieved between cohesion in the alliance and loyalty to the ‘parent’ organizations. A leader of an alliance who is perceived to be loyal or obedient to only one of the parents is likely to fail. The vulnerability calls for a sustained investment in trusting relationships with the parent organizations. Sustaining a long-term relationship is difficult because the more partners, the more possible disturbances, and the leader of the alliance will in all likelihood be obliged to buffer the alliance against changes in the parent organizations.

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So a subtle hand of leadership is needed. It should create a clear sense of purpose and identity to forge the alliance into a working group of people with loyalty and a sense of identity. At the same time it should respect the relationship with the parent organizations. It is now time to investigate culture at some length to see how various cultures might differ in their propensity to accept the specific configuration of alliances.

COOPERATION AND FIVE BASIC ISSUES OF CULTURE Doing business or cooperating is not quite the same across the world. A host of authors from various disciplines have made this point. In this chapter we shall use the accessible, widely cited and applied work of Geert Hofstede (2001). Hofstede found that societies differ durably on five dimensions related to: (1) identity; (2) hierarchy; (3) gender and aggression; (4) truth and fear; and (5) now and later. The five dimensions describe basic configuration issues of societies. They are instilled from birth and permeate all social activity, from family relations and school relations to work relations. It follows that the issue of configuration of society at large is closely linked to the issue of configuration of networks of organizations. Each of these five issues spans up a dimension, that is, a continuum with two extremes, on which a society has a relatively fixed place. This place does not say anything about individual personalities. It shows a tendency among people who were socialized in that country to perceive the social world in a certain way. A brief introduction into the dimensions follows, with examples of how they shape collaboration. The two extremes of each dimension are highlighted. In this way it becomes apparent that the three preconditions for alliances mentioned above are not met in the same way or with the same ease across cultures. Identity For identity, the dimension poles are individualism versus collectivism. These poles are also known by different names, for example universalism versus particularism (Trompenaars and Hampden-Turner, 1997), low-context versus high-context cultures (Hall, 1959), universalism versus exclusionism (Minkov, 2007). In an individualist society such as the Anglo world (English-speaking countries) and the Netherlands, links between people are typically voluntary. Economic exchange between otherwise

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unrelated individuals is a frequent occurrence. Family is not the primary societal glue. In fact in individualist countries, limiting individual freedom for the sake of social cohesion is a controversial matter. Leaders must among other things be team players, because the existence of the group cannot be taken for granted. The final arbiter for deciding about business is the law, not group membership – except if power distance is very high. Contracts, often with definite and limited duration in time, are considered suitable instruments for sealing business relationships. A temporary alliance between organizations would fit that pattern. A collectivist society, on the contrary, is built on long-lived groups of people, of whom the extended family is a central one. This affects people’s perception of relationships. From a collectivist point of view, one cannot do business with strangers. You first have to become members of the same group before you can go ahead. Any business relationship also involves both personal and business aspects. The relationship therefore involves a moral obligation to keep investing in it. Relationship networks, Ménard’s second coordination mechanism in Figure 2.1, are likely to be familybased in collectivist societies. This would imply that collectivist societies might consider alliances to be a ‘family’. Hierarchy In a society of small power distance, hierarchy in organizations is largely a matter of convenience. If a leader ceases to function well, they are replaced. Those who are led do not look up to their leaders. Blame is shifted upwards, and leaders are thus always in danger of losing their position if they maltreat their subordinates. On the other hand, even good leaders could fail to get their ideas adopted by their subordinates if they are not also resourceful democrats and negotiators. Human relationship management may include items that tend to diminish gaps in status, such as career development, empowerment, mutual assessment by boss and subordinate, and job rotation. In countries of large power distance this is not the case; relationships between parents and children, bosses and subordinates, magistrates and citizens are conceived of as unequal. Leaders are considered by their followers to be intrinsically of a different level than they are themselves. A leader remains a leader during their entire life. Subordinates usually keep their voices and their heads down because speaking up will only get them into trouble. Blame is shifted downwards. Fatalism is an accepted coping strategy. Leaders need to give precise assignments, because subordinates do not expect to take responsibility. This issue surfaces in each social situation in which equality is implied.

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Negotiation is a case in point. In negotiations between countries or companies, partners from hierarchical cultures are used to either giving in or giving orders. In egalitarian cultures they may also try this, but sooner or later they are likely to be held accountable for such behaviour. Creating alliances involves negotiations, and these are likely to be difficult among partners from large power distance societies. If the negotiations succeed there could be new problems. In a society of large power distance, sharing authority in the context of an alliance, an action that may imply a perceived loss of status, may not be socially acceptable. Issues dealing with formal status are very important. They are embedded in ritual. For instance, when junior executives have prepared a decision in a culture of small power distance they might take credit for it. In a culture of large power distance they would formally do no more than to advise the old patriarch. This ensures stability in the organization as long as the patriarch is there. With the departure of a leader, a violent power struggle could occur. Like anything that pertains to culture, this issue is not black and white, of course. Medium power distance could have beneficial effects in stabilizing leadership in an organization, also if this is an alliance. Resourceful leaders can negotiate well whatever their culture. Gender and Aggression At the level of societies, gender roles and aggression are linked. In ‘feminine’ societies such as the Dutch, both men and women alike are supposed to sit down and talk rather than stand up and fight. Engaging in open conflict is not done, and conflicts are played down. This implies that cooperation rather than competition is perceived as morally good. It is particularly this cultural trait that has brought the Dutch to the forefront of the study and practice of alliances and supply networks (‘netchains’). Ménard’s first governance mechanism, trust, functions comparatively well in a feminine cultural environment. The price to pay is covert jealousy and a lack of support for forceful, visionary leaders. Depending on other dimensions, jealousy can sometimes lead to group-based violence against outsiders. Masculine societies, on the other hand, see competition as a good way to clear the air, especially for males. People are not supposed to trust one another implicitly. Depending on other elements of culture, notably collectivism, it might be that groups compete with one another that are internally very close-knit and loyal. In a business environment that is not only masculine, but also individualistic, legalistic arrangements can be expected: sharply defined contracts with a lot of small print and legal action in the case of perceived infringements. Companies are expected to compete aggressively against one another. Strong leadership is valued.

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Cooperation between companies is not popular because leaders are supposed to be fighters and you do not fight against a partner but against an adversary. Also, accepting vulnerability is not popular because it means exposing oneself to attack. Moreover, cooperation is perceived as threatening to those who are left out and, depending on the development of the legal system in a country, is in danger of meeting with antitrust regulation. Truth and Fear This dimension opposes uncertainty tolerant to uncertainty avoiding cultures. Some societies, for example the British and the Chinese, are very tolerant of divergent ideas and practices. They will have no a priori objections to, for instance, establishing contact with foreigners or to inventing innovations. Their organizations are ‘adhocracies’, in which preparing for an open future is more important than establishing structures and fixed procedures. The Dutch occupy an intermediate position on this dimension. Other societies, for example the French and Germans, have a strong desire for truth and unambiguousness and attendant fear of the unknown. This affects them as consumers, for example in a preference for local foodstuffs. It also affects their preferences for governance. An uncertaintyavoiding society will not be at ease with ambiguous governance mechanisms. Alliances carry a degree of ambiguity, and can be expected to be more cumbersome to establish in an uncertainty-avoiding context. Now and Later Do we live for the day, and for our traditions and dignity, or do we live to secure an uncertain future? This is the last of the five big issues at society level. Long-term orientation is typical of the Chinese. The Dutch, longterm oriented by European standards, have been called the ‘Chinese of Europe’. We tend to adapt our principles to pragmatism. Most other European cultures, notably the Anglo culture, are more short-termoriented. Short-term orientation is not conducive to the establishment of alliances but rather to working in spot markets or hierarchies. Creating a netchain implies making investments of which the costs are obvious, whereas possible revenues are uncertain and lie in the future. All Five Dimensions Operate Together Table 2.2 illustrates some trends in dimension scores of countries across the world. The table is no more than an indication; all of the regions and

Why do international alliances fail?

Table 2.2

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Trends in culture dimension scores for selected cultural regions in the world

Culture region

Individualism

Power distance

Masculinity

Uncertainty avoidance

Short- / long-term orientation

Africa Anglo world Arab world China Germanic world Japan India Latin world Russia Scandinavia

low high medium low high medium medium medium medium high

large small medium large small medium large medium large small

medium high medium high high high high medium medium low

weak weak medium weak strong strong medium strong strong weak

short short short long medium long long medium short medium

Source:

Based on Hofstede and Hofstede (2005).

countries in it are subject to internal cultural variation that is in some cases quite considerable. Table 2.2 shows that the dimensions of individualism and power distance are negatively correlated. When GNI (gross national income) is factored out, this correlation all but disappears. The correlation is not perfect, for example France is an exception in the Latin world in that it is individualistic, yet has a Latin-style large power distance. Longitudinal research shows that countries that become wealthier also become more individualistic. None of the other four dimensions has so far been found to change systematically across time. Cultural differences typically change very slowly, and culture’s roots go back many centuries (see also Williamson, 2000). Culture for alliances: some probabilities The preconditions for engaging in netchains or other alliances are sharing authority, accepting vulnerability, and fair division of costs and benefits. It turns out that all three are affected by cultural parameters. This has consequences for the probability of success of alliances in different cultural environments. Theoretically the picture is as follows. For alliances such as joint ventures, the easiest cultural environment is one of individualism, small power distance and uncertainty tolerance. This is the profile of the Anglo world, Scandinavia and the Netherlands. France is more hierarchical; Germanic countries are more uncertainty-avoiding.

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But what about China, with which some companies can have such successful alliances? Its culture is collectivist, but also hierarchical, uncertainty-tolerant and long-term-oriented. This implies that if the top of a Chinese company is convinced about the desirability of an alliance, subordinates will tend to follow obediently and flexibly. This actually fits with the empirical data quoted in the introduction according to which alliances with China do either really well or really poorly. Professional and Organizational Culture Until now we have been talking of national culture. But what is the effect of professional and organizational culture on alliances? Sirmon and Lane (2004) propose a research model to investigate the relative importance of national vs organizational vs professional cultures, and even argue that professional culture is the most important one of the three in predicting alliance success. Let us first define the organizational and professional levels of culture. Professional culture Certain professions have strongly idiosyncratic requirements: for instance, engineers need intelligent, orderly minds that can isolate intellectual problems from their contexts; accountants need to be meticulous; front office personnel need to be kind. People have an appreciation for this kind of requirement and it makes them select certain educational paths. So there is a preselection for certain kinds of jobs. This leads to the existence of distinct professional cultures. Some national cultures (uncertainty-avoiding, for example Latin and Germanic cultures) are conducive to a refined network of specialized professional cultures, while others (uncertaintytolerant, for example Anglo and Scandinavian) are conducive to a culture of generalist thinking that discourages specialized professional cultures. Organizational culture Analogously, organizations have distinct cultures. This is partly due to the dominance of certain activities in an organization. For instance, a trading company requires a pragmatic culture while a chemical factory needs to adhere strictly to process requirements. For another part, organization culture depends on the role of leaders. Through their own example, as well as through hiring and firing, leaders determine the operational norms in their organization. Research has shown (Hofstede and Hofstede, 2005) that professional and organizational culture both operate within the constraints set by national culture. For instance, while hotel chains could try to instil a uniform company culture by having similar operational rules

Why do international alliances fail?

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weak

t rke ma Scandinavia

ily

fam

China Anglo world

India Africa

Uncertainty avoidance

Arab world German countries

e

hin mac

Japan

mid

pyra

strong small Note: Source:

Latin world Russia

Power distance

large

The four quadrants’ names are in tilted text Based on Hofstede and Hofstede (2005), Chapter 7.

Figure 2.2

Culture regions’ positions on Hofstede’s scales for power distance and uncertainty avoidance

for their cleaning personnel around the world, and a similar reputation, a visitor will still notice clear differences in the behaviour of hotel employees in different countries when it comes to greeting, smiling, gender-specific behaviour or accepting tips, and many other things that are not prescribed explicitly by the company rules (Klidas, 2001). So where organization and professional cultures stress explicit things such as common practices, national culture is about hidden things such as common value systems. Figure 2.2 shows the positions of a number of countries on Hofstede’s scales for the culture dimensions power distance and uncertainty avoidance. The four quadrants’ names are inspired by Mintzberg (1983), who without knowing about Hofstede’s research came up with a very similar picture. Professional identity, and also professional culture, can be expected to be progressively more important in national cultural environments that are low on the vertical axis, that is, have a strongly uncertainty avoiding society. The quadrants’ names show how changes in organizational configuration, such as alliances, are especially likely to be proposed and to be

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successful in the market quadrant, in countries that are both uncertaintytolerant and egalitarian. In the ‘machine’ quadrant, alliances could also succeed provided they are carefully prepared in advance. All across the ‘family’ and ‘pyramid’ quadrants, where power distances are large, subordinates are ready to accept whatever their leaders decide – but real integration of different organizations may prove difficult, particularly in collectivist societies. So in conclusion, despite their undisputed importance, professional and organizational cultures are superficial phenomena related to national culture. Organizations cannot deviate from the norms of a society too blatantly in their practices, or they will collide with them. Yet because professions and organizations embody many of the proximate mechanisms that carry culture, they tend to be more readily perceived than national culture. National culture is ultimate; it can be likened to the air we breathe, and few of us are conscious of our culture. Participants in international R&D alliances are likely to be extraverted, intelligent individuals, unusually good with foreign languages, working in international teams and having a ‘world citizen’ attitude that would tend to make them able to experience few cross-(national) cultural differences in that particular professional setting. But a competitive, larger-scale alliance that followed up on the R&D one and involved operational personnel from several countries would face different problems. Cross-cultural misunderstandings Revisiting the Li–Mikkelsen incident about the software code that was late, we see that Mr Li involved the wider social context in his detection, attribution and action. Kumar and Nti called this a situational approach (Table 2.1). We can also call it a collectivistic approach. For Mikkelsen, the opposite holds for all three steps: he only thinks of the intellectual issue at hand, not about the social context. The working of the dimension of power distance is also clear: Mr Li, with his background from a culture of large power distance, uses his positional status as an argument, while Mikkelsen downplays it. Yet in all likelihood neither of the opponents makes a cultural attribution about the incident. This illustrates a crucial point. Though we harbour identities consciously, most of us are not aware of the unwritten rules of the social game that drive us. As a result, when cross-cultural encounters lead to misunderstandings, these are typically not perceived as such. Discrepancies are perceived, but instead of being attributed to culture, they are attributed directly to ill intention. Hofstede et al. (2002) present a number of cases with a similar pattern: both antagonists accuse the other of immoral or evil intentions, and neither realizes that the problem is not in the

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intentions but in the link between intentions and how to express them. The simplest metaphor is that of the dog wagging its tail at the cat in friendly greeting, but the cat interpreting that as a preparation for attack, and retaliating. The vicious side of this state of affairs is that those involved in these incidents will never learn to cope with them. They will build prejudice instead, and see it confirmed time and again. The way out of this is to have cultureaware leaders. The cat who knows that dogs wag their tail when they want to say hello is able to strike up a friendly relationship.

DISCUSSION We are now in a position to the return to the question: why can crosscultural alliances fail? As for the issues over which they could go wrong, we shall use basic human motives. Maslow’s work, and the model by Ménard, both indicate that authority and affiliation (or ‘belonging’) are central basic issues in an alliance, particularly in the process of creating it. They can be expected to play up in any alliance. A subsection will be devoted to each of them. First, authority. The vital issue is: ‘Who is boss?’ Second, affiliation. The question here is: ‘Are we one community?’ This is where Das and Teng’s (1998) work on trust and control can be used. We then turn to a question that touches on the reason for creating alliances in the first place, and that remains crucial throughout the alliance’s life. That is, third, fairness: dividing the costs and benefits fairly. We can bring the alliance literature, as well as Hofstede’s work on culture, to bear on these three issues. Kumar and Nti (2004) offer a handle on them by stressing the evolution of discrepancies along the sequence perception – attribution – reaction. In what follows we shall use these three steps, indicating in which of them things could go wrong. Authority: ‘Who is Boss?’ It is innate for people to wish to know the dominance hierarchy. Business writers, and political journalists, are aware of that and expend a lot of their efforts in elucidating the power structures at the top of companies or political parties. The practice of alliances, more than their theory, makes it clear that problems of sharing authority are often an impediment. These are often referred to in literature as trust issues (for example van der Vorst, 2004, 126). But accounts by stakeholders frequently state plainly that there was

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simply a leadership issue. Such accounts tend to be about competition, intimidation and downright power struggle. One of the statements in Hofstede’s (2001) original questionnaire that loaded on the dimension of power distance was: ‘an organization structure in which an employee has two bosses should be avoided at all cost’. This is the very situation that an alliance places its affected personnel in right from the start, particularly the alliance’s leaders. By definition, there is no unity of ownership and yet there has to be collaboration. So it can be expected that alliances with partners from cultures of large power distances are rare. This is the case in the real world; alliances abound in the Anglo world and in the Netherlands, but they are rarer in hierarchical cultures. And when they do occur, the dominant partner tends to change the rules, as for example recently occurred in the alliances made by Russian Gazprom with Anglo–Dutch Shell. The Russians probably considered this normal behaviour since they were the stronger partner, while the Dutch press made a story about it because they, from their viewpoint of small power distance, perceived a process discrepancy – more specifically, abuse of power. So where basically an alliance is a configuration that requires negotiation, hierarchical cultures tend to not consider this normal behaviour. They perceive societal relationships as asymmetric; there is always one partner who is supposed to give in to the other. Creating a working alliance in such a case is precarious. It can work under two conditions: ●

●

A partner from an egalitarian culture is the stronger partner, and everybody accepts this. The less powerful partner from the culture with large power distance will be ready to give in, and the more powerful partner from the culture with small power distance will not make much use of its positional power. But this is not without its risks. The most plausible scenario for failure is that this could lead the weaker, more hierarchical partner to perceive a process discrepancy – that is, little use of positional power – and to infer weakness, and to react by appropriating property or decision rights. This in turn might shock the dominant, egalitarian partner and induce them to retaliate. So a paternalistic leadership style will work well for the more powerful, less hierarchical partner in this situation. The leading person in the partner from a hierarchical culture is a good diplomat and listener. This has been the case of Jean-Cyril Spinetta of Air France-KLM. But under a new leader, more centralization towards Paris and corresponding dissatisfaction at KLM because of a perception of a discrepancy – overcentralization and loss of local authority – are not unlikely.

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Affiliation: Are We One Community? After authority we now turn to the second basic motive in human nature. People have a tendency to create groups, and as soon as they do so they start to define acceptable behaviour for that group. The unwritten rules of a group are termed its culture. In a country there is a national culture. In an ethnic group there is an ethnic culture. In an organization there is an organization or company culture. But what is the culture of an alliance? Two groups with different cultures have to collaborate here. This means that they have to create a new operational culture that will be superimposed on existing cultural settings in which the people operate that are involved in the alliance. This can easily lead to a clash of cultures. Incidentally, the clash between the groups could also and more simply be a clash of identities. It is by no means necessary to have different cultures in order to end up in a fight. Many conflicts in the world show this, for example the bickering that characterizes Balkan culture throughout much of history. The large power distance of Balkan countries is one of the reasons why change of leadership is usually very disruptive there. Even more banally, a clash in a merger could be simply a clash of interests. Both partners could be afraid of not getting a fair share in the bargain. Clear common leadership is usually enough to remedy this kind of issue. A clash can be more pernicious when cultural differences exist. Here, the cultural dimension of individualism versus collectivism plays a clear role. Opportunities for perceiving discrepancies in relationship-building are legion. Partners from collectivist cultures find it more difficult to accept new members, and more time and ritual will be needed to create a community. ‘Time’ could mean years, not weeks. A Russian executive once complained: ‘These Westerners cannot be trusted. After two years, just when you get to know them, they get a new job and you never see them again.’ This is a relatively collectivistic perspective on what is considered normal behaviour in an individualistic society. Two other dimensions are also of special relevance for communitybuilding. In an alliance, leaders should be prepared for differences in national cultures to be potential barriers to integration. If there are subgroups in the alliance from cultures of hierarchical or uncertaintyavoiding cultures, these may tend to isolate themselves. If a common working culture for the alliance is desired, that will require more effort in order to shape a new working unit. One of the ways to prevent lack of social cohesion in an alliance is to make sure that there is continuity in leadership, that the leaders are perceived to be loyal to the alliance, and that appropriate common rituals are

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in place. These could include formal and informal meetings and celebrations, depending on local custom. Another important ingredient is appropriate language skills for key people so that language islands are avoided. Principle or pragmatism? The affiliation issue raises questions of identity. Identity does not mean the same thing to everybody. This can be illustrated with a simple case. Where a European will usually make a point about how to write and pronounce his name correctly, a Chinese will routinely adopt a Westernized name for the convenience of non-Chinese partners. The difference is that where the European uses principle-based thinking (‘this is my name’), the Chinese uses pragmatic thinking (‘I want that person to be able to address me and remember my name’). Similar treatment befalls other issues that an alliance is confronted with. How is the bookkeeping organized? How are orders entered into systems? Battles of principle about seemingly insignificant details are just around the corner. In general, people from long-term-oriented cultures such as the Chinese tend to be pragmatic about this kind of issue. They will bend the rules, or create new ones, to achieve practical results. Similarly, people from uncertainty-tolerant cultures tend to be more pragmatic because they do not feel stressed by the lack of structure of a novel situation. This frees their minds for creative thinking. Fairness and Justice As stated above, an alliance creates a new whole in which the division of rents, resources and status symbols becomes the object of a political arena. And the creation of an alliance is usually a pretty disruptive event. Staff are relocated and get new bosses. They will first of all be concerned about what this means for them. Levels of anxiety will be high in the organization. Strong leadership with continuity and clear, reliable, consistent communication practices are very important here. Luo (2007) demonstrates that it is in particular interactional and procedural justice that count. If the leaders are perceived as just in these regards, distributive justice is not such a big issue any more. This implies that it pays to have leaders who display culturally appropriate behaviour. To the extent that an alliance is multicultural, boundary-spanners between the mother cultures will be needed. Jealousy and envy are an area in which individualistic societies are more vulnerable than collectivist ones. In the latter, particularly in long-termoriented parts of the world, people are willing to subjugate their personal interests to the common good. A potential problem here is that ‘common good’ could refer to in-groups that do not coincide with the boundaries of

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the alliance, or even the participating companies. In individualistic societies, particularly if they are also masculine and short-term-oriented, freeriding is more likely to be a cause for concern, whether it actually occurs or not. The tremendous rise of accountancy costs in the First World testifies to this. When it comes to establishing rules for ethical behaviour, masculine cultures prefer clear incentives: rules are followed to the letter, and strong punishment is inflicted on offenders. In feminine cultures, rules tend to be internalized. People are expected to exercise self-restraint and modesty, and punishment takes the form of helping offenders to reform. Internal Tensions The internal tension model by Das and Teng (2000) can also be reevaluated using Hofstede’s dimensions of culture. Competition–cooperation The first tension, competition–cooperation, has an obvious link with the cultural dimension of masculinity versus femininity. A masculine culture takes competition as its basic model. But that could be competition between groups, so that as long as the alliance and its parent organizations are perceived as being in one group, for example through inspirational leadership, there is no problem and the challenge for the alliance and its parent companies is to make a strong case that ‘we are on the same team’. In a feminine cultural environment, the challenge of competition is not such a strong motivator and there might be more passive resistance against change when an alliance is created, or passive jealousy of new leaders. However, once group cohesion is founded, cooperation is the norm. In fact the dimension of individualism versus collectivism is implicitly very important for the equilibrium in this tension. It is this dimension that determines to which extent alliance followers and leaders use their own, individual judgement or adhere to in-groups. Das and Teng assert that too much cooperation could lead one alliance partner to learn all the tricks itself, enabling it to leave the alliance. But this only makes sense from an individualistic mindset. Rigidity–flexibility This tension speaks about the institutional arrangement in the same way as Figure 2.1, Ménard’s picture of how hybrids might be coordinated. Again the dimension of individualism–collectivism can inform this issue. In a more collectivistic environment, business will be done by people from the same in-group. As a consequence, informal arrangements will be more

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salient than formal contracts, leading to alliances that would appear more flexible from a formal point of view. The more one shifts towards an individualistic culture, the more formal arrangements will be preferred. Yet the greater rigidity that these suggest might be no more than apparent. In a collectivist setting, informal interpersonal links can give great strength to bonds. Depending on cultural differences, the same institutional arrangement could function in different ways. Long-term–short-term orientation This tension is directly related to the cultural dimension with the same name. In long-term-oriented cultures, alliances are more likely to be struck with long-term aims, while in short-term-oriented ones, quick benefits are expected. This dichotomy is apparent in an episode described by Kumar and Nti (2004, p. 355). An American manager, failing to receive payment from a Chinese company, stated that his company would withhold shipments until payment was received. The Chinese provider paid but said: ‘You realize that you are our only supplier who gets paid.’ The Americans did not tolerate the delay of payment, however. They perceived a discrepancy. To them, each delivery is a separate event rather than being couched in a long-term relationship. One can argue that the gap in individualism between the USA and China plays a role here too: in an embedded relationship one can owe the other for a long time, knowing that one will pay some time. This was the perception of the Chinese, and they perceived a discrepancy when the Americans requested immediate payment. In an arm’s length relationship that is not expected.

CASE EVIDENCE To see what the above means in practice we shall now turn to the international food sector. Both cases have involved Dutch researchers. One case is about international fruit export from South Africa into the Netherlands, and one is about fruit and vegetable distribution in Thailand in a joint venture between Dutch company Ahold and a local retailer. Netchains If a number of companies in the agro-food sector collaborate vertically more closely than just through spot markets, they constitute a supply chain (Lambert and Cooper, 2000). A supply chain is a type of alliance. Supply chain management has the potential to yield benefits to all partners. Lazzarini et al. (2001) came up with the related term of ‘netchain’.

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A netchain is a voluntary, long-term collaborative effort by a number of independent organizations. Logistically it is a supply chain, while institutionally it is a network (Thorelli, 1986; Powell, 1990). Socially it might be called a community, depending on its embeddedness (Uzzi, 1997). Its potential benefits in a sector with abundant small and medium-sized enterprises such as food and agribusiness are clear. Enhanced bargaining power of farmers, improved responsiveness, better product quality, improved safety and possibilities for fetching better prices through providing information and/or through branding are a few notable incentives for collaborating in netchains (Hofstede, 2002). Government regulations regarding food safety and traceability (for example Commission of the European Communities, 2002) are also strong drivers pushing food supply stakeholders into one another’s arms. In addition to the cultural caveats that hold for all alliances, some special remarks can be made for netchains. For these in particular, a feminine and long-term-oriented culture is most accommodating. This is the case for the Netherlands, Denmark and Norway. Research confirms the advantage of a feminine culture. The British and the Dutch are culturally similar, but the Dutch are culturally strongly cooperation-oriented (‘feminine’) rather than competition-oriented (‘masculine’), compared to the British and indeed to most countries, and they are also more long-term-oriented than the British (Hofstede, 2001). This means that relentless pursuit of short-term self-interest, by an individual, by a firm or by a country, is ill perceived in the Netherlands compared to most other countries. It suggests that the Dutch would be more prone to make and keep informal deals among companies, and less likely to create open competition than, for instance, the British and the Americans. Rademakers (1999) compared the Dutch and the British potato sectors and indeed found more cooperative arrangements in the Netherlands compared to either spot markets or hierarchical integration in the UK. This confirms the expectation based on cultural difference. Fruit from South Africa The Fruitful project (van der Ham et al., 2002; Guis, 2003) was carried out with the help of Dutch researchers. True to Dutch culture, they assumed the role of chain orchestrator, that is, they had no hierarchical authority, but used expertise, negotiation and persuasion. The project assembled ten industrial partners, three funding parties and three research institutes under Dutch project leadership. Its aim was to study possibilities for an integrative supply chain information system in the citrus and mango chains from South Africa to the Netherlands that

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could improve both logistics and quality. Such an information system had existed until 1997 in a typical hierarchical structure under the control of only a few parties. At the demise of the Apartheid system the market was deregulated. With the big bosses gone, entrepreneurial chaos ensued. African cultures are very short-term-oriented, along with collectivism and large power distance. They tend to rely intensively on patronage systems. The British heritage in South Africa is also rather short-term-oriented and masculine, but individualistic and egalitarian. In both cases these are societies that like to be opportunistic about grabbing opportunities. Not surprisingly, spot markets took over, and the central information system was abandoned. From 1999, it became clear to many that South Africa was rapidly losing its position on the international market. Some coordination had to be re-established in order to keep up with international competition. Bottlenecks to reaching these aims were found not to lie on the technical side. All the necessary information was available somewhere and realizing connectivity and transparency posed no technical problems. Agreeing on common goals and acting towards them jointly rather than opportunistically proved to be more of a problem. The large number of participants did not help. They could not agree on a common infrastructure but instead decided to create a decentralized system that focused on interfaces between proprietary systems and allowed limited transparency. This is an option that involves rather high transaction costs, but more integration was not acceptable. Getting the partners, and especially their key personnel, on speaking terms was the most important first step. After this, showing the partners about just how much redundancy and inefficiency in information exchange existed in the network was another major activity. For one sample chain it was shown that 35 product-attending documents and messages (faxes, websites, emails, telephones and hard copy) were needed to cover the chain (grower – exporter – shipping line – terminal – importer – pack house). Subsequently standardization of messages and codes accounted for much of project activity. But, as was noted in the evaluation seminar: ‘Within the project we just scratched the surface. The real work starts now.’ The project shows the influence of short-term orientation. It also shows that the historical context is a powerful constraint on any improvement in netchain governance. A question raised by this project is the unit of competition. Should this be the individual producer, the cooperation, the multinational company or the country? While the South African companies were competing against one another after the deregulation they jointly lost ground against foreign competitors. In a price market,

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economies of scale are needed to survive. The South African fruit companies needed to cooperate. Their brand is ‘South Africa’, it is a strong one in the Netherlands, and the Dutch leaders of the Fruitful project advise them to join forces at country level for marketing and branding. But in a hierarchical, short-term-oriented culture this is no easy task. Ahold in Thailand Ahold has been working on local quality systems for fresh produce in Asian, African and Latin American countries. Recent economic developments have put a temporary halt to some of these activities. One project that was completed is the project ‘Best in Fresh’ in Thailand (Boselie et al., 2003). Culturally, Thailand differs greatly from the Netherlands on the dimension of individualism–collectivism, with the Thai at the collectivist end of the spectrum. The project was a joint venture of Ahold with Tops, a formerly US-based supermarket chain now owned by a Thai retailer, Central Retail Combination (CRC). The project involved a ‘preferred supplier programme’ that forced suppliers (growers, wholesalers) to comply with certain minimum standards. Uncertain quality, long non-cooled storage upstream, frequent stockouts in the outlets, and too many small suppliers upon whom there was limited influence, were some of the problems tackled. A distribution centre (World Fresh) was built for quality control, washing, packaging and processing. Hazard analysis and critical control points (HACCP) and good agricultural practices were introduced in the chain. Mutual understanding by growers and retailers improved, and so did the distribution centre’s service level. Standardized product carriers, pallets and roll containers were adopted. Despite all this the Thai market did not respond to the added value created by the project. Also the project seems not to have been so successful at the level of interpersonal trust. Somewhat menacingly, the project report states: ‘In a multinational and multicultural environment trust remains limited. If this is the case there is a need for other instruments for monitoring and enforcement of agreements and standards’ (Boselie et al., 2003). This statement raises the question of what other instruments are appropriate, whether these instruments might not do more harm than good, and whether limited trust is unavoidable in intercultural settings. History denies this latter statement; the Dutch have for instance had good trade relationships with the Japanese for centuries despite huge cultural differences. After the Dutch left, the Thais fitted the system within their way of working. In the words of Boselie (2002, 25): ‘Personalistic business relationships remain a latent threat to preferred supplier programs in

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environments that can be characterized by a high degree of informality’. In the language of the culture discussion above, measures issued from an individualist perspective do not automatically work in a collectivist context. So from a Thai perspective, the causality may be the other way around: preferred supplier programmes are a threat to their social fabric. The project report specifies that the representative project members of all four Western companies involved have been replaced at least once. This is never beneficial, but it is a sure way to destroying interpersonal trust in partners with collectivist values where personal relationships, not relationships between firms, are the core of business. Thai food manager Wallaya Chirathivat of the family enterprise CRC (in Grievink et al., 2002) may have had Tops in mind when she said: ‘I think that it is very important to maintain an open mind and to pay special attention to the specific cultural conventions of doing business in foreign countries’. She also asserts: ‘A global brand can never penetrate the Thai food market.’ Bhumibol Adulyadej, King of Thailand since 1946, recently launched a programme advocating that farmers produce not only export crops such as cassava but also food crops that they would like to eat themselves and therefore would be able to sell locally. This was very successful because it increased farmers’ income and made them less dependent on price fluctuations in the international market (Giebels, 2003). The Thais, with their collectivist, hierarchical, long-term-oriented culture, were very willing to follow their King’s advice.

CONCLUSION Anybody who is involved in an international alliance is well advised to take cultural differences seriously as one of the factors that can frustrate success. This is because: ●

●

● ●

Leadership of an alliance is a delicate matter at the best of times due to the need for sharing of authority, for accepting vulnerability to exploitation, and for dividing costs and benefits in a way that is perceived as fair by both parent companies. Some cultures are at odds with these requirements. This holds in particular for cultures of very large power distance and uncertainty avoidance. All cultural differences can lead to unperceived misunderstandings that destroy incipient trust; leadership that is culturally inappropriate can do more harm than good.

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Culture-aware leadership that can build a community and has continuity over at least a few years can make the difference between success and failure. Here are a few specific points of advice based on the literature and discussion in this chapter: ●

●

● ●

If discrepancies are perceived, find safe environments in which to discuss mutual perceptions and attributions, and to correct one another’s attributions, instead of taking action without this intermediate step. Such a step, though delicate, can generate much learning and improve trust. Be aware that non-formalized agreements can be more important than contracts in many places in the world, particularly in collectivistic cultures. Do not hurry into formal arrangements. Take common rituals for socialization seriously; they can be crucial instead of being a waste of time. Appoint leaders who are culturally sensitive. The perception of interactional justice, an important success factor in international alliances, depends on displaying socially acceptable behaviour.

ACKNOWLEDGEMENT This chapter has greatly benefited from the comments made by the editor, Jan Ulijn, from those made by Geert Hofstede, and in particular from the thoughtful suggestions by its reviewer, Rajesh Kumar.

REFERENCES Boselie, D. (2002), ‘Business case description TOPS Supply Chain Project Thailand’, The Hague, LEI report 61600. Boselie, D., S. Wertheim and M. Overboom (2003), ‘Best in Fresh: building fresh produce supply chains’, Den Bosch, KLICT. Commission of the European Communities (2002), ‘Regulation EC no 178/2002 of the European Parliament and of the Council of 28 Jan 2002 (GFL)’. Das, T.K. and Bing-Sheng Teng (1998), ‘Between trust and control: developing confidence in partner cooperation in alliances’, Academy of Management Review, 23 (3), 491–512. Das, T.K. and Bing-Sheng Teng (2000), ‘Instabilities of strategic alliances: an internal tensions perspective’, Organization Science, 11 (1), 77–101. Dooley, R.M. (2003a), ‘Four cultures, one company: achieving corporate excellence through working cultural complexity (part 1)’, Organization Development Journal, 21 (1), 56–64.

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Dooley, R.M. (2003b), ‘Four cultures, one company: achieving corporate excellence through working cultural complexity (part 2)’, Organization Development Journal, 21 (2), 52–66. Giebels, R. (2003), ‘De koninklijke formule voor zelfredzaamheid’, NRC Handelsblad, 29 August, p. 10 (in Dutch). Grievink, J.W., L. Josten and C. Valk (2002), State of the Art in Food: The Changing Face of the Worldwide Food Industry, Amsterdam: Reed Elsevier. Guis, E. (2003), ‘Fruitful D6: management report’, Delft, TNO Inro. Hall, Edward T. (1959), The Silent Language, New York: Doubleday. Ham, A. van der, J. Becker and E. Guis (2002), ‘Fruitful D5: pilot results’, Delft, TNO Inro. Hendrikse, G.W.J. (2003) ‘Governance of chains and networks’, Journal on Chain and Network Science, 3 (1), 1–6. Hofstede, Geert (2001), Culture’s Consequences: International Differences in Workrelated Values, 2nd edn, Beverly Hills, CA: Sage Publications. Hofstede, Geert and Gert Jan Hofstede (2005), Cultures and Organizations, New York: McGraw-Hill. Hofstede, Gert Jan (2002), ‘Transparency in netchains’, in E. Van Amerongen, C. van den Harg, R. Kruse and S. Pegge (eds), The Challenge of Global Chains, Proc. Symposium Mercurius, Wageningen: Wageningen Academic Publishers, pp. 73–89. Hofstede, Gert Jan, Paul B. Pedersen and Geert Hofstede (2002), Exploring Culture: Exercises, Stories, and Synthetic Cultures,Yarmouth, ME: Intercultural Press. Klidas, A.K. (2001), ‘Employee empowerment in the European hotel industry’, Amsterdam: Thela Thesis. Kumar, Rajesh and Kofo O. Nti (2004), ‘National cultural values and the evolution of process and outcome discrepancies in international strategic alliances’, Journal of Applied Behavioural Science, 40 (3), 344–61. Lambert, D.M. and M.C. Cooper (2000), ‘Issues in supply chain management’, Industrial Marketing Management, 29, 65–83. Lazzarini, S.G., F.R. Chaddad and M.L. Cook (2001), ‘Integrating supply chain and network analyses: the study of netchains’, Journal on Chain and Network Science, 1 (1), 7–22. Luo, Yadong (2007), ‘The independent and interactive roles of procedural, distributive, and interactional justice in strategic alliances’, Academy of Management Journal, 50 (3), 644–64. Man, A.P. de and G. Duysters (2007), ‘The Second State of Alliance Management Study 2007’, Needham, MA: Association of Strategic Alliance Professionals White Paper, available at: www.duysters.com (accessed September 2009). Maslow, Abraham (1970 [1954]), Motivation and Personality, New York: Harper. Ménard, C. (2004) ‘The economics of hybrid organizations’, Journal of Institutional and Theoretical Economics, 160 (2), 345–376. Minkov, Michael (2007), What Makes us Different and Similar: A New Interpretation of the World Values Survey and other Cross-Cultural Data, Sofia: Klasika i Stil. Mintzberg, Henry (1983), Structure in Fives: Designing Effective Organizations, Englewood Cliffs, NJ: Prentice-Hall. Powell, W.W. (1990), ‘Neither market nor hierarchy: network forms of organization’, Research in Organizational Behaviour, 12, 295–336.

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Rademakers, M.F.L. (1999), ‘Managing inter-firm cooperation in different institutional environments: a comparison of the Dutch and UK potato industries’, Doctoral dissertation, Erasmus University Rotterdam. Richerson, Peter J. and Robert Boyd (2005), Not by Genes Alone: How Culture Transformed Human Evolution, Chicago, IL: University of Chicago Press. Sirmon, David G. and Peter J. Lane (2004), ‘A model of cultural differences and international alliance performance’, Journal of International Business Studies, 35, 306–19. Thorelli, H.B. (1986), ‘Networks: between markets and hierarchies’, Strategic Management Journal, 7, 37–51. Trompenaars, Fons and Charles Hampden-Turner (1997), Riding the Waves of Culture, 2nd edn, London: Nicholas Brealey. Uzzi, B. (1997) ‘Social structure and competition in interfirm networks: the paradox of embeddedness’, Administrative Science Quarterly, 42, 35–67. Vorst, J.G.A.J. van der (2004), ‘Traceability: state of the art in seven countries’, in G.J. Hofstede, L. Spaans, H. Schepers, J.H. Trienekens and A.J.M. Beulens (eds), Hide or Confide? The Dilemma of Transparency, The Hague: Reed Business Information, pp. 73–80. Williamson, Oliver E. (2000), ‘The new institutional economics: taking stock, looking ahead’, Journal of Economic Literature, 38, 143–60. Wilson, David Sloan (2007), Evolution for Everyone, New York: Delacorte Press.

3.

Creating a supportive culture for corporate entrepreneurship: balancing creativity and discipline for the development of radical innovation by interfirm cooperation Bob Walrave, Victor A. Gilsing and Michiel F. de Jager

The creation and successful commercialization of radical innovation is becoming a topic that dominates the strategic agenda of many technologydriven firms on an increasing basis. One of the key organizational challenges is that radical innovation requires the development of a specific organizational capability, which deviates from existing capabilities in established fields of expertise. Typically, these established domains come with a corporate culture that severely inhibits the development of radical innovation as it does not allow for the risk, ambiguity and uncertainty arising from the creation and development of radically new products and/ or processes (Christensen and Overdorf, 2000). Nevertheless, the capability to identify new ways of doing business and to develop new (disruptive) technologies and products becomes increasingly more important for firms in order to innovate faster than competitors (Teng, 2007). Such a capability is also referred to as corporate entrepreneurship (CE) and can be defined as ‘the sum of a company’s innovation, renewal and venturing efforts’ (Zahra, 1995). CE allows for the deviation from the corporate culture of the parent company and thus circumvention of the lethargy and bureaucracy that comes with company size and/or age, which inhibits the development of radical innovation (Christensen and Overdorf, 2000). Meanwhile, the literature has described what types of measures and activities are required to implement CE (Christensen and Overdorf, 2000; Bergek and Norrman, 2008). Here, one of the key ideas is that CE is best developed when operating at some degree of organizational distance from the parent company. In this way, corporate entrepreneurs or

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‘intrapreneurs’ (Menzel, 2008) can escape from conservative corporate pressures, thereby gaining the opportunity to be different and enjoy sufficient room to manoeuvre and experiment freely.1 This raises an interesting question, though, because if CE units are required to deviate from established practices that come with the dominant corporate culture, what then constitute key characteristics of their own internal culture that would be supportive of such entrepreneurial activities? In addition to this, how could such a corporate culture be given shape? These two questions form the core of this chapter and after briefly discussing the theories about innovation, corporate entrepreneurship and culture we will analyse what constitute the key features of CE units’ organizational culture. The analysis will start by optimizing the six dimensions of organizational culture (Hofstede et al., 1990) for the development of radical innovation. This has been done by performing a comprehensive literature review on how the six dimensions could possibly enable and constrain CE activities. As this chapter will illustrate, the key characteristics of a CE culture are that it should be result-oriented, externally focused (pragmatic), both job and employee oriented, loose in work discipline, have a professional focus of interest, and be very open to the external environment. After the theoretical description, we briefly compare the theoretical estimates with empirical findings on research to the corporate cultures of various CE units within two large, high-tech companies located in the Netherlands. The theoretical propositions were confirmed by the empirical findings, which also indicated that a corporate culture of a CE unit is very likely to change during the innovation process. In that sense, we found that central to a CE culture is that it strikes a careful (moving) balance between ‘creativity and discipline’. Indeed, an emphasis on creativity is needed for the first phases of the innovation process, the initiation phase (Johne, 1984; Nakata and Sivakumar, 1996), where it is required to create a potential for Schumpeterian novel combinations. Later the focus needs to shift towards business discipline in view of the implementation phase (Johne, 1984; Nakata and Sivakumar, 1996). Nevertheless, note that the main focus of this chapter is placed on the phase when CE units start to develop a business with the invention. Hereafter, we will discuss an interesting way of how such a CE-‘friendly’ culture may be created. We specifically discuss the role of strategic alliances (SAs) as a means to accomplish a CE culture in such a way that it indeed differs in essential ways from the dominant parent culture. In the literature, SAs have been described as positively stimulating the development of innovation as they form an effective way to acquire novel knowledge (Hagedoorn and Duysters, 2002; Nooteboom, 2004). Here, we see SAs in a new and complementary way as we will argue that carefully

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chosen SAs might also be useful to establish or (further) optimize an innovative CE culture by adopting practices from the alliance partner needed for the development of radical innovation. We will end this chapter with our conclusions.

INNOVATION The importance of innovation is emphasized by many authors in the literature of the last decades. Technological progress and productivity improvements, competitive advantage and economic growth are mentioned, among much more (Cooper, 1993; Souder, 1987; Dodgson, 2000; Narayanan, 2001; Miller, 2001; Debruyne et al., 2002). Many of today’s leading firms grew out of technological changes they were able to exploit (Porter, 1985) and innovation thus plays a major role in the structural change of industries. Schumpeter (1942, 82), the first author to write about the importance of innovation, is even more straightforward in his view. He stated that: ‘The process of Creative Destruction is the essential fact about capitalism . . . It is not [price] competition which counts but the competition from new combinations of technology. This competition strikes not at the margins of profits of existing firms but at their foundations and their very lives.’ Indeed, innovation is vital for firms wanting to survive (inter)national markets (Porter, 1985), even if it destroys the current value of established products (Christensen and Overdorf, 2000). From this, it becomes clear that (radical) innovation should be on the agenda in the highest levels of the organization; it should be incorporated in the corporate strategy by top-management. Scholars have researched and developed a plethora of definitions of innovation, which has resulted in an ambiguity in the way the terms ‘innovation’ and ‘innovativeness’ are operationalized and utilized in the new product development literature (Garcia and Calantone, 2002). Here, we define a technological innovation as the iterative process initiated by the perception of a new market and/or service opportunity for a (technologybased) invention which leads development, production and marketing tasks striving for the commercial success of the invention. Furthermore, the widespread distinction is made between incremental innovation and radical innovation. Incremental innovations are mostly add-ons to existing products or services, to make them perform better and thus merely add some value to the existing installed customer base (Christensen and Overdorf, 2000). This type of innovation is the most common and the most pursued by large firms as they have a greater chance of making money since there is

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less risk involved (Henderson and Clark, 1990). According to Anderson and Tushman (1990), it is for this reason that large firms prefer gradual incremental innovation and tend to delay radical innovation as long as possible, even though the returns may be lower than the returns associated with radical innovation. Radical innovations, or breakthrough innovations, are often associated with the discovery of radical new technologies. The difference from the former discussed type of innovation is that radical innovation both overturns core concepts, and creates new linkages between the core concepts and components (Henderson and Clark, 1990). This type is very risky and can be very expensive, which makes it hard for companies to justify the upfront investment needed (Christensen and Overdorf, 2000). Nevertheless, once an invention turns into a radical innovation,2 it may bring substantially larger returns than incremental innovation and, maybe even more important, a competitive advantage (Porter, 1985). Indeed, radical innovation brings the ability for strategic change (Birchall and Tovstiga, 2005, 79), and for this reason we will focus on this type of innovation in the remainder of this chapter. The chapter will now continue with a concept designed for developing radical innovation; namely CE.

CORPORATE ENTREPRENEURSHIP Once successful, firms sometimes become blind to opportunities other than those that sustain their current customers, as their main focus is on selling more technologically advanced and richly featured products to their installed consumer database. This phenomenon has been a problem for many large firms, which were unable to commercialize what they already technically could do (Christensen and Bower, 1996). One of the reasons for this failure is that the current practices do not allow for the risk, ambiguity and uncertainty needed for the development of radical innovation. These values and processes are put in place to let employees work in consistent and predictable ways (Christensen and Overdorf, 2000), but will erode their entrepreneurial underpinnings (Thornberry, 2003). Indeed, there is a fundamental conflict between a new venture’s and mature company’s management requirements, due to the different life cycle stage which asks for different practices; for the latter the focus is on an installed customer base (Sykes and Block, 1989). Christensen and Overdorf (2000) therefore recommended that incumbents should set up a separate organization for venturing into disruptive technologies, to circumvent the problems as described above. The need for separation is confirmed by O’Connor and DeMartino (2006), who stated

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that for radical innovation, the organizational entity must be physically and culturally separated from the mainstream organization. For this the concept known as CE can be utilized. CE is also referred to as intrapreneurship or corporate venturing (Hornsby et al., 2002; Burgelman, 1983; Cooper et al., 1997). However, given our interest in radical innovation, corporate entrepreneurship seems the most appropriate name; indeed it should be of concern at the corporate level: at top management level. Besides, intrapreneurship has also been linked with innovation on a divisional level (more often associated with incremental innovation) (Menzel, 2008). CE essentially involves starting a business within a business, selffinanced and staffed with some of the firm’s own personnel (defined as new business ventures). It is an attempt to create the mindset and behaviour that entrepreneurs have, in a large organization, with the main purpose to allow large organizations to overcome the difficulties of achieving radical innovation. Indeed, small firms are able to flourish in smaller market niches which may be unattractive to larger firms (Bessant and Tidd, 2007, 265). The literature has described the types of measures and activities which are required to implement CE (Christensen and Overdorf, 2000; Bergek and Norrman, 2008). Also, the capabilities that are needed for successful innovation have been elaborated on (Birchall and Tovstiga, 2005, 226). However, these works all remain vague about the cultural aspects, and it is here that this chapter provides profound insight into the most appropriate organizational culture for CE. Indeed, essentially, CE helps to create an organizational culture, deviating from the corporate culture, which will allow for radical innovation as it encompasses a set of practices believed to enable large companies to regain this ability (Thornberry, 2001). The implementation of CE is thus becoming an important activity for growth-oriented business. It is important to realize that innovations, in the end, are the result of a long and complex process. Johne (1984) suggests an innovation process that consists of two main phases: the initiation phase and the implementation phase. In the former, creativity can be seen as a very important starting point, as without it no (radical) innovation would be possible. It is about the conceptualization of the product, covering idea generation and concept testing (Nakata and Sivakumar, 1996). The latter is about embracing product development, or in the case of CE, business development and the actual product launch. Its aim is thus on fulfilling the concept (Nakata and Sivakumar, 1996). Our focus is on the start of this second phase, when new business ventures start to develop businesses with the inventions. This focus has been chosen for two reasons: (1) during the initiation phase, the ‘team’ is often comprised of only a few individuals, intrinsically having no organizational culture; and (2) during the implementation phase, costs

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tend to rise exponentially, and the possibility to ‘steer’ the project decreases as it progresses (Afuah, 2003). One could therefore emphasize the importance of understanding the optimal organizational culture at the beginning of the implementation phase, as the gains here can be profound. Simply deciding to be innovative in the future is not enough. This decision has to be backed by actions that create an environment, a culture, in which the employees are so comfortable with innovation that they create it themselves (Ahmed, 1998). The next section therefore gives more insight into cultures.

CULTURE In general, the term ‘culture’ refers to a group, sector or society. It is a characteristic of intelligent beings and refers to the human ability to classify, codify and communicate. It can be defined as: ‘the collective programming of the mind which distinguishes the members of one group or category of people from those of another’ (Hofstede, 1980). Different cultures reflect different theoretical bases for understanding and evaluating. The way people live in harmony with their history, belief, language, and so on, can be defined as their culture. It says something about what makes that particular group stand out, or distinguish itself from other groups (Hofstede, 2000). Although it is not an aspect of individuals, it is manifested within individuals, and can be measured from the verbal and non-verbal behaviour of individuals, aggregated to the level of their unit, whether this is a society, organization or group (Hofstede, 1998). A research project into national cultures was executed and published by Hofstede (1980) in order to locate the value dimensions across which national cultures may vary. The result of this study was the identification of four dimensions that he labelled as individualism, masculinity, power distance and uncertainty avoidance. Later, the Chinese Culture Connection (1987) identified a fifth dimension: long-term orientation versus short-term orientation to life. These five value dimensions cannot exhaust all the differences between national cultures, but have been empirically demonstrated to be related to many aspects of national cultures (Kolman et al., 2003). National culture is being taught from early infancy and, for this reason, values are deeply imbedded into people. Values can be defined as: ‘a broad tendency to prefer certain states of affairs over others’ (Hofstede, 1998), and are comprised of values, norms and beliefs (Cormican and O’Sullivan, 2004). Peters and Waterman (1982), and subsequent research, argued that shared values also represent the core of a corporate culture, just as is the

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case with national cultures. In contrast, Hofstede et al. (1990) empirically proved that shared perceptions of daily practices, and not values, are at the core of a corporate culture. The research showed that the practice3 dimensions4 have a much higher explanatory power for differentiating between corporate cultures than the value dimensions,5 which differentiate so much across countries. The difference between the two concepts is that values describe what employees feel ‘should be’, and practices show what people feel ‘is’ (Hofstede et al., 1990). Just as values are acquired from family, school and our surroundings in our early youth, so organizational practices are learned, through socialization, at the workplace. This conclusion can be understood in the way that researchers in line with Peters and Waterman (1982) have almost always only surveyed top management (instead of the whole organization), and there is little disagreement about the fact that top management (or the founders of a company), put their own values into the design of the practices for their company, simply because they have developed a theory of how to succeed according to the roots of their own culture in which they grew up (Schein, 1983; Hofstede, 1998; Christensen and Overdorf, 2000; Menzel, 2008). It follows that employees may work according to, and adapt to, the practices designed following the values of top management, but this does not mean that they have to confess to these values personally. Indeed, as outlined by Christensen and Overdorf (2000), within the highly successful company McKinsey and Company, top management’s values have become so strong that it almost does not matter which people get assigned to which projects. In this way, people with different basic assumptions (values, which tend to depend on demographics) can still cooperate in an organization without significantly affecting the corporate culture (Hofstede, 2000). In that sense: ‘leaders’ values become followers’ practices’ (Hofstede, 1998). If these values are flawed, the company will likely fail, but if they are sound, the employees will experience for themselves the validity of the founder’s values in problem-solving and decision-making (Christensen and Overdorf, 2000). These practices reflect the symbols, heroes and rituals6 of a specific organization and form the visible part; values form the invisible part of a corporate culture. Following this reasoning, the five (value) dimensions composing national culture should indeed not be applied for discriminating on other cultural distinctions, such as organizations (Hofstede, 1980, p. 464). This is illustrated in Figure 3.1, which shows that corporate culture is mainly formed by the perception of practices. Note that there is also the notion of professional culture, which is formed by education and professionalization and consists of a combination of values and practices (Ulijn et al., 2004). It is about the extent to

Creating a supportive culture for corporate entrepreneurship

Level of culture

Level of socialization

National culture Values Professional culture Corporate culture Source:

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Family Education and professionalization

Practices Workplace

Adapted from Hofstede et al. (1990).

Figure 3.1

Organizational, professional and national culture

which professionals identify with their professional discipline relative to the culture of their organization (Ulijn et al., 2004). Van Luxemburg et al. (2002) describe that (the type of) innovation success might also be a matter of professional cultures, as research and development (R&D) engineers might prefer a different direction to success than other functional specialisms (for example managers or marketers). Indeed, because of their chosen professions, R&D engineers may prefer a technology-push approach while marketers usually opt for a market-pull solution (van Luxemburg et al., 2002). Note that this closely relates to the parochial versus professional focus of interest dimension, as we will discuss later on. All three forms of culture are constructs and therefore not directly observable. Nevertheless, when talking about corporate culture, employees work mainly according to (perceived) set practices, designed according to top management’s values. Practices are less basic than values and are subject to intended change; contrary to values, which also change, but not according to planned change (Hofstede, 1998). So, although difficult, it is possible to change a corporate culture by changing the (perceived) practices; this is in contrast with the other two types of culture, making corporate culture the most appropriate type of culture for this research. This then explains the focus on corporate culture in this chapter. According to Martins and Terblanche (2003), corporate culture is the result of basic assumptions that worked very well in the past and for this reason are accepted as truth, as valid practices within the organization. Employees will start to work according to these assumptions rather than by conscious choice (Christensen and Overdorf, 2000). Indeed, these practices are taken for granted (Lewis and Thornhill, 1994), a pattern of basic assumptions (Schein, 1990; Martins and Terblanche, 2003), and become less and less open to discussion, which obviously make them difficult

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to change (Schein, 1990). The practices are maintained by the human interaction (socialization7 and social control) in the organization (Schein, 1990; Lewis and Thornhill, 1994; Martins and Terblanche, 2003), and are reflected in the (collective) behaviour of the employees, meaning the right way of how things should be understood or done within a specific unit or organization. For this reason, the processes may have deep roots in the organization’s history, even to the values of the very founders of the organization. Derived from these findings, the following definition of corporate culture from Hofstede (1998) seems plausible: ‘The collective programming of the mind [by human interaction] in the form of “best” practices, which distinguishes the members of one organization from another.’

THE OPTIMAL CULTURE FOR CE According to many scholars, (radical) innovation is the result of a culture that supports innovation (Johnson, 1996; Judge et al., 1997; Tesluk et al., 1997; Shaughnessy, 1988; Martins and Terblanche, 2003). In that sense, to promote CE it is more important to shape the organizational culture than it is to implement innovation processes (Menzel et al., 2007). Corporate culture is seen as a factor significantly contributing to the creativity of an organization and therefore contributing to inventions and innovation. The concept of creativity can be seen as the generation of new and useful and/or valuable ideas for products, services, processes and procedures by individuals or groups in a specific organizational context (Martins and Terblanche, 2003). It is said that the potential of creativity resides in all human beings and is part and parcel of the human condition (Bessant and Tidd, 2007, 406; Ahmed, 1998; Jamrog et al., 2006; Davila et al., 2007, 5). It follows that organizations, by their corporate culture, can create encouragement for this natural inclination. So for organizations to become innovative, it is required to have a corporate culture that constantly guides employees to strive for creativity and innovation (Menzel et al., 2007; Tushman and O’Reilly, 1997; Ahmed, 1998). Nevertheless, in business, the idea should also be appropriate, useful and actionable. Thus creativity in this chapter refers to business creativity as defined by Amabile (1998). Discipline, on the other hand, here follows from the business setting and not from the professional discipline, implying no direct link with the professional culture (see van Luxemburg et al., 2002). To illustrate the difference, business and professional discipline can be compared

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with Trompenaars and Hampden-Turner’s (1997, 8) idea of universalism and particularism: one of their dimensions for cultural differences. Universalism, when compared to the professional discipline, implies that good and right follows from the occupational education and training and always applies (Sirmon and Lane, 2004). On the other hand, particularism implies that less attention is given to these abstract societal codes (Trompenaars and Hampden-Turner, 1997, 8), and discipline then follows from the (perceived) practices, implied from the corporate culture8 (Hofstede et al., 1990) and thus the business setting. According to the literature, there are many practices needed for successful radical innovation. In this chapter, the details of the relationship between organizational culture and radical innovation have been elaborated on through a critical examination of these practices and relating them with the six dimensions of organizational culture. New business ventures should strive to create the organizational culture as described below, likely by engaging in SAs, in order to increase their chances of success. Dimension 1: Process versus Results Orientation The first dimension of organizational culture focuses on the differences between an orientation on processes and an orientation on results. In a results-oriented culture, the focus is on reaching a goal, whereby results go before procedures. A process-oriented culture aims at the opposite and it has a focus on the way of reaching the goals. Unfamiliar situations For radical innovation the core concepts are overturned, and the linkages between the core concepts and components are changed (Henderson and Clark, 1990), while the product will often be introduced in a new market (Christensen and Overdorf, 2000). Both these factors lead to a lot of uncertainty and ambiguity concerning the product and its processes.9 This lack of clarity has an important implication for managers: in ambiguous environments it is seldom possible to ‘get it right the first time’. Traditional planning and analysis are of limited value, since hard numbers are difficult to come by, options are hard to compare, and past practices offer little guidance for the future. A goal orientation is characterized by employees who perceive themselves as being comfortable in unfamiliar circumstances and able to deal with uncertainty and ambiguity. They are willing to put in maximum effort to cope with new challenges each day. This makes this kind of orientation suitable for the development of radical innovation.

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Results before procedures Several authors state that an innovative supportive culture should focus on goals (Carayannis and Chanaron, 2007, 161; Ahmed, 1998; Judge et al., 1997; McLean, 2005). Indeed, there should be enough freedom and autonomy here for employees to determine the means by which to achieve the set goals (Ahmed, 1998; Menzel et al., 2007), as this will enhance people’s creativity (McLean, 2005; Carayannis and Chanaron, 2007, 161). Indeed, in this way, people are able to suggest new and better ways of doing things (Bessant and Tidd, 2007, 66). Judge et al. (1997) described this as chaos within guidelines; top management prescribes a set of strategic goals, built to allow personnel great freedom within the context of the goals. Note that this does not mean that the employees should decide upon the goals (Jamrog et al., 2006), as this will likely lead to less successful innovation (Ahmed, 1998), because people may go off in their own independent directions thereby showing little concern for organizational priorities (Bessant and Tidd, 2007, 66). Another reason is that the lack of clarity about goals will leave employees spending time and energy on trying to determine which goals should receive focus (McLean, 2005). Taking risks and experimentation are characteristics that are associated with creativity and innovation and characterize a goal orientation (Carayannis and Chanaron, 2007, 161; Utterback, 1994, 230; Jamrog et al., 2006; Davila et al., 2007, 6). For radical innovation, failures are inevitable and should be expected. Thus well-intentioned failure is an essential element in the development of an organizational culture that promotes creativity and innovation, (Martins and Terblanche, 2003; Garvin and Levesque, 2006; Khazanchi et al., 2007). In that sense, the way in which mistakes are handled in organizations will greatly determine whether employees feel free to act creatively. For instance, at 3M the tendency is not to ask why people failed, but what they have learned (Davila et al., 2007, 196). Nevertheless, it is important that a balance is reached in the degree to which risk-taking is allowed (Martins and Terblanche, 2003). Too much risk can lead to many failures as people will be confused, with ideas floating around but few sanctioned (Bessant and Tidd, 2007, 66). In riskavoidant, process-oriented organizations, people often complain about their boring, low-energy jobs and become frustrated by a long, tedious process used to get ideas to action (Bessant and Tidd, 2007, 65). Either way, employees will get frustrated that nothing gets done. New challenges People respond positively when faced with new challenges, on the condition that they are provided with sufficient scope to generate novel

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solutions (Ahmed, 1998). High levels of challenge and involvement imply that people are intrinsically motivated and committed to innovate (Bessant and Tidd, 2007, 69). This also leads to the much-discussed topic of rewards. According to Jamrog et al. (2006), there should be a balance between intrinsic rewards and extrinsic rewards. Intrinsic rewards are internal feelings of accomplishment, while extrinsic rewards typically are monetary rewards. Intrinsic rewards are the key driver of creativity (Amabile, 1998; Ahmed, 1998; Montes et al., 2004), and indeed, too much focus on extrinsic rewards will destroy the employees’ intrinsic motivation, as the main aim then becomes pursuing the rewards, thus redirecting attention away from experimentation (Ahmed, 1998; Jamrog et al., 2006). In particular, if rewards are not structured for innovation, but for the performance of routine operations, employees are going to respond with caution and uncertainty (Ahmed, 1998). Nevertheless, extrinsic rewards have to be present at the base level to ensure that individuals are at least comfortable with their salary (Ahmed, 1998; Jamrog et al., 2006). Proposition Concluding from the above, we argue that, since radical innovation brings uncertainty and ambiguity, there is the need for goal orientation. Its characteristics allow for risk-taking, a dynamic work environment, a results orientation, and a stimulating reward system all these will allow employees to work towards their goals in a very creative manner. In that sense, this dimension determines to some extent the amount of creativity in a new business venture. Special attention should be paid to the amount of risk-taking allowed and the proper use of rewards. Indeed, being too goaloriented will also impede radical innovation, resulting in creative solutions which are not in line with the new business venture’s strategic direction. For these reasons the first proposition is formulated as: Proposition 1: a medium-strong goal orientation will stimulate the development of radical innovation.10 Dimension 2: Employee versus Job Orientation The second dimension concerns an employee orientation versus a joboriented organizational culture, whereby a job-orientated culture is only interested in the work people perform, while an employee-oriented culture takes into account the personal problems of the employees and feels responsible for the welfare of its employees; even if that implies becoming less productive.

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BOX 3.1

STARBUCKS COFFEE COMPANY’S HEALTH BENEFITS

An example of an innovative employee orientation is demonstrated by the Starbucks Coffee Company, well known as a company that encourages innovation by taking responsibility of the welfare of its employees (for example health benefits). According to the top management of Starbucks, this has led to more innovation, because of the extremely low attrition level (Davila et al., 2007, 145). This organization believes that there is a direct link between the way the employees are treated and their innovativeness. To give an example, Starbucks was the first organization in the United States to give comprehensive health benefits and stock options to every employee, including part-timers.

Concern for people In line with Box 3.1, Davila et al. (2007) argue that when people are in a positive mood, they tend to be more playful, engage in more divergent thinking, and are more integrative and flexible in terms of seeing connections between different kinds of stimuli. This implies that an employee orientation will result in the fostering and promotion of creativity in the groups or teams within the CE unit. Another way of supporting employees is by creating an innovationsuitable work environment (McLean, 2005; Menzel, 2008). Although the direct link between the design of the physical space and creativity remains unproven, work environments have become integral parts of innovation strategies (Haner, 2005). The physical environment of the workplace helps to stimulate new ideas, and the availability of facilities (for example computers and the Internet) are important resources for successful innovation (Jamrog et al., 2006; Reigle, 2001; Martins and Terblanche, 2003; Menzel et al., 2007). Interestingly, providing employees with the newest equipment to get the job done is a clear example of job orientation, whereas creating a comfortable work area can be seen as an employee orientation. In line with this, Bessant and Tidd (2007, 59) state that there is the need for a balance whereby subordinates feel supported and at the same time empowered; see Box 3.2. Some organizations have started with implementing family-friendly policies designed to recruit and retain valued workers in tight labour markets (Akdere, 2006), which could help to attract and keep suitable and talented people.

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BOX 3.2 INNOVATION LABORATORY XEROX PARC In practice, established organizations are implementing organizational ‘innovation laboratories’ which are dedicated facilities for encouraging creative behaviour and supporting innovative projects (Haner, 2005). Xerox PARC pays careful attention to the physical work environment of its employees (Burgelman et al., 2004, 671). It illustrates the success of an innovation laboratory for encouraging creativity and developing inventions by, among other things, supporting the work environment.

Employee health The last characteristic of this dimension relates to the amount of stress employees face in order to get the job done. Extreme workloads can be seen as an obstacle to creativity and innovation as this will overload individuals, thereby spreading effort too thinly (Ahmed, 1998; Carayannis and Chanaron, 2007, 162). Bell and McNamara (1991, 21) add to this the increased risk of burnouts, which can occur when employees work at a very high pace for several years. On the other hand, too much slack time can also be seen as an obstacle to innovation, as this will take away the challenge. Proposition We argue that firms which are able to find the balance between employee and job orientation will be able to attract and keep key people for the innovation process, because of the facilities offered, modern equipment and good working conditions. An extreme job orientation will cause employees to leave or to be ineffective because of the strong work pressure experienced, and an extreme employee orientation will lack the challenge needed for radical innovation. In conclusion, the following proposition is adopted: Proposition 2: a balance between an employee and a job orientation stimulates the development of radical innovation.11 Dimension 3: Parochial versus Professional Focus of Interest This dimension shows the difference between a parochial focus of interest and a professional focus of interest. It is about the distinction between

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corporate cultures (CCs) where employees derive their identity largely from their boss and/or organizational unit (parochial), and employees which identify themselves with their job or contents of their job (professional). Identification with job Employees that define themselves by their technological speciality, rather than by the organization they work for, see themselves as completely separate from the company at large and often the company at large views them as separate as well (Pfleging and Zetlin, 2006). This kind of specialization is found in professional CCs (Hofstede et al., 1990), and could potentially inhibit innovation (Ahmed, 1998), as high domain-relevant skills may narrow the search heuristics to learnt routines (depth), thereby fundamentally neglecting new perspectives (width). On the other hand, skills and knowledge in a particular field enhances the possibility of a new and deeper understanding (Ahmed, 1998), which is important for technical, radical innovation. A good way to deal with the balance of depth and width is by using cross-functional teams as described by Christensen and Overdorf (2000). Indeed, it is widely agreed that different functional specialisms have to cooperate closely to achieve successful radical innovation; especially when technical expertise must meet business and market knowledge (Ulijn et al., 2001; Menzel et al., 2007). However, as Ulijn et al. (2001) illustrate, see Table 3.1, different cooperating professional cultures might lead to conflict situations. As we will argue later on, this is not necessarily a bad thing. Weggeman (2007, 230) also contributes to the distinction between a local versus a professional focus of interest. Most important for our research is that he argues that knowledge workers tend to prefer a professional focus of interest. He also argues that extremes are rare in this dimension, with likely values between 60 and 80 (on a scale of 0 to 100, 0 having an extreme local focus of interest, 100 as the most professional focus of interest). Low social control If there is strong social control, as is the case with a local focus of interest (parochial), it is not possible for the employees to go beyond what is normally accepted and everybody will behave more or less in the same way. Group similarities, the result of strong social control, do comfort us because they seem to facilitate an easier work situation (Carayannis and Chanaron, 2007, 217), but result in uncreative short-term thinking, therefore inhibiting radical innovation. The opposite – professional focus of interest – guarantees long-term creativity because the employees are not forced to thinking ‘the same’.

Creating a supportive culture for corporate entrepreneurship

Table 3.1

The mutual perception of engineers and marketers

What marketers think of engineers ● ● ● ● ● ●

75

Have no sense of time, service or competitive advantage. No worry about or underestimate costs. Hide in the lab. The client should adapt. Standardization and technology are sacrosanct. Continue developing a product without planning.

What engineers think of marketers ●

● ●

●

●

Want everything always now, want to deliver the product before it is ready, are always in a hurry and impatient or cannot decide what they want. Are aggressive, demanding and unrealistic. Promise more than they can guarantee with the product specifications. Have no sense of technology, no trust in engineers, and are not interested in their problems. Focus on unrealistic profit targets.

Future orientation In a parochial or local focus of interest, employees do not look far into the future, but assume that the organization does so for them. For a professional focus, the opposite applies and employees do have a future orientation concerning their job. Weggeman (2007, 213) therefore states that employees with a high professional focus of interest can easily be tempted to switch to another organization, if given better opportunities to use their expertise. This future orientation of employees with a professional focus of interest could thus possibly inhibit innovation, because key people may leave the new business venture during the project. Proposition Identification with the profession requires a thorough technical knowledge which, together with the possibility to deviate from the internal norm, has been found necessary for the development of radical innovation. However, a too strong future orientation might impede radical innovation as key persons might leave the new business venture premature. We therefore argue that a medium professional focus of interest is most suitable for the development of radical innovation: Proposition 3: a medium-strong professional focus of interest stimulates the development of radical innovation.12

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Dimension 4: Open System versus Closed System The fourth dimension makes the distinction between a culture with a closed system and a culture with an open system. An important characteristic of a closed system is that people do not fit easily into the organization, which contradicts with an open system, where people will easily fit into the organization. Acceptance If outsiders are coming into a community with new assumptions and they find the culture difficult to budge, it will decrease their innovative potential because they will often give up in frustration or find themselves ejected by the organization as being too foreign in orientation (Schein, 1983).13 Carayannis and Chanaron (2007, 161) described this as liveliness, and it is about continuous organizational changes whereby deep-seated assumptions, goals and problem-solving approaches are questioned. It is argued that doing so will increase the creativity and thus innovation. This thus argues for an open system If there is an open system culture in place, it will stimulate diversity, because employees will accept newcomers more easily and almost everybody will fit in the organization. Numerous authors found that heterogeneous workforces are rich seedbeds for ideas, creativity and innovation due to the fact that different perspectives will generate a diversity of creative solutions to a given problem (see Box 3.3 for an example) (Hauser, 1998; Anderson and Tushman, 1990; Bessant and Tidd, 2007, 66; Bassett, 2005; Leavy, 2005; McLean, 2005; Jamrog et al., 2006; Carayannis and Chanaron, 2007, 161). This is also because of the resulting constructive conflict which will lead to improved information flows (Anderson and Tushman, 1990; Martins and Terblanche, 2003; McLean, 2005; Jamrog et al., 2006; Menzel et al., 2007). Conflict can indeed have a positive effect on performance, but only when there is an open system set in place, as otherwise the consideration of more options and alternative strategies (thus avoiding groupthink) will degenerate into personal conflicts (Bessant and Tidd, 2007, 62). Too few conflict situations can result in potentially motivated individuals lacking motivation in their task as meetings and deadlines are more about ‘tell’ and not consensus (Bessant and Tidd, 2007, 62). On the other hand, too much conflict can lead to individuals disliking each other and for this reason holding back information, lying and exaggerating, resulting in absenteeism, poor quality, low morale and loss of competitiveness (Montes et al., 2004; Bessant and Tidd, 2007). Indeed, the conflict generated must be well managed to make sure such conflicts remain constructive (Jamrog et

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BOX 3.3 IBM, BILL GATES AND XEROX PARC A model example of a company that refused to collaborate with a team of people with a radical new innovative idea because of a closed system is IBM. In the early 1980s, Bill Gates and his team showed their ideas about the future of software to IBM’s board of directors (at that time it was a hardware company). One of the reasons why the so-called, ‘Gates bunch’ was refused was because they did not fit into the closed IBM organization. This corporate culture was very formal while the ‘Gates bunch’ looked like a couple of hippies. On the other hand, the highly innovative Xerox PARC can be used as an example of how an open system could work for innovative initiatives. The easy fit within this special department allows employees to act and appear in the way they think is suitable, attracting a diversity of knowledge workers. Because of this, they have become notorious for long hair, beards, and working shoeless and shirtless (Burgelman et al., 2004, 672). al., 2006). It is important to prevent emotion conflict, as this is generally energy-sapping and destructive, creating anxiety and hostility (Hauser, 1998; Bessant and Tidd, 2007, 62). Non-secrecy The last characteristic of this dimension is whether or not the organization and its members are closed and secretive. This could be due to industrial espionage and/or confidential customer information. Chesbrough (2003) argues that indeed internal R&D and secrecy formed an effective entry barrier for competitors in many markets, but the model of ‘closed innovation’ is not a standard anymore because of the growing numbers of knowledge workers and private venture capitalists. Therefore the concept of open innovation is adopted by many firms, which closely relates to an open system, allowing firms to commercialize external (as well as internal) ideas by deploying outside (as well as in-house) pathways to the market. Box 3.4 illustrates this with a short example of Xerox PARC. Proposition An open system will allow for the creation of a diverse workforce, thus creating a diverse knowledge base with the possibility for constructive conflict. This dimension is therefore likely to influence the speed of the

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BOX 3.4

OPEN INNOVATION

An example can be seen at Xerox PARC where researchers developed numerous inventions which were not seen by Xerox as promising technologies (for example the Graphical User Interface), with their main focus on high-speed copiers and printers. With an open innovation philosophy, they could have sold this concept to interested third parties (for example Apple or Microsoft), or they could have made a spin-off. In the same way, new promising technologies can be acquired from other firms, which fit the buying company’s long-term strategy. innovation process, as a heterogeneous workforce will be able to tackle problems in enhanced ways, avoiding groupthink behaviour. The right balance of conflict will result in people behaving in a more mature manner with constructive debate. The open system approach is in line with the ideas about open innovation, which leads to an increased innovative potential. Therefore the following proposition is formulated: Proposition 4: a strong open system stimulates the development of radical innovation.14 Dimension 5: Loose versus Tight Work Discipline The fifth dimension focuses on the amount of internal structuring in an organization, and therefore the predictability of the employees. One of these obstacles for developing radical innovation is to set the right amount of internal structuring for the development of radical innovation. Internal structuring Utterback (1994, 230) states that for radical innovation to occur, traditional organizational controls must loosen. Indeed, decentralization is preached by many scholars of innovation (Martins and Terblanche, 2003; Burgelman et al., 2004; Jamrog et al., 2006; Bessant and Tidd, 2007; Menzel et al., 2007). With little freedom, people are not able to work in a creative way because of the strict guidelines and rigid roles. In that sense, they have to carry out their work in prescribed ways and are likely to spend a great deal of time and energy obtaining permission and support (Bessant and Tidd, 2007, 66). To promote innovation, new business

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BOX 3.5 THE DOT.COM CRASH; GOOGLE AND 3M A good example of problems that occur when there is a loose structure only could be seen during the dot.com crash. Many youthful and exuberant companies got into serious trouble for putting too much faith in creativity and too little value on traditional business discipline and experience (Leavy, 2005). This can happen because these employees simply do not know the right procedures and do not possess the right skills (Bessant and Tidd, 2007, 66). For example, Netscape was too late in introducing business discipline in its competition with Microsoft in the browser market and lost a huge amount of market share subsequently. Examples of firms finding a balance between freedom and control are companies renowned for innovation, such as Google and 3M, which tell employees to spend a certain percentage of time on creative work on their own initiative without any guidance (Davila et al., 2007, 143). To support this aspect, specific seed funding is provided, and the individuals are encouraged to share knowledge and become involved in each other’s projects (Ahmed, 1998). ventures should allow their employees to take time to think creatively and to experiment (Martins and Terblanche, 2003; McLean, 2005). On the other hand, Tushman and O’Reilly (1996, 26) found that, to have an organizational culture that stimulates innovation, an organization should simultaneously exert loose and tight control: ‘They are tight in that the [organizational culture] is broadly shared and emphasizes norms critical for innovation . . . The culture is loose in that the manner in which these common values are expressed varies according to the type of innovation required.’ This is also called flexibility control tension: successful innovation requires companies, besides setting the stage for generating new ideas (flexibility stimulates creativity), also to have the business discipline and processes needed to take those new ideas to the market (Jamrog et al., 2006; Khazanchi et al., 2007). Box 3.5 illustrates this. Balanced resources Being a cost-conscious organization has among other things to do with the resource policy. Having too few resources may seriously hinder innovation as this will force employees to spend their time searching for

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BOX 3.6

EMERGING BUSINESS OPPORTUNITIES AT IBM

The system for the EBOs (Emerging Business Opportunities) of IBM encourages experimentation and creativity, while providing thoughtful oversight and strategic advice (Garvin and Levesque, 2006). It ensures that adequate resources are available, and that managers do not have to spend excessive time searching for funds. At the same time, the system does not ignore tangible, short-term results (internal structure). Businesses are not allowed to languish, nor are they given unlimited time-frames. EBO leaders are tasked with achieving concrete, measurable milestones. additional resources or they become too lean. Both situations potentially inhibit innovation (Bessant and Tidd, 2007, 61). Having too many resources could also be an obstacle because employees with plenty of time and money to get results will lose their direction, creativity and motivation (Amabile, 1998; McLean, 2005; Jamrog et al., 2006; Bessant and Tidd, 2007). Box 3.6 provides a short example of how IBM handles this issue. Lack of predictability The operational mindset found at many large companies with a tight work discipline results in managers focusing primarily on disciplined execution. This results in a mere focus on operations, cost savings and short-term financial performance. In such settings, managers strive for tight control and error-free performance by creating a predictable environment of control, where the employees do as they are told. It does not need further explanation that this does not encourage the creativity needed for the development of radical innovation (Gupta et al., 2006). Proposition A balance between control (creating predictable behaviour) and freedom (allowing creativity) is crucial for the development of radical innovation. As described above, too much control is considered to be a major obstacle for innovation, but too little control may also inhibit the development of innovation. According to the literature, though, it is still necessary to be on the ‘easy-going work discipline’ side as this has a positive effect on resource handling (not too much but certainly not too little) and the lesspredictable behaviour of the employees (which is more likely to result in

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radical innovation). Derived from the above, the following proposition is made: Proposition 5: a medium-easy-going work discipline stimulates the development of radical innovation.15 Dimension 6: Normative versus Pragmatic-Driven The sixth dimension deals with the notion of customer orientation. The scale of the dimension makes a distinction between an internally driven culture in which the employees of the company are convinced of knowing what is best for the customer (normative) and an externally driven culture in which the satisfaction of the customers is most important, even if this is not in the customers’ best interest (pragmatic). Procedures or flexibility Flexibility in this context means to what degree an organization is able to react to customer demands which differ from the way it goes normally. Procedures in this dimension are standardized ways or rules which have to be followed to serve the customers and to prevent mistakes. So, in other words, the higher the number of procedures concerning customer orientation an organization has, the less flexible it is to react to customer demands. Deshpande et al. (1993) found that cultures which are flexible and responsive to the market outperform more consensual and internally oriented cultures. Indeed, in an external environment the competitiveness with other companies encourages continual changes in products, technology and customer preferences, which stimulate innovation (Martins and Terblanche, 2003; Menzel, 2008). Nevertheless, new business ventures should still make use of a low to moderate amount of formal rules and regulations as all companies should have some guidelines to work within (for example for health and safety reasons) (Martins and Terblanche, 2003). Ethical business methods Another aspect that shows the difference between an internally driven orientation and an externally driven one is how organizations deal with ethics. Biotechnology is an example of an area in which many (radical) innovations are developed. Organizations that develop these innovations thus have a more pragmatic view about ethical methods than other organizations. Nevertheless it is still the consumer who has to accept this kind of innovation. In the beginning of the 1990s, the company Calgene developed the so-called ‘Flavr Savr Tomato’, which was superior to normal tomatoes due to changes introduced to the genome of the normal tomato

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with biotechnological techniques. Although this tomato was healthier and tasted better, the average consumer did not accept genetically engineered food (yet). Nowadays, genetically engineered food is considered OK by a large majority of the people (Moore, 1991), and reached the main market, implying a huge market value. This example shows that for new inventions, sometimes the borders of ethical issues should be sought, to develop them further into successful innovations. Customer focus The ability to focus on customers (pragmatic attitude) is considered to be a top-ranked factor for developing an innovative culture (Hauser, 1998; Jamrog et al., 2006). Indeed, a market orientation is always required for developing a successful new product, but for radical innovation, it should not be seen as a substitute for a technology orientation (normative attitude). Indeed, the innovation literature shows that a mere focus on the current market does not guarantee innovative success as it will likely result in the risks of incremental innovation only (Herstatt, 2002; Jamrog et al., 2006). Therefore, traditional market research methods, with a focus on current customers, used for the discovery of radical innovation in the form of new market–technology combinations, possess only limited suitability for new business ventures (Danneels, 2004). Nevertheless, for radical innovation, this does not mean that customer focus should be forgotten as a mere technology-push perspective poses serious pitfalls as well, because it may address the needs of the atypical user and a lock-in into one particular solution (Burgelman et al., 2004). Chandy and Tellis (1998) found that firms focusing on potential future customers (latent needs) have a higher degree of achieving radical product innovation compared to companies focusing on their established customers (expressed needs). This implies that firms should understand the latent and unexpressed needs of their customers (Danneels, 2004). Indeed, customers are not aware of future needs, and therefore organizations should use specially qualified, innovative knowledge carriers early on in the process. Examples of these are lead users or external experts with relevant knowledge from analogous markets (Jamrog et al., 2006; Herstatt, 2002). Understanding the deep shifts in consumer behaviour is notoriously difficult, but once understood can bring great potential, namely radical innovation (Henderson, 2006). Proposition To summarize: a new business venture should be flexible and should not have too many procedures (concerning the customer orientation) as this will impede radical innovation, although some rules have to be present.

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Next, a pragmatic attitude concerning ethics could have a positive effect on the search for new (radical) inventions, as was illustrated above. The last subsection discussed the different types of customer focus related to radical innovation. It can be concluded that it is important for new business ventures to have a strong focus on the latent needs of customers, through for example lead users, thereby balancing the technology-push and market-pull perspectives. In view of this, the following proposition is adopted: Proposition 6: a medium-strong pragmatic orientation stimulates the development of radical innovation.16 Empirical Findings The above-described propositions were subsequently tested at six different new business ventures located at two large and successful Dutch multinationals. All six new ventures were on or around the formerly specified phase of the innovation process. To obtain these results, surveys17 were distributed to 79 selected respondents, of which 60 filled out the whole questionnaire. In addition, six interviews were conducted with the innovation managers of the six new business ventures to confirm the findings from the survey. Also, six more interviews were held with persons in strategic positions (senior director new business development; director innovation programme; director human resources innovation). Figure 3.2 discriminates between the average scores of the two companies, and the estimated theoretical optimum. Box 3.7 provides a summary of the proposed propositions (P1–P6) for the reader’s convenience. We will continue with a short summary of the main findings. P1: as argued, the literature states that a goal orientation is crucially important for developing radical innovation in the CE setting. Empirical findings indeed confirmed that a goal orientation, that is put in place well, allows for risks to be taken and the necessary focus on results instead of on procedures. It was found to be the most suitable way to create creative ideas. P2: an orientation on people is important as the employees make or break the project. Nevertheless, too much focus on employees was found to take away the challenge and effectiveness needed for the development of radical innovation. A balance is thus needed with, on the one hand, attracting and keeping key employees, and on the other hand, enabling and triggering people to deliver exceptional results. P3: the need for in-depth knowledge argues in favour of a professional

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0

50

100

4

Open

Closed

5

Easy-going

Tight

6

Normative

Pragmatic

Key

Extreme

Professional

Strong

Parochial

Medium

3

Moderate

Job

Balance

Employee

Moderate

2

Medium

Goal

Strong

Process

Extreme

1

Position of the propositions between the two extremes Position of Company A Position of Company B Source: Layout based on Ulijn et al. (2004).

Figure 3.2

Hofstede et al.’s (1990) six dimensions of organizational culture with theoretical estimates and the two Dutch multinationals

BOX 3.7

THE SIX ESTIMATED PROPOSITIONS AS DERIVED FROM THE LITERATURE

P1. A medium strong goal orientation will stimulate the development of radical innovation. P2. A balance between an employee and a job orientation stimulates the development of radical innovation. P3. A medium strong professional focus of interest stimulates the development of radical innovation. P4. A strong open system stimulates the development of radical innovation. P5. A medium easy going work discipline stimulates the development of radical innovation. P6. A medium strong pragmatic orientation stimulates the development of radical innovation.

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focus of interest. Indeed, results illustrated that creative conflict, resulting from lower levels of social control, allows employees to go beyond what is normally accepted, likewise preventing behaviour which inhibits the development of radical innovation. P4: the literature review revealed that the implications of this specific dimension can be significant, as an open system allows for a diverse workforce but also reflects the possibilities to utilize open innovation. The empirical evidence confirmed these findings, but also illustrated that it is very difficult to create an open system (both Company A and Company B were struggling with the balance between intellectual property protection and an open system). P5: the allowance for creative behaviour in the innovation process was found to be of key importance, and too much bureaucracy can seriously impede this. Indeed, a balance between freedom and discipline was found necessary for the development of radical innovation, although both the literature and the empirical findings suggest that the focus should be on a loose work discipline (hence the separation found between the mature organization and its new business ventures). P6: this dimension is of crucial importance for firms that want to respond to opportunities from the market in an effective manner. At Company B, empirical findings illustrated that quick decision-making in this area was limited because of the many rules set in place, too early in the innovation process. This subsequently limited their flexibility to effectively respond to market opportunities. Company A was found to be very strong in this area, especially research into the latent needs. To summarize: Figure 3.2 illustrates that the theoretical findings fit rather well with the empirical findings, as all scores were found on the expected sides of the dimensions and close to the proposed optimum estimates. This gives us further confidence that the proposed theoretical values contain truth. From this we can conclude that the balancing act between creativity and business discipline for CE organizational cultures requires a culture that is results-oriented, externally focused (pragmatic), is both job and employee oriented, loose in work discipline, has a professional focus of interest and is very open to the external environment. Freedom is essential for creativity and thus the design of cutting-edge products, services and technologies, while control is essential for keeping the vision manageable, the strategy coherent and implementation on target. Interviews at both companies showed that the difficulty was not only to find this balance, but also in dealing with the shift in this balance during the innovation process (which inevitably occurs as the project progresses). For example, in the beginning of the innovation process more creativity is required while later, near the end, business discipline becomes

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more dominant for successful commercialization of radical innovations.18 This therefore asks for different CE organizational cultures during different phases of the innovation process. At one of the new business ventures of Company B, the need for cultural shift was recognized and accomplished by changing a large part of the team, thereby changing the (perceived) practices and thus the organizational culture.

STRATEGIC ALLIANCES AND CORPORATE ENTREPRENEURSHIP Doing different things, which is the purpose of using CE, requires the use of new knowledge and experience (Burgelman, 1983; Nooteboom, 2000). Although one option may be to develop such knowledge in-house, collaboration with others is often considered to be a more effective way to acquire such valuable, novel knowledge. SAs are considered to be an effective means for this purpose and CE activities may thus significantly benefit from interfirm SAs (Teng, 2007). Sarkar et al. (2001) therefore argued that the proactive formation of SAs reflects an important dimension of entrepreneurial behaviour. They can be defined as voluntary agreements between independent firms with the aim at improving the long-term perspective of product market combinations of at least one of the companies involved (Gulati, 1998; Hagedoorn and Duysters, 2002). SAs are a flexible organizational mode that allows firms to bring complementary strengths together in order to experiment with new technological and organizational ideas (Mody, 1993), by developing access relationships into required strategic assets like value creation through new skills and leveraging complementary resources (Teng, 2007). The traditional reason for forming alliances was to achieve transaction costs advantages (Eisenhardt and Schoonhoven, 1996). Recent literature has broadened this view and considers SAs to fulfil three general goals in the CE setting (Teng, 2007): (1) forming SAs for innovation, for instance by joint research; here firms are able to share R&D costs and risk besides achieving economies of scale in research (Eisenhardt and Schoonhoven, 1996); (2) Corporate venturing, which involves creating or acquiring new units in order to generate new business (Chesbrough, 2003); and (3) strategic renewal, which can be defined as the firm’s transformation in terms of changing its scope of business or strategic approach (Zahra, 1996; Teng, 2007); or in other words, activities to alter a firm’s path-dependence (Volberda et al., 2001). Strategic renewal can be defined as: ‘the creation of new wealth through new combinations of resources’ (Guth and Ginsberg, 1990). The success of

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strategic renewal thus depends on obtaining new resources and capabilities which can be either tangible, like activities, but also intangible (Teng, 2007). As stated above, firms can learn these needed resources and capabilities from their partners, meaning that firms can achieve strategic renewal by utilizing SAs (Eisenhardt and Schoonhoven, 1996). Furthermore, among intangible capabilities, learning (and thus perceiving) new practices can be considered. As was empirically shown by Hofstede et al. (1990), organizational culture is mainly defined by perceived practices. Following from this reasoning, one could argue that it is possible to shape an organizational culture by either changing the practices or changing the way these practices are perceived. Note that by arguing in this way we follow the adaptive perspective of strategic renewal, which suggests that firms can and do change, thereby overcoming their rigidities by an adaptation process of adopting new practices (Lewin and Volberda, 1999). This is opposed to the selective perspective which suggests that the strategic activities of firms are limited to strengthening and exploiting their existing core competencies (Lewin and Volberda, 1999), which likely results in incremental innovation only, and associated inevitable creative destruction (Schumpeter, 1942, 82). In sum, achieving the correct organizational culture for CE practices can be considered as strategic renewal. Strategic renewal in turn is a goal which can be achieved by utilizing SAs. As is known from the literature and argued above, alliances can provide concrete, as well as more abstract, critical resources and capabilities (Eisenhardt and Schoonhoven, 1996). Although many advantages of SAs have been mentioned in the literature, optimizing an organizational culture has not been among them (at least not in a direct way), even though implanting CE usually implies making fundamental changes in the company’s culture (Zahra, 1996). Here, we see SAs in a new and complementary way as we argue that carefully chosen SAs might also be useful to establish or (further) optimize an innovative CE culture by adopting practices from the alliance partner needed for the development of radical innovation. Interesting to note here is that Ulijn et al. (2007) found that certain national culture dimensions clearly influenced cooperative attitudes towards strategic partnership and partnership diversity. So, although there are most certainly possibilities to optimize the organizational cultures of CE by utilizing SA, success is also dependent on the national culture dimensions of the cooperating alliance partners. Nevertheless, we argue that SAs can be helpful in creating the right CE culture in two different ways. Firstly, when there is too much focus on creativity, one could consider establishing alliances with partners that bring in sufficient business discipline. For example, firms should be selected with strong organizational cultures (process orientation, normative and having

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a tighter work discipline), which facilitate internal behavioural consistency, resulting in more reliable performance (Sørensen, 2002). Secondly, in contrast, when there is a purported tendency to stress business discipline at the expense of creativity, it may be useful to ally with firms that are especially strong on the creativity side. For this, one could think of an alliance with a firm which is more results-oriented, has a more open system, and propagates a loose work discipline. In either way, SAs can form an important means to overcome cultural weaknesses and initiate cultural changes in such a way that a careful balance between creativity and discipline is accomplished. As an example here we could mention the difference between the new business ventures of the two multinationals regarding the sixth dimension, normative versus pragmatic driven (see Figure 3.2). A knowledge alliance between these two firms with the focus on optimizing the organizational culture might enable the CE units of Company B to become more flexible concerning its ability to react to customer demands, by learning these practices from Company A. Besides, setting up this type of learning alliance might well be easier than achieving technological SAs, as there is no need for technology exclusivity, regarding ownership and dissemination (Teng, 2007), but could bring the organizational culture needed for the development of such technologies. In this way there will be more potential alliance partners to select from.

CONCLUSIONS This chapter has described how the ideal organizational culture for new business ventures should look, by optimizing the six dimensions of organizational culture as identified by Hofstede et al. (1990) for CE activities. The six resulting theoretical estimates, or propositions, were subsequently tested at six new business ventures located at two large Dutch multinationals. Based on this investigation, we illustrated that the ideal innovative organizational culture for CE is mainly characterized by a medium-strong result orientation, a balanced job and employee oriented approach, a medium professional focus of interest, a medium-loose work discipline, strong open systems and a medium-strong pragmatic attitude. Here, we see how an organizational culture that is conducive to CE activities differs in important ways from a corporate culture that is specifically aimed at maintaining stability and the fine-tuning of established routines. Such a culture will show almost opposite characteristics, such as a much stronger process orientation, more parochial and relatively inward-looking (closed), with rather tight control mechanisms, and stringent behavioural norms. These profound cultural differences between a parent company and a CE unit

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illustrate convincingly the great value and importance of organizational separation of CE activities. It is such separation that provides potential room for CE units to develop their own entrepreneurial organizational culture. But whereas such separation may initiate the needed cultural deviation, it does not guarantee that CE units would automatically arrive at an organizational culture that is supportive for entrepreneurial activities. To achieve that, SAs can be a useful way to build and fine-tune such an organizational culture. Here, SAs do not only provide access to critical external knowledge but may also form an important change vehicle for optimizing CE culture in such a way that creativity and discipline are carefully blended. This implies that partner selection should explicitly take the cultural dimensions into account, which sheds a different light on cultural fit between partners. Traditionally partners are selected based on the degree of cultural fit in terms of overlap, where too little overlap is seen as negative (Douma, 1997). Here, we argue that in view of boosting a CE-supportive organizational culture, partner selection should be based on potential complementary cultural dimensions. Depending on the cultural profile of the specific CE unit, partners should be selected that are complementary either on the creativity side or on the disciplinary side. The size of the empirical evidence presented in this investigation did not allow the drawing of conclusions based on a large dataset. However, that was also not the goal of this exploratory research, where the main aim was to explore new ideas. The ideas presented in this chapter should therefore be tested on larger samples of new business ventures in longitudinal research settings in order to investigate: (1) if the organizational culture changes over time; (2) how organizational culture links to innovative performance (are the propositions universally true?); (3) if it is possible to deliberately change organizational culture by engaging in SA.

NOTES 1. 2.

3. 4.

This is consonant with the fact, in the history of technology, that initially innovations are developed not in areas where they can achieve their full potential, but in areas where they can be tolerated (Nooteboom, 2000). An innovation is the successful introduction of an invention to the market whereas an invention is a pure new scientific discovery (which thus may have the potential to become an innovation). Roberts (1988) defined it as: ‘innovation equals invention plus exploitation’. Practices are defined here as conventions, customs, habits, traditions, usages, and so on, and reflect symbols, heroes and rituals. The six practice dimensions were labelled: process-oriented versus results-oriented; employee-oriented versus job-oriented; parochial versus professional; open system versus closed system; loose versus tight control; and normative versus pragmatic.

90 5. 6.

7. 8.

9.

10. 11. 12. 13. 14. 15. 16. 17.

18.

Strategic alliances, mergers and acquisitions The three value dimensions were labelled: need for security; work centrality; and need for authority. Symbols provide tangible evidence of the culture; they are manufactured by people to facilitate activities, for example a company logo, which summarizes what a company stands for. They can be words, gestures, pictures or objects that carry a particular meaning. Rituals are standardized detailed sets of techniques and manage anxieties. They are collective activities that are socially essential within the culture. Heroes are persons who serve as a model. They can be dead or alive, real or imaginary, but all heroes act as a role-model illustrating the best behaviour (Hofstede et al., 1990; Reigle, 2001). The socialization of members is a matter of learning the practices, which consists of symbols, heroes and rituals of a specific unit or organization. Note the distinction between corporate culture and organizational culture. While both are comparable concepts, the former reflects the culture of the parent company while the latter reflects the culture of the CE unit, or new venture. An example of an organizational culture tuned for innovation is a culture building upon the principles of CE (Thornberry, 2003). The possession of the right (interpretations of) practices, meaning organizational culture, provides the venture with the necessary ingredients to innovate, and to sustain innovation (Ahmed, 1998). However, remarkably few authors describe the details of this relationship (McLean, 2005). Even if the details are described, they are not structured in a way that would enable measurements of the optimal organizational culture for the successful development of radical innovation. Note that there is a distinction between uncertainty and ambiguity. In uncertain environments, alternatives and options are reasonably clear, and the likelihood of different outcomes can be assessed probabilistically. In ambiguous environments, neither the full range of alternatives nor the full range of outcomes is known in advance (Garvin and Levesque, 2006), meaning that little is given or predetermined. See Figure 3.2 for a graphical representation of the propositions and a rationale of the intensifiers used. See Figure 3.2 for a graphical representation of the propositions and a rationale of the intensifiers used. See Figure 3.2 for a graphical representation of the propositions and a rationale of the intensifiers used. (Schein, 1983) argues that this scenario is especially plausible when the distinctive parts of the corporate culture are based on biases that are not economically justifiable in the short run. See Figure 3.2 for a graphical representation of the propositions and a rationale of the intensifiers used. See Figure 3.2 for a graphical representation of the propositions and a rationale of the intensifiers used. See Figure 3.2 for a graphical representation of the propositions and a rationale of the intensifiers used. The questionnaire was distributed by the firm ITIM, which has the exclusive right to commercialize the survey originally developed by Hofstede et al. (1990). The authors gratefully acknowledge all support provided by Bob Waisfisz and his team, see http:// www.itimfocus.com. Our focus in this chapter is on the phase when new business ventures start to develop a business with the invention.

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4.

Culture and its perception in strategic alliances: does it affect performance? An exploratory study into Dutch–German ventures Jan Ulijn, Geert Duysters and Jean-Marie Fèvre

If there isn’t a reasonable cultural fit, I wouldn’t touch it. We acquired a small company providing telecom services to prisons. We didn’t have a thing in common: the wrong business, the wrong people. It didn’t have a chance. (Euan Baird, CEO, Schlumberger, quoted in Gancel et al., 2002, 29)

Although the recent wave of newly established strategic alliances might suggest win-win situations for all the companies involved in cooperative agreements, mortality rates of cooperative agreements have always been extremely high. From an extensive literature review (see Duysters et al., 1999) we conclude that the percentage of strategic alliances that fail should be about 50–60 per cent, which is a rate between the optimistic and pessimistic conclusions of different authors. Reasons for these high failure rates have always remained rather vague. Most authors suggest that a mismatch in terms of alliance fit is the most important reason for alliance failure. Fit can arise in three main forms: strategic fit, organizational fit and cultural fit. Most of the attention in the literature has been dedicated to strategic and organizational fit of organizations. Cultural fit has received far less attention. In order to fill this void we will perform an empirical analysis of cultural fit in strategic alliances between Dutch and German companies, as an example of how even two very related national cultures might create a match or not.

SOME BACKGROUND This section will deal with some foregrounding elements for an exploration into Dutch–German ventures in their alliance endeavours, such as 96

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culture and strategic alliances (SAs) in general, domestic cultural discrepancies and SAs (national cultures combining different regional cultures) and how national and corporate culture differences potentially may affect fit in Dutch–German ventures. We do this by comparing the Dutch and the German perspective with regard to those cultural levels and drawing the implications for their cooperation Culture and Strategic Alliances (SAs) Most potential alliance partners tend to pay close attention to strategic and organizational fit aspects, but fail to check for cultural aspects on national, corporate or professional levels (see Ulijn and Weggeman, 2001 for an overview of definitions). It is beyond the scope of this chapter to discuss all these various aspects of culture in depth. Therefore we limit our attention to two basic levels of culture, that is, the national and corporate levels of the partners. In spite of our focus on these levels we will not fully refrain from paying attention to the professional level. Hofstede’s definition of culture (Hofstede, 2001) being the mental programming of one group towards another, and his three levels of uniqueness which relate personality and human nature to culture shows that those three levels – national culture (NC), corporate culture (CC) and professional culture (PC) – can be distinguished clearly. A strategic alliance is an encounter between partners which might differ on all those three levels. This chapter addresses the issue of culture in SA formation and management. Si and Bruton (1999) have shown that most knowledge acquisition goals in international joint ventures for Chinese partners could be associated with learning new technologies, and from the partner firm’s NC, managerial and negotiation styles. For the Western partners learning about government behaviour, economic policy and law, market characteristics and labour resources are considered to be interesting, but not as important as learning the management and negotiation styles of the other partner. An extreme form of tightness in SA formation between the partners is an acquisition for which Vermeulen and Barkema (2001) found that cultural distance would have an effect of a 0.52 negative correlation using a logit model. The more distant the (national) cultures, the less likelihood of subsequent expansions of the firm in that country. This means a given competitive advantage if the firm with a national culture distant from the one to be acquired does not withdraw but instead makes efforts to match the target national culture. But one has to be careful and avoid the temptation to assume that cultural distance would mean geographical distance. The Dutch NC, for instance, is more similar to that of Finland than Germany, and the

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Belgian NC more similar with respect to Italy than the Dutch, even though the Netherlands, Germany and Belgium are neighbouring countries in North-Western Europe. So, cultural distance does not equal geographical distance per se. How tight the fit between the partners should be, basically does not depend only on cultural distance, but also on the intensity of the alliance. An acquisition of one firm by another, for instance, implies a much tighter cultural fit between the partners than a merger, a joint venture or a loose SA, in this order of decreasing tightness needed. In an earlier study of Barkema and Vermeulen (1997) they used the same Euclidean index of cultural distance to measure the detrimental effect on international joint ventures. Joint venturing would imply a middle position on the alliance intensity scale between the loose character of an SA and the tightness of a full acquisition. So apart from the psychic distance of geographical remoteness, alliance intensity has important implications for the nature of cultural fit, and the acculturation needed as well, as Grotenhuis’s (2001) study which compares technology acquisitions by a Dutch firm of US and Japanese firms has shown (see also Chapter 7 by Grotenhuis in this book), and can be drawn from the above studies by Barkema and Vermeulen (1997) and Vermeulen and Barkema (2001). This chapter deals only with a less intense (loose) way of SA formation between Dutch and German firms. Generally speaking the following seems to hold: the farther away, the more difficult, but what is near (in our case Germany and the Netherlands) is not always similar. Following Grotenhuis’s (2001) extensive discussion of recent empirical studies on the matter, we argue that fit is a matter of compatibility, complementarity and harmony implying common, similar and completely different cultural elements that are needed to empower each other. Let us take the example of Philips, headquartered in the Netherlands. If it was to select a US SA partner, the relationship can be very loose: there is no direct confrontation between the NC of the US (Figure 4.1). The focus of the cultural fit could well be on CC harmonization. In North-Western Europe, the home base of Philips, NC would overlap a little with CC in this harmonization, which would grow as a part of the NCs themselves in the Latin world (Southern Europe and America): the tightness increases. In Oriental countries, there would be almost a one-to-one correspondence to NC and CC; Philips would have to become a complete Japanese company (see, for a more elaborate discussion on this, Ulijn and Kumar, 2000; Ulijn, 2008) to make the cultures fit. Some first evidence for the plausibility of this loose–tight distinction in the cultural fit between SA partners can be found in Hall (1993, 1995) for both the US and Japan. On the basis of her analysis of some NCs (the USA, the UK, West Germany, France, Italy, South Korea and Japan) within several multinational corporations (MNCs) as

Culture and its perception in strategic alliances

99

Given NC CC SA1

SA2 NC Given CC

CC SA1 USA

CC SA1

SA2 NC Given CC

North-Western Europe

SA2 NC CC SA1

SA2 NC + CC SA1

Latin

Japan

loose NC

Figure 4.1

tight NC

A possible relation between cultural fit of SA partners and the Triandis (1994, 1995) NC notion of tight/loose

they are viewed by their SA partners, Hall concludes that SA partners can use a perception of a cultural distance as a ‘compass’ to find the right SA partner. This compass should not only use the geographical parameters of psychic distance, but the cultural distance between neighbouring countries as well: what looks alike can be very different. Fit, moreover, might not only mean alike, similar; but also compatible, complementary. This question arises already within one country. Domestic Cultural Discrepancies and Strategic Alliances One has to be really cautious about generalizations concerning a country or a nation: indeed, problems occur within a single country. In Germany, for instance, there are big cultural differences which are enduring and sociologically relevant. Some are really deep and have lasted for centuries, such as the different languages and dialects, religions, food habits. And a real psychological gap still exists between the ‘West’ of the country and the former German Democratic Republic (GDR) where many people still feel a strong inferiority complex or feel as left unaccounted for. This emotional discrepancy makes everyday life in Germany more difficult at every level, and typically in firms – especially for mergers of German firms, as Fèvre (2009) underlines ‘For many Germans, the process of reunification is resented more as an acquisition than as a merger.’ The case of a merger between two German companies in the telecommunication sector in 2005 is also very explicit concerning domestic difficulties. Müller (2007) presents

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two German firms of the same sector but with two different corporate cultures, 14 locations (from 8 to 378 people), including three in three towns of the former GDR, with people neither knowing each other nor their leaders. This means a high degree of uncertainty and emotionality with a high risk for the new company. The definition and deployment of an integration process by leaders from both origin companies with a huge investment in resources and internal communication permitted success. A real and open communication creating mutual understanding, common approaches and clusters of interested people at every step of the process across the origin companies must be built in order to make Germans unite. In the Netherlands, there are also enduring differences in religion, mentality, dialects and so on. The big rivers (Maas and Rhine/Waal) are still dividing the people between those who are from ‘above (that is, north of) the rivers’ (in Dutch boven de rivieren) and those who are from ‘under (that is, south of) the rivers’ (in Dutch onder de rivieren). Fèvre (2009) emphasizes the differences within the Netherlands too: ‘Many people say “Holland” when they mean “the Netherlands” and this does not please many of the inhabitants of the Netherlands who are not from Holland.’ These differences are clear within the fabric of the Dutch economy: the business activities differ regionally. One has thus to be aware of these cultural differences which already make domestic SAs difficult. Culture and Strategic Alliances: Methodological Constraints and Limits The study relies on a sample of 24 firms. One may argue that its size is limited particularly because it is not based on the principles of randomness but simply on the possibility of getting any information. On these delicate topics, firms usually retain information or communicate scarcely: the question of availability of data is critical. Especially when things go wrong, many scholars suddenly get an Informationssperre (information embargo), even if they have been involved in the process for a long time, and see the fruit of their intensive efforts and/or academic project suddenly ruined. Furthermore, the size of a sample is less important than its accurate representation of the population considered, as illustrated by the ‘Literary Digest Case’ and as mentioned by Neuman (1997). The critical reader will notice that the considered firms of the sample are from different sectors and that this gives a reasonable dimension of credibility and trustworthiness to the study. Another risk is the possibility of bias. That is why the method applied should be clearly presented and the issue of a questionnaire well explained. Indeed one may fear that the people involved, even without any ill intention, may render too much importance to their own subjective perception

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and mislead the analyst. In other words, it would not be impossible that the respondents disclose more information about themselves than about their firms and, more generally, about strategic alliances. A certain countermeasure can be obtained by the method used and by the statistical probability of the reciprocally correcting effect of different answers on several locations by people with different levels of responsibility. Fèvre (2003) recalls Oberlin, who towards the end of the eighteenth century chose to become a minister in a remote village of the Alsace where people were starving. He worked for decades and promoted the common good mainly through educational efforts, especially language, vocational and adult training. He managed to reconcile parents with their children, neighbours with each other, the rich with the poor, and is the precursor of the country’s nursery schools. In spite of his humility, he had contact with the elite of his time (Basedow, Lenz, Pestalozzi) and is an example of an active philanthropist with a positive and efficient double Franco-German Culture. His ‘image of reconciliation’ is still efficient and useful to compare different points of view, just as surveyors or archaeologists work from different angles to survey the landscape in the process of triangulation. Indeed, measurement improves when different indicators are used. See also Chapter 8 by Eppink et al. in this book, and Ulijn et al. (2009) about the self-introspection into one’s own national culture and how others perceive it. Mutatis mutandis, this study applies this triangulation through its process of collecting and analysing data. Biases are unavoidable but the approach used limits them to a minimum. The results obtained are formulated with the required caution, but bear interesting elements enabling the scholar as well as the practitioner to draw useful lessons from the whole process. So, in this particular case, what does it mean for two countries which have such a strong trade tradition with each other, such as the Netherlands and Germany, being considered by many people as very similar (Anglo-) Germanic cultures, to develop strategic alliances, and what cultural pitfalls may exist? Potential National and Corporate Culture Differences Affecting Fit in Dutch–German Ventures Aware of the above-mentioned reservations, national culture can be studied from many different perspectives. We studied six important dimensions of NC for the Netherlands (NL) and Germany as perceived by German and Dutch employees in relation to their attitudes about different aspects of culture (see Table 4.1). Five of them were the ones by Hofstede including a Long-Term Orientation (LTO) dimension which he added with his

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Table 4.1

Differences between Dutch and German NCs and CCs

National culture Power distance (PDI) Individualism (IDV) Masculinity (MAS) Uncertainty avoidance (UAI) Long-term orientation (LTO) Innovation drive (IDI)* Corporate culture *** Structure of the firm Policy of the firm Human resources management Organizational approach Control General attitude to market reality

Netherlands

Germany

38 80 14 53 44 40**

35 67 66 65 31 30**

organizationbound results-oriented employeeoriented open system loose control pragmatic

professional process-oriented job-oriented closed system tight control normative

Note: * This dimension is added by Ulijn and Weggeman (2001), ** estimated, *** predicted. Source: (2001).

Based upon Hofstede et al. (1990), Hofstede (2001), Ulijn and Weggeman

colleague Michael Bond on the basis of student answers in the Far East. We also added the dimension of Innovation Drive Index (IDI) proposed by Ulijn and Weggeman (2001) to facilitate the right mix, the professional cultures (PCs) of engineering and marketing in innovation. Estimates for comparable Hofstede figures are based upon the studies by Ulijn and Weggeman (2001) and Bratatjandra (1999) for NL, and for both NL and Germany on the basis of a comparison of market and technological orientation of 12 Dutch and German comparable firms (Ulijn et al., 2001). National Culture: A Dutch–German Comparison ●

Power Distance Index (PDI) measures the expectation and the acceptance of unequal distribution of power. Both the Netherlands and Germany have a low PDI value. This indicates that our respondents tend to minimize inequality.

Culture and its perception in strategic alliances ●

●

●

●

●

103

Individualism (IDV): the Netherlands belongs among the most individualistic societies. The ties between individuals are loose. Also Germany seems to be rather individualistic. By contrast in collective societies, people are integrated into strong, cohesive in-groups for most of their lives (for instance Japan). Masculinity (MAS): while the scores for PDI and IDV are quite identical, the MAS is much higher for Germany than for the Netherlands. The ‘masculine’ end of this scale describes the dominating role of achievement and success in a society. For the opposite ‘feminine’ end the dominant values in a society are associated with caring for others and quality of life. Uncertainty Avoidance Index (UAI): Germans tend to avoid uncertainty to a larger degree than their Dutch neighbours. A high UAI reflects feelings of threat in uncertain or unknown situations. Long-Term Orientation (LTO) is the extent to which a society exhibits a pragmatic future-orientated perspective rather than a conventional historic or short-term point of view. The Dutch are expected to pursue a long-term orientation. A high score on uncertainty avoidance might imply a low risk approach to SAs; a high power distance of one of the partners might be obstructive to a natural development of the venture. The same applies for a high level of individualism. On those particular scores Dutch and German partners are not too far apart. The slightly higher LTO of the Dutch partner (44 vs. 31) might help a long-term orientation in strategic alliancing. What about the Innovation Drive Index (IDI) of both partners? Innovation drive is defined as the extent in which an organization approaches its product development from the ‘technological point of view’ vs a rather market-oriented approach using both engineering and marketing PCs. A low score for innovation would be expected for a market-pull policy. An innovation-friendly organization tends to be associated with a more technology-push businessoriented policy. Ulijn et al. (2001, 21) found that German engineers are less market-oriented than their Dutch counterparts. The strong feminine values of Dutch firms in terms of their national and corporate culture (NC and CC) might lead to a more customer-orientated focus (market pull) compared to the more masculine German firms. However, both samples showed a tendency to go from a technological to a market orientation, but Dutch firms were quicker to do this than German ones. In a SA Dutch and German partners could be complementary to each other in this sense.

104

Strategic alliances, mergers and acquisitions PDI 80 60 ID

IDV

40 20 0

LTO

MAS

UAI Netherlands

Figure 4.2

Germany

Graphical illustration of the indexes for both national cultures

The above Figure 4.2 makes this clear. This visualization makes clear that the Dutch and the Germans should take their similar elements into account and concentrate on the biggest difference (here the masculinity–feminity index) to avoid blunders and be more efficient. This approach means to be aware of the differences in order to unite better. It is also clear that some of those dimensions might overlap with those of NCs, but it is beyond the scope of this chapter to do cross-validation. Obviously there is an interaction between NC and CC as Hofstede indicated (1991, 2001) by using the PDI and UAI to characterize a German, British or French firm. Corporate Culture: A Dutch–German Comparison Measuring cultural fit between firms from different NCs is further complicated with the CC of those firms. As a matter of fact any SA, joint venture, merger or acquisition deals with this first, often called the ‘chemistry’ of two firms being compatible or not. Weber’s (2000) study is an example

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of such a measurement of fit between 73 firms involved in mergers and acquisitions within one nation, that of the USA. It uses seven dimensions which partly overlap with the six CC dimensions by Hofstede et al. (1990), which we prefer here to make them fit better our NC dimensions and SAs and also because they are less top management team-oriented than what Weber suggests. Comparable are: performance orientation (resultsoriented); integration vs lateral interdependence (tight vs loose); innovation and action orientation (job-oriented); and top management contact (employee-oriented), as Weber defines those concepts. Reward orientation is an aspect of HRM which is less relevant to SAs; risk-taking relates to our NC dimension UAI; and autonomy and decision-making relate to our NC dimension PDI. This study applies six different NC and CC specific dimensions to make a completely separate check. The behaviour of human beings is not only influenced by their nation of origin, but also by the organizations for which they work. The concept of corporate culture (CC) describes the value and norm system and shared models of thinking and behaving which influence decisions and behaviour of the employees in the company. Corporate culture is the way the employee in the company thinks, talks and works (Ulijn et al., 2001, 25). Implications for Dutch–German Cooperation Table 4.1 showed the predictions for the six CC dimensions for the Netherlands and Germany. Organization bound vs professional. This is obvious when people feel the organizational norms cover their behaviour at home as well as at work. Employees on a professional level separate their private from their working lives. Hofstede et al. (1990) use the term ‘parochial’, but we would prefer the label ‘organization-bound’ (as an element of CC) here as opposed to professional culture (PC). Ulijn and Weggeman (2001) show that the professional values are more frequent in German-speaking countries. The Netherlands are expected to be more organization-bounded. Process-oriented vs results-oriented. This dimension confronts a processoriented attitude with a results orientation. In a process-oriented culture, employees tend to avoid uncertainty. In a results-oriented culture, on the other hand, people are used to situations where uncertainty occurs and they view this as a challenge. We expect the German companies to be more process-oriented than the Dutch. This is caused by the higher score for UAI and a more technological orientation of the German employees. Employee-oriented vs job-oriented. A concern for employees (employee-oriented, consideration of the employees’ feelings, thoughts and problems) is compared with a concern for completing the work

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(job-oriented, strong pressure for employees to complete their job). The Dutch are supposed to be more employee-oriented because of their affiliation to a society with a low score on masculinity. Open system vs closed system. An open system company welcomes beginners. Almost everybody would fit. In a closed system only very special people fit into the organization and new employees need a long time to accommodate. Because of the higher scores in MAS and UAI, German companies are expected to be less open to beginners and outsiders. Loose control vs tight control. The control dimension refers to the degree of internal structuring in the organization. In units with loose control hardly anybody thinks of costs and to be punctual is not a virtue. In a tight control unit, employees emphasize cost-consciousness first and everybody has a strong sense of punctuality. In Dutch companies we expect a more loose control than in the German firms (Ulijn and Weggeman, 2001). Such firms belong to the Anglo-Nordic culture which is supposed to be more open. Additionally, a loosely controlled organization leaves more space for individualism. Normative vs pragmatic. This dimension considers the popular notion of customer orientation. A normative organization emphasizes organizational procedures. ‘Pragmatic’ in this case means market-driven. Customer satisfaction is more important than the procedure to reach this goal. The more open, loosely controlled society of the Netherlands should lead to a pragmatic result, whereas Germans are expected to be normative. Some of those CC dimensions might affect an alliance performance more specifically, such as a high process, employee and professional orientation, an open system approach and a tight control (as a sign of commitment) to give way to a natural SA development. A strong focus on (short term) results, an attachment to one’s own job and organization in a closed, normative system with a loose control might lead to an early failure. In conclusion an increasing number of intercultural management studies take the professional level of culture into consideration: PC (see Ulijn et al., 2001; Ulijn and Weggeman, 2001). Many employees do not feel loyal to the company any more but to their professional code of ethics (Wever, 1990). This makes studies on PC in their interaction with NC and CC much more relevant in the future. This study is limited to NC and CC levels, but as an intermediate we have added innovation drive as interaction between the PC of marketers and engineers and the organizationbound–professional distinction between NC and CC, assuming that those are the predominant predictors of cultural fit as representatives of the selected Dutch and German samples perceive it.

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AN EXPLORATORY STUDY INTO THE NATIONAL AND CORPORATE CULTURE PARAMETERS AND THEIR PERCEPTION OF FIT This section will include the subsections pertinent to the study’s report, such as its focus: the mutual cultural perception fit of six Dutch–German and six German–Dutch strategic alliances (SAs), the method of analysis, questionnaire and statistics used and its results. The Mutual Cultural Perception Fit of Six Dutch–German and Six German–Dutch Strategic Alliances How does one examine cultural fit? Cultural studies range from mere introspection or self-perception studies (such as those of Hofstede and his ‘school’ and Weber, 2000) and participant–observer studies of a more anthropological nature (Hall and Hall, 1990, for instance, including German culture). Perception studies are very rare: Hall (1995), Limaye (2000) and Ulijn and St Amant (2000) are examples. In the context of SA formation, Steensma et al. (2000) study the perception of technological uncertainty, an important aspect of risk-taking and uncertainty avoidance. Technological fit between technology-driven SA partners is another sometimes overlooked feature of alliance performance, next to strategy, organization, operation and culture: the top managers make the decisions and the engineers have to follow. They roughly found that collective, masculine cultures, such as small and medium-sized enterprises (SMEs) in India and Mexico considered themselves as more dependent on technological resources (high technological uncertainty) than individual, feminine ones, such as SMEs in Norway and Sweden. This also seems to coincide with a difference in technological and innovative development, and the good news is that both India and Mexico seem to use their high UAI as an incentive to engage in technology alliances to reduce that perceived technological uncertainty. Both Limaye (2000) and Ulijn and St Amant (2000) review the perception literature from an intercultural perspective: what you see, might not be what it is; thus the mutual perspective in SA formation with regard to cultural fit would increase the reliability and validity of the outcomes considerably. According to the classification above, our work is a mutual perception study. On the one hand, a Dutch team administered a questionnaire to six Dutch organizations, which are (or were) involved in a strategic alliance with a German organization (DG sample). On the other hand, a German team did the same with six German managers creating strategic alliances with the Dutch (GD sample). In both parts of the study, we asked

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the participants to rank their own NC and CC, as well as the cultural dimensions of their counterparts. Although it was impossible for practical reasons to ask both counterparts of one SA, we got an impression of how the Germans and the Dutch see each other. Therefore, we checked the mutual perception. Both research teams worked with nearly the same questionnaire. The main part in both questionnaires concerns NC and CC on the one hand and the alliance performance on the other hand. The relationship between cultural fit and the performance of the cooperation has been indicated by several authors (see Bronder, 1993, for instance), but has not been really verified yet in SAs. From the business side companies such as Roland Berger and KPMG which are well experienced in supporting international SAs tend to risk bad performance, also due to cultural aspects. This study tries to verify the following hypothesis to substantiate this aspect in some detail: There is a positive relationship between the perceived cultural fit between SA partners of the Netherlands and Germany and the global appraisal of their alliance performance. Method Cultural factors can be examined in many different ways. Hendriks distinguishes between the historical, the survey, the experimental and the ‘real-life’ tradition (Hendriks, 1991). According to this classification, this study reflects a survey tradition using a questionnaire among Dutch and German managers who are (were) involved in mutual SAs. Moreover the multiple case study method (Yin, 1993) was used so that the Dutch and German cases could replicate each other within the same study. It was important, then, to select comparable SA samples. We aim to provide an explorative and descriptive overview of the cultural fit in strategic alliances. All in all 12 companies which are involved in a strategic alliance filled out a questionnaire regarding this cooperation. The 12 companies are characterized in Table 4.2. At the left-hand side we describe the partners surveyed and on the right-hand side their strategic counterparts. As Table 4.2 shows, the size of the firms and the branches vary. Whether an organization is allianceexperienced or alliance-inexperienced depends on the number of alliances a firm is (or was) involved in, before the alliance at stake. We refer to Draulans et al. (2003), who estimate a turning point at around six alliances. Since no organization of our sample is (or was) involved in more than six strategic alliances during the previous five years, all are considered as ‘alliance-inexperienced’, with the restriction that DG1, DG2,

109 20–50 250–500 50–250 500+ 1–20 250–500

500+ 500+ 20–50 20–50 1–20 50–250

Number of employees

No – No No No –

– – No No No No

Allianceexperienced

Market research Logistics Chemistry Logistics Retail Logistics

Construction Construction Logistics Logistics Steel Logistics

Branch

50–250 50–250 1–20 50–250 20–50 500+

500+ 250–500 250–500 20–50 50–250 50–250

Number of employees

Partner 2

* DG = the responsible SA team is Dutch; **GD = the responsible SA team is German; – means unknown.

Market research Logistics Chemistry Logistics Retail Logistics

GD1** GD2 GD3 GD4 GD5 GD6

Note:

Construction Construction Logistics Logistics Steel Logistics

Branch

Partner 1

Description of the Dutch and German samples

DG1* DG2 DG3 DG4 DG5 DG6

Alliance Nr.

Table 4.2

No – No No – –

– No – No No No

Allianceexperienced

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GD2 and GD6 (DG – Dutch–German and GD – German–Dutch) could not answer this question accurately. This beginning alliance experience might predict poor performance as well, a situation which might be more sensitive to cultural fit than if SA partners have a large intercultural experience. Hence this factor cannot be a source of variation in our sample. The information about the respective German or Dutch counterpart was gathered by asking our primary contacts of the responsible SA teams. The sectors of SAs were the same for both partners: logistics in six cases; construction in two; chemistry, market research, retail and steel in one each. This seems to be not too unrepresentative of Dutch–German trade relations, given the predominant position of the Netherlands as a distribution country or a logistics mainport within North-Western Europe: 25 per cent of all trucks on the European roads originate from this country, also for transports to and through Germany. Questionnaire and Statistics Used As mentioned above, both teams worked with a comparable questionnaire; only a few details were changed. It was based on a tool developed originally by Draulans et al. (2003). The questionnaire consisted of several parts. At the beginning there were general questions about the company demographics. The data are already shown in Table 4.2. The next part was concerned with the type of alliance. In this part we wanted to know how long the cooperation existed and in which field the organizations worked together. Moreover, the intentions and outcomes of the alliances were researched. At this point the respondents had to classify their goals and were asked to rate the outcomes. Finally, they had to give a judgement about the whole performance, about the global appraisal of the cooperation. Our focus is on the so-called cultural section. In this part there were some single items about the corporate culture at the beginning, but the main part of this section dealt with the cultural dimensions of Hofstede, as Figure 4.3 shows for a sample item, that of UAI. Every respondent had to rank both counterparts of the alliance. In the example above, the respondent avoided uncertainty to a very high degree. Its partner was perceived as scoring lower on this dimension. Finally, the respondents were asked to list positive and negative aspects of the cooperation in an open question–answer slot. At the end of the questionnaire we gathered some personal data of the respondent. Testing the relationship between cultural fit and performance on a statistical level could be done by calculating Pearson’s r. This statistical index helps us to define the degree to which the dependent variable reacts to the independent. It shows us the strength of the relationship between cultural fit and alliance performance.

Culture and its perception in strategic alliances

111

Uncertainty Avoidance Index (UAI): The extent to which people feel threatened by uncertainty and ambiguity and try to avoid these situations. High: Anxiety, higher stress Inner urge to work hard Showing emotions accepted Conflict is threatening Need for consensus Need to avoid failure

Low: Relaxed, lower stress Hard work not a virtue per se Emotions not shown Conflict and competition seen as fair play Acceptance of dissent Willingness to take risks

Need for law and rules

There should be a few rules Own organization

High

1

2

3

4

5

Low

4

5

Low

Partner organization High

Figure 4.3

1

2

3

Sample item to assess the perception of self and other in SA

Results The first step to approach cultural fit within the SA is to scrutinize the differences regarding single NC and CC dimensions. Table 4.3 shows the differences between the two partners perceived by the respondents. They ranked their own and their partners’ NC and CC dimensions scores on a five-point scale ranging from 0 to 4 (no, small, fair, quite big, big). In general, both Dutch and German respondents perceived small differences regarding NC and CC. Above all, the Germans reported nearly equal cultures. Only one company sees a difference bigger than two units (GD sample, SA6, innovation drive). Regarding 7 out of 12 dimensions most respondents see no difference (0) between their partner and themselves. Although in the DG sample more managers notice a difference of two units (particularly in ‘open–closed system’), only two (SA2, SA5) see major differences (more than two units) between the partners regarding one dimension. Concerning power distance, the GD sample shows no differences, while the Dutch perceive a gap (SA5). On the other hand the samples differ only slightly in terms of masculinity. This is striking, since Hofstede (see Table 4.1) found the biggest difference on this dimension: Netherlands 14 vs Germany 66. The partners seem to be more

112 3 3,4,5,6 3,4,5,6 1 1,6 1,3,6

1,5,6

1 1,2 4 5 4,5

1,2,3 1,4,6 2,4 1,3,6 1,2,3,6 6

1

2,3,5,6 2,3,4 2

4

5 2,5

4,6 2,5

2

2

5

3

2

4

2,3,4,6 2,4 2,4,5 2,3,6 1,2,5

2,3,6

1,2,3,4,5,6 2,4 1,2,3,4,6 2,4 2,3,4,5 2,4

0

1,5 3,6 1,3 1,4,5 3,4

1

1,3,5,6 5 3,5 1,6 1

1

6

1,5 6

4,5

3,5

1,6

2

6

3

German–Dutch sample (GD) Absolute differences between partners 4

Note: The horizontal numbers refer to a scale of increasing difference perceived between the partners, all numbers in the data slots refer to six Dutch–German and six German–Dutch SAs respectively.

CC dimensions Organization bounded–professional Process–result oriented Employee–job oriented Open–closed system Loose–tight control Pragmatic–normative

3 1,3,5,6 2,4,5 4 1,3,4

0

Dutch–German sample (DG) Absolute differences between partners

Verification of NC and CC differences in both samples

NC dimensions Power distance Individualism Masculinity Uncertainty avoidance Long-term orientation Innovation drive

Table 4.3

Culture and its perception in strategic alliances

Table 4.4

Alliance Nr.

The perception of cultural fit related to global appraisal of alliance performance in both samples Mean difference

Cultural fit* Global (1/mean appraisal** difference)

DG1 DG2 DG3 DG4 DG5 DG6 Mean DG

0.58 1.67 0.91 0.83 1.08 1.00 1.01

1.72 0.60 1.10 1.20 0.93 1.00 1.09

GD1 GD2 GD3 GD4 GD5 GD6 Mean GD

0.92 0.00 0.58 0.33 0.92 1.00 0.63

1.09 impossible 1.72 3.03 1.09 1.00 1.59

Total Mean

0.82

1.32

Note:

113

Indexed cultural fit

Indexed global appraisal

3.5 2 3 5 2.5 3.5 3.25

1.58 0.55 1.01 1.10 0.85 0.92 1

1.08 0.62 0.92 1.54 0.77 1.08 1

3 5 4 4 5 3 4

0.69 – 1.08 1.91 0.69 0.63 1

0.75 1.25 1.00 1.00 1.25 0.75 1

3.63

1

1

* 12 is the maximum of cultural fit, **5 is the maximum of global appraisal.

homogeneous with respect to NC than CC. Eventually this could be attributed to the Anglo-Germanic culture of both countries. The culture within the organization (CC) seems to be more powerful than NC. However, the Dutch see slightly more differences than the Germans. This might be due to the fact that the Dutch, as the small Germanic brother, might like to differentiate themselves against their Germanic big brother. Table 4.4 tries to link the perceived cultural difference with the global appraisal of the alliance performance and therefore sets the scene for testing the main hypothesis. Table 4.3 showed the cultural differences between the allies, the means of which are visible in Table 4.4. The inverse of the means is calculated in the third column. It is used to describe the cultural fit. Hence, a high score on this represents a good cultural fit of both partners. Furthermore, all respondents were asked to rate the performance of the cooperation. The global appraisal is the result of this rating, where 5 means a very good performance and 1 a bad cooperation. In order to compare the global appraisal with the cultural fit it is important to divide both entities by their means. The last two columns display the result of this standardization.

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Concerning our main hypothesis we expect a positive relationship between performance and cultural fit. Both columns confirm this hypothesis for most firms taken individually. We will illustrate this relationship below, but first have another look at Table 4.4. A comparison of both samples reveals that there are some conspicuous aspects: all in all, German managers again perceive less cultural differences (mean 0.63) than the Dutch managers interviewed (mean 1.01). Furthermore, the Germans are more satisfied with the global appraisal than the Dutch (mean 4 vs mean 3.25). This difference might be due to a scapegoat effect, as found by Hendriks (1991) as part of the so-called attribution theory. In his case successful Dutch negotiators interacting with French counterparts attributed their success to the negotiation issues and how they handled them, whereas unsuccessful ones blamed their failure on the cultural background of the French. Similarly the more positive global appraisal by the Germans of the alliance might correlate with perceiving less cultural differences. The lower global appraisal of the Dutch partners might induce them to ascribe that to culture, national or corporate. The respondent of Alliance GD2 did not find any cultural differences between his own and the partner organization. Therefore it is impossible to calculate its cultural fit. Nevertheless, this alliance gives us a first prediction on the relationship between cultural fit and alliance performance. Concerning the cultural aspects, both partners are well fitting, and respondent GD2 rated the global appraisal as high as possible. Figure 4.4 presents the relationship implied by our hypothesis. The x-axis describes the indexed cultural fit, the y-axis describes the indexed global appraisal of the alliance performance. The scores differ slightly from the scores in Table 4.4, since we took both perceptions into consideration by calculating the indexes. The circled symbols illustrate the German sample. The non-circled symbols point to the Dutch alliances. GD2 is missing since it has no cultural fit index. Nevertheless, as Figure 4.4 illustrates, the better the perceived cultural fit, the better the satisfaction about the alliance performance. As mentioned above we used Pearson’s r to test different relationships. It demonstrates the relationship between the dependent variable y and the independent variable x. N means the size of the sample. Table 4.5 shows the results of this calculation. The highest possible score for r would be 1. The higher Pearson’s r, the stronger is the relationship. Therefore, it seems that there is a stronger relationship within the Dutch sample. But there is one organization missing within the German sample. Considering this, Pearson’s r for the German group would rise. Nevertheless, regarding both perceptions combined, we found a definite relationship between the cultural fit and the performance. Hence, our hypothesis is confirmed: there is a relationship between

Culture and its perception in strategic alliances High

115

2.0

1.5

GD5 DG4

Global

GD3 DG6

Appraisal 1.0

GD4

DG1

GD6 GD1 DG5

0.5 Low

0 0

0.5

1.0

Low

Note:

DG3

DG2

1.5

2.0

Cultural Fit

2.5 High

The grey symbols indicate the German alliances and black symbols indicate the Dutch alliances.

Figure 4.4

Table 4.5

The relation between the perception of cultural fit and the global appraisal of alliance performance Statistical verification of the relation between the perception of cultural fit and the alliance performance

Perception

N

xi

yi

Dutch and German perception combined Dutch perception (DG) German perception (GD)

11

Cultural differences of all 12 dimensions

Indexed global appraisal

0.38

6

Cultural differences of all 12 dimensions Cultural differences of all 12 dimensions

Indexed global appraisal Indexed global appraisal

0.55

5

Pearson’s r

0.20

the global appraisal of alliance performance and the perceived cultural fit between the person responsible for the SA and the partner involved in this Dutch–German SA sample.

DISCUSSION, IMPLICATIONS FOR SA PRACTICE AND FURTHER RESEARCH The most important result of our study is concerned with the influence of cultural fit on the outcome of strategic alliances, which seem to be affected negatively when there are big differences in national and corporate culture.

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Not only ‘hard facts’, such as market share or the annual turnover, should therefore be considered in partner selection processes, but also ‘soft facts’ such as cultural elements, as Ulijn et al. (2007) have shown in partner choice in high-tech start-ups in Europe, including for German and Dutch ventures. SA intermediates and partners could be trained to act upon this effectively to avoid failures because of cultural misfit in both directions: SAs initiated by Dutch (DG) and German firms (GD) towards each other’s respective partners. There are several alliance tools which can be used to enhance alliance performance (Remer and Schätzlein, 2002). Normally all SAs have a manager who is responsible directly for the alliance and has an external specialist to accompany the process and care for potential and actual conflicts between both partners. Also mutual responsibilities and terms, like profit and loss share, should be fixed a priori. For documentation, information tools such as support decision systems or checklists are often used. What can alliance managers do apart from using the tools above? Alliance managers might benchmark the cultures of possible partners and perform cultural audits. Geonexus Communications (1994), quoted by Funakawa (1997), presents a useful framework to make such a culture bridge between two SA partners with one crucial pillar mid streams of new rules and shared strategic intent, solidly fixed in the common ground of human nature. Needless to say, that it would be key to analyse the mutual perception of each other’s strongholds of language and behaviour or style at either side of the bridge above the water level. Below the water level would hide the customs, frame of reference, assumed rules, beliefs and values. All this taken into account would make any cultural fit work between the partners. The current study is limited in different ways. First, since there is a variation of industrial sectors (see Table 4.2) within the sample, it would be very interesting to test whether the cultural influence varies across the different branches. Second, the sample dealt with a general experience of the partners with alliance formation. Further studies should also consider experienced SA partners to analyse the influence of routine on the global appraisal of the alliance performance. Moreover, our study is limited to NC and CC levels. To make the bridge to PC, innovation drive was added as the interaction between the PC of marketers and engineers for NC and the organization-bound–professional distinction for CC, assuming that NC and CC differences are the predominant predictors of cultural fit in the selected Dutch and German samples. We presupposed that almost the same PC is shared by the representatives of the SAs surveyed to isolate NC and CC as the determining variable in this study properly, but a future study should include PC, because it could

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address the technological and market fit between Dutch and German partners better. The present study suggests as well that in particular the NC dimensions of collectivism and long-term orientation could foster cooperation and long-term success in SAs. Specific CC parameters such as pragmatism, professionalism and tight control can also be used as complementary measures. Overall the biggest German–Dutch difference of the Netherlands being a much more feminine country did not show up as a predictor of big cultural differences on the level of SAs, although the Dutch partners perceived some more differences than their German counterparts, which might be partly due to a scapegoat effect. A correlation between perception of cultural fit and alliance performance is statistically confirmed in this study, which means that the Dutch might attribute their lower global appraisal to perceived bigger cultural differences. This is a small-big brother awareness on the part of the Dutch towards the Germans. They (the Germans) are big and we (the Dutch) are small. In the Netherlands this is labelled a ‘Calimero’ effect, after a popular television cartoon character about a duckling, Calimero, facing the big world. A future study could replicate that by Nakata and Sivakumar (1996) for new product development for all NC dimensions including a new one – innovation drive – for the different stages of SA formation. The methodology used by Hofstede would increase in reliability and validity if some recent insights from cultural psychology, in particular related to the dimension of collectivism, were, followed up (Miller, 2002; Oyserman et al., 2002). A last study could be performed combining self-perception through introspection, and the mutual perception method used here, to come to a complete mirror effect: ‘do not show the mirror to the SA partner only, but also look in it yourself.’ A 15-years negotiation training experience by one of the authors (Ulijn) indicates that in doing so counterparts get a better insight into the cultural and personal aspects of their behaviour to avoid unintended misunderstandings in the relation development. Ulijn et al. (2009) offer a methodology to combine the perceptions of yourself (Geert Hofstede’s introspection) and how you are perceived by your SA partner (Wendy Hall’s perception of the other; Hall 1993, 1995) in a study about conflict management styles in an ICT alliance network of banks in seven different European countries, not only the Netherlands and Germany, but also Finland, Austria, Belgium, France and Italy (see also Eppink et al., Chapter 8 in this book). The present study shows clearly that mutual perception is an important part of assessing cultural fit in Dutch–German ventures. This step is critical to launch a process of mutual adjustment in order to create a mutually fruitful cooperation.

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ACKNOWLEDGEMENT The authors would like to thank Rainer Schäetzlein and Sebastian Remer, graduates from Darmstadt University of Technology, Germany, who studied the German firms in their alliance with Dutch firms; and Marcel van den Broek, Frank Loevendie and Jos Hermans, industrial engineering MSc graduates from Eindhoven University of Technology, for a similar study on the Dutch firms alliancing with German counterparts; and for their contributions and helpful comments on this chapter. Finally all participating companies are acknowledged for supplying us with both the German and Dutch parts of the data.

REFERENCES Barkema, H. and F. Vermeulen (1997), ‘What differences in the cultural backgrounds of partners are detrimental for international joint ventures?’, Journal of International Business Studies, 29, 845–864. Bratatjandra, G.H. (1999), ‘Transition to Innovation Culture: a case study about an innovative product of Tedopres (AIM)’, MBA thesis, TSM-Business School, Enschede, Netherlands. Bronder, C. (1993), Kooperationsmanagement. Unternehmensdynamik durch Strategische Allianzen, Frankfurt/Main, Germany, New York, USA: Campus Verlag. Draulans, J., A.P. de Man and H.W. Volberda (2003), ‘Building alliance capability: management techniques for superior alliance performance’, Long Range Planning, 36 (2), 151–66. Duysters, G., G. Kok and M. Vaandrager (1999), ‘Crafting successful strategic technology alliances’, R&D Management, 29 (4), 343–51. Fèvre, J.-M. (2003), ‘Pfarrer Oberlin als fortschrittlicher Pädagoge und Armutsbekämpfer’, Knoten, Carolus-Magnus-Kreis, 16 (4), 3–4, Elmshorn, Germany. Fèvre, J.-M. (2009), Comparative Management: A Handbook, Sarreguemines, France: Pierron. Gancel, G., I. Rodgers and M. Raynaud (2002), Successful Mergers, Acquisitions and Strategic Alliances: How to Bridge Corporate Cultures, Maidenhead: McGraw Professional. Geonexus Communications (1994), ‘Management of cross-cultural alliances’, quoted from: A. Funakawa (1997), Transcultural Management: A New Approach for Global Organizations, San Francisco, CA: Jossey-Bass. Grotenhuis, F.D.J. (2001), ‘Patterns of acculturation in technology acquisition’, PhD thesis, University of Groningen, Netherlands. Hall, E. and M.R. Hall (1990), Understanding Cultural Differences: Germans, French, and Americans, Yarmouth, ME: Intercultural Press. Hall, W. (1993), ‘En-compass-ing culture and managing strategic relationships’, PhD thesis, University of Amsterdam, Netherlands. Hall, W. (1995), Making Strategic Relationships Work, Chichester: Wiley.

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Hendriks, E. (1991), ‘Research on intercultural business negotiation: an introduction’, in C. Braecke and H. Cuyckens (eds), Business Communication in Multilingual Europe, Antwerpen: UFSIA, pp. 169–86. Hofstede, G. (1991), Culture and Organizations: Software of the Mind, New York: McGraw-Hill. Hofstede, G. (2001), Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations across Nations, 2nd edn, London: Sage. Hofstede, G., B. Neuijen, D. Ohayv and G. Sanders (1990), ‘Measuring organizational cultures: a qualitative and quantitative study across twenty cases’, Administrative Science Quarterly, 35, 286–316. Limaye, M. (2000), ‘Perception is the thing: presenting variant worldviews in the international business classroom’, Business Communication Quarterly, 63 (3), 24–38. Miller, J.G. (2002), ‘Bringing culture to basic psychological theory: beyond individualism and collectivism’, Psychological Bulletin, 128, 92–109. Müller, K. (2007), ‘Excellence in integration – active post merger integration by leaders’, 4th International Management Conference, Tehran, Iran. Nakata, Ch. and K. Sivakumar (1996), ‘National culture and new product development: an integrative review’, Journal of Marketing, 60 (1), 61–72. Neuman, W.L. (1997), Social Research Methods: Qualitative and Quantitative Approaches, Needham Heights, MA: Ally & Bacon. Oyserman, D., H.M. Coon and M. Kemmelmeier (2002), ‘Rethinking individualism and collectivism: evolution of theoretical assumptions and meta-analyses’, Psychological Bulletin, 128, 3–72. Remer, S. and R. Schätzlein (2002), ‘How to negotiate the best cultural fit between Dutch and German partners in strategic alliances: the Dutch and the German perception combined’, Darmstadt University of Technology. Si, S.X. and G.D. Bruton (1999), ‘Knowledge transfer in international joint ventures in transitional economies: the China experience’, AOM Executive, 13 (1), 83–90. Steensma, H.K., L.M.K.M. Weaver and P.H. Dickson (2000), ‘The influence of national culture on the formation of technology alliances by entrepreneurial firms’, Academy of Management Journal, 43 (5), 951–73. Triandis, H.C. (1994), Culture and Social Behavior, New York: McGraw-Hill. Triandis, H.C. (1995), Individualism and Collectivism, Boulder, CO: Westview Press. Ulijn, J. (2008), ‘Where international entrepreneurship and innovation meet: a culture of life-long learning?’, in Arjen Verhoeff (ed.), A Roundabout of International Entrepreneurship, Innovation and Culture, Inaugural address, delivered on the occasion of the public acceptance of the professorship in International Entrepreneurship, Innovation and Culture at the Open University of The Netherlands (OUNL), Heerlen, 31 October, The Hague/Heerlen: AWVN (Dutch Employers’ Organisation) and OUNL. Ulijn, J. and R. Kumar (2000), ‘Technical communication in a multicultural world: how to make it an asset in managing international businesses, lessons from Europe and Asia for the 21st century’, in P.J. Hager and H.J. Scheiber (eds), Managing Global Discourse: Essays on International Scientific and Technical Communication, New York: Wiley, pp. 319–48. Ulijn, J. and K. St Amant (2000), ‘Mutual intercultural perception: how does it affect technical communication, some data from China, The Netherlands, Germany, France and Italy’, Technical Communication, 47 (2), 220–37.

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Ulijn, J. and M. Weggeman (2001), ‘Towards an innovation culture: what are its national, corporate, marketing and engineering aspects, some experimental evidence’, in C. Cooper, S. Cartwright and C. Early (eds), Handbook of Organisational Culture and Climate, London: Wiley, pp. 487–517. Ulijn, J., H.T.W. Frankort and L.M. Uhlaner (2007), ‘National culture and its influence on cooperative attitudes of high technology start-ups’, in J. Ulijn, D. Drillon, and F. Lasch (eds) Entrepreneurship, Cooperation and the Firm: The Emergence and Survival of High Tech Ventures in Europe, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 55–88. Ulijn, J., A.P. Nagel and W.-L. Tan (2001), ‘The impact of national, corporate and professional cultures on innovation: German and Dutch firms compared’, special issue of the Journal of Enterprising Culture, on Innovation in an International Context, 9 (1), 21–52. Ulijn, J., B. van der Heijden and R. Festen (2009), ‘The influence of cultural differences upon cooperation in a European banking group: results from a study on mutual perception of bank employees across seven countries’, International Journal of Business and Globalisation, 39 (2), 188–206. Vermeulen, F. and H. Barkema (2001), ‘Learning through acquisitions’, Academy of Management Journal, 44 (3), 457–76. Weber, Y. (2000), ‘Measuring cultural fit in mergers and acquisitions’, in N.K. Ashkanasy, C.P.M. Wilderom and M.F. Peterson (eds), Handbook of Organizational Culture and Climate, Thousand Oaks, CA: Sage, pp. 309–20. Wever, U.A. (1990), Unternehmenskultur in der Praxis: Erfahrungen eines Insiders bei 2 Spitzenunternehmen, 2nd edn, Frankfurt/Main, Germany: Campus Verlag. Yin, R. (1993), ‘Applications of case study research’, Applied Social Research Methods Series Volume 34, Newbury Park, CA: Sage Publications.

5.

Cultural differences and homogeneity in strategic alliances: the case of Trimo Trebnje (Slovenia) and Trimo VSK (Russia) Metka Tekavčič, Vlado Dimovski, Darja Peljhan and Miha Škerlavaj

INTRODUCTION Strategic alliances are a necessity for organizations to be successful: to survive in the dynamic surroundings of today, organizations need to give integrated and flexible solutions to consumers that can better be realized by cooperating with partners (Hagedoorn and Duysters, 2002). The label ‘strategic alliance’ has been used to denote a variety of interfirm relationships: from loose cooperation of independent partners, across joint ventures, acquisitions, towards mergers as the tightest form (Osborn and Hagedoorn, 1997). Despite abundance of their forms, strategic alliances often fail (Duysters et al, 1999; Kauser and Shaw, 2004). Cultural misfit has been recognized as one of the main reasons for such results (Duysters and Heimericks, 2004). Culture can be studied at various levels: national, professional and organizational (Hofstede, 1980, 1990; Ulijn and Weggeman, 2001). This chapter addresses the importance of cultural fit at the organizational level in the case of a Slovenian company from the construction industry and its Russian greenfield investment Trimo VSK (Russia), which has been established as a joint venture with Russian partners. Trimo Trebnje d.d. (Slovenia, hereafter Trimo) holds a 51 per cent stake in Trimo VSK and its Russian partners hold 49 per cent. Trimo was aware that in order to operate well within the Russian market, it was necessary to have a local, reputable partner, with particular knowledge of local conditions and market customs. Both companies are presented in more detail in the next section. Just as each individual has its own personal characteristics, so each company has its characteristics that are encompassed in its organizational 121

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culture. If a company wants to be successful in the long run, its organizational culture should not be dependent only on its current management but has to develop a strong culture that is based on values that become implicit and are accepted by all of the company’s members (Tekavčič and Peljhan, 2004). On the other hand, employees in the company have to retain flexibility to be able to respond and adapt quickly to sudden changes in the environment as well as in the organization itself. While cultural misfit is one of the main obstacles for success of a strategic alliance, culture that fits the company’s strategy can be an important source of its competitive advantage (Škerlavaj et al., 2007). Trimo (Slovenia) builds its strategy on internationalization. For this sort of strategy to be successful, it is important that the company knows the culture of the foreign (in our case Russian) market it is entering. A case study by Bartlett et al. (2004) shows that the national culture of whichever country a company does business in has an effect on that company’s organizational culture. It is the culture that is often blamed for marketing blunders, merger failures and unsuccessful transfers of best practices (Johansson, 2004). In Russia, Trimo would like to develop an organizational culture that will be based on the same values, standards and beliefs as the culture in Trimo Trebnje (Slovenia) and thus creates a uniform organizational culture. Trimo is, however, aware that organizational cultures in both companies will not be identical due to differences in national cultures. The purpose of our study was to study comprehensively the organizational culture in the case of Trimo d.d. (Trebnje, Slovenia) and Trimo VSK (Kovrov, Russia). We were primarily interested in: (1) the prevalent profile of the organizational culture in the company; (2) the strength of the company’s culture; (3) the homogeneity of the culture in the company; and (4) the cultural fit within individual departments in the companies and within the analysed companies. In our analyses we established how much organizational cultures in Trimo Trebnje (Slovenia) and Trimo VSK (Russia) differ between each other and what the desired organizational cultures of both companies are. We further studied what could hinder the transfer of Trimo (Slovenia) values and practices to Trimo VSK (Russia), which practices and values should be transferred at all for the culture to support the strategy as much as possible, and which tools should be used to make the transfer of Trimo (Slovenia) culture to Trimo VSK (Russia) smooth and fast.

TRIMO AND ITS ORGANIZATIONAL CULTURE We present the case of Trimo Trebnje, a Slovenian company operating in the metal processing industry and selling its products and services in the

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construction market. The international branch of construction is highly competitive. Trimo sells in the niche of building panels filled with mineral wool that are environmentally friendly and fireproof as opposed to the polyurethane panels that are still dominating the market. Trimo’s history began in 1961 when the company Kovinsko podjetje Trebnje was founded, as a socially owned enterprise. The next year saw the beginning of another new company, this one called Kovinooprema. In 1971, both companies and some smaller companies merged to form Trimo Trebnje. The main activity of the new company was the production of metal elements and equipment made of stainless steel. In the following years, the former Yugoslavia (part of which Slovenia used to be) and Third World countries had many infrastructure and other projects, creating a high demand for Trimo’s products. The 1980s, however, brought crises in the export markets and the company faced its first major challenge. It responded with the modernization of its production line and the introduction of new fireproof products1 For a short time, it seemed that the company had overcome its problems, but in 1991 Slovenia became independent and the former multi-ethnic state of Yugoslavia fell apart. As Trimo lost the majority of its domestic (former federal) market, it had to reorientate suddenly towards more competitive foreign markets, especially in the European Union and the emerging Central and Eastern European markets (see Šević, 2005). Trimo encountered many problems at the beginning of the 1990s and a true company turnaround was needed. That also meant the need for a new vision and a different approach to developing and implementing a business strategy. The major turnaround of the company was achieved in 1992 when new top management was appointed. Business results in recent years demonstrate that Trimo has managed to rise to these challenges (see Table 5.1). In the period from 1992 to 2004 revenues and value added per employee grew seven times, export grew eight times and the number of employees decreased by 21 per cent (Trimo, 2005a). Today, Trimo is a joint-stock company with €44 100 value added per employee, internationally oriented with exports accounting for 74 per cent of sales, mainly in Europe, operating in 50 countries (Trimo, 2006). Its main products include prefabricated steel buildings, steel structures, façades, roofs, containers and sound-isolating systems. Trimo’s main product is called ‘Complete Solutions’ and includes a mix of all the products and services Trimo offers, from an idea and draft to the finished building. When looking into Trimo’s production programme, there is no similar company in Slovenia. Trimo is the market leader in the area of roofs and façades from mineral wool panels in Western and Central Europe and in the area of steel constructions in Slovenia. With its business

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Table 5.1

Trimo’s performance in 2003 and 2004

Element

2003

Total revenues Net profit Equity (31 December) Number of employees (31 December) Revenues per employee Source:

€84 m €2.5 m €25 m 487 €172 485

Index 2003/2002 129 121 109 104 124

2004 €96.5 m €3.2 m €28.7 m 481 €200 624

Index 2004/2003 114 128 114 99 116

Trimo (2003, 2004a).

orientation towards offering complete solutions and with a broad production programme, Trimo cannot be directly compared to any of its competitors, which are all manufacturers with relatively focused production programmes (Trimo, 2005c). Trimo builds its strategy of the long-term growth of the company on internationalization (Trimo, 2004b, 2005b). Its goal is to expand business in foreign markets combined with a constant development of new products that ensure long-term profits, backed up by brand-name building and patent protection. In 2000, Trimo began to employ systematically its ‘Customer Relationship Management’ programme which enables it to ensure appropriate and reliable solutions that are customer tailored. It builds long-term relationships with its customers. Trimo does not apply mass marketing, it communicates with an individual customer. Other tools in monitoring customer satisfaction include complaints analysis, professional fair information analysis and analysis of information from sales people who contact customers directly. Trimo devotes special attention to cooperation with strategic customers and suppliers with whom it forms long-term partnerships. Together with suppliers, it is constantly developing new materials and implementing improvements (see Peljhan, 2007; Tekavčič and Peljhan, 2004). In 2001, Trimo established a joint venture in a Russian town, Kovrov (approximately 250 km south of Moscow) together with a Russian partner. This is a manufacturing facility, called Trimo VSK. The Russian company has 150 employees. It has its own production, marketing and finance departments, but it does not carry out research and development. It is run relatively independently, with occasional visits from the Slovenian management. Trimo VSK managers meet with their Slovene counterparts once a year to discuss strategy. Trimo (Slovenia) wants to develop an organizational culture in Russia that will be based on the same values,

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standards and beliefs as the culture in Trimo (Slovenia), consequently creating a corporate culture. Production in Trimo VSK (Russia) is currently limited to façades and roofs because these are products with the highest potential for growth and sales revenues in the Russian market. Trimo (Slovenia) strives to be a learning organization, emphasizing the value of an educated workforce and constant innovation and improvements. As a result, various projects and programmes are in the year 2008 in place that support such an innovation- and learning-oriented culture and, consequently, the company strategy. Trimo would like to transfer the culture and best practices it has developed in Slovenia to its subsidiary Trimo VSK in Russia, but is aware of the differences in national cultures (interview with Trimo’s CEO, 2005). Trimo’s organizational culture was developed to support the company’s strategy.2 It is based on a set of values and standards (Trimo, 2004a) and centred around employees, who are expected to contribute to the implementation of the company’s strategy and consequently its success. For its success Trimo needs an educated, active, innovative and stimulated workforce. Trimo sees itself as a learning organization and is constantly working at improving the education and skill levels of its employees. In 2004 it provided each employee with 48.5 hours of training on average (Annual Report, Trimo 2004a). It also has several procedures in place which are used to encourage employees to participate actively in the process of continuous improvements. These tools include Total Quality Management (TQM), Continuous Improvement Process (PKI3), Trimo dialogues, Slovene Organizational Climate (SiOK) and competencies maps. Both a compensation and a promotion system that actively support continuous learning and employees’ active involvement have been developed. It also has a list of characteristics that a ‘True Trimo Employee’ should possess (see Box 5.1). Trimo has also developed a 360-degree evaluation for its management, called Trimo Leader, with which it measures and improves the quality of management. The evaluation consists of self-evaluation and evaluation provided by the supervisors and the subordinates. It is intended to evaluate managers according to their goal orientation, strategic acting, motivation and communication and organization (Briški, 2005).

SLOVENIAN NATIONAL CULTURE AND ITS IMPACT ON INNOVATION From a cultural theoretical point of view, one also needs to take into account national cultures and their impact on innovation. Table 5.2

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BOX 5.1

DESCRIPTION OF A TRUE TRIMO EMPLOYEE

A True Trimo Employee . . . • is employed in Trimo because this represents a challenge for his/her professional and personal development • is personally responsible for the successful or unsuccessful performance of the company • acts professionally and is responsible for his/her work • is on time and respects agreements • is neat • does not waste time and money and is costsensitive • is a good organizer of his/ her work • initiates at least one improvement per year Source:

•

•

•

• • •

•

takes initiative for his/ her personal development, development of his/ her department and the company is open to changes that represent a challenge, not an obstacle is polite to colleagues and customers and does not spread rumours is persistent and disciplined is honest is self-confident and believes in his/her colleagues is proud of being a Trimo employee

Trimo (2005a).

shows values of Hofstede’s (2001) and Hofstede and Hofstede’s (2005) five dimensions of national cultures: (1) power distance; (2) individualism; (3) masculinity; (4) uncertainty avoidance; and (5) Confucian dynamism. Power distance reflects the extent to which the less powerful members of society accept that power is distributed unequally. National cultures high on individualism reflect those collective mental programming that reflect high ‘I’ consciousness and people looking after themselves and their immediate families as opposed to collective cultures. For masculine cultures the dominant values in the society are achievement and success, as opposed to feminine cultures where the dominant values are caring for others and

Cultural differences and homogeneity in strategic alliances

Table 5.2

127

Values and estimates for Hofstede’s dimensions of national culture

Slovenia Russia Austria Croatia Czech Republic Finland Germany Hungary Italy Netherlands United States of America

Power distance

Individualism

Masculinity

Uncertainty avoidance

71* 95 11 72* 35* 33 35 19 50 38 40

27* 47 55 33* 60* 63 67 55 76 80 91

19* 40 79 40* 45* 26 66 79 70 14 62

88* 75 70 80* 60* 59 65 83 75 53 46

Confucian dynamism (long-term orientation)

31

44 29

Note: * Figures are pure estimates on the basis of correlated phenomena, while the other figures have a research base Source:

Adapted from Hofstede (2001).

quality of life. The uncertainty avoidance dimension shows the extent to which people feel threatened by uncertainty and ambiguity and try to avoid these situations. Confucian dynamism (or long-term orientation) is the dimension within the five cultural dimensions (5-D) model which shows the extent to which a society exhibits a pragmatic future-oriented perspective rather than a conventional historic or short-term point of view. Before presenting our own results we would like to speculate about the impact of national cultures on two phases of the innovation process: initiation and implementation (Nakata and Sivakumar, 1996; Ulijn and Weggeman, 2001). Based on a study of 42 Dutch and Indonesian engineers and marketers within a Dutch ME, Ulijn and Weggeman (2001) propose that innovation culture is facilitated by low power distance index and low uncertainty avoidance for initial phases of the innovation process, and low power distance and high uncertainty avoidance for innovation implementation. Based on this knowledge we might speculate that Slovenian national culture (as compared with Dutch national culture) impedes innovation

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(in a Western context), having a much higher power distance value estimate (PDI 71-38). Besides, three out of four neighbouring (Austria: 11, Hungary: 19, Italy: 50) and a few leading world economies (such as Finland: 33, USA: 40, Germany: 35 etc) have much lower PDI values than Slovenia. In this respect Russian national culture is even more restricting with PDI 95, while Croatia as the only Slavic neighbouring country has a slightly higher value estimate for PDI (72). Similarly, the highest uncertainty avoidance value estimate for Slovenia (UAI: 88) in comparison with some Western countries (USA: 46, Netherlands: 53, Finland: 59) does not support the innovation process. To a lesser extent, this finding is still true also for Russian national culture (UAI: 75). On the other hand, Slovenia is low on the masculinity dimension (MAS 19) which is almost as low as the Netherlands (MAS: 14) and significantly lower than all other countries in comparison (including Russia with MAS equal to 40). The third country low on the masculinity dimension is Finland (MAS: 26). This makes Slovenian national culture suitable for the initiation phase of the innovation process. This is less true for Russia. With regard to the individualism dimension, Slovenia seems to be a highly collective culture (IDV: 27), which is also true for Croatia (33) and to a lesser extent also Russia (47). The USA (90), the Netherlands (80), Italy (surprisingly high, 76), Germany (67) and Finland (63) all exhibit much higher individualism. This score proposes Slovenian national culture as adequate for implementers of innovation. Bearing these speculations in mind (which are built upon the correlated estimations of values for Hofstede’s dimension for Slovenia), we now move to presentation of the methodology and results of our study.

METHODOLOGY For data gathering, both quantitative and qualitative methods were used. Besides distributing a questionnaire on culture, we also conducted in-depth interviews with Trimo’s CEO, Trimo’s head of human resource management (HRM) and General Affairs and Trimo’s TQM coordinator. In addition, employees from both the Slovenian and the Russian company were included in the study (254 from Slovenia and 117 from Russia – see Tables 5.3 and 5.4 for details). They completed either the electronic or the paper version of the questionnaire, developed by the Dutch company Trompenaars Hampden-Turner (THT). The study was conducted in spring 2005. The first part of the questionnaire refers to the dimensions of national culture (see Trompenaars, 1993), while the second part contains questions

Cultural differences and homogeneity in strategic alliances

Table 5.3

Distribution of respondents in Trimo (Slovenia)

Department in Trimo (Slovenia) Top management Middle management Low management Manufacturing Development and design Procurement and sales Project management Quality assurance Accounting and finance HRM Organizational development and IT Total Trimo (Slovenia) Source:

Number of respondents 9 17 14 85 18 45 21 11 15 13 6 254

Own calculations, THT database.

Table 5.4

Distribution of respondents in Trimo VSK (Russia)

Department in Trimo VSK (Russia)

Number of respondents

Management Trimo VSK Manufacturing Trimo VSK Other Trimo VSK

26 58 33

Total Trimo VSK (Russia)

117

Source:

129

Own calculations, THT database.

regarding types of organizational culture (see Trompenaars, 1993). The questionnaire covers both the current and the ideal type of organizational culture. For the purposes of this study the employees in the Slovene company were divided into 11 groups (top management, middle management, low management, manufacturing, development and design, procurement and sales, project management, quality assurance, accounting and finance, human resource management and general affairs, organizational development and IT). The Russian company4 is a manufacturing company and was for the purposes of this study divided into three groups: management, manufacturing, others. The number of respondents from each group is presented in Tables 5.3 and 5.4. In the Slovenian company the response rate was 53 per cent, whereas in the Russian company it was

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78 per cent. The distribution of respondents according to managerial positions and different departments was adequate to consider the results obtained as indicative of the population. Therefore, we believe that our sample is representative. With regard to data analysis, descriptives and tests of differences between groups (t-tests, ANOVA, LSD) were used. We would like to point out that in some departments the sample sizes are small. The analysis is performed on the basis of the data received from THT. The comparison between THT’s and our results is limited because the data used in our study have not been normalized while THT performs its analyses on normalized data.

ANALYSIS OF NATIONAL AND ORGANIZATIONAL CULTURE AT THE COMPANY LEVEL At the company level both dimensions of national and organizational culture according to the Trompenaars (1993) classification in Trimo Trebnje and Trimo VSK were scrutinized. According to Trompenaars (1993) each culture has developed its own basic assumptions and chosen solutions to solve problems (dilemmas) that it is presented with. These dilemmas can stem from our relationships with other people, the passage of time and the environment. On the basis of the solutions to these problems Trompenaars (1993) has developed seven dimensions of national culture, which to a great extent cover Hofstede’s (1980, 2001) dimensions presented earlier in the chapter. ●

●

Universalism vs particularism refers to what extent cultures consider rules to be more important than relationships and particular circumstances. Individuals in universalistic cultures tend to believe that rules and values supersede relationships and the rules are applied across the board, without exceptions. People in particularistic societies consider circumstances more important and perceive relationships with their family and friends as more important than abstract rules. Individualism vs collectivism refers to whether cultures place more importance on an individual or on a group. Individualistic cultures put the individual before the community and in such cultures people mainly take actions that will benefit them and their family. Individuals are expected to take care of themselves and not rely on the community. In collectivistic cultures individuals are expected to act for the well-being of the whole society. By helping others the

Cultural differences and homogeneity in strategic alliances

●

●

●

●

●

131

individual’s own needs are automatically taken care of and their personal happiness depends on helping others. Neutral vs affective refers to the extent to which people express their emotions in relationships with others. In predominantly neutral cultures feelings are acknowledged and experienced but their manifestation is limited and controlled. On the other hand, individuals in affective cultures can very easily and emotionally express their feelings. Specific vs diffuse refers to what extent people separate or mix personal and formal roles. In specific-oriented cultures people involve others only in specific areas of their lives (for example work, school, personal lives) and their private sphere is much smaller than the public one. In diffuse-oriented cultures people accept others into multiple areas of their lives and their private sphere is bigger than their public one. Achievement vs ascription refers to whether the level of status in society is based on one’s own achievements or on one’s age, class, gender, education, and so on. In achievement-oriented cultures the individual’s status is achieved on the basis of their actions and is not permanent; the person has to prove themself again and again. On the other hand, individuals in ascription-oriented culture have no need to prove themselves or to achieve since their status is usually permanent. Sequential vs synchronic relates to how cultures perceive and structure time and what importance they give to past, present and future. In sequential cultures time is perceived as moving forward in a straight line and people tend to plan, stick to the schedule and be on time. In synchronic cultures time moves in circles and is a less tangible affair. Sticking to plans is not seen as a must and they can be easily changed. Lateness is also tolerated. Internal vs external control refers to what extent cultures believe they can and should control nature. Internal societies perceive the environment in a mechanistic way and believe that it can be controlled if one has the knowledge. Externalist societies see themselves more as a part of nature and tend to believe that they cannot significantly influence it. In contrast to internal cultures, people in externalist cultures often believe that they do not own their destiny.

Figure 5.1 presents the dimensions of national culture for Trimo Trebnje (Slovenia) and Trimo VSK (Russia) for both the current and the desired, ideal situation. Trompenaars and Woolliams (2003a) have developed an integrative organizational culture typology that separates between two dimensions:

132

Strategic alliances, mergers and acquisitions 90 80 70 60 50 % 40 30 20 10 0

t

st Pa

en

ur e

tro on

In

te

rn a

Fu t

lit lc

en

Pr es

l

y

n at qu Se

Ac

hi

ev

em

en

to

rie

nt

ifi ec Sp

tia

io

ty ci

lit

y

m

tra

is N

eu

al du

vi di

ni U

In

ve

rs a

lis

m

Trimo Trebnje Trimo VSK

National culture dimension

Source:

Own calculations, THT database.

Figure 5.1

Comparison of dimensions of national culture between Trimo Trebnje (Slovenia) and Trimo VSK (Russia)

(1) task or person (strong or weak formalization); (2) hierarchical or egalitarian (strong or weak centralization). By combining these two dimensions, we obtain four possible organizational cultural types (Trompenaars and Woolliams, 2003a). These four types are ‘Incubator’, ‘Guided Missile’, ‘Eiffel Tower’, and ‘Family’. They are presented in more detail as follows: ●

●

●

Incubator is an organizational culture that is simultaneously oriented toward equality and individuality. The most explicit attributes of the incubator are individualization and a low level of formality and centralization. The organizational structure is very loose and the supervision is in a form of collective concern for other members of the organization. This kind of organizational culture is trying to ‘release’ its employees from routine work and motivate them to be creative and innovative. Guided Missile is task-oriented culture. Achievement of objectives and efficiency are principal values and they are far more important than authority, processes and employees. The role of the manager is to manage the team successfully by executing full authority. Eiffel Tower organizational culture is characterized by a high degree of formalization and centralization. Supervision is executed by a system of rules and is based on rights and obligations defined in advance. Hierarchy and power are of outmost importance. Processes

Cultural differences and homogeneity in strategic alliances

133

40 CURRENT CULTURE

35

IDEAL CULTURE

30

Trimo Trebnje Trimo VSK

25 % 20 15 10 5

to ba

In

cu

lT Ei

ffe

de ri

id er ow

m

al

l ea

al ily

id si is

M d de

Fa

le

ur rc to G

ui

de

ea

l

nt re

nt rre ba cu In

lT ffe Ei

cu er ow

ily m Fa

G

ui

de

d

M

is

si

le

cu

cu

rre

rre

nt

nt

0

Type of organizational culture

Source:

Own calculations, THT database.

Figure 5.2

●

Comparison of organizational cultures between Trimo Trebnje (Slovenia) and Trimo VSK (Russia)

are bureaucratic to such a level that they assure accurate, routine and faultless implementation of tasks. This is the main reason for inflexibility of the company. Eiffel Tower is stable, predictable, secure, routine and trustworthy culture. Family culture is characterized by high level of centralization and low level of formalization. The power is concentrated in the autocratic leader, who leads the company in a similar way as power culture. Employees are trying to approach the centre of power. Hierarchy is very important and it is based on power and status.

Figure 5.2 presents the dimensions of organizational culture for Trimo Trebnje (Slovenia) and Trimo VSK (Russia). Both the current state as well as the ideal, desired situations are presented. We have observed that Trimo Trebnje (Slovenia) puts a lot of emphasis on planning and punctuality (that is, sequential culture) and adherence to

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standardized rules and procedures (universalism) is supported. Based on the test of statistical differences between Slovenian and Russian participants, results of the study have shown that employees of Trimo Trebnje (Slovenia) are achievement-oriented and lean towards internal control, which means that they do not go with the flow but instead try to act proactively in the environment. They emphasize the future and present more than the past. In Trimo VSK (Russia) employees emphasize more the significance of the status and power based on their position in the hierarchy than status and power based on competences and achieved results. In the Russian company they differentiate more strictly between business and personal relationships among people (higher specificity), emphasize strict adherence to plans even more, and ascribe a higher importance to the past than in the Slovene company. Hence, the Slovenes in Trimo seems to be more ‘Western’ in terms of their mental programming. Historically and geographically always open to the West, this confirms Slovenia being a gateway to the Slavic world. In Trimo the Guided Missile is the prevailing organizational culture. This can be seen in the following characteristics (see also Trompenaars and Woolliams, 2003a, 2003b): task and project orientation, low level of centralization, orientation towards achievement of goals, orientation towards successful problem-solving, great importance of vision and mission of the company, great importance of achieving results and success, great importance of knowledge and professionalism of the employees, and teamwork. The other three types of organizational culture are represented almost equally in Trimo, that is, the Eiffel Tower (manifested in emphasis on precision and orderliness and usage of supervision with the help of rules and procedures in Trimo), the Family (high orientation towards people and mutual relationships in Trimo and a strong influence of the CEO) and the Incubator (orientation towards people, low level of centralization, great importance of teamwork, flat organizational structure in the form of process and molecular organizational structure, learning organization and high level of flexibility). We have observed that Trimo has realized that fast and open flow of information and ideas and effective problem-solving are of key importance in monitoring events in the business environment and implementing changes. That is why it has adapted its way of doing business and formed a team approach, which manifests itself in the way the company is managed as well as in the actual task implementation. In addition to transferring knowledge and information, teamwork also contributes to a better definition of problems and their faster resolution. This also includes the increase of responsibility at work (particularly responsibility for the quality of work and continuous improvement of work processes and products or services).

Cultural differences and homogeneity in strategic alliances

135

In Trimo all employees are informed about the key goals of a financial year and long-term strategic goals, through various communication methods. Let us only mention annual education for all employees, when the management presents all results of the previous period and the future goals and values of the company; and Trimo Dialogues, where leaders and coworkers discuss the achievements of individual employees and the goals of the company and the individual for the future. Considering the existing combination of types of culture we have observed that the Trimo management have succeeded in making the employees aware of the goals and the mission of the company and accept them as their own. They also direct the employees towards teamwork and motivate them to work for more than just their personal interest. By setting high standards for themselves and all employees and by consistent verification of the fulfilment of the set goals, the management have acquired the respect and trust of the employees. The management team entirely accepts the vision and work values and transfers them to other employees by their own example. Trimo management have through training and communication with employees ensured that the employees have sensed the urgency for change and at the same time feel the responsibility for quality work, not only as individuals but also as members of various teams and the whole company. Such a way of operating also manifests itself in yearly increases in revenue, profit and added value per employee (see Dimovski et al., 2005). Employees perceive as an ideal culture the equal combination of the Guided Missile and the Incubator – a type of culture that Ulijn and Weggeman (2001) coin ‘innovation culture’. One could say they desire the Guided Incubator, but they would severely reduce the characteristics of the Family and the Eiffel Tower. This means that employees desire even more flexibility that allows a fast response to changes in the environment and adaptation to the ever new customer demands. Here it is evident that Trimo’s emphasis on the employees as crucial contributors to customer satisfaction, retention and overall performance is justified and necessary. Considering the ideal culture we have noticed that people in Trimo are aware that teamwork is one of the foundations for the fulfilment of Trimo’s strategy (see also Dimovski et al., 2005; Zupan, 2000). By creating the ideal culture, where orientation towards people is highly emphasized, the company would move even more towards achieving employee satisfaction, which Trimo already now believes to be one of the key factors for successful business. Trimo’s ideal culture is in synchronization with Trimo’s strategic orientation of the long-term growth of the company because it encourages creativity, which is necessary for the company’s growth.

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Considering that the success of the mother company in Trebnje (Slovenia) is particularly the result of implementing Trimo’s way of work, the key challenge in internationalizing the company is how to transfer the Trimo way to other environments. When comparing the Russian and the Slovene companies we notice that the current organizational cultures differ. Although the Guided Missile is the prevailing culture in both companies, the culture in Trimo Trebnje includes more elements of the Incubator while in Trimo VSK the Family and the Eiffel Tower are more prevalent. It is important for the mother company that it has already succeeded in transferring part of the values of innovativeness and performance orientation to Trimo VSK, since the ideal organizational cultures of the Russian and the Slovene company are similar (see Figure 5.2). Because the companies agree on the ideal organizational cultures we do not anticipate much resistance in changing the current organizational cultures, especially not in Trimo VSK, where the current and ideal culture differ greatly. In the ideal culture of Trimo Trebnje orientation towards people and emphasis on equality stand out, while Trimo VSK desires more elements of hierarchy compared to the Slovene company. The reason for this is a more development-focused nature of the work in Trimo Trebnje, a more manufacturing-focused nature of work in Trimo VSK and the influence of Russian national culture, where status and power are recognized more on the basis of position in the hierarchy, title, and so on (see Figure 5.1 – achievement orientation). To what extent the organizational culture in Trimo Trebnje should be transferred to Trimo VSK depends partially on the strategic development of the relationship between the two companies. If the joint venture Trimo VSK is given more incentives to innovate, then the ideal culture in Trimo VSK should include more Incubator elements (learning organization, high level of flexibility, great importance of teamwork). If Trimo VSK remains a mere implementer of the technical developments from Slovenia, what is now seen as ideal culture in Trimo VSK should suffice to implement constant improvements in production and marketing. Such a strategy is also more in synchronization with the dimensions of national and organizational culture currently in place in Trimo VSK (Figure 5.2).

ANALYSIS OF PROFESSIONAL CULTURE AT THE DEPARTMENTAL LEVEL Within the framework of a company’s organizational culture certain professional cultures exist, and often they correspond to different business functions, that is, departments. A professional culture is a culture formed

Cultural differences and homogeneity in strategic alliances

Table 5.5

137

Key to comparison between groups in Tables 5.6 and 5.7

Character

Significance

+

The dimension (Table 5.7) or type of organizational culture (Table 5.8) is more prevalent than in the Trimo culture The dimension (Table 5.7) or type of organizational culture (Table 5.8) is less prevalent than in the Trimo culture The same level of dimension (Table 5.7) or type of organizational culture (Table 5.8) as in the Trimo culture

− Blank cell

within a company by a group that regularly communicates and cooperates, for example a department in a company, where culture is formed by individuals with a certain profession. There is literature (for example Schultz, 1998; Sirmon and Lane, 2004; Ulijn and Weggeman, 2001; Ulijn et al., 2007) indicating (but not proving) that professional cultures have an even bigger impact on the employees’ dedication than the organizational culture. Tables 5.7 and 5.8 show the equality and deviation of groups (11 from the Slovene and three from the Russian company) that participated in the study. Comparisons refer to the current and ideal culture in Trimo (see Figures 5.1 and 5.2). Table 5.5 helps to explain the differences in the analysis. Our study shows that the manufacturing departments in Trimo Trebnje (Slovenia) and Trimo VSK (Russia) are relatively homogeneous in the dimensions of national culture, since they only differ on the dimension of specificity, which refers to a strict division between business and personal relationships at work. In Trimo Trebnje (Slovenia) manufacturing workers know each other very well, in their personal life too since they are practically neighbours, and the greater presence of a personal note at work is therefore expected. Homogeneity of the cultures of both manufacturing departments can be a consequence of a very similar nature of work (professional culture effect) or it can also be the result of very well-communicated values and practices in the past. The effect of Russian national culture on the manufacturing workers in Trimo VSK (Russia) can be seen in that the workers more strictly differentiate between business and personal relationships (they are more specific) and emphasize status over achievements. Although the current organizational cultures of the manufacturing departments differ (see Table 5.4), the values of innovativeness and performance orientation have obviously been clearly articulated, since there are practically no differences between the ideal cultures, which both call for the adoption of an innovation culture (Ulijn and Weggeman, 2001).

138

Source:

Own calculations.

Top management (Slovenia) Middle management (Slovenia) Low management (Slovenia) Manufacturing (Slovenia) Development and design (Slovenia) Procurement and sales (Slovenia) Project management (Slovenia) Quality assurance (Slovenia) Accounting and finance (Slovenia) HRM and general affairs (Slovenia) Organizational development and IT (Slovenia) Management Trimo VSK (Russia) Manufacturing Trimo VSK (Russia) Other Trimo VSK (Russia) − − +

+ + −

−

+

Universalism

+ −

−

− + +

−

+ − +

Individualism

+

+ + +

+ − +

+ + +

− − +

+ − + + −

+

Neutrality Specificity

− −

− + + +

+ +

Achievement orientation

Comparison between professional groups regarding the dimensions of national culture

Dimension of national culture group

Table 5.6

+

− +

+ − − +

−

+

+

+ + −

+ + + − + +

Sequentially Internal control

139

Source:

Own calculations.

Top management (Slovenia) Middle management (Slovenia) Low management (Slovenia) Manufacturing (Slovenia) Development and design (Slovenia) Procurement and sales (Slovenia) Project management (Slovenia) Quality assurance (Slovenia) Accounting and finance (Slovenia) HRM and general affairs (Slovenia) Organizational development and IT (Slovenia) Management Trimo VSK (Russia) Manufacturing Trimo VSK (Russia)

− + +

Current

+ + + +

+ − + + −

− +

−

+ −

+

+

−

−

Ideal

−

Current

+

−

+ − − +

− −

Ideal

Eiffel Tower

−

−

+

Ideal

+ Family

+

−

+

Current

Guided Missile

Comparison of professional groups regarding dimensions of organizational culture

Other Trimo VSK (Russia)

Table 5.7

− −

+

−

− − −

Current

− −

−

− + + −

+ +

Ideal

− Incubator

140

Strategic alliances, mergers and acquisitions

Certain differences exist among managers in Trimo Trebnje (Slovenia) and Trimo VSK (Russia). Managers in the Slovene company are more performance-(achievement-) oriented and emphasize strict adherence to standardized rules and procedures (universalism) more than managers in Trimo VSK (Russia). On the other hand, managers in Russia emphasize a lower level of acceptance of expressing emotions (neutrality). It has to be pointed out that relatively high levels of individualism and specificity of managers in the Russian company can present a barrier to the implementation and increased usage of teamwork as well as knowledge transfer, both of which are Trimo values. Since in the ideal culture of Russian managers a higher presence of the Guided Missile is desired, individualism could be expressed by personal achievements in a team. A high specific culture may create a divide between ‘them and us’, that is, Trimo VSK (Russia) and Trimo Trebnje (Slovenia) management. Due to the existing gap between the declared Trimo values and the current characteristics of Trimo VSK management, particular attention needs to be devoted to this issue. Reconciliation of differing views among company managers should also support the strategy for the future relationship between Trimo Trebnje (Slovenia) and Trimo VSK (Russia). The 360degree evaluation of managers is thus taken into account, since strategic action and communication are emphasized simultaneously. When analysing professional cultures in the company we have noticed that Trimo has a relatively homogeneous organizational culture, undoubtedly a result of multi-annual continuous education of all employees regarding the values, strategy, mission and goals of the company. In Trimo we can talk about a relatively strong organizational culture because it is visible that the important values are included in the mind map of the majority of the employees; that is, they are generally accepted. Tables 5.8 and 5.9 show results of the sign analyses for professional cultures in interactions with dimensions of national cultures (Table 5.8) as well as with organizational cultures (Table 5.9). Results in Table 5.8 show in particular more internal control, specificity and neutrality at the departmental level. Table 5.9 reconfirms the fact that both members of Slovenian and Russian company desire similar combination of organizational culture as there are almost as many differences (29) as there are not (21). Currently, the discrepancies between the corporate and departmental organizational culture types is even lower (there are 26 differences and 22 equalities).

141

+ (Department > Company) – (Department < Company) Blank cell (Department = Company)

5 5 2

3 6

Individualism

3

Universalism

5

1

6

Neutrality

0

4

8

Specificity

4

3

5

4

4

4

Achievement Sequentially orientation

1

2

9

Internal control

Sign analysis for interaction of professional and national cultures (differences between departments and the company)

Dimension of national culture Differences?

Table 5.8

142

+ (Department > Company) – (Department < Company) Blank cell (Department = Company)

4 3 5

4 5

Ideal

3

Current

Guided missile

7

0

5

Current

8

3

1

Ideal

Family

6

2

4

Current

4

5

3

Ideal

Eiffel tower

4

7

1

Current

3

5

4

Ideal

Incubator

Sign analysis for interaction of professional and organizational cultures (differences between departments and the company)

Organizational culture Differences?

Table 5.9

Cultural differences and homogeneity in strategic alliances

143

DISCUSSION AND IMPLICATIONS Theoretical Implications From the theoretical point of view, several implications can be drawn from this study. First, on the basis of comparison of Trimo (Slovenia) and Trimo VSK (Russia), Slovenians seem to be closer to the ideal initiators of innovations than their Russian colleagues. This finding seems to be highly contextually dependent, while it only partially coincides with the estimates for Slovenian culture in Table 5.3. Trimo is a case study for many good practices and the results obtained have to be treated as such. Nevertheless, it has something in common with many other Slovenian companies: that is, it is a bridge between East and West. Second, it is interesting that both employees and managers of the Slovenian and the Russian company strive to create an innovation culture (a combination of Incubator and Guided Missile – a combination that reflects a low power-distance index as opposed to the Slovenian population with a high PDI). Currently, the Russian company is farther from this ideal especially in terms of discrepancy between the Incubator culture, and partially also related to the Guided Missile organizational culture type. Third, when observing the interaction of professional cultures with national cultures with regard to the four organizational cultural types it needs to be noted that there are almost as many equalities as there are differences. Professional culture is a very important determinant of the way they do things in Trimo. However, organizational culture seems to be even stronger, while the national culture has the lowest impact of all three levels of cultures. Practical Implications for Trimo From a practical standpoint, the relationship between culture and strategy is twofold. On the one hand, culture fosters the implementation of the desired strategy, while on the other, any strategy is influenced by the current organizational culture (Higgins and McAllaster, 2004). Each company has to develop, articulate and communicate its organizational culture (Schein, 1985). What type of culture will be created depends on the company’s strategy but also, as in the studied case, on the culture of the mother company. Because Trimo VSK (Russia) operates in a different national culture its organizational culture will include at least some elements of Russian national culture. Currently the most prevalent Guided Missile culture in Trimo is not

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Strategic alliances, mergers and acquisitions

completely in synchronization with the strategic orientation of employees being the primary source of the company’s success. In the Guided Missile culture task and project orientation are more important than orientation towards people. The importance of the Incubator in the ideal culture shows the existence of a dilemma that needs to be reconciled: fast completion of tasks has to be supplemented with increased focus on people. This combination is involved in innovation culture as proposed by Ulijn and Weggeman (2001). For this goal to be achieved, learning and teamwork have to become the basis on which tasks are accomplished and employees compensated. For a faster transition towards the ideal culture that supports Trimo’s strategy, more motivational factors such as bonuses for team performance that encourage employees to work together have to be included.5 Educational and promotional opportunities have to remain a part of the non-monetary rewards that stimulate personal and professional growth on the one hand and loyalty to the company on the other. Transfer of knowledge (existing as well as, for example, knowledge gained at seminars) needs to become a mandatory part of job descriptions. The strategy of incremental innovations (continuous improvements) is supported by orientation towards control over environment and recognition of status and power based on competencies and achieved results, which show the proactive orientation of the employees as expressed in the Eiffel Tower culture. Improvements within the PKI project are also very important in the manufacturing department where the study showed higher orientation towards adaptation to the environment than towards control over it in both the Russian and the Slovene company. This means that currently there is a lack of initiative for improvement in the manufacturing department and therefore the management has to encourage the employees to contribute suggestions even more. We suggest informal meetings (for example quality circles) between the manufacturing workers and their leaders, where the employees might suggest more improvements during a conversation than if they had to complete a formally prescribed form. Because the modern environment makes economic and timely achievement of goals increasingly important, the Guided Missile elements should be kept. A dilemma emerges between innovation, which requires financial support and is time-consuming, and cost consciousness. Learning and innovation should thus become a part of job descriptions but should be monetarily rewarded when innovation contributes to cost savings. The company is making positive strides in this area since it is creating competencies maps, which will in the future become the basis of the new compensation and promotion system. Our study has shown that Trimo Trebnje (Slovenia) has a high potential

Cultural differences and homogeneity in strategic alliances

145

for innovation because of its employees, who are achievement-oriented and oriented towards control over the environment. In Trimo they are aware of changes in the environment and try to control them. Management has to pay particular attention to the fact that the employees put strict adherence to the standardized rules and procedures before a flexible approach to problem-solving, which can be an obstacle in implementing changes because most of the time new challenges require new solutions that are not universal solutions of past problems. The company’s orientation towards continuous improvements and innovative ideas represent a good framework to direct employees towards more flexible problem-solving. Our study shows that currently the mother company Trimo Trebnje (Slovenia) has a good potential for innovation initiation, while Trimo VSK (Russia) has a culture appropriate for idea implementation. According to our findings the employees in both companies desire changes in culture towards an innovation culture. Therefore we do not anticipate much resistance against their implementation. Instead, a gradual inclusion of the elements of the ideal culture into the current culture is expected and proposed. If Trimo wishes to surpass customer expectations, it has to give relatively more importance to a flexible approach for solving problems compared to strict adherence to standardized rules and procedures that often slow down the decision-making. This, however, by no means implies that it has to dispose of the certain level of universalism that dictates equal treatment of employees and strict implementation of the key values and norms.

CONCLUSIONS This chapter contains both practical as well as theoretical findings. From a theoretical perspective, this case study is an educative show-case of the importance of cultural fit in establishing joint ventures in the new, transitional markets. It shows how two Slavic companies with different national cultures and differences in current corporate culture can strive towards a similar ideal culture – the innovation culture – as a result of intense management interventions and strategy implementation. Differences between the Slovenian and Russian company are most visible in the current organizational culture, while both companies strive for a similar ideal culture that is in synchronization with Trimo’s strategic directions. This is a good starting point for the implementation of potential changes and for the joint venture to be successful. Current differences between the companies are the consequence of the impact of the national culture on the organizational culture, namely the influence of Russian national culture on the organizational culture of Trimo VSK (Russia).

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There are also a few practical considerations and implications for the managers that emerged during this study. Since Russian national culture leans more towards formal and hierarchical relationships, Trimo VSK (Russia) will need an approach where a leader not only clearly articulates Trimo values to the employees but also possesses an ascribed status (for example on the basis of their position in the hierarchy), because in the Russian company due to the influence of the national culture the recognition of power on the basis of status is more important than the basis of competences and achieved results. Moreover, performance orientation and innovation have to be enforced. This can be done through storytelling and creating myths of how Slovenes managed to overcome the transitional hindrances by building on workers’ expertise and knowledge. Stories about inspirational leaders and successes of common workers, who were fairly rewarded for their contributions regarding improvements in operations, should be spread. Leadership in Trimo VSK (Russia), for the time being, has to stay more authoritative than in Slovenia, so that the workers do not perceive their superior as ‘incompetent’. The superior, however, has to allow and encourage the workers to participate in the improvement projects. The workers should be rewarded monetarily for their contributions, but with separate pay cheques, so they know exactly where the extra income stems from. Ceremonies emphasizing loyalty to the company and its values should be implemented, for example yearly visits of top management should include meetings with workers and public praise of the team leader whose team contributed most to Trimo VSK (Russia) cost savings, and so on. Furthermore, physical surroundings in both Trimo Trebnje (Slovenia) and Trimo VSK (Russia) should signal thrift by means of a clean environment, while the use of modern technology should signal the orientation to innovation. In this area numerous challenges exist, particularly for the factory in Kovrov (Russia), which had an excellent opportunity to improve the situation in this area since it moved to a new location at the end of 2007. Although the ideal cultures in Trimo Trebnje (Slovenia) and Trimo VSK (Russia) are the same, some aspects of the prevalent Russian national culture will require different approaches to change in Trimo VSK (Russia). The compensation system in Trimo VSK (Russia) should at the beginning of the change process be less achievement-based. Employees who currently have a higher status should be given educational opportunities and share their newly acquired knowledge with co-workers with a lower status. They should then form a team whose members would be rewarded on the basis of the team’s success. The teamwork concept can thus be incorporated into Trimo VSK (Russia) culture simultaneously with a more achievement-oriented culture.

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The highly specific culture of Trimo VSK (Russia) could, however, present a barrier to embracing ideas from the outside or to sharing ideas between departments and companies. This dilemma can be resolved by moving the employees from one department to another, perhaps even from Slovenia to Russia and vice versa. In this way they can gain competences in different fields while a more personal contact can also improve communication on both an organizational and international level. In Trimo Trebnje (Slovenia) such differences exist primarily between the procurement and sales and the manufacturing departments. Because these differences could be an obstacle to communication (and consequently to successful cooperation), we suggest the earlier mentioned approach of moving employees through different departments. These differences are already being removed in Trimo with the promoters in the TQM project (see Briški, 2005). Also other studies show that in some cases communication is still Trimo’s weak point (SiOK, 2004). Trimo management should thus pay special attention to the communication channels, which is also one of the criteria for 360-degree evaluation of Trimo Trebnje (Slovenia) managers. The process of changing a culture from the current to the ideal can be a relatively difficult and time-consuming process, since it can be obstructed by people (particularly professional cultures), and the relationships between them as well as influences from the environment. Since Trimo has a very homogeneous and strong current culture, changing it will be that much more difficult. However, it is worth mentioning the mitigating circumstance for Trimo management, which is that the ideal culture is also very homogeneous and strong since employees in Slovenia and Russia desire a very similar, innovation culture. When changing organizational culture, one should by no means randomly accept elements of the culture of other, albeit successful companies, but should search for those elements in the old organizational culture (the Guided Missile) that are worth keeping in the changed circumstances, and also introduce new ones (the Incubator) that will ensure Trimo’s success as an innovation culture in the future.

NOTES 1. Before modernization, Trimo used polyurethane as the filling for the building panels. After modernization, it has used environmentally friendlier fireproof mineral wool that enables it to penetrate more demanding markets. 2. For more information on Trimo’s vision, mission and strategic goals, see Dimovski et al. (2005) and Trimo (2004a). 3. Trimo’s abbreviation for it is PKI, meaning ‘Proces kontinuiranih izboljšav’ (in Slovene).

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4. For more on the description of the Russian Trimo VSK see Dimovski et al. (2005). 5. Trimo currently uses compensation of team members in implementing improvements in the PKI and TQM projects (see Dimovski et al., 2005).

REFERENCES Bartlett, C.A., S. Ghoshal and J. Birkinshaw (2004), Transnational Management: Text, Cases and Readings in Cross-Border Management, Boston, MA: Irwin/ McGraw Hill. Briški, P. (2005), Pot do priznanja za odličnost, Forum SFPO 2005 in EFQM – Konferenca zmagovalcev, Ljubljana: GV Izobraževanje. In Slovene. Dimovski, V., M. Škerlavaj, Z. Hristovski, M. Janežič, A. Szekely and U. Šmajdek (2005), ’Strateška usklajenost podjetij Trimo Trebnje, d.d., in Trimo VSK’, in J. Prašnikar and A. Cirman (eds), Globalno gospodarstvo in kulturna različnost, Ljubljana, Slovenia: Časnik Finance, pp. 415–30. In Slovene. Duysters, G. and K. Heimericks (2004), ‘Developing alliance capabilities in a new era’, Advances in Applied Business Strategy, 8, 147–63. Duysters, G., A.-P. de Man and L. Wildeman (1999), ‘A network approach to alliance management’, European Management Journal, 17 (2), 182–7. Hagedoorn, J. and G. Duysters (2002), ‘The effect of mergers and acquisitions on the technological performance of companies in a high-tech environment’, Technology Analysis and Strategic Management, 14 (1), 68–85. Higgins, J. and C. McAllaster (2004), ‘If you want strategic change, don’t forget to change your cultural artifacts’, Journal of Change Management, 4 (1), 63–72. Hofstede, G. (1980), ‘Motivation, leadership, and organizations: do American theories apply abroad?’, Organizational Dynamics, Summer, 42–63. Hofstede, G. (1990), ‘Measuring organizational cultures: a qualitative and quantitative study across twenty cases’, Administrative Science Quarterly, 35 (2), 286–316. Hofstede, G. (2001), Culture’s Consequences: Comparing Values, Behaviors, Institutions and Organizations Across Nations, 2nd edn, Sage Publications. Hofstede, G. and G.J. Hofstede (2005), Cultures and Organizations: Software of the Mind, 2nd edn, New York: McGraw-Hill. Interview with Trimo’s CEO Mrs Tatjana Fink, Trimo’s head of HRM and General Affairs Marta Strmec and Trimo’s TQM coordinator Polona Briški (2005). Johansson, J.K. (2004), Global Marketing, McGraw-Hill. Kauser, S. and V. Shaw (2004), ‘The influence of behavioural and organisational characteristics on the success of international strategic alliances’, International Marketing Review, 21 (1), 17. Nakata, C. and K. Sivakumar (1996), ‘National culture and new product development: an integrative review’, Journal of Marketing, 60 (1), 61–72. Osborn, R.N. and J. Hagedoorn (1997), ‘The institutionalization and evolutionary dynamics of inter-organizational alliances and networks’, Academy of Management Journal, 40 (2), 261–79. Peljhan, D. (2007), Building competitive advantage through management control systems in a Slovenian company’, in A. Kumar and V. Kandžija (eds), Economic

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Integration Prospects and Dilemmas: Research Monograph, Ljubljana, Slovenia: Faculty of Economics, pp. 358–73. Schein, E.H. (1985), Organizational Culture and Leadership, San Francisco, CA: Jossey-Bass. Schultz, M. (1998), ‘European cultures in collaboration: do cultural differences matter?’, in G. Sevón and K. Kreiner (eds), Constructing R&D Collaboration, Copenhagen: Copenhagen Business School Press, pp. 85–113. Šević, Ž. (2005), ‘A puzzle of emerging markets: a systemic “surprisingability”’, Managerial Finance, 31 (12), 1–10. SiOK (2004), Projekt primerjalnega raziskovanja organizacijske klime v slovenskih organizacijah, Ljubljana, Slovenia: Gospodarksa Zbornica. Sirmon, D.G. and P.J. Lane (2004), ‘A model of cultural differences and international alliance performance’, Journal of International Business Studies, 35, 306–19. Škerlavaj, M., M. Indihar Štemberger, R. Škrinjar and V. Dimovski (2007), ‘Organizational learning culture – the missing link between business process change and organizational performance’, International Journal of Production Economics, 106 (2), 346–67. Tekavčič, M., and D. Peljhan (2004), ‘Achieving business excellence prize: the case of Trimo Trebnje d.d’, International Business and Economics Research Journal, 3 (10), 49–63. Trimo (2003), Annual Report 2003, Trebnje, Slovenia: Trimo. Trimo (2004a), Annual Report 2004, Trebnje, Slovenia: Trimo. Trimo (2004b), Semi-structured interviews with CEO and her presentation at the 2004 Strategic Conference, Bled, 6–7 February. Trimo (2005a), CEO’s presentation at the 2005 Strategic Conference, Trebnje, Slovenia: Trimo. Trimo (2005b), Business Manual 9th edn, Trebnje, Slovenia: Trimo. Trimo (2005c), Procurement and Sales Director’s presentation at the 2005 Strategic Conference, Bled 4–5 February 2005. Trimo (2006), Annual Report 2005, Trebnje, Slovenia: Trimo. Trompenaars, F. (1993), Riding the Waves of Culture: Understanding Cultural Diversity in Business, London: Economist Books. Trompenaars, F. and P. Woolliams (2003a), Business Across Cultures, Oxford: Capstone. Trompenaars, F. and P. Woolliams (2003b), ‘A new framework for managing change across cultures’, Journal of Change Management, 3 (4), 361–75. Ulijn, J. and M. Weggeman (2001), ‘Towards an innovation culture: what are its national, corporate, marketing and engineering aspects, some experimental evidence’, in C. Cooper, S. Cartwright and C. Early (eds), Handbook of Organisational Culture and Climate, London: Wiley, pp. 487–517. Ulijn, J., D. Drillon and F. Lasch (2007), ‘Entrepreneurship and cooperation: the emergence and survival of high tech ventures in Europe’, in J. Ulijn, D. Drillon and F. Lasch (eds), Entrepreneurship, Cooperation and the Firm: The Emergence and Survival of High Tech Ventures in Europe, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 1–52. Zupan, N. (2000), ‘Kako vključiti zaposlene v uresničevanje vizije podjetja – primer Trimo, d.d. in internacionalizacija slovenskega podjetja’, Ljubljana, Slovenia: Finance. In Slovene.

6.

Strategic importance of organizational culture in the context of organizational growth through acquisitions: the case of the Helios Group Nada Zupan and Robert Kaše

INTRODUCTION The Helios Group is a Slovenian corporation and the largest producer of paints and coatings1 in Central and South-Eastern Europe. It achieved this position through a strategy of business expansion, mostly through acquisitions and some other forms of strategic alliances. At the end of 2005, which is the year of our case study, the Group consisted of 14 companies in Slovenia, Croatia, Serbia, the Czech Republic, Poland and Russia. Among them are also the three companies for which we have analysed the cultural fit: Helios (Slovenia, the mother company), Zvezda Helios (Serbia, acquired in 2003) and Color (Slovenia, acquired in 2004). These two acquisitions were the most important among all growth activities up to that point and through them the Group significantly increased its manufacturing capacities in the domestic market as well as abroad. In 2005 there was a total of 1888 employees in the Group, of which 593 were employed outside Slovenia. They created almost €300 million of turnover and achieved a net income of €14.5 million. The mother company Helios is a typical Slovenian transitional company which has successfully used the opportunities offered through the transition process to a market economy both in Slovenia and in the region of Eastern and South-Eastern Europe. The whole process of Slovenia’s transition from a Yugoslav republic (until 1991) to an EU member state (in May 2004) is rather complex and is explained in great detail in a book by Mrak et al. (2004), hence here we present just the main features that pertain to our topic. Slovenia gained independence in June 1990 and thereafter intensified 150

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its transition to market economy. It used a gradual approach which gave economic agents more room to adapt and thus they were able to better absorb the changes. Due to the voucher privatization method there was a strong role of insiders (managers and employees) in the privatization process which led to a dispersed ownership structure of Slovenian enterprises and the very low involvement of foreign capital in privatization. It is also important to mention that Slovenia with its 2 million inhabitants was the most developed Yugoslav republic, with the others achieving from 10 up to 65 per cent of the Slovenian gross domestic product (GDP) per capita. Also, due to its position in the north-west of the former country, it had developed many business ties with Western Europe even prior to the transition period, which was very important for the survival of companies after the loss of their traditional Yugoslav markets following the breakup of the country in 1991. At that time the need for internationalization became of paramount importance for most Slovenian companies, first through exports and later through other means, including various forms of strategic alliances. Due to previously established business ties, good knowledge of the market and national culture, many successful Slovenian companies have often chosen the former Yugoslav republics for their main venue for internationalization through foreign direct investment (Damjan and Polanec, 2005). The Helios Group has been developing in a similar fashion. The mother company has been constantly building its capacity for growth since the early 1990s and has latterly chosen acquisitions as the main strategy, mostly because of the available financial resources and opportunities to buy companies with good strategic fit in the region. The rather unstable business environment in the transitional economies called for tight control in order to protect investments, and thus acquisitions were preferred to other forms of strategic alliances, which have been used to a much lesser extent. With the growing number of acquisitions, the Group top management has recognized that the issues of fit among the companies within the Helios Group have become increasingly important if they were to materialize potential synergies. As Ulijn et al. (2003) suggest, there are two main dimensions of fit to be considered: (1) strategic fit which relates to the possible synergetic effects; and (2) cultural fit which facilitates or hinders the attainment of possible synergies. Cultural fit between the companies involved in the acquisition has been known to be one of the important factors determining the success of an acquisition and the Helios Group top management has also recognized this issue to be important for further development as a modern international corporation. However, as it is the case with many acquisitions, the Helios Group did not pay much specific

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attention to organizational culture issues during the acquisition stages. It saw the opportunity to gain some insights about cultural fit within the Group through participation in our research project. Thus the aim of this chapter is to analyse the cultural fit among the three largest companies in the Helios Group: the mother company Helios, and the acquired companies Zvezda Helios and Color. In accordance with this aim we start by describing the Helios Group business strategy and then we assess the strategic fit of both acquisitions. After these topics, which provide information about the business context, we turn our attention to cultural fit. First we explain the theoretical background related to the importance of cultural fit with acquisitions. Then we describe the methodology for analysing the cultural fit in the Group, followed by the presentation of results. We conclude with discussion about the cultural fit in the Helios Group and possible contributions of our study to improve the understanding of the role of organizational culture in acquisitions.

THE HELIOS GROUP BUSINESS STRATEGY The Group competes in a mature and highly competitive industry where low production costs and respecting roles pertaining to ecology play a crucial role. In its main markets it encounters two types of competitors: (1) large global players that have already entered into Eastern and SouthEastern European markets; and (2) small local producers. Compared to the global players the Helios Group is a small company (for example Helios turnover of €300 million compared to Akzo Nobel over €6 billion) and its main competitive advantage lies in strong market knowledge in South-Eastern Europe and higher flexibility regarding its ability to respond to customer needs, whereas lower potential to benefit from economies of scale and scope is a relative disadvantage. The situation is reversed when the Group is compared to local producers. In this case, Helios is able to compete on economies of scale and scope but is relatively less flexible. Therefore, Helios has an interesting competitive position. It is very similar to large global players (that is, Akzo Nobel, PPG, BASF) in terms of its portfolio and organizational structure, but much smaller in size. Although one may argue that it is somewhat ‘stuck in the middle’ and as such can not develop a strong competitive position, the Helios Group management believes that for the region of Eastern and South-Eastern Europe it has some competitive advantages because of the size and needs of the market. The Group creates more than half of its turnover in Eastern and South-Eastern Europe and has been traditionally present there for many decades. Its main advantage is that it has a lot of experience and

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has already established long-term relationships with business partners and customers, so it knows the customer needs well and is able to respond to them due to product portfolio range and flexibility in adapting the production to different size of batches. However, the management is also aware that these markets are still developing and consequently incur higher business risk. The Group is willing to accept these risks since: (1) it has developed strong market knowledge; (2) higher risk is also compensated for by high growth opportunities;2 and (3) especially in markets of the former Yugoslavia, the competition is less fierce. The main strategic objective of the Helios Group has been to become one of the ten leading manufacturers of paints and coatings in Europe. The corporate strategy that it pursues to achieve this goal can be characterized as ‘related diversification’ (Johnson and Scholes, 2006). Diversification is a strategy that takes the Group into both new markets and new products, while the adjective ‘related’ implies that diversification is pursued within the core capabilities of the Group. The specific features of Helios’s strategy are: geographical and product diversification, control of costs by economies of scale and scope, long-term customer relationships, imitation rather than innovation, fast growth and creation of synergies through acquisitions. Similar to many large global paints and coatings producers Helios Group has become widely diversified in both product and geographical dimensions. From the perspective of product (programme) diversification, the Group is horizontally and vertically integrated. The horizontal dimension of integration relates to the current and planned product portfolio in which many complementary products for the painting and coating of various surface types are present. The vertical dimension of integration, on the other hand, relates to the backward and forward integration within the Group. Namely, the production of paints and coatings in Helios is backward integrated into synthetic resins production. Also, the company is forward integrated into the distribution network. Extensive diversification and backward integration in the value chain are the main factors that help the Group achieve economies of scale and scope, and in turn a better competitive position in its strategic markets. Another feature of the corporate strategy is geographical diversification. Recently, Helios started to pursue internationalization through the penetration of new, regionally scattered markets by offering relatively standardized products and thus exploiting economies of scale and scope. At the same time the value-adding activities have been concentrated in a very limited set of locations, mainly at the corporate headquarters in Slovenia. The Group has started to follow this strategy after acquiring several production facilities in Slovenia, Croatia and Serbia, and is only in the beginning phase of product-line specialization.

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Further, the Group emphasizes long-term relationships with customers and focuses on its capability to apply existing technological knowledge quickly in practice rather than search for breakthrough innovation. Longterm relationships in both business-to-business (that is, traditional business ties and networks) and business-to-consumer (that is, well-known, established brand names) markets have been crucial for the Group’s current favourable position in South-Eastern and Eastern Europe. The notion of the Group’s expanding markets also implies that it cannot pursue radical innovations. Combining rapid international growth with radical innovation would excessively strain its resources and jeopardize its effectiveness. In addition, basic research in this industry incurs large fixed costs, so only the leading global players can afford to undertake it. The primary method for Group strategic development is growth through acquisitions,3 which are focused on defending and consolidating positions in the domestic market and on developing or strengthening them in the new ones. Acquisitions in the new markets enable the Group to get hold of existing production facilities, established local brands and local intellectual capital relatively quickly (compared with greenfield investment). Being aware of the implications of such a strategy, Helios is faced with the problem of diminishing potential targets, particularly in Central Europe (the former CEFTA countries),4 where global players have been very active in the past. The Group therefore sees its potential for acquisition activity mainly in Slovakia, Romania and several former Soviet Union countries, especially Russia and Ukraine. The main reason that Helios is choosing acquisitions rather than other forms of strategic alliances pertains to the fact that the mother company has sufficient financial resources for these undertakings and has been looking for viable investments, while at the same time the transition process in target countries has brought up many good opportunities to buy companies either because of the privatization process or simply because the former owners wanted to sell them for different reasons as a part of their own business consolidation process. Also, with acquisitions the tight control over investment can be maintained and this gives the Helios Group a better chance to attain the possible synergies and business objectives.

STRATEGIC FIT RELATED TO THE ACQUISITIONS OF ZVEZDA AND COLOR From the strategic perspective, all of the Helios Group acquisitions since 2001 have been primarily focused on enhancing positions in the domestic market and on market development. However, within this broad context

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the mother company Helios had a slightly different rationale for acquiring the Serbian company Zvezda and the Slovenian company Color. The main reasons for acquiring Zvezda in 2003 were the development of the Serbian market and Slovenian accession to the EU. The latter brought higher tariffs in countries of the former Yugoslavia and the former Soviet Union, thus threatening Helios competitiveness in these markets. Also, by implementing a stricter EU ecological legislation, the Group companies in Slovenia have been able to produce and sell only ecologically friendly, water-based paints and coatings from 2007 onwards. However, particularly in Eastern Europe and the former Yugoslavia a strong demand for the old technology (solvent-based products) still exists. The acquisition of Zvezda is thus also important because it allows the Helios Group to continue with the production and sales of solvent-based products which are still very attractive in their main markets. The acquisition of Color in 2004 was primarily implemented to enhance and/or defend the position of Helios, the mother company, on the Slovenian market. The second reason behind the acquisition was limited capacity at the location of the mother company, which would eventually slow down company growth and was expanded through the acquisition. The acquisition also helped with the development of the Western European markets where the mother company Helios was not present with its final products, although this has not been of major strategic importance because from the perspective of market development Western Europe is less attractive for Helios Group. Of course, no matter how plausible the rationale for an acquisition, apart from possible synergies there are always considerable threats which may harm the competitive position and group performance over time. Nevertheless, there are substantial potential synergies between the acquired companies and the mother company, some of which include: increased bargaining power and consequently lower input costs; linking value chain activities with effects of the synthetic resins programme on the acquired companies; sharing value chain activities in research and development (R&D); transfer of know-how; exchange of information; reduction of risk through international diversification; new production programmes (powder coatings and coatings for plastic); potential specialization of product lines; and transfer of ecologically contestable production lines to South-Eastern Europe. There are also several negative aspects of acquisitions that the Group should try to eliminate. There are too many brand names and consequently the Group is approaching the limits of controllable diversification. Another weakness lies in technologically underdeveloped facilities in Chromos and Zvezda, which require additional investment activities after the acquisition and therefore increase the total acquisition costs.

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Overall we may conclude that strategic fit in the Helios Group among the three companies exists. The Group is horizontally diversified in related businesses where substantial synergies are possible. Strategic business units use similar inputs, in certain areas similar technology, and a substantial part of the same production lines. There are also synergies in sales, marketing and distribution. There are also significant advantages for daughter companies being part of the Helios Group. Several value-adding activities are performed by the corporate parent (Helios), which enable the daughter companies to satisfy critical success factors and pursue opportunities in their segments. Resources and capabilities considered to create the most value for daughter companies are: providing cost-effective services and corporate governance; transfer of know-how; exchange of information between strategic business units; economies of scope; brand name management; and support with market expansion (by developing a strong distribution network and concentration of market knowledge).

CULTURAL FIT IN THE HELIOS GROUP Organizational culture and the issues of cultural fit were not systematically approached in the Helios Group prior to this study. However, as the mother company Helios has been transforming from a single unit company into an international business group, the importance of organizational culture and cultural fit has grown accordingly and the Group top management welcomed the opportunity to participate in the research project conducted at the Faculty of Economics in Ljubljana in 2005. The data obtained enabled us to analyse various dimensions of cultural fit among the mother company Helios and its two largest acquisitions: Zvezda Helios from Serbia in 2003 and Color from Slovenia in 2004. The Importance of Cultural Fit in Acquisitions Company acquisitions are complex procedures assuming a high degree of uncertainty and often resulting in failures. According to the existing studies approximately three-quarters of acquisitions do not achieve expected results (Huang and Kleiner, 2004). Alongside other reasons, the insufficient level of corporate cultural fit between companies is often cited as a reason for failure to materialize expected business goals (Buono and Bowditch, 1989; Cartwright and Cooper, 1996). Also, companies rarely have sufficient understanding of the importance of the way work is performed and procedures which could harmonize corporate culture. With insufficient cultural fit the relationships between employees and the way

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the work is performed can show anomalies which can result in productivity decrease and incapability of organizational strategy execution at the tactical level. These may hinder the main aim of an acquisition, which is to expand and get a new efficient system working on the synergies of the previous two working systems and not to sustain two or more different ones. Therefore a good level of cultural fit is important to achieve human resource compatibility and adequate alignment with the overall business strategy. So far there have been many attempts to study organizational culture related to acquisitions; however most of the research was conducted among large international corporations with strong corporate identity and the usual questions were focused on analysing how the acquired company organizational culture fits the profile of corporate organizational culture. We could say that in this way the horizontal fit among organizational cultures has been investigated along with the role of national cultures (for example Hofstede, 1980, 2001; Schneider and De Meyer, 1991; Trompenaars, 1993; Trompenaars and Woolliams, 2003; Leung et al., 2005) and professional cultures (for example Ulijn and Weggeman, 2000; Sirmon and Lane, 2004) in shaping the organizational culture. In our case we have a somewhat different situation because Helios as a mother company is not a big corporation with a long international tradition but rather a typical medium-sized transitional company which has seized the opportunity for growth through successfully capturing acquisition opportunities which were occurring in the region during the transition period. In the process it had to transform from a single unit company to a multiple unit international corporation, which may also require changes in organizational culture. Thus the whole issue of how well the organizational culture fits the new business strategy of the Group becomes very important, as many authors see this fit as an important precondition for successful performance (for example Schein, 1992; Quinn and Cameron, 1998). Therefore we believe that to address properly the issue of cultural fit in the Helios Group, we need a comprehensive analysis of both horizontal and vertical fit. Besides assessing the organizational culture fit among the three companies (the mother company and the two acquired companies) at different organizational levels and functional areas (horizontal fit), we also aim to analyse how well the existing organizational culture fits the Helios Group business strategy (vertical fit). Our framework for the analysis of cultural fit is presented in Figure 6.1. In order to distinguish between different levels of organizational culture we use different terms. The term ‘corporate culture’ pertains to the organizational culture at the corporate level as it is usually designed by corporate headquarters and then transferred to lower organizational levels, in our

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Vertical cultural fit

National 1 Culture

National 2 Culture

National n Culture

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Company 1 Culture

Company 2 Culture

Company n Culture

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Department A Company 1 Culture

Department A Company 2 Culture

Department A Company n Culture

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Department B Company 1 Culture

Department B Company 2 Culture

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Figure 6.1

Exploring the horizontal and vertical cultural fit in international acquisitions

case the Helios Group organizational culture. Within multiple business unit corporations such as the Helios Group, the term ‘company culture’ refers to organizational culture at the business unit level, in our case the three companies analysed here: Helios, Zvezda Helios and Color. The term ‘department culture’ refers to organizational culture at lower organizational levels within companies; in our case this will be related to functional areas such as manufacturing, procurement and sales, and R&D, which will also allow us to reflect upon issues of professional culture. The horizontal fit analysis then looks at similarities or differences across nations (in our case Slovenia and Serbia), companies (that is, Helios, Zvezda Helios and Color) and functional areas (that is, manufacturing, procurement and sales, R&D). Here we follow the logic that if the horizontal differences are too big this may lead to constant misunderstandings and conflicts which undermine the performance (Weber and Camerer, 2004). An important benefit of high cultural synergy is an easier integration of cultures, but on the other hand a too high cultural synergy can have a negative effect, because when companies have similar problems cultural synergy cannot help in finding new solutions to the existing problem because there is too much uniformity hindering creativity and innovation (Bijlsma-Frankema, 2001). Therefore we are not advocating

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the need for an absolute fit among cultures. We will just try to pinpoint those differences that might be big enough to hinder the overall performance. We expect to find some differences that may be necessary and even useful due to differences in national and professional cultures as well as different organizational characteristics. After all, at the time of writing the chapter (three years after the acquisition) the overall assessment of the two acquisition results by the Helios Group top management was favourable. Of course, they also saw possible ways for improvements and recognize the need for further integration of individual companies into the Group and thus perceive the need for a good cultural fit. The vertical fit will be assessed first through matching of corporate strategy and corporate culture, then through matching corporate and company cultures, and finally assessing how cultures in functional areas match a specific company culture. Because until 2008 there has been no systematic approach to developing corporate culture in the Helios Group, we will also try to identify the ideal corporate culture which would be supportive of corporate business strategy, and then we will try to assess how well company cultures match the proposed corporate culture. Methodology for Analysing Cultural Fit in the Helios Group As a method for analysing various aspects of cultural fit we used an in-depth case study, with a combination of quantitative and qualitative methods, namely the surveys, focus groups and semi-structured interviews. The whole study was part of a broader research project5 and we had to follow the agreed research guidelines. Within these, our main challenge was to choose the appropriate survey among the two options: the Trompenaars–Hampden-Turner questionnaire (hereafter THT questionnaire) and the questionnaire developed by Verbecke (hereafter VOK questionnaire).6 The THT questionnaire is designed to analyse both organizational and national culture. With regard to organizational culture it identifies four distinctive types along the dimensions of egalitarian–hierarchical and person–task orientation: ‘Incubator’, ‘Guided Missile’, ‘Eiffel Tower’ and ‘Family’. At the same time it also identifies the characteristics of a national culture with the following dimensions: particularism–universalism, communitarianism–individualism, diffuse– specific, affective–neutral, ascription–achievement, external–internal and time orientation (past, present and future). The VOK questionnaire was designed on the basis of Hofstede’s original dimensions but aimed to study organizational culture using the bipolar dimensions that represent different solutions to fundamental daily business problems. These bipolar dimensions are: market vs internally oriented, self-interest vs socially

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responsible, tight vs loose, open vs closed, employee- vs job-oriented and process- vs results-oriented. In making the decision on which questionnaire to use we had to consider the trade-off between gathering in-depth and cross-nationally comparable information regarding organizational culture which could be done by using the THT questionnaire, and on the other hand assuring good quality of data and high enough response rates, which could be a problem with the THT questionnaire because of its complexity and the relatively high level of comprehension required to answer the question. Following discussion with the Helios human resources (HR) manager, it became evident that the THT questionnaire would be too difficult for lower-level employees (especially in production) because their level of education is relatively low (for many, below high school education). Therefore we decided to use both types of questionnaires, but each of them for different groups of employees: the THT questionnaire was then used only for higher organizational level employees (managerial and professional staff positions) and the VOK questionnaire was used only for the lower organizational level employees. Although by using two different questionnaires we lost some of the valuable direct comparisons within the companies between the higher- and lower-level employees, we placed higher importance on gathering quality data for intercompany comparisons of various organizational units and employee groups to assess the horizontal cultural fit, which was the main aim of our research. Besides questionnaires, the focus groups provided us with the data for qualitative analysis, increasing our understanding of the processes and issues related to acquisitions and company cultures. The surveys were conducted in June 2005 and focus groups in September 2005. The population used in research is described in Table 6.1. We also visited all three company sites and conducted semi-structured interviews with their HR managers. Calculations and statistical analysis on the data obtained from the THT questionnaire were performed in consultation with the Trompenaars– Hampden-Turner consulting company. In order to identify cultural profiles we used standardized data calculated by the consulting company. However, for the analysis of statistically significant differences across organizational units and employee groups, we used the original nonstandardized data. Therefore the absolute values of dimensions from THT questionnaires differ for both types of analysis: the standardized data are valid for overall intercompany comparison of cultural profiles and nonstandardized data are valid only for the statistical analysis of differences among organizational units and employee groups. For describing organizational culture on the basis of data obtained by the VOK questionnaire we first used descriptive statistics, then we analysed the differences among

161

More than 16 yrs: More than 18 yrs:

Marketing & Sales: R&D: Manufacturing: Technical: Other:

Education

Department

2 1 14 1 2 1 2 3 2 1 5 Administration: Technical: Manufacturing: Marketing & Sales: R&D: Personnel: Finance: Top management:

11.5% 22.8% 43.8% 10.1% 11.7%

Procurement & Sales: Manufacturing: Manufacturing support: Professional support: Development:

20.2% 18.9% 12.3% 10.3% 38.3%

3 4 2

V. level: VI. level: VII. level:

Under 40 yrs: From 40 to 49 yrs: 50 yrs and more:

8 9

31.6% 31.0% 37.3%

44.0% 33.9% 22.1%

17 Men: Women:

I.- III. level: IV. level: V. level:

Under 40 yrs: From 40 to 49 yrs: 50 yrs and more:

38.7% 32.9% 28.4%

28.1% 71.8%

2 focal groups

64.6% 11.1%

699 Men: Women:

VOK questionnaire

43.2% 56.8%

Analysis of THT and VOK questionnaires.

Under 40 yrs: From 40 to 49 yrs: From 50 to 59 yrs:

Age

Source:

243 Men: Women:

THT questionnaire

Descriptive statistics (demographic variables) of the research population

N Gender

Table 6.1

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Strategic alliances, mergers and acquisitions

dimensions of organizational culture with the comparison of arithmetic means and with the analysis of variance and post hoc analysis (t-test and F-test and Duncan post hoc tests). Limitations regarding the methodology used in this research have to be considered in the analysis and explanation of the results. As has been already mentioned, two different instruments used for two different groups of employees do not allow us to make plausible overall comparisons between these two groups. Low levels of reliability on some dimensions of personal culture, profiles of organizational culture and on some dimensions of organizational culture are also problematic. The small size of the population used in the analysis of organizational culture in some functional areas, differently determined functional groupings within the companies, and the size and representativeness of the population used in the analysis of national culture have to be considered too. Slovenian and Serbian National Cultures There has not been much research on national cultures for Slovenia and Serbia other than the early Hofstede study at the end of the 1970s, which may not be very relevant for today due to intense economic and social changes during the transition period to a market economy since the 1990s. Hofstede’s results suggested that there were small differences among the then Yugoslav republics (Slovenia, Croatia and Serbia): all of them had high scores on power distance, collectivism and uncertainty avoidance; while Slovenia had higher femininity compared to masculinity than the other two countries. Jazbec (2007) replicated Hofstede’s study for Slovenia in 2004 and got different results, especially with the high scores for individualism and lower scores on power distance, and even higher femininity scores than in the original Hofstede study, while uncertainty avoidance is still present. Unfortunately, there has not been any update on Serbia with regard to Hofstede’s dimensions, so we have to rely on the survey that was conducted among the young managers in the former Yugoslav republics and Russia using the THT questionnaire (Prašnikar et al., 2007). Again, the differences among the national cultures were relatively low, especially among the former Yugoslav republics, for which the cultures of young managers from Slovenia, Croatia and Bosnia were very similar to Austrian profile, while Serbian managers differed only slightly, emphasizing status a bit more than achievement and giving the past more emphasis within time orientation. This cultural proximity of Slavic nations living in the territory of ex-Yugoslavia can be explained by the similar influences coming from Central European culture (from the north-west, historically from the

Strategic importance of organizational culture: the Helios Group

163

Particularism

Universalism

Communitarianism

Individualism

Diffuse

Specific

Affective

Neutral

Ascription

Achievement

External

Internal

Time orientation – past Time orientation – pres Time orientation – fut 0

10

20 Helios

Source:

30

40

50

Color

Zvezda Helios

60

70

Analysis of the THT questionnaires.

Figure 6.2

Dimensions of national culture according to THT for Helios, Color and Zvezda Helios

Austro-Hungarian empire), Eastern culture brought by the Turkish invasions, the Dinaric culture specific to the hilly parts of the Western Balkans, and Mediterranean culture from the south-west. Slovenia has been mostly influenced by Central European and Mediterranean culture, Serbia more by Eastern and Dinaric cultures. Overall we may observe that Slovenian national culture is close to the Germanic type of cultures, while Serbian culture has many similarities to the Germanic type, but it expresses higher values for status and the past. With the THT questionnaire we were also able to analyse the dimensions of national culture as expressed by the employees of our three Helios companies (Figure 6.2). In general we can see that in all three companies there is a relatively high level of adherence to the rules (universalism), which means that employees follow standardized rules. Individualism is also relatively highly expressed, whereas levels of intertwinement of business and personal relationships and acceptability of expressing emotions are low, which means that business and personal relationships are largely separated (specific culture) and emotions in business are kept under control (neutral culture). The only significant difference between companies concerns status and power. In Helios and Color the power of employees is based on competency and achievement while in Zvezda Helios a formal position and status related to that position are still prevalent. Time is structured sequentially in all three companies, meaning that employees perceive time as a sequence of events. Employees are mainly

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Strategic alliances, mergers and acquisitions

oriented towards the future and the present but in Zvezda Helios the past is more emphasized than in the other two companies. There are basically no differences between the Slovenian companies Helios and Color, but Zvezda Helios differs from them on two dimensions. The results suggest that power in the Serbian culture is significantly more based on status and not so much on achievement, compared to the Slovene national culture, and that orientation towards the past is also more emphasized in the Serbian culture. These results confirm previously described differences in national cultures as researched by Prašnikar et al. (2007). The overall low differences between national cultures could also be attributed to the fact that in our research the THT questionnaire was used only for higher-level employees who get more exposure to cross-cultural experiences (for example studying from international books, doing business internationally) and thus convergence of their values, beliefs and assumptions could be somewhat expected – the same limitation that is relevant also for cross-national research projects that use managerial samples. Analysis of Horizontal Fit of Three Company Cultures When analysing the horizontal organizational culture fit, we were first interested in how the THT profiles of company culture differ among the three companies. Figure 6.3 shows the presence of particular profiles in three companies, the Family type of organizational culture being most strongly present in all of them. This type of organizational culture is oriented towards people, but is on the other hand very hierarchical, that is, power in the company is more or less concentrated in one centre where all important decisions are made. The second most strongly manifested type is the Guided Missile which is characterized by orientation towards tasks and goals, successful problem-solving and decentralized operations. However, here we can observe first significant differences among companies. This type is significantly less present in Color than it is in the other two companies. In Color it has a lower value than the second most important profile, the Eiffel Tower, which is also task-oriented but is very hierarchical, which is an indicator of authoritative leadership in the company and desire for order and accuracy. Least expressed in all three companies is the Incubator type, which is characterized by orientation towards people and equality of workers and promotes teamwork, constant learning and the flexibility of employees. It is significantly less expressed in Color than in Zvezda Helios. These findings were confirmed by the members of the focus group. All of them recognized Color as the most hierarchical company, where formalism is most explicit.

Strategic importance of organizational culture: the Helios Group

Egalitarian

Incubator

Family

Helios Source:

Color

Guided Missile

Task-oriented

Hierarchical

Person-oriented

165

Eiffel Tower

Zvezda

Analysis of the THT questionnaires.

Figure 6.3

Profiles of company culture for Helios, Color and Zvezda Helios

The comparison of company culture profiles of Helios and Zvezda Helios revealed that they are very similar. This similarity can be explained by similar positions in the market – in their recent history both companies were successful in their own markets. A careful selection of the management team at Zvezda Helios after the acquisition also contributed to sharing similar values and attitudes towards doing business. Also, in the case of Zvezda Helios there was a systematic attempt to facilitate cultural transfer from the mother company Helios: namely, a key member of Zvezda Helios’s management team came from the mother company and thus he was able to transfer Helios’s values, culture and working processes to Zvezda Helios. On the other hand, Color had different experiences in the previous few years. It was faced with poor business results and frequent changes of owners and top management, thus high uncertainty

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Strategic alliances, mergers and acquisitions

Market-oriented

Internally oriented Socially responsible

Self-interest Tight

Loose

Open

Closed

Employee-oriented

Job-oriented Results-oriented

Process-oriented 2

2.25 Helios

Source:

2.5 Color

2.75

3

3.25

3.5

3.75

Zvezda Helios

Own analysis of VOK questionnaires.

Figure 6.4

VOK dimensions of the organizational culture in Helios, Color and Zvezda Helios

about the company’s future existed. This type of situation, where employees had difficulties in identifying themselves with the company and were not prepared to accept new tasks, probably called for a more autocratic leadership style. Also, to the date of the study there were no attempts by the mother company to assert its values and culture upon Color. Overall we may conclude that at higher organizational levels there is a rather good horizontal cultural fit between Helios and Zvezda Helios, and less so between these two companies and Color. Despite the expressed differences related to national cultures that we have described in the previous section, these do not seem to affect the company culture at higher organizational levels in any significant way. Our research suggests that other elements of organizational context, careful selection of management team members and techniques for transferring organizational culture, play an important role in achieving horizontal fit. If we turn our attention to the dimensions of the organizational culture at lower organizational levels (Figure 6.4), we can notice that here significant differences between companies on all dimensions could be evident. There is a relatively higher result- than process-orientation at lower organizational levels, but this is less distinctive in Color than in the other two companies. This somehow confirms the previous findings at higher organizational levels about a more formalistic and hierarchical approach in Color. Moreover, higher job than employee orientation could be noticed as well. This is probably associated with

Strategic importance of organizational culture: the Helios Group

167

more traditional leadership styles used at lower organizational levels. Job orientation in Zvezda Helios and Color is significantly higher than in Helios, where management supports employees the most. The differences are even more obvious on the next two dimensions. The culture in Helios is more open and employees are prepared to receive remarks and critiques from their colleagues, which is not the case in the other two companies. The culture in Helios is also significantly looser, with lower pressure and punishment for undesirable behaviour. On the other hand, higher tightness characterizes the culture in Zvezda Helios where employees consistently have to respect the rules and behave in accordance with the expected behaviour. If they do not, the company immediately reacts. There are also significant differences regarding social responsibility, with Helios being the most socially responsible and Color the least. Therefore it is not surprising that Color is the most internally oriented company and deals more with itself than with its customers, their needs and further market opportunities. Overall we may conclude that horizontal fit at lower organizational levels is not very good. We can speculate that here the national culture has a more direct influence, because Zvezda Helios differs from the two Slovenian companies, being more tight and more job-oriented which reflects the differences in national culture as described before. Our results would also suggest that Helios transfer of its culture to Zvezda Helios has not trickled down to lower organizational levels. This could be either due to a lack of effort, or due to the assessment of the local lower-level management in Zvezda Helios that, because of national culture characteristics, a tighter and more job-oriented approach is needed to get results. The interviews with the Zvezda Helios general manager and HR manager also confirmed this need for a different approach to managing lower-level employees. Analysis of Horizontal Cultural Fit among Functional Areas of the Three Companies In order to further explore the horizontal fit, we also analysed differences in the corresponding functional departments of the three companies. We compared dimensions of national culture and types of organizational culture (THT) or dimensions of the organizational culture (VOK) in different functional areas with the values of the average for the same functional area for all three companies. We can observe that at higher organizational levels statistically significant differences are rather few (Table 6.2). Some can be observed only for middle management, procurement and sales, and R&D. For middle management of Color the type of organizational

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Strategic alliances, mergers and acquisitions

Table 6.2

Comparison of dimensions of organizational culture according to functional departments at higher organizational level among companies Helios, Color and Zvezda Helios*

Dimension Group of employees Middle management

Helios Color Zvezda Helios

Procurement & Sales

Helios Color Zvezda Helios

R&D

Helios Color Zvezda Helios

AO

T-Fut

GM

F

ET

I

+ −

+ −

+

+ − −

+ −

+

Notes: AO – Achievement-oriented; T-Fut – Time Orientation – Future; GM – Guided Missile; F – Family; ET – Eiffel Tower; I – Incubator ; + more expressed dimension; − less expressed dimension. * For universalism, individualism, neutral, specific and time orientation-past, time orientation-present and internal-external dimensions there are no statistically significant differences in the same functional departments among companies in the Helios Group. Source:

Own analysis of the THT questionnaires (non-standardized data).

culture that emphasizes formalism and task orientation (the Eiffel Tower) is more typical than in the other two companies. Middle management in Zvezda Helios finds achievements and knowledge less important than formal status when ascribing power. Procurement and sales in Color is significantly more future-oriented than it is in Zvezda Helios, but here again a formalistic approach is more expressed in Color. For the R&D of Zvezda Helios, achievements are less important than status. The R&D department also shows the greatest differences concerning types of organizational cultures. If we look at the analysis at lower organizational levels we can conclude that the smallest number of differences is among procurement and sales departments, while manufacturing departments differ the most (Table 6.3). In procurement and sales it is worth pointing out the tightness, which is significantly higher in Zvezda Helios than in Helios. The R&D department in Color differs from the other two on three dimensions: it is less employee-oriented, less socially responsible and more internally

Strategic importance of organizational culture: the Helios Group

Table 6.3

Comparison of the organizational culture dimensions at lower organizational levels in functional areas between Helios, Color and Zvezda Helios

Dimension Functional area

PO

EO

OP

Procurement & Helios Sales Color Zvezda Helios R&D

169

SI

MO

+

−

− +

Helios Color Zvezda Helios

Manufacturing Helios Color Zvezda Helios

TI

− +

+ −

−

+ +

−

−

+

− +

Notes: PO – Process-oriented; EO – Employee-oriented; OP – Open; TI – Tight; SI – Self-Interest; MO – Market-oriented; + more expressed dimension; − less expressed dimension. Source:

Own analysis of the VOK questionnaires.

than market-oriented. The opposite is true for Zvezda Helios where higher employee orientation is present, but critiques and different opinions are less welcome. Organizational culture in manufacturing in Helios differs a lot from that in Zvezda Helios, where traditional leadership styles and emphasizing authority seem to result in tight control and less employee orientation. Also, compared to the other two companies, process orientation in Zvezda Helios is lower. Manufacturing in Color is again more formalistic and less attention is paid to socially responsible behaviour. Assessing the Fit of Organizational Culture and Business Strategy in the Helios Group Because of its importance for achieving strategic business goals, we will first analyse the vertical fit between organizational culture and business strategy. For this analysis we will use only THT questionnaires, because they give us more information about existing and desired organizational culture. Also, in case of acquisitions it is the higher-level employees (especially managers) who have the strongest role in developing or changing

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Strategic alliances, mergers and acquisitions

organizational culture. From the literature review it became evident that methods for analysing vertical fit are less developed; thus we decided to start with a qualitative approach. Our first step was trying to define ideal values that would represent the foundation of the ideal organizational culture types related to the key dimensions of corporate strategy. The core of the Helios Group’s business strategy is the achievement of geographical and programme diversification, therefore the most appropriate values would be knowledge, flexibility and mobility. They would facilitate fast reaction in the constantly changing business environment and according to market needs, cooperation and teamwork, exchange of experience and transfer of knowledge among employees in the companies in Helios Group. Furthermore, this would reduce the time interval between innovation and imitation and would neutralize risk exposure related to implementation of new products and penetration into new markets. Sustainable synergies and cost-cutting values such as efficiency, goals achievement and orientation towards the future are important for achieving fast growth. These values would facilitate initiative, speed and quality in the process of task accomplishment, search for constant improvement, development and progress of all employees and company’s operations. Finally, to support the strategy of establishing long-term, continuing customer relationships, the value orientation towards the customer should be emphasized. The empowerment of employees would be necessary for its establishment, because this will give them more responsibilities in activities related to customers. Based on these proposed values we can suggest the most appropriate organizational culture types according to Trompenaars–HampdenTurner typology. They propose that four types of organizational culture (the Guided Missile, the Incubator, the Family and the Eiffel Tower) are interrelated, but one of them usually dominates (Trompenaars and Woolliams, 2003). In this context the ideal corporate culture of Helios Group also could not be a single cultural profile, but should be a combination of at least two cultural profiles with different intensities. We believe that the Guided Missile type, emphasizing task orientation and equality, should be the dominating cultural profile, while combination with the Incubator would add the people-orientation dimension. With these two cultural profiles all the ideal values such as knowledge, flexibility, mobility, efficiency, orientation towards the future and orientation towards the customer would be represented. Bearing in mind this ideal organizational culture profile, we need to look at current company cultures (see Figure 6.5). The most distinctive current organizational cultural types are the Family and the Guided Missile, whereas the Eiffel Tower and the Incubator are not emphasized (distance

Strategic importance of organizational culture: the Helios Group Guided Missile

Egalitarian

Incubator

171

Family Helios Source:

Task-oriented

Hierarchical

People-oriented

Zvezda Helios

Color

Eiffel Tower Ideal state

Analysis of the THT questionnaires.

Figure 6.5

Comparison of current and ideal types of organizational culture

from the coordinate origin shows the relative presence of a particular type of organizational culture in a given company). The existence of all cultural types makes sense, but the problem is their unsuitable intensities that reduce the fit between the business strategy and existing organizational culture of the company. What is even more important is that the existence of hierarchy present in the cultural types Family and Eiffel Tower reduces the fit between strategy and the current organizational culture, and hinders the implementation of proposed values. Moreover, the Family type of organizational culture can also hinder the business strategy of the Helios Group to become a leading European company: namely, with tight interaction of employees around the centralized power, the two-way flow of information between subordinates, superiors and each business unit weakens. This could consequently deter the realization of ideas and the initiative of employees could fade away. We show with arrows in Figure 6.5 the desired direction of changes in company cultures to fit better the ideal corporate culture to support the corporate business strategy, while the intensity of shading in the squares shows the preferred types of ideal corporate culture. As we can see, the second most distinctive existing cultural type, the

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Strategic alliances, mergers and acquisitions

Guided Missile, fits the Helios Group’s business strategy because task orientation supports achieving good business results through growth, synergies and cost reduction. This part of the business strategy is supported also by management by objectives and the company’s vision. However, in order to improve the fit with business strategy we would thus need the intensification of the Guided Missile cultural type and the transformation of the Family type into the Incubator. The positive outcome of using THT questionnaires is also the possibility of comparing the desired organizational culture, as expressed by the respondents, with the existing culture. This information may suggest how much effort would be needed in order to improve the fit between the ideal and existing culture. The more the desired organizational culture matches the ideal, the easier it would be to transform it because employees would be more willing to accept the changes. For all three companies we can observe that the most distinctive desired organizational culture types are the Guided Missile and the Incubator, whereas Family and the Eiffel Tower do not stand out as desired types (see Figure 6.6). The existence of both most desired cultural types is otherwise in line with the business strategy, but not at the level of intensity that the results show. The intensity of the Incubator is too strong, since one of its characteristics – that is, no need for a leader – does not fit the strategy of expanding into the foreign markets and achieving growth and synergies through acquisitions, where leadership is very important and leaders have to be involved in all activities. Another Incubator characteristic that does not fit with the strategy of the Helios Group is emphasizing an organization whose only purpose is to serve the needs of its members. However, the Helios Group is an organization to which customers and long-term and continuous relationships with them are also important. Therefore, it would be necessary to achieve a fit with the business strategy to balance both cultural profiles correctly, which would mean placing greater importance on the Guided Missile than the Incubator. Again, we use the arrows and intensity of background shading to show how the perception of a desired organizational culture should have changed to fit the ideal corporate culture better. Based on our analysis we can say that the gap between the ideal and the current organizational culture is larger than that between the ideal and the desired organizational culture. The gap between the ideal and the current organizational culture is the largest in Color, whereas the gap in Helios and Zvezda Helios is smaller and of approximately equal size in both companies. The gap between the ideal and the desired organizational culture is the smallest in Zvezda Helios, where the mentioned cultural profiles practically fit, whereas the gap in Helios and Color is a bit larger and approximately

Strategic importance of organizational culture: the Helios Group

Guided Missile Egalitarian

Incubator

173

Family Helios Source:

Task-oriented

Hierarchical

People-oriented

Zvezda Helios

Color

Eiffel Tower Ideal state

Analysis of the THT questionnaires.

Figure 6.6

Comparison of desired and ideal types of organizational culture

equally sized in both companies. However, the biggest problem is the unsuitable intensity of desired cultural types – the Incubator is overemphasized while the Guided Missile is underemphasized. From this we can conclude that certain changes would be necessary in all three companies but especially in Color, where the gap between the current and the ideal organizational culture is the largest. The need for change is also confirmed by the employees’ way of thinking, because their expressed attitudes in the THT questionnaires have shown significant differences between current organizational culture and the desired one. What is positive for the Helios Group is that employees actually think in the right direction concerning changes of the organizational culture, but the intensity of desired cultural profiles does not exactly match with the ideal cultural profile. Analysis of Vertical Fit of Organizational Culture of Different Functional Areas and Company Culture Differences in organizational culture in functional areas compared to company culture have been analysed separately for higher and lower

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organizational levels. We did this in a similar fashion as we analysed differences between corresponding functional areas across the three companies, but here we compared department results against the company average. If we first look at the results for a higher organizational level in the mother company Helios (Table 6.4) we can observe that the organizational culture in most of the functional areas significantly differs from the organizational culture at the company level on at least one dimension of personal culture, or on one profile of organizational culture (differences here are lower). Top management exhibits more universalism and neutrality in comparison to the company average, time orientation towards the past is less emphasized and the level of influence on the environment is higher (they are more external). Among the types of organizational culture the two less emphasized are the Eiffel Tower (which stresses a formalized approach towards the execution of tasks) and the Incubator (which stresses team work, cooperation and constant learning). Middle management favours controlling emotions and the separation of business and personal life above the company’s average. The opposite is true for Helios’s procurement and sales department. Emotions are more expressed than in any other functional area of the company. It is interesting that employees in this functional area are above average past- and less present-oriented, while there is no difference regarding future orientation. Employees in procurement and sales also do not believe so strongly that they have internal control over events, and they acknowledge a higher influence of the environment. This is not surprising because they are closest to the customers and perceive constant changes in the environment. But it is very unusual that in the R&D department the Eiffel Tower is relatively more emphasized, since this is a type that stresses hierarchy, task orientation and working under prespecified rules and procedures. In Color and Zvezda Helios there are very few significant differences in the profiles of the organizational culture in various functional areas (Table 6.4). In Color R&D slightly deviates from the company’s organizational culture. Again it may be surprising that the least-expressed dimension is orientation towards the future. They ascribe power to employees based on achievements, while formal status is not so important. In the procurement and sales department of Color the orientation towards the future is more emphasized, which is understandable when one considers its work, but the difference between R&D and procurement and sales might indicate potential conflicts when developing new products. In Zvezda Helios we find significant differences in functional areas in R&D and manufacturing. In R&D the formal status is more important than achievements when ascribing power to the employees. This might hinder achievement- and

175

+

Top management Middle management Procurement & sales R&D Manufacturing

Middle management Procurement & sales R&D Manufacturing

Middle management Procurement & sales R&D Manufacturing

Helios

Color

Zvezda Helios

+ + −

NE

−

+

AO

−

+ + −

−

−

GM

+

T -Fut +

T -Pre

−

T -Past

+

−

ET

−

I

Source:

Own analysis of the THT questionnaires.

Notes: UN – Universalism; IN – Individualism; NE – Neutral; SP – Specific; AO – Achievement-oriented; T–Past – Time orientation – Past, T-Pre – Time orientation – Present, T-Fut – Time orientation – Future ; EE – Attitude to external environment; GM – Guided Missile; F – Family; ET – Eiffel Tower; I – Incubator; + more expressed dimension; − less expressed dimension. * For individualism and specificity dimensions and Guided Missile and Family types of organizational culture there were no statistically significant differences in groups of employees within an individual company in the Helios Group.

UN

Comparison of dimensions of organisational culture for upper organizational levels according to groups of employees within an individual company in Helios Group*

Dimension Group of employees

Table 6.4

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Strategic alliances, mergers and acquisitions

Table 6.5

Comparison of the organizational culture dimensions at lower organizational levels in functional areas in Helios Group

Dimension Functional area Helios

Color

Zvezda Helios

Procurement & sales R&D Manufacturing Procurement & sales R&D Manufacturing Procurement & sales R&D Manufacturing

PO

EO

OP

−

+

+

TI

SI

+ − +

+ + − +

MO

+ − −

− +

+ −

+ −

+

−

Notes: PO – Process-oriented; EO – Employee-oriented; OP – Open; TI – Tight; SI – Selfinterest; MO – Market-oriented; + more expressed dimension; − less expressed dimension. Source:

Own analysis of the VOK questionnaires.

result-oriented employees who are crucial for development. In production we can observe somewhat smaller present orientation. At lower organizational levels the organizational culture in functional areas differs significantly on more dimensions than at higher organizational levels (Table 6.5). However, we need to be cautious here with the interpretation because two different instruments were used at these levels and the observed differences could also be just a result of different measures and may not entirely reflect the real differences in opinions. Another general observation is that we can find the most differences between R&D and manufacturing, for which the same dimensions are often expressed in the opposite way. If we look at the mother company Helios, we can observe that employees in procurement and sales are less process-oriented, more employee-oriented and more open. Not surprisingly they are, similarly to employees in R&D, more market-oriented because they have to respond to customers’ demands. In R&D distinctive looseness is present, which is in line with the need for creativity. It is surprising, though, that while formalism is strongly present in R&D at higher organizational levels, this is not the case at lower organizational levels. The exact opposite from R&D,

Strategic importance of organizational culture: the Helios Group

177

manufacturing requires respect for rules and often punishes undesirable behaviour. Its employees are also more internally oriented. Again, there are smaller differences in Color and Zvezda Helios than in the mother company Helios. In Color’s procurement and sales we find higher acceptance of critiques and remarks and a more socially responsible behaviour. The latter is definitely very important for good relations with business partners. In R&D there is more freedom and looseness than in other functional areas. The exact opposite is found in manufacturing, where process orientation is preferred over looking for new methods to improve the work process. This also goes in accordance with the opinions expressed in the focus group, where it was expressed that employees in Color do not show enough initiative and are not willing to do more for their success. In Zvezda Helios, as in Helios and Color, the R&D and manufacturing departments differ the most from the company average. Higher employee orientation is present in the R&D department while manufacturing is more job-oriented. In addition, strict rules are in force in manufacturing and any violation is punished. Manufacturing is also more internally oriented.

DISCUSSION The case of the Helios Group shows that although the issue of organizational culture has received little conscious attention in its acquisitions activities, there seems to be a rather good horizontal fit, and some more differences pertaining to the vertical fit. This may not be surprising, because until participating in this research project the Group had not yet systematically dealt with developing its corporate culture. It had never formally defined corporate values, so we could not find them as guidelines for the desired behaviour in the strategic documents and internal publications. However, the focus group participants were somewhat cohesive in describing the basic values of the Helios Group. The ones that were mentioned most often were initiativeness, flexibility, readiness to take risks, efficiency, quality and teamwork. In addition, knowledge and its effective usage in practice has been mentioned as another important feature of Helios’s overall values. The participants emphasized that knowledge is valued more compared to work experience, which is subject to fast obsolescence due to changing technologies. It is for this reason that in the Helios Group continuous education and development is important. Other explicit values mentioned were good working habits, positive personal characteristics, employee productivity and identification with the company. The last value is particularly obvious in Helios where employees

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have developed higher levels of identification with the company compared to Color and Zvezda Helios. At the same time the conversation within the focus group showed that some desired values are relatively underrepresented. Employees are insufficiently aware of what to expect from the future, when competition will be more severe. In some environments, especially in Color, there is lack of initiative. A participant in a focus group explained that employees in Color are ‘not aggressive enough, especially in the field of marketing’. Moreover, another participant said that employees in Color are not prepared enough to seek better results. The same goes for flexibility, which in Helios is expressed as a value to accomplish a task no matter what the circumstances are. Most often the employees in Helios do this by accommodating work time and working behaviour. However, according to the opinions of the participants of the first focus group, employees in Color are less flexible and are not prepared to work more than the bare minimum necessary. The results of our research concur with these observations. When we analysed the vertical fit between corporate strategy and organizational culture we discovered a relatively poor fit (especially in Color), which is a potential threat to materializing synergies at the group level and to the ambitious growth strategy planned for the future. Thus we have suggested that there is a need to transform the organizational culture to a combination of Guided Missile and Incubator profiles. The task should be a bit easier because the desired culture as expressed by the employees already shows these two types as most desired (especially in Zvezda Helios). The analysis of vertical fit between company and functional areas’ culture revealed the largest differences in the mother company Helios. One possible explanation could be that as a mother company it also has the most developed managerial positions and most specialized functional areas in terms of the number of functional specialists and their level of expertise. As such, we may assume that their level of professionalization is the highest among the three companies and thus the impact of professional culture may be stronger. At lower organizational levels, where there is even more functional specialization and tasks are more narrowly designed, the differences are especially evident between R&D employees and those working in manufacturing. Here a combination of different levels of autonomy, different management styles and effects of professional culture could be a sound explanation for the expressed differences in organizational culture. With regard to horizontal fit, even though the mother company Helios did not pay much formal attention to the organizational culture of the acquired companies, a rather good fit can be observed between Helios and

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Zvezda Helios, especially at higher organizational levels. Also, with the acquisition of Zvezda in Serbia there were several instruments in place to harmonize the cultures, including careful selection of top management, a strong presence of a procurator (a loyal employee of the mother company) who was leading by example, formal cooperation and communication between mother and daughter company employees. Thus it is not surprising that there are more similarities in the organizational cultures of Helios and Zvezda Helios than between these two and Color, since for the latter there were no special efforts in place to harmonize its culture with the mother company. Similarities can be also explained by both Helios and Zvezda having a similar history and lead market position in their countries, while Color has experienced poor business results and high uncertainties regarding its future status, due to frequent changes of ownership and top management. As Cartwright and Cooper (1996) claim, history and ownership, size, technology and the nature of business activity are important factors shaping organizational culture and could be contributing to the fact that there is more similarity between Helios and Zvezda Helios. The more similarity between two organizational cultures from different countries (Slovenia and Serbia) than between two from the same country could also lead us to a conclusion that the effect of national culture on organizational culture is not very strong. Therefore companies can effectively decrease the impact of national culture through organizational factors, especially if they are good at transferring the culture and best practices of human resource management to new environments. This is, however, a much more difficult process at lower organizational levels because there the direct involvement of the mother company is smaller, and on the other hand the number of employees and their heterogeneity are much higher. Thus it is not surprising that our results show a stronger impact of national culture at lower levels of organization where Zvezda Helios shows some significant differences from the two Slovenian companies, while the two Slovenian companies differ less than they do at higher organizational levels. Another conclusion related to the horizontal fit pertains to smaller differences in organizational culture at higher organizational levels than at lower organizational levels. A more educated labour force is employed at higher organizational levels where more standardized patterns of behaviour and personal traits, aligned with the vision, strategy and values of the corporation, are expected. They are selected on this basis and after an acquisition most personnel changes happen at higher organizational levels, which was also true in our case. Besides, employees at higher levels have more contact with employees from other companies in the group and are thus directly exposed to the transfer of culture from the mother company.

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As we have mentioned before, the impact of national culture seems stronger at lower organizational levels and the differences may require different management styles and approaches. As a result, some elements of corporate culture should be properly adjusted to accommodate for the specific needs based on the situational contingencies of companies. When we look at horizontal fit among functional areas, we discover only a few differences between the same functions in different companies. This would suggest that professional culture does not play such a strong role. It seems that the level of professionalization is the highest in procurement and sales, followed by R&D, and least in manufacturing. Lower levels of fit for manufacturing are understandable, especially at lower organizational levels, because here the diversity of skills and educational backgrounds as well as the variety of task specialization are the highest. With regard to relatively low horizontal fit among R&D there could be several explanations. The first may pertain to the relatively poor professionalization of engineers in chemistry (the majority of employees in R&D) through the education system in both countries. Also, the observation by Ulijin and Weggeman (2000) that professional culture has more influence because people do not work for the same organization for long any more does not hold in our case, because most employees had a long tenure with their respective company and had thus been more exposed to the effects of organizational culture. The third possible explanation could be that in all three companies, the number of professionals in each area is relatively small and thus the impact of other factors (such as leadership style, work climate, working conditions) may be stronger. Besides being able to identify the possible fit or misfit associated with organizational culture within the Helios Group which can serve as a good basis for planning their future activities, we see the contribution of our research in presenting a useful methodology of organizational culture research. The analysis indicated where the differences are and where action is needed for organizational culture to support the business strategy in a better way. Therefore we think that such an analysis would be a good source of information for any company involved in an acquisition. It would enable it to identify the major discrepancies which could harm the potential synergies, and to plan for organizational culture changes if there were clearly identified needs to do so. The fact is that organizational culture cannot be changed in a short time and thus activities should be carefully planned. Such efforts take a lot of time and energy and could also incur high costs. Overall we may conclude that the issue of cultural fit is important in acquisitions, but companies should think of the optimal rather than absolute fit. As we have seen from our case study, some differences in

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organizational culture could be beneficial because they better suit either national (especially at lower organizational levels) or professional cultures, and could actually contribute positively to company performance. With regard to international acquisitions, the advice based on our study would be first to select the target company carefully, and selecting one with a similar organizational context could be an effective way to minimize the effects of different national cultures. Our case suggests that activities aimed at harmonizing organizational cultures could be effective, especially top management selection in the acquired company, transferring of values and culture from the mother company, communication and training, and so on. However, when it comes to lower organizational levels, where the effect of national culture seems to be stronger, a careful consideration of which organizational culture changes are really needed is crucial because it would not be effective to go against the national culture context or to break away too abruptly from traditions and thus risk a higher resistance to change.

NOTES 1. The Helios Group manufactures a wide portfolio of products in the following manufacturing programmes: synthetic resins, decorative paints and coatings, car finishing and refinishing coatings, metal coatings (corrosion resistant coatings), wood coatings, powder coatings and paint materials for asphalt road signals (white line markings and so on). 2. Jotischky (2004) states that the average consumption of paints and coatings in these regions is approximately 5 kg per capita, while in Western Europe and the US it is above 20 kg, which indicates a large potential in these developing markets. 3. Helios also pursues market development and gathers additional knowledge through joint ventures. It cooperates in successful joint venture with a global company, PPG, in the auto finishing coatings programme in the Russian market. Furthermore, it is considering forming new strategic alliances with its partners to penetrate the Asian markets. 4. The Original CEFTA (Central European Free Trade Agreement) agreement was signed by Poland, Hungary and the Czech and Slovak republics in 1992; later other Central and South-Eastern European countries joined (Slovenia in 1996). The aim was to establish a free trade area by gradual liberalization of mutual trade relations and by the removal of tariff and non-tariff barriers to trade during a transitional period. Slovenia, like other new EU member states, left CEFTA in May 2004 after joining the European Union. 5. This study was conducted as a part of a research project at the Faculty of Economics, coordinated by Professor Janez Prašnikar, and results were presented at the Portorož Business Conference in November of 2005 entitled The Global Economy and Cultural Diversity. 6. For more about both questionnaires and the theoretical background see Zagoršek and Štembergar (2007).

REFERENCES Bijlsma-Frankema, Katinka (2001), On Managing Cultural Integration and Cultural Change Processes in Mergers and Acquisitions, Amsterdam: Free University.

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Buono, Anthony F. and James L. Bowditch (1989), The Human Side of Mergers and Acquisitions: Managing Collisions between People, Cultures, and Organizations, San Francisco, CA: Jossey-Bass. Cartwright, Sue and Cary L. Cooper (1996), Managing Mergers, Acquisitions and Strategic Alliences: Integrating Peoples and Cultures, 2nd edn, Oxford: Butterworth-Heinemann. Damjan, Jože P. and Sašo Polanec (2005), ‘Export vs FDI behavior of Slovenian firms: does FDI substitute for trade flows?’, in Janez Prašnikar (ed.), MediumSized Firms and Economic Growth, New York: Nova Science Publishers, pp. 283–96. Hofstede, Geert (1980), Culture’s Consequences: International Differences in Work Related Values, London: Sage. Hofstede, Geert (2001), Culture’s Consequences: Comparing Values, Behaviours, Institutions and Organizations across Nations, London: Sage. Huang, C.T.W. and B.H. Kleiner (2004), ‘New developments concerning mergers in acquisitions’, Management Research News, 27 (4–5), 54–62. Jazbec, Marijana (2007), ‘Slovenian national culture and cross-cultural training’, in Janez Prašnikar and Andreja Cirman (eds), New Emerging Economies and their Culture, New York: Nova Science Publishers, pp. 57–71. Johnson, Gerry and Kevan Scholes (2006), Exploring Corporate Strategy, Edinburgh: Prentice Hall. Jotischky, H. (2004), ‘Paint retailing in Central and Eastern Europe: perspectives for the future’, Coatingsworld, October, 66–75. Leung, K., R.S. Bhagat, N.R. Buchan, M. Erez and C.B. Gibson (2005), ‘Culture and international business: recent advances and their implications for future research’, Journal of International Business Studies, 36 (2), 357–78. Mrak, Mojmir, Matija Rojec and Carlos Silva-Jauregui (2004), Slovenia: From Yugoslavia to the European Union, Washington, DC: World Bank. Prašnikar, Janez, Marko Pahor and Hugo Zagoršek (2007), ‘Comparison of cultural profiles of young managers from the countries of South-Eastern Europe and Russia’, in Janez Prašnikar and Andreja Cirman (eds), New Emerging Economies and their Culture, New York: Nova Science Publishers, pp. 85–100. Quinn, Robert E. and Kim S. Cameron (1998), Diagnosing and Changing of Organizational Culture: Based on the Competing Values Framework, Reading: Wesley. Schein, Edgar H. (1992), Organizational Culture and Leadership, San Francisco, CA: Jossey-Bass Publishers. Schneider, S.C. and A. De Meyer (1991), ‘Interpreting and responding to strategic issues: the impact of national culture’, Strategic Management Journal, 12 (2), 307–20. Sirmon, D.G. and P.J. Lane (2004), ‘A model of cultural differences and international alliance performance’, Journal of International Business Studies, 35 (2), 306–19. Trompenaars, Fons (1993), Riding the Waves of Culture: Understanding Cultural Diversity in Business, London: Economist Books. Trompenaars, Fons and Peter Woolliams (2003), Business across Cultures, Oxford: Capstone. Ulijn, J., G. Duysters, R. Schätzlein and S. Remer (2003), Culture and its Perceptions in Strategic Alliances, Does it Affect the Performance? An Exploratory Study

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into Dutch–German Ventures, Eindhoven: Eindhoven Centre for Innovation Studies. Ulijn, J. and M. Weggeman (2000), ‘Towards an innovative culture: what are its national, corporate, marketing and engineering aspects, some experimental evidence’, in C. Cooper, S. Cartwright and C. Early (eds), Handbook of Organizational Culture and Climate, London: Wiley, pp. 487–517. Weber, R.A. and C.F. Camerer (2004), ‘Cultural conflict and merger failure: an experimental approach’, Management Science, 49 (3), 400–415. Zagoršek, Hugo and Mateja Štembergar (2007), ‘Culture and its influence on business performance’, in Janez Prašnikar and Andreja Cirman (eds), New Emerging Economies and their Culture, New York: Nova Science Publishers, pp. 57–71.

7.

Cross-border marriages: Dutch– Japanese and Dutch–American combinations Frits Grotenhuis

INTRODUCTION Many varieties of cross-border marriages exist, ranging from strategic alliances to joint-ventures, acquisitions, or mergers (Marks and Mirvis, 1998). Different kinds of motives can be found in the literature, such as gaining access to foreign markets or distribution channels, acquiring technology, economies of scales, or even hubris. Depending on the motives, management can decide about the desired type of partnership (Haspeslagh and Jemison, 1991). Mergers and acquisitions are most influential in comparison to alliances or joint ventures. Unfortunately, however, although synergies are easily calculated, realizing the benefits appears not to be easy. Most studies regarding mergers and acquisitions show, on average, that between 50 per cent and 80 per cent of mergers and acquisitions do not prove to be successful (Sirower, 1997). During the pre-merger phase, strategic, financial and legal issues play a major role in realizing a merger. During the post-merger integration phase, cultural issues are often mentioned as the major reason for difficulties (Olie, 1990), sometimes even resulting in disentanglement. Although many scholars have investigated the concept of culture (Tihanyi et al., 2005), it remains complex to understand the concept fully. Haspeslagh and Jemison (1991) indicate that different scholars have emphasized the importance of culture, although most of these studies have only measured static differences. This chapter contributes to the understanding of processes of cultural integration for Dutch–American and Dutch–Japanese merger situations.

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Corporate Culture

NC NC

CC

NC

CC

NC/CC CC

USA

NWE

Latin

Japan

Loose National Culture Individualistic

Tight National Culture Collectivistic

Explicit Communication

Implicit Communication

Source:

Ulijn and Kumar (2000), based upon tight/loose by Triandis (1994, 1995).

Figure 7.1

Low/tight cultures

THE ROLE OF CULTURE IN MERGERS AND ACQUISITIONS Certainly, mergers and acquisitions should primarily be based on strategic, financial and other objective criteria. However, ignoring the role of culture can lead to clashes and serious conflicts that have a negative impact on business results: key people leave (Grotenhuis and Weggeman, 2002), or become counterproductive and influence others by delaying processes, hiding information, creating a ‘we’ versus ‘they’ atmosphere, and so on. In this perspective, Ulijn and Kumar (2000) discern between loose and tight national cultures in relation to corporate cultures (see Figure 7.1). They argue that in more loose cultures, such as the American culture, corporate cultures are often divergent from the national culture. In contrast, Ulijn and Kumar show that in tighter cultures, such as the Japanese culture, corporate cultures are very similar to the national culture. These findings result in the hypothesis that Japanese mergers might, culturally speaking, be easier to realize compared with American mergers. Many scholars argue that culture plays a huge role during the integration phase. It appears, however, that cultural differences as such do not necessarily result in integration troubles. Results from two in-depth case studies concerning comparable Dutch–American mergers (Grotenhuis, 2001a) indicate that culture can be managed to some extent. Two factors

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seem to play an important role: the degree of integration, and the way management deals with culture. On the one hand, depending on the motives of a merger, organizations can remain operating relatively autonomously, or maybe choose a different mode of collaboration, such as an alliance. On the other hand, when managers recognize cultural differences, instead of ignoring them, they can deal with them in a proper way. Realizing a situation of cultural fit is crucial for the integration success, although a cultural fit does not necessarily imply equal or similar cultures (Sirower, 1997). Cultural distance or cultural differences can also enhance acquisition performance. Cultural fit can be defined as: ‘the extent to which the acquiring and acquired corporate culture harmonize, and so support the acquisition objectives’ (Grotenhuis, 2001a). Luimes and Spitholt (1994) describe cultural fit as: ‘the situation in which partners’ corporate cultures do not hinder collaboration’. Morosini et al. (1998) tested the hypothesis that national cultural distance enhances cross-border acquisition performance by providing access to the target’s and/or the acquirer’s various sets of routines and repertoires embedded in national culture, and found a positive association between national cultural distance and cross-border acquisition performance. Their findings are in contrast to other studies that found national cultural distance hindering cross-border acquisition performance by, amongst other things, increasing the costs of integration. Various scholars stress cultural differences as an important reason for merger failure. Some of them work out the concept of cultural fit, although they measure fit in terms of a minimum in cultural differences (Weber et al., 1996), approaching culture from a static point of view. However, the process by which one or more cultures become more or less integrated (‘acculturation’) determines whether cultural differences really matter, and to what extent (Grotenhuis, 2001a). Further, research into merger processes with acquiring technological capabilities as a major objective have been very limited thus far. Based upon these observations, the following research questions were developed: 1. 2.

What patterns of acculturation can be detected in technology acquisitions? Are these patterns applicable to different international merger situations?

Depending on the motives of a merger the degree of autonomy or integration of organizations should be determined. This decision also implies the desired mode of cultural integration. When both organizations can

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remain operating relatively autonomously the cultures can also remain intact. When, in contrast, full integration is aimed at, cultural integration will be imperative. This chapter evaluates three cross-border mergers, illustrated with patterns of cultural integration based upon the Marriage model.

THE MARRIAGE MODEL Based on an extensive study into cross-border mergers and their cultural integration processes, the Marriage model (Grotenhuis, 2001b) was developed. Several merger processes were investigated on merger motives, the degree of integration, cultural differences and the development of the merger process. In particular, this dynamic component focusing on the merger process instead of measuring static differences has often been lacking in previous studies (Haspeslagh and Jemison, 1991). The Marriage model consists of three dimensions: integration versus autonomy (a structural dimension), culture fit versus culture clash (a cultural dimension), and time (a dynamic dimension). The dimension culture clash–culture fit indicates to what extent both cultures have grown closer to each other over time. The dimension autonomy–integration reflects the degree of integration between the merging partners. Finally, by adding the dimension of time, patterns of cultural integration are revealed. The Marriage model is visualized in Figure 7.2. The combinations on the right side of the model, no. II ‘integration– culture fit’ and no. IV ‘autonomy–culture fit’, are preferable. Which of Integration

I

II

Culture clash

Culture fit

III

IV Autonomy

Figure 7.2

The Marriage model

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these patterns is most desirable will depend on the objectives of the combination. When synergies of scale are aimed at, full integration will probably be desirable. When access to distribution channels is aimed at, no full integration would be necessary. The relation between structure and culture has been widely discussed over the past decades (for example Waterman et al., 1980; Hofstede, 1991). In practice, culture most often follows structure, although different scholars argue that structure should follow culture, as the impact of culture depends on the degree of integration (Hofstede, 1989; Olie, 1996). Three in-depth case studies and two expert panel sessions lay at the foundation of the Marriage model, and the four patterns of cultural integration that were developed: ‘Shotgun Wedding’, ‘Marriage after Engagement’, ‘Living Apart Together’ (LAT), and ‘Divorce’. These patterns of cultural integration will be illustrated with case descriptions after the research method section.

RESEARCH METHOD In the framework of a study (Grotenhuis, 2001a) into cross-border merger processes, the acquisition of a medium-sized Japanese organization by a division of a Dutch multinational company, and two acquisitions by American medium-sized organizations of medium-sized business units from a Dutch multinational company were investigated (Table 7.1 gives a case overview). In this section the research approach and methods for data collection are discussed. The research strategy adopted in this study can be characterized as the case study approach. According to Yin’s theory (1991) a case study is: ‘an empirical enquiry that investigates a contemporary phenomenon within its real life context; when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used’. On the one hand, case study research knows some disadvantages, such as the limited number of cases, resulting in ‘a lack of statistical evidence’. On the other hand, the case study is the only way to provide an in-depth insight, especially into the processes going on within mergers and acquisitions. Case studies make it possible to find answers to questions of ‘how?’ and ‘why?’ (Yin, 1991). That makes this approach very applicable, as it provides a unique insight into the complexity and dynamics of merger processes, especially from a cross-border perspective. Another reason to choose the case study approach was that the return rate from a survey was expected to be very low, as this research dealt with highly confidential information and many respondents were placed high

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Table 7.1

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Case overview

Case

Acquisition

Pattern

Dutch–American

American company acquires Dutch company ‘Reversed takeover’: American company acquires Dutch company, although the Dutch mother company takes a majority share in the American company Dutch company acquires (majority share in) Japanese company

Marriage after Engagement

Dutch–American

Dutch–Japanese

Shotgun Wedding, or Divorce?

Living Apart Together

in the hierarchy of the company. Moreover most mergers and acquisitions have a very different history and background, and so it would be difficult to prepare one universally valid questionnaire. Furthermore, the aim was to gain a better insight into processes of cultural integration. The disadvantage of ‘statistical evidence’ is compensated by a substantial number of interviews and data triangulation. A combination of different sources was used in the data collection phase. Important data sources were contracts, archival records, reports, documents, the Internet, intranet sites, newspaper articles, annual reports, brochures and notes on the (planned) merger. These data sources were obtained from interviews with respondents, secretaries and other informants from the involved entities (primary data sources), and by conducting desk research (collecting secondary data). Interviews were, however, the main source of information. Concerning the Dutch–Japanese case, 11 interviews were conducted with both Dutch male and Japanese male respondents. Most Japanese interviewees were managers. A few of them were sometimes sent to the Netherlands for training. Other interviewees were Dutch expatriate managers and employees located in Japan. Two Dutch–American cases were investigated, in one case 34 interviews were conducted and in the other case 36 interviews were held. For all cases the interviews were held with management team members, people working in the different departments (ranging from research and development to marketing and sales), and expatriates. Most of the interviewees were male, only some of them were female respondents. Most interviews for all cases took more than one hour and some of them

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even more than two hours. In all three cases most respondents were male and had an engineering background, for Dutch, American and Japanese respondents. The descriptions of the interviews were firstly analysed, and coded. Next, various patterns started to emerge. Based on the results and the literature, a cultural integration, or acculturation, model was developed together with four possible patterns of acculturation. Finally this model, the Marriage model, and the different patterns were tested with the help of two expert panels. One panel consisted of nine managers from the studied Dutch multinational company. The other panel consisted of three managers and two consultants from a range of international organizations to allow testing the research findings in a broader context (external validity). In the next section, these three cross-border merger cases will be evaluated. In order to ensure confidentiality, the Dutch company is indicated with Dutco, whereas the Japanese company is indicated with Japco, and the American companies are indicated with Amco1 and Amco2.

THE MERGER OF A JAPANESE FIRM WITH A DUTCH COMPANY: LIVING APART TOGETHER This case (partly based on Grotenhuis, 2009) concerned a Dutch multinational company that aimed at gaining access to the Japanese market, and a Japanese medium-sized company that was in financial difficulties. Both organizations operated in the technology sector, conducting research and development, resulting in new products. As the major objective was to enter the Japanese market, no full integration was aimed at. Case Description Motives in this case are very different for both partners. Financial troubles made it necessary for Japco to merge in order to survive, although the company initially never intended to merge. The Dutch multinational company had made some unsuccessful efforts in the past to enter the Japanese market. An alliance or other licensing agreements proved to be inadequate when it intended to gain control and access to specific markets in Japan. So Dutco was very eager to gain access to the Japanese high-end market, which so far had appeared to be a difficult aim to achieve. ‘A foothold in Japan . . . in order to generate distribution channels. The Japanese market was seen as highly important’ (Grotenhuis, 2001a). Except for the motive of gaining access to the Japanese market, no clear ambition was set with

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the acquisition, nor was a (shared) vision developed. As a result of negotiations, Dutco acquired a majority share in Japco of 51 per cent. Certainly cultural differences led to misunderstandings from the start (and even during the merger negotiations). ‘They think black and white. . .they start arguing on and on, very direct, which is positive to me, but not for most Japanese I think’ (Grotenhuis, 2001a). However, Dutco left Japco relatively autonomous during the first period, which was possible as the initial aim was to gain access to the Japanese market, and distribution channels. A Dutch liaison officer was sent to Japan, but a Japanese president remained responsible for the operations. At a strategic level, however, Dutco retained its influence over Japco. At a later stage, some more cultural clashes occurred, as a result of the stronger Dutco influence, especially during reorganizations. Up till then, Japco remained relatively autonomous in its day-to-day business operations. Over time, the different (financial) systems and policies became more and more integrated, but Japco people never really had to give up their own identity. Many Japco employees were not even aware of the legal situation with a Dutch majority shareholder. ‘We should not want to come to one culture . . . we should respect the different cultures, way of working, behavior and thinking’ (Grotenhuis, 2001a). At a managerial level, and concerning the different systems, the two companies have integrated quite well. At the lower levels, however, no integration was aimed at. As a result, over time, the combination slowly grew towards a situation of culture fit, despite the large cultural differences. People recognized cultural differences, and were not forced to integrate fully. ‘Of course there have been misunderstandings as a result of cultural differences. Culture played a role, but not a major role’ (Grotenhuis, 2001a). For example, when the Japanese managers had a videoconference with their Dutch counterpart, a Dutch liaison always joined the videoconference on the Japanese site, in order to smooth the communication. Sometimes, the Dutch liaison did not really understand the technical details of the conversation, but he was often better able to interpret and explain the context of questions and remarks. In this way, several potential miscommunications were prevented. ‘It is often about nuances: translating Dutch-English into Japanese-English’ (Grotenhuis, 2001a). In the end, although Dutco gained a foothold in Japan, and access to new technologies, no real mass production of Japco products could be realized. Neither was the objective of extending the business in Japan fulfilled. Except for some (financially speaking) good years in the beginning, the acquisition was no financial success. Several years later, the majority share was reduced to less than 50 per cent, and the involvement of Dutco

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Integration

Culture clash

Culture fit

Autonomy Figure 7.3

Living apart together

slowly decreased. The reason might be that Dutco failed to fit into the tight Japanese culture. Pattern: Living Apart Together In the case of the acquisition of a Japanese company by a Dutch multinational, large cultural differences were recognized. At the same time, regarding the major objectives of the Dutch company, namely gaining access to the Japanese market, no full integration was aimed at. This led to a situation where many employees of the Japanese firm were not even aware that they were acquired. Only at a managerial level did this have a real impact, although the Dutch management left the Japanese organization relatively autonomous in their operations. This pattern is visualized in Figure 7.3

THE MERGER OF AN AMERICAN FIRM WITH A DUTCH COMPANY: SHOTGUN WEDDING OR DIVORCE? This case (partly based on Grotenhuis and Kamminga, 2008) concerned a business unit of a Dutch multinational company, and an American medium-sized company, both operating in the technology sector. Previous

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to the merger, the companies knew each other already via a customer– supplier relationship, although this relation was complex. When it was decided to continue as one merged organization, full integration was aimed for. However, as a result of the complex relation between the organizations and a ‘reverse takeover’, cultural differences played a major role. Case Description The acquisition of Dutco by Amco1 was preceded by a customer–supplier relationship. Over time, the organizations had become too dependent on each other. Two possible solutions were investigated: either to merge or to stop collaboration entirely. At this stage of cooperation, no attention had been paid to cultural differences. However, right from the beginning of the relationship, there appeared culture clashes and conflicts. ‘Some people were blaming everything on the merger and were polarizing all the time . . . this stereotyping and infecting other people were no good for the company’ (Grotenhuis, 2001a). Following the acquisition, the initial aim was to integrate both organizations fully. However, no real integration took place due to different factors, such as the uncertain situation with an interim chief executive officer (CEO). Moreover, there was a lot of confusion about both the acquisition and the company identity, mainly as a result of a reverse takeover: Amco1 acquired Dutco, a business unit, but at the same time the Dutco multinational mother company held a 55 per cent share in Amco1. ‘Brand name and company name are this far very diffuse both inside and outside the company . . . camp positions occurred between the two sales organizations because they remained to work with their own agents’ (Grotenhuis, 2001a). Further, Dutco employees remained working in the same building. Many symbols and rituals were kept alive, such as the Dutco company flag, next to the Amco flag. Dutco calendars, cups and many other items were still in use by most of the employees in the Netherlands. The interim CEO, although he had a third nationality, previously had a managerial position within the Dutco mother company. In the context of a ‘reverse takeover’, many employees felt confused about their identity. This is another illustration of a loose Amco cultural setting versus the middle position of Dutco on the loose–tight continuum. Many people had negative perceptions about the acquisition and there was a lot of uncertainty about the future. With the new CEO, who was appointed one year after the acquisition, a division structure was implemented, although this did not immediately lead to greater integration, and nor was a new overall culture established. Two different cultures

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co-existed for a long period of time, which was not always productive for the new combination. Over time, the situation slowly changed and both organizations grew together. Interesting in this case was that cultural differences and time differences were sometimes used as an excuse for certain behaviour (Grotenhuis, 2002). For example, the time distance (nine hours) between the Dutch and American plant led to many miscommunications, including from the perspective that people could not always reach one another, resulting amongst other things in email miscommunication. Employees of one organization sent emails at the end of their day, while colleagues from the other organization only read the message the next day, but then could not reach their counterpart any more, and sometimes just sent a blunt message back. ‘The problem then is that English is not the native language for Dutch, and they (the Dutch) are even more direct than Americans. That results in “powerful” statements. And we have nine hours time difference, which makes things more complicated’ (Grotenhuis, 2002). Only after a period of time, the situation has changed from a direct clash and cultural identity struggle into greater acceptance of the acquisition itself and a certain degree of acceptance and respect for ‘the other organization’. It took some time before expatriates were exchanged although for a long period this was one-way from Dutco to Amco. Further new employees were hired without a background in both organizations. Full integration was initially aimed at with the acquisition; however, cultural differences were underestimated. As a result, only after several years has a ‘culture fit’ been achieved. ‘Most people however adapt to the new situation . . . the Dutch learned how important the market is . . . Americans adapted to procedures in R&D processes’ (Grotenhuis, 2001a). In terms of complementarity of technologies and joint product development, many objectives have been realized, although the acquisition was no financial success from the beginning. According to many respondents, the culture clashes have had a direct impact on the integration success. Interesting here was that, generally speaking, management team members were often more positive than other respondents, and Dutch management team members were more positive than American management team members. Pattern: Shotgun Wedding or Divorce? In this case the acquisition was preceded by a customer–supplier relationship, where no real relationship was initially built. This was due to the competitive nature of the two partners who did not have other intentions than a superficial relation as supplier and customer. However, when the

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Integration

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Autonomy Figure 7.4

Divorce

management decided to start a reversed stock exchange the situation really changed. At once full integration became imperative, partly due to pressure of shareholders, while many people were still emotionally strongly attached to their own organization. As a result of the unclear situation of a reverse stock exchange, a temporary CEO and identity issues, the two cultures did not easily blend, and the combination almost resulted in a divorce. This pattern is visualized in Figure 7.4. However, over time the organizations grew together, but at a different pace than expected by the management, which pattern is visualized in Figure 7.5.

THE MERGER OF AN AMERICAN FIRM WITH A DUTCH COMPANY: MARRIAGE AFTER ENGAGEMENT Similar to the previous case, this case (partly based on Grotenhuis and Kamminga, 2008) concerned a business unit of a Dutch multinational company, and an American medium-sized company, both operating in the technology sector. However, in this case, the merger was preceded by a strategic alliance where the organizations had already built a strong relation. During the integration process, cultural differences did not play a huge role, compared to the previous case.

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Integration

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Autonomy Figure 7.5

Shotgun wedding

Case Description The relationship between Amco2 and Dutco started with a five-year alliance, where many joint products were developed. The American company was originally a family-owned business. The Dutch company was a business unit within a Dutch multinational. During the alliance period, alliance managers, who often spent periods of several months at the other company, were able to bridge differences in culture and insights. An expatriate: ‘The pre-acquisition period had leveled most of the road’ (Grotenhuis, 2001a). Moreover, before the alliance, some former Dutco employees had worked for the Amco2 distribution centre in the Netherlands. During the alliance period, the Amco2 distribution centre in the Netherlands was closed down, and several of the former Dutco employees again joined Dutco. Five years later they became Amco2 employees again when Dutco was acquired by Amco2. So both organizations and the employees were very familiar with each other already. The alliance allowed both organizations to sell their products in each other’s markets, as well as transfer technology, resulting in joint product development. A merger or acquisition became a logical step after the alliance. ‘When the alliance was established, it was clear already that this would not end after five years’ (Grotenhuis, 2001a). The mutual interdependence caused by sharing each other’s distribution channels, and joint product development, provided few other options. Financial matters in

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the end determined which became the acquiring company (Amco2), and which the acquired company (Dutco). Many interviewees perceived the first interactions with each other as a culture fit, although a reorganization initially caused some mistrust and negative perceptions with Dutco employees. ‘At the time of the acquisition people were very positive, but then people started to doubt . . . in July there was a barbeque to celebrate the opening of a new building . . . the other day, people were sacked. This was really demotivating’ (Grotenhuis, 2001a). Overall, the two companies have become well integrated over time. Most of the integration tasks were already taken care of during the preacquisition years, during the alliance period. The exchange of people and thorough preparation resulted in a relatively smooth integration. Interesting to see is how communication changed over time, during the alliance period: ‘There’s no aspect of this agreement that requires any comingling of corporate cultures. We want to be us, and they want to be them’ (Grotenhuis, 2001a; Grotenhuis and Kamminga, 2008). Five years later with the acquisition it was communicated: ‘We believe that Dutco and Amco2 form a perfect match; we have no concerns about any potential cultural differences. Besides that, through our five-year-old alliance we know each other very well’ (Grotenhuis, 2001a; Grotenhuis and Kamminga, 2008). For shareholders, the acquisition has been successful. Further, many new products were developed, although the acquisition has not produced the expected (financial) success. Some respondents mention that Amco2 initially only wanted to acquire part of the Dutco business unit. Forced by the Dutco mother company, it had to acquire all of it, including less profitable parts. Pattern: Marriage after Engagement In this case, the acquisition was preceded by an alliance, where both organizations grew together strongly. Cultural differences were paid attention to, including with the exchange of expatriates, without the need to integrate both organizations fully in the first instance. Mutual trust increased, and when the alliance agreement terminated, an acquisition was a logical choice. From the acquisition onwards, full integration was aimed at, and relatively smoothly realized (see Figure 7.6).

DISCUSSION AND SUGGESTIONS FOR FURTHER RESEARCH This chapter has dealt with cross-border mergers and acquisitions in relation to cultural differences. Many scholars have investigated culture

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Integration

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Autonomy Figure 7.6

Marriage after engagement

from one or two angles, often in relation to strategic collaboration. For instance, Ullrich et al. (2005) illustrate the impact of cultural differences in the case of a merger integration process resulting in problems related to ‘organizational identification’. Although different scholars have studied the phenomenon of culture over the past decades, the concept remains complex to understand fully (Tihanyi et al., 2005). Further, Leung et al. (2005) even conclude that culture cannot be studied in isolation, without taking other ‘contextual variables’ into account. For this reason a case study approach was preferable in investigating processes of cultural integration. In this contribution the process of cultural integration in three in-depth cases was described and analysed with the help of the Marriage acculturation model. In the Dutch–Japanese combination the pattern of cultural integration can be described as ‘Living Apart Together’, as the acquired company can remain relatively autonomous. This might be the best solution if a fit between the middle position of the Dutch on the loose–tight continuum and the Japanese tight culture on the extreme end of it is not possible. In one of the American–Dutch cases, an acquisition was preceded by a customer–supplier relationship, which at some point urged an acquisition or separation (‘Divorce’ pattern). It was decided to merge and fully integrate both organizations. This process, however, did not work out smoothly, and corresponds to the ‘Shotgun Wedding’ pattern. In the other American–Dutch case, the pattern is similar to ‘Marriage after

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Engagement’, as both companies started with an alliance period before merging. Based upon cases of Dutch–Japanese and Dutch–American mergers, it can be concluded that cultural differences can play a major role in the success or failure of a merger, but that this is not necessarily the case (Grotenhuis, 2001a). Integration success is related to several factors, amongst others the degree of integration, but also to the way management deals with cultural differences. Depending on the motives of a merger the degree of autonomy or integration of organizations should be determined. This decision also implies the desired mode of cultural integration. When both organizations can remain operating relatively autonomously the cultures can also remain intact. When, in contrast, full integration is aimed at, cultural integration will be imperative. The development of the Marriage model helped in answering the first research question: ‘What patterns of acculturation can be detected in technology acquisitions?’ Four patterns of acculturation could be developed, based upon three cross-border merger processes. Two expert panels recognized the four basic patterns, although other types of patterns were not excluded. Future studies could work out in more detail what other patterns are common, and for what sectors or cross-border combinations. Further, the second research question, ‘Are these patterns applicable to different international merger situations?’ refers to the external validity of the findings. Based on the results of the two expert panels evidence was found for usability of the four basic patterns in other sectors. However, additional research is necessary to substantiate and clarify these results, both for merger acculturation patterns in other sectors and in other cross-border combinations. As Ulijn and Kumar (2000) point out, the impact of culture might differ depending on more or less loose or tight cultures. In case of American mergers they assume that corporate cultures can be rather different from the national culture. In the cases described in this chapter, however, the two American companies involved are very similar, as they are both located on the north-west coast of the United States of America, both are medium-sized organizations, and active in the same sector. Concerning the Japanese merger, no full (cultural) integration was aimed at, so no real culture clashes occurred, although national cultural, and structural, issues played a role in the success. Concluding, national cultures were prevailing in all cases, although influenced by corporate and professional characteristics. As all three cases concerned mergers within the same sector, where many employees have engineering backgrounds,

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differences between professional and corporate culture had less impact than national cultural differences. Future studies could further investigate differences for different types of partnerships such as mergers, alliances or joint ventures, and other cultural combinations than Dutch–Japanese, and Dutch–American mergers. Finally, it would be interesting to determine in more detail the differences of impact between professional, corporate and national cultures for different combinations. The Ulijn and Kumar model (2000) could be an interesting model to test different hypotheses regarding loose and tight cultures for cross-cultural merger situations.

REFERENCES Grotenhuis, F.D.J. (2001a), ‘Patterns of acculturation in technology acquisitions’, PhD thesis, University of Groningen. Grotenhuis, F.D.J. (2001b), ‘Het managen van culturele integratie: een weg vol valkuilen?’, Fusie & Overname, October, 5–7. Grotenhuis, F.D.J. (2002), ‘How cultural differences effect the use of information and communication technology in Dutch–American mergers’, Electronic Journal of Communication, 12 (3–4). Grotenhuis, F.D.J. (2009), ‘Mergers and acquisitions in Japan: lessons for Dutch companies’, Global Business and Organizational Excellence, 28 (3), 45–54. Grotenhuis, F.D.J. and P.E. Kamminga (2008), ‘Continuity and change in alliances, joint ventures, and mergers and acquisitions: a matter of domination or cooperation’, International Journal of Entrepreneurship and Small Business, 5 (2), 170–78. Grotenhuis, F.D.J. and M.C.D.P. Weggeman (2002), ‘Knowledge management in international mergers’, Journal of Knowledge and Process Management, 9 (2), 83–9. Haspeslagh, P.C. and D.B. Jemison (1991), Managing Acquisitions, New York: Free Press. Hofstede, G. (1989), ‘Organising for cultural diversity’, European Management Journal, 7 (4), 390–97. Hofstede, G. (1991), Cultures and Organizations: Software of the Mind, London: McGraw-Hill. Leung, K., R.S. Bhagat, N.R. Buchan, M. Erez and C.B. Gibson (2005), ‘Culture and international business: recent advances and their implications for future research’, Journal of International Business Studies, 36 (4), 357–78. Luimes, W. and M. Spitholt (1994), ‘Ontvlechting van concernonderdelen: een onderzoek naar de invloed van cultural (mis)fit, human (mis)fit en synergie/ antagonize’, PhD thesis, University of Twente, Enschede, the Netherlands. Marks, L.M. and P.H. Mirvis (1998), Joining Forces: Making One Plus One Equal Three in Mergers, Acquisitions, and Alliances, San Francisco, CA: Josey-Bass Publishers. Morosini, P., S. Shane and H. Singh (1998), ‘National cultural distance and crossborder acquisition performance’, Journal of International Business Studies, 29 (1), 137–58.

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Olie, R. (1990), ‘Culture and integration problems in international mergers and acquisitions’, European Management Journal, 8 (2), 206–15. Olie, R. (1996), ‘European transnational mergers’, PhD thesis, State University Limburg, Maastricht, the Netherlands. Sirower, M. (1997), The Synergy Trap, New York: Free Press. Tihanyi, L., D.A. Griffith and C.J. Russell (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), 270–83. Triandis, H.C. (1994), Culture and Social Behavior, New York: McGraw-Hill. Triandis, H.C. (1995), Individualism and Collectivism, Boulder, CO: Westview Press. Ulijn, J. and R. Kumar (2000), ‘Technical communication in a multicultural world: how to make it an asset in managing international businesses, lessons from Europe and Asia for the 21st century’, in P.J. Hager and H.J. Scheiber (eds), Managing Global Discourse: Essays on International Scientific and Technical Communication, New York: Wiley, pp. 319–48. Ullrich, J., J. Wieseke and R. Van Dick (2005), ‘Continuity and change in mergers and acquisitions: a social identity case study of a German industrial merger’, Journal of Management Studies, 42 (8), 1549–69. Waterman, R.H., T. Peters and J.R. Phillips (1980), ‘Structure is not organisation’, Business Horizons, 23 (3), June, 14–26. Weber, Y., O. Shenkar and A. Raveh (1996), ‘National and corporate cultural fit in mergers/acquisitions: an exploratory study’, Management Science, 42 (8), 1215–27. Yin, R.K. (1991), Case Study Research, Design and Methods, Beverly Hills, CA: Sage Publications.

8.

Managing potential conflicts in a European banking alliance in ICT: study of intro- and mutual perception combined for a cultural fit Jan Eppink, Jan Ulijn and Beatrice van der Heijden

INTRODUCTION Looking over the field of strategic cooperation in general, and that of strategic alliances in particular, we can notice many cases of success as well as many cases of failure. Problems with cultural differences between partners are often given as an explanation for failure. No doubt this is the case in many of the failed attempts. In other cases of strategic cooperation, we notice large differences in national and corporate cultures that do not hinder success. When Air France acquired KLM Royal Dutch Airlines in 2003, one of the first questions that journalists asked Leo van Wijk (at that time the Chief Executive Officer of KLM) pertained to the differences in cultures. Leo van Wijk answered that indeed there were differences, but that he did not worry about them. The cooperation between the two has been a fantastic success with results that were better than expected at the beginning. A tentative conclusion can be that culture alone is not a sufficient explanation for success or failure, and that cultural distance might even create a possibility of a cultural fit. More specifically, it might even imply that cultures are complementary instead of being a source of conflict. This chapter will explore the factors that influence the success or failure of strategic cooperation. First we will look into the questions of what strategic cooperation is and why organizations want to cooperate strategically. If they cooperate for the wrong reasons, or if they choose the wrong partner, this in itself may explain why success is unattainable. Next, we will

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discuss various forms of strategic cooperation and try to find out whether some forms of cooperation are less successful than others in specific contexts. Choosing the wrong form, therefore, may also explain why success is out of reach. Measuring the success of forms of strategic cooperation is the next issue to discuss. Against the above-mentioned background we describe a real-life example of strategic alliances in the European banking industry. We end with some conclusions, in particular on how to prepare for cultural differences in strategic alliances.

WHAT IS STRATEGIC COOPERATION? Companies have always been cooperating with one another. Since the late-1980s, however, we have seen the rise of the term ‘strategic cooperation’. Nowadays the term is used so often that it seems to have become an umbrella concept, which has lost its specific meaning. We can speak of a strategic cooperation when this is meant to support the execution of the company strategy (see for example, Dussauge and Garrette, 1999). In a way, everything a company does should be done in the light of its strategy, but that would make all forms of cooperation strategic. Let us clarify this with an example. Many companies have longer-term relationships with other companies. For instance, an airline company may have a long-term supply relationship with an office products company. The same airline company may have a code-sharing agreement with another airline or with a group of airlines. The relationship with the office products company is not a strategic, but an operational one. It is set up to save costs, or to have other advantages. Probably, it could (without too many problems) change from one supplier to the other. The code-sharing agreement may lead to some cost savings, but it is mainly meant to attract more passengers to the combination of airlines in the group. In this case the success of the strategy depends heavily on the cooperation with the other airlines. It will be very difficult, if not impossible, to find other airlines that could give the same kind of advantages. For instance, KLM and Northwest Airlines have had a strategic alliance since the end of the 1980s. Presently, for example, the combination operates three return flights per day between Amsterdam and the twin cities Minneapolis–Saint Paul. For KLM or Northwest Airlines alone it would be impossible to recruit enough passengers to fill the planes. It is the combination that makes it possible to attract the number of passengers from a much larger catchment area. Of course, the combination also leads to operational savings, but it is the stronger position in the market that makes it strategic.

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WHY STRATEGIC COOPERATION? Companies (and not-for-profit organizations as well) can cooperate for a number of reasons. A number of the most important ones are discussed below. Companies can cooperate for a single reason or for a combination of reasons (see for example, Eppink and Bossink, 2004). Some authors (for example, Doz and Hamel, 1998) even suggest that no company can be successful if it does not enter into some form of strategic cooperation. Building and Improving a Market Position Many companies try to achieve this aim when they start to cooperate. Recent examples are the consortium of Royal Bank of Scotland, Banco Santander and Fortis which, in 2007, made a successful bid for ABN Amrobank. Each of the three partners got a part of the Dutch bank in order to build up a better position in its part of the banking sector, which is becoming more competitive. In the meantime the financial crisis starting in September 2008 split Fortis again, into a Dutch part to be safeguarded by the Dutch government taking shares in it, and a Belgian part to be acquired by the Paribas bank and safeguarded by the Belgian government. This shows that strategic cooperation can have a very noble aim in itself, but might be frustrated by events of any kind for which partners are not prepared for some reason. By the end of 2007 Heineken and Carlsberg made a bid on Scottish and Newcastle, the UK brewer. After having rejected two bids, Scottish and Newcastle accepted a third one by Heineken and Carlsberg in January 2008. The two companies will split up Scottish and Newcastle, and will improve their position in these respective markets. Since the end of the 1980s airlines all over the world have been building strategic alliances aimed at improving their collective market position (see, for an early study, Hall and Eppink, 1992). Quicker Development of Products and Systems We recognize this reason in situations where a new product or service is made of several parts or components that have to fit closely together, not only operationally, but also with regard to a joint innovation strategy of partners with a cultural fit (see introductory chapter to this book, and Figure 8.1 below). In the building of military and commercial aircraft we often encounter this. No company can develop and build a new aircraft completely on its own. One can think of such large projects as the Airbus A380 or the Joint Strike Fighter (JSF). The strong position of Rotterdam as the main European container port originated from a close collaboration

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CC

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Source:

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Ulijn and Kumar (2000), based upon tight/loose by Triandis (1994, 1995).

Figure 8.1

The effect of a homogeneous CC on a loose or a tight NC

in the 1960s between the Rotterdam Port Authority, the Dutch Railways, and shipping companies. In the electronics and entertainment industry one can also see a close cooperation between companies with the aim to be the first to bring a product to the market. In the course of 2008 out of the two technologies for High Definition video disks: the Blu-ray technology by the combination of Sony and Philips has become the standard and not the HD DVD technology with among others Toshiba and NEC. Spreading of Risks In many situations where large amounts of money are at stake in developing new products, companies tend to come to one or another form of

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cooperation. One example concerns the Airbus A380, of which the total development costs are estimated at around €12 billion. Even if a single company could finance such an amount, it would put it at too much risk. We can also see cooperation in other costly and lengthy development projects, for instance in the development of fuel cell technology for cars. The Freedom Car initiative is a joint activity of the US Department of the Environment and the US Council for Automotive Research which is backed, among others, by Ford and General Motors. Entering New Markets In some cases a company can only enter a new geographic market abroad if it cooperates with a local partner. In India, for instance, a foreign company needs a local partner to set up a new subsidiary, as the law does not allow a foreign entity to wholly own an Indian company or have a majority stake in it. A foreign company needs the approval of the Indian government for participation of more than 24 per cent in Indian companies. Ghemawat (2007) writes in this respect about ‘administrative’ differences that can be overcome by working together with a local company. Pfizer’s website mentions ‘the unique complexities and challenges of the Indian market’, and states how things work as regards alliances with participants in the healthcare sector. Makro, the Dutch-owned business-to-business hypermarkets, with subsidiaries in Asia and South America, works with local partners who can show it the peculiarities of the local markets. In many countries the mega stores are located outside the big cities, but when one of the authors (Jan Eppink) visited the store in Nanchang, China, in 1996 he discovered that it was located right in the city centre. Without the local partner Makro might have chosen a similar location as in other countries, which would be a wrong decision, since very few people had cars at that time. Dutch financial institutions have expanded their foreign operations through various means of strategic cooperation (Eppink and van Rhijn, 1989; Sybrands and Eppink, 1994). Withdrawing from Markets Sometimes it is ‘politically’ better for a company to plan a phased withdrawal from a market it wishes to leave. Philips Electronics has done this twice in the past through collaboration with an American company. When top management concluded that the market for telecommunication hardware had lost its attractiveness, the company made a joint venture with AT&T, the telecommunications company that at that time still made hardware. By contract, Philips could later sell the rest of its shares in APT

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(AT&T–Philips telecommunications) to AT&T. Several years later Philips did the same with its white goods (refrigerators, washing machines, and so on) division: it sold 50 per cent of the shares to Whirlpool with the option to sell the other 50 per cent later at a predetermined price. Philips exercised that several years later. One should not confuse the two afore-mentioned examples with cases in which a form of cooperation later leads to a more or less forced and unintended withdrawal from the industry. Bleeke and Ernst (1995) describe this phenomenon as a ‘strategic alliance that is really a sale’. This sometimes happens to be the case when a company has, for instance, not thought through the end-game of the strategic alliance, and is forced out by its former partner. Keeping Abreast of New Technologies By closing agreements (participations or alliances) with smaller and innovative small companies, larger companies can gain insight into what is happening in the field of research and development. If they invest the same amount of money in their own research projects, they would have a much narrower view of the relevant developments. Moreover, their existing research associates may not be equipped to set up these new projects. We can see this in the field of biotechnology. The (relatively) large Roche company merged with a small company by the name of Genentech in 1990. With that, it gained access to a number of the most advanced medicines against various forms of cancer. In 1999 Roche sold part of its stake again to the public. Not only did the deal give Roche access to new products, but it also made a very high profit on the public offering. The Dutch biotech company Crucell has developed a human cell-based production technology for vaccines and proteins. It has license agreements with most of the major pharmaceutical companies that want to use the technology for the manufacturing of their new medicines. Optimalization of Management Talent This aim of strategic cooperation is not often mentioned explicitly as a major reason. Yet, in the globalizing economy with increasing competition, management talent that can cope with the many challenges is scarce. In the field of information and communication technology (ICT) this was one of the major reasons for an acquisition. Our own experience is that this reason is not often mentioned, but that it has played a major role in a number of cases. The reason for not mentioning it, is not clear to us. If a company wants to start a strategic cooperation project with another company, it is of vital importance that it knows what objectives it wants

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to achieve. If it enters into an agreement for the wrong reasons, or if it has chosen a partner that cannot deliver what it is expected to deliver, the exercise has a big chance of becoming a failure. A sound business case for the venture is a prerequisite for success.

In sum we might conclude that all cases of strategic cooperation, which are based on one or a combination of the seven aims described above, different national cultures (NCs) are facing the corporate cultures (CCs) of the firms of concern. The US (Northwest Airlines), the UK (Royal Bank of Scotland, Scottish and Newcastle brewery), Denmark (Carlsberg), Belgium (Fortis), Spain (Banco Santander) and France (Airbus) display a continuum of growing distance or difference, as illustrated in Figure 8.1. Apart from national culture (NC) and corporate culture (CC) the professional cultures (PCs) of the different sectors play a role as well: airlines, banking, brewing, aviation, military, seaport and railway logistics and electronics. A professional culture is subject to specific codes of conduct appropriate for a certain profession or even for a sector of industry. Clear examples are doctors and lawyers who have to keep their oath of secrecy and confidentiality towards their patients and clients, but marketers and engineers do not share the same professional values. The above continuum suggests that given a stable and homogeneous corporate culture (CC), for instance that of the Dutch brewer Heineken, the cultural difference or distance with a US brewer would be small, since they are in the same sector, but the contact between their CC and the NC of the US would be loose. Any firm in the US is welcome, as long as it is profitable for the national culture of the US as a whole. In the case of a Far Eastern partner, such as a Japanese or a Chinese brewer, the confrontation between the CC of Heineken and the NC of the local brewer would be intense and the contact tight, since their NC almost coincides with that of the new CC emerging from a cooperation.

FORMS OF STRATEGIC COOPERATION There are various typologies of strategic cooperation. See, for instance, Lorange and Roos (1992), Yoshino and Srinivasa Rangan (1995), and Dussauge and Garrette (1999). In this chapter we will present the framework as developed by Eppink and Bossink (2004). In their book the authors distinguish between two overall types of strategic cooperation. It is based on the criterion of the scope of the collaboration. The first form is a cooperation that covers all activities of the two companies. The

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second form is one where the companies cooperate on specific activities only. All Activities: Mergers and Acquisitions In the case of mergers and acquisitions, the formerly independent companies form a new legal entity. We speak of a merger when the companies are more or less equal. In an acquisition the larger or stronger company buys the smaller one. From a viewpoint of power, top management has the final say in important matters. Certainly, in the case of a merger, the companies must have discussed and agreed in detail what the common aims of the merger are. In the case of an acquisition, top management of the buyer will have a much larger say in the future strategy than that of the company that was bought. That the objectives are not always reached, we can learn from the acquisition of Chrysler (US) by Daimler Benz (Germany). Eventually this led to the sale of Chrysler to a private equity company many years later. In the case of the acquisition of KLM (Dutch) by Air France in 2003, the basis for success was formed by a joint strategic analysis that showed there was a good fit between the two. Furthermore there were solid plans on how to achieve cost savings in functional areas. Specific Activities: Joint Ventures and Strategic Alliances In a joint venture the partners decide to set up a legal entity for a specific, often also new, activity. In this legal entity the partners may bring in parts of their companies that were already involved in the activity, or they can decide to bring in human and financial resources only, if the activity is completely new. An example of a joint venture is LG Philips (South Korean–Dutch), a producer of LCD screens. Before the joint venture the two mother companies already had activities in this field, but decided it was better to split them off and to join them in a new entity. We speak of a strategic alliance in cases where two or more companies cooperate in specific activities, but remain independent. The basis of the cooperation is a contract. Sometimes, but not always, the partners buy shares in the other company. The alliance of KLM and Northwest Airlines is a successful example of this. The deal covered the North Atlantic routes only, so it did not affect Northwest’s USA operations, or the KLM routes to Africa. About ten years after the first contract both companies decided to enter into a longer-term contract that tied the companies together more strongly. Now both partners are members of the larger Sky Team Alliance.

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STRATEGIC ALLIANCES: TYPES AND EVOLUTION This section will discuss two typologies of strategic alliances: the one developed by Lorange and Roos (1992) and that of Dussauge and Garrette (1999). Lorange and Roos (1992) distinguish between four types of strategic alliances. Their typology is based on two dimensions: (1) the level of input of resources by the parents, which can be sufficient for the short term or for the long term; and (2) the measure to which the parents retrieve the output of the alliance, which can be retained inside the alliance or paid out to the parents. In cases where the input is for the short term only and the parents retrieve the output, the authors speak of an ‘ad hoc pool’. (Note that Child and Faulkner (1998) use the same term in a slightly different meaning.) When the parents retrieve the output, but give input for the long term, they speak of a ‘consortium’ type. A project-based joint venture has a short-term input of resources, with a retained output (except dividends or royalties), whereas there is a full-blown joint venture in the case of resource input for the long term, and retention of output. The authors suggest that in the evolution of an alliance there are usually three stages. In the first stage, the partners have an equal, but different input. Operational activities, for instance research and development, and manufacturing, take place on the premises of the partners. Often one can observe that in the course of time one partner becomes more dominant compared with the other. This can be caused by a change in relative importance of each partner’s input. When this occurs the alliance has entered into stage two. In stage three the alliance in itself has evolved into a mature organization in its own right. Ad hoc pool types of alliances never reach stage two in their development, since they are not intended to live long. One can expect the same from a consortium, although one can note that the cooperation becomes more intense over time. The other two forms may well grow from stage one to stage three. Lorange and Roos (1992) also mention that one type can transform into another, because of a change in external forces. They suggest that management thinks about the possible evolution of an alliance when discussing it with the potential partner. Each alliance is based on assumptions about the uncertain future: therefore one should keep an eye open for developments that go in unexpected directions. Dussauge and Garrette (1999) distinguish between two main types of alliances. The first concerns partnerships between non-competing firms, whereas the other pertains to alliances between competitors. Between non-competing firms the alliances can have various forms. The first can be aimed at international expansion, whereby a company makes an agreement with another abroad with the aim of expanding its geographic

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market. The other can be vertical integration, a form of long-term supply relationships that one can see in the automotive industry, for instance. The third form deals with cross-industry agreements, whereby a company tries to enter another (often emerging) industry. Think for instance of cooperation between computer and telecommunication companies in the field of information technology. Alliances between competitors come in three forms. The first is a socalled complementary alliance, where one partner manufactures (part of) a product that is sold by the other. For instance, the BMW X-3 is a product made by a company in Austria, but marketed and sold by BMW. Companies can also make a shared-supply agreement whereby the partners start a production facility for parts or products they cannot individually produce at competitive cost levels. In the car industry, Peugeot, Renault and Volvo were the owners of a plant producing six-cylinder engines for their larger models. Each of the three companies alone could never have done this economically. The final form is ‘quasi-concentration’: here the partners produce parts of a new product, whereas they produced complete products before. Think in this respect of Airbus, where partners used to design and build complete aircrafts. Nowadays they produce wings, or parts of the hull, for final assembly in a plant in Germany or France. Dussauge and Garrette observe different evolutionary patterns of alliances, where the chosen type of alliance is often indicative for the later development. Cooperation aimed at international expansion has a high mortality rate. If the alliance survives the first years, very often long-term success follows. Vertical partnerships often last long, but in the process one can observe a shift in added value. This has also been observed by Christensen (2004). With alliances between competitors there are also differences in evolution of the cooperation. In cases of shared-supply it can be ended prematurely, if a product has not sold well; or at a predetermined moment, for instance, if the agreement was intended to last only the lifetime of a specific product. In quasi-concentration Dussauge and Garrette observe a further extension in situations where demand develops according to plan. We can see this in the case of Airbus. Managers who want their firms to enter into an agreement should be well aware of the kind of evolution that their preferred form usually shows. This can prevent later disappointments. Many authors (for example, Child and Faulkner, 1998; Doz and Hamel, 1998; Spekman et al., 2000; Kale et al., 2001) have suggested that developing competences for managing and collaborating in various forms of strategic cooperation is of vital importance in the distinct stages of the evolution of a partnership. Human Resource Management (HRM) aspects, such as management development, including attention to the distinctive

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forms of culture, play a role here (for example Eppink, 1993), but so also do the alliance structure and systems (Kale et al., 2001). A discussion of the cultural aspects as part of the alliance competences follows later in this chapter, where we present the case of the collaboration between seven European banks.

SUCCESS OR FAILURE OF STRATEGIC ALLIANCES Various researchers have tried to assess the success or failure rate of strategic alliances, joint ventures and acquisitions using different criteria for success. Koh and Venkatraman (1991) have investigated this topic by using the impact of the announcement of the joint venture on the stock price. In a sample of 175 joint ventures in the information technology (IT)-sector involving 239 companies, they found that the stock price rose above the average stock price increase in the industry. Furthermore, their findings suggest that joint ventures deliver better results than other forms such as exchange of technology, and agreements in the fields of licensing, marketing and supply. Of these last four, exchange of technology gives better results than the other three. Joint ventures that aim at strengthening market positions of the partners in existing markets, or that lead to a broader product range for existing customers, give the best results. Unrelated joint ventures hardly ever give the expected results. Bleeke and Ernst (1991, 1993) analysed the success rate of cross-border alliances. Success was determined as an outcome in which the partners achieved the objectives they had in mind when entering into the alliance, and when the partners recovered their financial cost of capital. They found that of the sample of 49 alliances, 51 per cent were successful for both partners. Only 33 per cent were a failure, with 16 per cent having mixed results. These results are overall averages, but they do not inform us on the results in specific situations. For instance, acquisitions work well for core businesses and existing geographic areas, but alliances are often failures. Alliances are more effective in cases of entering related businesses or new geographic areas. This phenomenon can be explained by the requisite power of top management. In cases of existing products or markets, existing operations have to be integrated to some extent. This often requires tough decisions that cannot be postponed indefinitely. An acquisition with centralized power is better equipped to do this compared with the much looser form of an alliance. Abravanel and Ernst (1993) reach similar conclusions in their study on the best way to cooperate strategically for European ‘National Champions’ in different business settings (global business, pan-European business or local business). In the beginning of

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the 1990s there were quite a number of strategic alliances between telecom operators (see for instance Eppink, 1999, 2002, 2005). Almost all of them did not live long, in part because it was difficult to make decisions as to the choice of hardware, and to determine who was responsible for large corporate accounts and so on. Many coordinating groups were active in those alliances, but it was difficult to make speedy decisions. Most countries had laws that forbade foreign companies to acquire and own a national operator. The only other solution to cooperate was an alliance. When later on acquisitions were legally allowed, many companies took advantage of this new possibility. Some researchers take the perceptions of success of participants in the strategic alliance as an indicator for success. This may seem a rather subjective method, but research by Kale et al. (2001) suggests that there is a large correlation between subjective assessment of success and success as measured by more objective metrics. They found out that almost 80 per cent of success reported by company representatives also resulted in significant positive abnormal gains. A subjective measure of success was also used in our empirical case on a strategic alliance in the European banking industry. In this case we will look into the impact of culture on alliance success. As has been shown before, success is also dependent upon such ‘hard’ factors as, for instance, robustness of the business case, right choice of partners, and aligning the form of the alliance with its context and aim. Some causes of success or failure might reside in the level of cultural distance (see Figure 8.1). A Dutch company might prepare itself better for a NC that is completely different, such as that of China, whereas the neighbouring countries, such as Belgium, Germany or the UK, might be underestimated with regard to a possible cultural distance (see also Chapter 4 in this volume). Another source of potential conflict is that of PC or sector. Previously we have given some examples of these, such as firms from the automotive industry and biotechnology, which are different from aviation or banking, not to mention research and development (R&D) science and engineering versus production, or marketing versus purchase management. The above four forms of cooperation might include this type of cultural difference as well. The need to overcome possible cultural gaps is intensified by the level of tightness required by the chosen cooperation form. We have mentioned different ones, such as strategic alliance, joint venture, merger and acquisition which range from loose to tight contact, again with growing levels of aggressiveness in the pressure for strategic cooperation. Some caution should be applied towards the word ‘aggressiveness’. It is clear that two companies forming a strategic alliance (SA) both remain entirely autonomous, but in the case of an acquisition, the company that is acquired

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Strategic Alliance +

Joint Venture

Merger

Level of aggressiveness

Acquisition

+++

Source: Triandis (1994).

Figure 8.2

Different levels of ‘aggressiveness’ or tightness

ceases to exist. It becomes part of the acquiring company. Figure 8.2 indicates graphically the nature of these four forms of cooperation and growing levels of tightness and aggressiveness, given the same national, corporate, sector or professional culture. In the meantime the full range of NCs of SA cases mentioned so far range now from the UK, the US, the Netherlands, Denmark, Sweden, Germany and Austria, to India, China, Japan, South Korea and the Arabic and African world (South Africa). Finally the study presented here deals with seven different European NCs in one sector, which is the ICT sector, embedded in banks in Finland, the Netherlands, Germany, Austria, Belgium, France and Italy.

THE EUROBA CASE: AN ICT ALLIANCE OF SEVEN EUROPEAN BANKS, FROM INTROSPECTION TO INTERCULTURAL MUTUAL PERCEPTION The aim of the case study that is reported in Ulijn et al. (2009) in full detail was to investigate the influence of cultural differences upon cooperation within the European banking sector. In the so-called ‘Euroba’ context, people from banks all over Europe got together in order to discuss issues, to make decisions, and to work within projects in the field of banking ICT. In terms of our earlier section on ‘why strategic cooperation?’ the aims were quicker development of systems and, to some extent, the spreading of risk. Looking at employees of Euroba’s member banks as representatives of their banks’ cultures, we might assume that a better understanding of cultural differences between the different Euroba (a fictitious name to respect privacy) banks’ members would contribute to a better basis of cooperation on the various subjects of interest. As such, this consortium

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may be labelled as a strategic alliance. Culturally speaking, one sector and professional culture is involved, being ICT, and embedded in another sector, that of banking, so some clash of PCs or Sector Cultures (SCs) might play a role next to the seven countries’ cultures. More concretely, the following research question lay at the heart of this study: what cultural differences between the member banks of the Euroba Banking Group come up in a process of mutual perception? Mostly, introspection is used in current and past cultural studies (Hofstede, 1980; Schwartz, 1992, 1994; Trompenaars and Hampden-Turner, 1999; and so on). Cooperation in any form may be more affected by what people think of each other in a team than by how they perceive themselves. See, for this introspection versus mutual perception question, Ulijn and St Amant (2000) and Ulijn et al. (Chapter 4 in this book). Both of the latter two mentioned studies use mutual perception: the first in the context of negotiations, the second between five Dutch and five German SA partners. The Euroba study was expected to contribute to the prevention of cultural pitfalls of any kind. The latter should enhance the chance of success of the various ICT projects that are managed by Euroba. From a scientific perspective, this study purported to improve current scientific models that describe cultures, by comparing different ways of measurement, and therewith shedding light on how cultural differences influence decision-making processes in ICT projects. Successful cooperation on implementation of ICT in the banking industry was clearly the success indicator of this case study. The method used was that of the Compass model by Hall (1995), who assessed an assertiveness–responsiveness dimension in 12 high-tech multinationals from the US, the Netherlands, Germany, France, Italy, South Korea and Japan, and six automotive firms (US and Japanese). It was also done within one (UK–Netherlands) multinational, Unilever (as opposed to IBM by Hofstede, and Shell by Trompenaars in their original studies), with eight samples of respondents, the headquarters and operation levels separated in the UK and the Netherlands, and executives of Unilever USA, Germany, France and Italy. Moreover 211 expatriate managers were asked for their opinions with regard to the US, the UK, the Netherlands, Germany (West before 1989), France, Italy and Japan. We preferred this method over that of Hofstede, because it allows testing for both introspection and mutual perception simultaneously, which is important in order to set the compass to reach cultural reconciliation or even synergy in the different forms of strategic alliances. A survey (200 employees) was used to test whether assertiveness, responsiveness, uncertainty avoidance and power distance are valid dimensions to measure differences between the cultures of Euroba’s member banks.

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Uncertainty avoidance and power distance were not validated in the results, because the Hofstede questionnaire does not allow assessing mutual perception. Assertiveness and responsiveness were validated, producing measurements for seven member banks: from Finland and the Netherlands (both being Nordic countries), from Germany and Austria (from the Germanic cluster), and from Belgium, France and Italy (being part of Latin Europe). This model includes two main variables, that is, assertiveness and responsiveness, variables that are identified to express behavioural styles. High responsiveness can be characterized by a high concern with how partners feel about relationships and actions, a tendency to get involved with partners on an informal basis, and an appearance of being concerned about the efficiency of actions. Low responsiveness, on the other hand, can be characterized by the opposite: not visibly concerned with what partners think about the reasoning and logic behind actions, a tendency to keep distant and to avoid informal involvement with partners, and a high concern with getting things done efficiently. Figures 8.3 and 8.4 make it possible to compare the results of the original study by Hall (1995) with those of the Euroba study, at least for four overlapping countries, the Netherlands, Germany, France and Italy. Our compatriots Hofstede for IBM, Trompenaars for Shell and to some extent, Wendy Hall (see Figure 8.3) for Unilever, deserve the honour that they at least tried to keep the CC of those companies constant, and they could ascertain apart from this a divergence of national cultures embedded in this: a rich and natural source of diversity which certainly has largely contributed to the success of those multinational corporations (MNCs), one American and two of mixed British–Dutch descent. Those are all introspection studies. We draw from the original study by Ulijn et al. (2009) in the summarizing Figure 8.4 to see to what extent introspection corresponds to mutual perception. The comparison of Figures 8.3 and 8.4 for the countries evidenced for Unilever shows the following. The introspection of the banking alliance partners does not correspond with how their partners from other countries perceive them, although they have a common ICT professional culture. The position of the countries on the compass is not the same. The perception of self is also different from the perception of other for the same country. This result might be affected, however, by the fact that a food company such as Unilever (Hall study) does not share the same sector culture as a banking alliance of ICT professionals in the Euroba study. Moreover the Unilever data originates from before 1995, so the situation might have changed considerably. To show that a mirror effect is needed to see how people perceive culture: the Finns had the most correct self-image – their position between teddy bear and owl was confirmed; but the French and Italians were not

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The compass model based upon introspection by Unilever managers in four different countries (before 1995) NORTH

Low

Low –100

–100 NL IT

WEST

EAST

0 FR DE +100

+100 High

High SOUTH

Notes:

(DE = Germany, FR = France, IT = Italy, NL = the Netherlands).

Figure 8.3

The shark vs the fox within Unilever: how to solve intercultural conflict

so much turtles, but rather foxes, flexible in their solutions; the Germans less fox, but rather shark; and the Dutch just the opposite – less shark, but rather fox. The research tradition in culture based upon introspection should be verified by the perception of others. Here we can use the outcome of the original study by Thomas and Kilmann (1974) about five conflict resolution styles corresponding with five animal metaphors. The Germans might behave as sharks and the Dutch, French and Italians as foxes to solve conflicts. The first use a

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The Compass model for seven banks as perceived by the other six NORTH Low Assertive Low Responsive Low Responsive

Low Assertive Itabank (IT)

–100

–100 Frabank (FR)

WEST

EAST

Gerbank (DE) 0

High Assertive Low Responsive

Ausbank (AT) Nedbank (NL)

Finbank (FI)

Low Assertive High Responsive

Belbank (BE) +100

+100

High Assertive

SOUTH

High Responsive

High Assertive High Responsive Notes: (AT = Austria, BE = Belgium, DE = Germany, FI = Finland, FR = France, IT = Italy, NL = the Netherlands). The compass points that are marked up, do not have a geographical status, but support the idea of a compass in a metaphorical sense. Moreover the animal symbols of the turtle, teddy bear, owl and fox are used to illustrate the five different conflict resolution styles of Thomas.

Figure 8.4

Hall’s (1995) Compass diagram of behavioral patterns predicting Assertiveness and Responsiveness for 7 Euroba member banks, and their position in the Thomas model of conflict handling

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competitive (win–lose) style and the other countries a flexible style to tune the compass of conflict resolution in any direction depending on the context. See below for further analysis. What is striking in all the results by Hall and the Euroba study, is that the four directions differentiate well over both the corporate cultures (CCs) of multinationals and the national cultures they come from, and also within one CC (that of Unilever), which implies that the compass model is validated. Moreover the corporate cultures of the US and the different European countries in the case of Unilever could not predict their NC, that is to say, they were not similar, but in the case of Japan it did. Based on her findings Hall (1995) concludes that the US NC style may not predict a company’s cultural style, and that European NC style does so sometimes. A Japanese NC style, however, is in perfect line with the Japanese CC, that is to say, the compass direction is the same. Those findings convincingly confirm the hypotheses by Triandis (1994) and by Ulijn and Kumar (2000) about loose versus tight (see also Hofstede and Hofstede, 2005). In the US NC and CC seem to be loose entities, while in Japan they are tightly coupled: the culture of a Japanese company seems to coincide completely with the NC. In Europe there are two options, either an overlap between the company’s culture and NC (such as in North-Western Europe), or the company’s culture as part of an NC (such as in Latin Europe), so there is an increasing level of tightness on the loose–tight continuum. In the Netherlands Philips is considered to be part of the Dutch culture and perceived as such where the Dutch are the expats in Philips companies abroad. Philips’s top management abroad is often nicknamed ‘The Philips mafia’. They are reputed to help and protect each other in the host country. On the other hand, the biggest compliment this Dutch multinational can have in France is when the French answer: ‘Philips, mais c’est français’, that is, perfectly integrated into French society, part of it. There appeared not to be one single direction to set the compass for in the cultural synergy of possible alliances. Figure 8.3, however, only partly predicts the directions of Figure 8.4. Hall finds the Netherlands in the North: low assertive, low responsive; (West) Germany in the West: high assertive, low responsive; France in the South: high assertive, high responsive; and Italy in the East: low assertive and high responsive. The Euroba banks set their compass for France and Italy in the North, the Netherlands and Germany in the West, Austria and Belgium in the South, and Finland in the East, but with the smaller countries being very close to Germany which is located between the smaller countries and the two other bigger countries, France and Italy. Of the four comparable NCs only Germany was in the same direction of the compass. This might be due to several

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factors, such as the fact that the professional culture in sectors of ICT and banking are different from high technology in general, or automotive in particular, with Unilever as a multinational in the food and cleaning sector (biotechnology). Different countries are assessed in the different samples with just the overlap of four countries. Finally, the nationality of the expatriate managers and the intensity of their exposure to the host country’s culture are not mentioned. In sum, with regard to the loose–tight discussion of Figure 8.1 and above: the overlap between NC and CC in the Netherlands and in particular in Germany might be illustrated to some extent, but no tightness indication for Latin Europe (France and Italy) could be demonstrated, maybe because of the above limitations regarding the comparability of the data. Another way to compare Figures 8.3 and 8.4 concerns the five conflict resolution styles by Thomas (see Thomas and Kilmann, 1974; Thomas, 1976). This approach is particularly relevant, since cultural differences in the different forms of SAs might lead to conflicts. How to avoid them or to solve them? One way to avoid them might be to set the compass for cultural synergy correctly. The assertiveness–responsiveness axis used in the compass model by Hall corresponds nicely with the Hofstedian dimension of masculinity versus femininity (Hofstede, 1998), with a possibility in combining the male assertiveness of one partner and the female responsiveness of their partner in SA. It also parallels with the Thomas conflict resolution styles, which were effectively used in one of the author’s (Ulijn) negotiation training experience for about 20 years: cooperation versus competition, win–win and win–lose, with five different variants ‘personified’ in the animal metaphors (see Figures 8.3 and 8.4). They consist of five options to solve a conflict: stay away from it: Avoidance (neglect: lose–lose, the introvert nerd, but turtle-like or sluggish), give in by Accommodation (appeasement: lose–win, the teddy bear, fight it out: Competition (domination: win–lose, the greedy shark), try to settle for Collaboration (integration: win–win, the wise owl), or make a Compromise (sharing: the prudent, but opportunistic fox). In this visual representation win–win (owl) means that both one party wins given its assertiveness, and the other party because of its high responsiveness. At the other extreme is the turtle: lose–lose, it would not mean that nerds (often somewhat autistic R&D scientists and engineers) would not be extremely useful for the company or university they work for. In negotiation or conflict resolution situations, however, they would rather refrain from being assertive or responsive in this matter. So they avoid the problem. It might be solved anyway. They refrain from effective conflict resolution, which means that their negotiation and that of their counterparts is not always successful: lose–lose. All other variants play with those

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extremes, with the fox as the compromiser, also some kind of win–win situation maybe, but not always because the compromise is not always the ideal solution or outcome of a negotiation (see Mastenbroek, 1989; Ulijn and Strother, 1995). The best position would be that of the owl, very assertive and responsive, while there is much room for improvement in the case of the turtle. The shark would only be fit for making acquisitions, as not much cross-cultural management can be expected from it. The teddy bear would be easy prey, the owl would be perfect and the fox compromises between the other animals. The Thomas and Kilmann approach can be used to score participants in a self-assessment exercise which they developed alongside their model. This exercise is, of course, only applicable in table-top gaming (simulation exercises) and not in field operations, such as strategic alliances, but setting the compass for the right culture might include the use of a mutual perception exercise, following Ulijn’s experience. You might see yourself as a peace-keeper or wise owl, whereas others see you as a shark. Figure 8.3 gives some indication for four European countries of how, in the Hall study, their culture is perceived by expats in general. The Euroba case study can be much more specific about mutual intercultural perception: 42 employees of seven European banks rate all other partners in one ICT alliance, where they have to cooperate to reach a successful implementation, a situation which has a high ecological validity. Figure 8.4 then confirms a shark position in the West for the German bank; the Dutch bank is not so turtle-like as the general impression given by Hall’s data suggest, and it shifts to some kind of shark position. Whereas the French bank was predicted to be in the Southern direction of the wise owl, and the Italians in the Eastern teddy bear position, in the reality of this ICT alliance the other six banks identified the French and Italian banks more in the Northern turtle segment: doing your work perfectly, but avoiding conflicts. Over all the banks of the smaller countries, such as Finland, Austria, Belgium were much more assertive and considerate of the other partner by way of a higher responsiveness than those of the bigger countries such as France and Italy, with the Dutch and German banks as intermediates between small and big.

CONCLUSIONS: HOW TO PREPARE FOR CULTURE IN SAS? The starting point for managing a strategic alliance successfully is to establish realistic objectives for it, and to select one or more partners that have the capabilities to make the contribution that the company has in

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mind. This process should also entail envisioning the kind of culture that is required for success. How to prepare for culture in SAs? To answer this question we first have to distinguish between kinds of culture and forms of strategic cooperation. We may use the Hall compass data and those of the Euroba case in the concrete situation of an ICT alliance in the European banking sector to spot possible sources of divergent perception and conflict to turn them into cultural synergy as a success indicator for alliances. The above-mentioned studies seem to pinpoint once more that sector or professional culture overrides that of NCs and CCs (see also Ulijn and Weggeman, 2001; Ulijn et al., 2007) with regard to cooperation between European high-tech start-ups. Figures 8.3 and 8.4 suggest that a difference in perception might be caused not only by NC, but also by its interlink with the sector or professional cultures of ICT and banking being different from high technology in general, biotechnology or automotive. CC should not be neglected either. While in Japan and China the CC values are tightly intertwined with their NCs, in the Latin world CC might be partly visible through NCs, with a small overlap between CC and NC in NorthWestern Europe. Predicting however, the behaviour of a US company on merely NC grounds would be very delicate, as we have seen in this chapter (Figure 8.1 and Hall data). What kind of SA is at stake? Figure 8.2 has revealed that the level of aggressiveness would increase with the required tightness of the form of strategic cooperation. This in its turn depends on the aims of the alliance and the specific situation. Which possible sources of misperception or conflict can be identified and addressed to avoid failure and foster success? A tentative conclusion can be that culture alone is not a sufficient explanation for success or failure and that cultural distance might create a possibility of a cultural fit. This to be complementary instead of being a source of conflict. This chapter shows that some causes of success or failure might reside in the level of cultural distance (see Figure 8.1). As stated before, a Dutch company might prepare better for a NC that is completely different, such as that of China, whereas the neighbouring countries, such as Belgium, Germany or the UK might be underestimated with regard to a possible cultural distance. We have given examples of different NCs involved in strategic cooperation, from the US, the UK, Denmark, Sweden, Germany, Austria, Belgium, Spain and France to India, China, Japan, South Korea and the Arabic and African world (South Africa) in a continuum of growing distance or difference, as well as the different professional cultures (PCs) of the different sectors: airlines, aviation, banking, biotech, brewing, military, seaport and railway logistics and electronics. Marketers and engineers do not share the

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same professional values. Some SAs intend to foster cooperation in R&D, others in production, purchase management or marketing. The Euroba case study brought us some evidence from an ICT alliance of seven European banks regarding an NC–PC interaction through the mutual perception of employees, quite a new approach compared with the compass model by Hall in seven different European NCs in one sector, that of ICT embedded in banks. What are the implications of our outcomes as regards the compass model? In sum, within all its constraints, comparing the above Euroba case data with those by Hall allows us to conclude that there is strong cultural diversity with regard to expectation from a cooperation, such as through a strategic alliance, but also in the way one would resolve possible conflicts. Mutual perception has more to offer here than what the introspection studies so far have given us, although Trompenaars and Hampden-Turner stress the importance of using their findings for cultural reconciliation. The compass model goes a step further, it may also use the mirror of the other party by mutual perception in order to make culture an asset as a success indicator. This, for instance, in an ICT alliance of seven European banks, on the condition that one takes the form of cooperation and its intensity or tightness into account (see Figure 8.2). Culture – NC, CC and in particular PC, SC – is an asset for success, maybe a strategy or at least a constructive element of strategic cooperation, and should not be considered as a scapegoat post hoc to blame all failures upon. One should warn, however, against overly generalizing the outcomes from one strategic alliance as studied in the Euroba case, to more tight forms of cooperation, such as joint ventures, mergers and acquisitions, since the level of aggressiveness would increase and should be anticipated upon (see Figure 8.2). Finally, in order to take a proactive stand on using culture in a positive way to make strategic alliances a success, one could try to hybridize a new culture for the new venture, in particular in the case of an acquisition, such as Fink and Holden suggest (Chapter 10 in this book) and differentiate between alliances for the initiation of innovation, and those for implementing them. Studies such as those by Ulijn et al. (2004) and Ulijn et al. (Chapter 4 in this book) indicate that, for instance, Dutch firms could be strong at the start of innovation, and German ones strong implementers. With regard to culture research methodology, also in the context of SAs, it appears to be extremely important to get away from introspection studies only. You may use compasses to set out your cooperation stage upon how you and your counterpart perceive each other. Which type of conflict resolver, for instance? The more intense the contact is (acquisitions, mergers), the more fossilized or tribal corporate cultures would clash, as

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has been proven by DaimlerChrysler venture breakdowns, for instance. Could accurate mutual perception assessments before and in operation have prevented this?

ACKNOWLEDGEMENT This chapter is partly based upon the outcomes of the graduate thesis by Raymond Festen, Eindhoven University of Technology, Netherlands.

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Hall, W. (1995), Managing Cultures: Making Strategic Relationships Work, Chichester: Wiley. Hall, W. and D.J. Eppink (1992), ‘Strategic alliances in the airline industry’, Journal of Strategic Change, 1 (6), 341–8. Hofstede, G. (1980), Culture’s Consequences: International Differences in Work-Related Values, Beverly Hills, CA: Sage. Hofstede, G. (ed.) (1998), Masculinity and Femininity: The Taboo Function of National Cultures, Thousand Oaks, CA: Sage. Hofstede, G.H. and G.J. Hofstede (2005), Culture and Organizations: Software of the Mind, New York: McGraw-Hill. Kale, P., J. Dyer and H. Singh (2001), ‘Value creation and success in strategic alliances: alliancing skills and the role of alliance structure and systems’, European Management Journal, 19 (5), 463–71. Koh, J. and N. Venkatraman (1991), ‘Joint venture formation and stock market reactions: an assessment in the information technology sector’, Academy of Management Journal, 34 (4), pp. 869–92. Lorange, P. and J. Roos (1992), Strategic Alliances: Formation, Implementation and Evolution, Cambridge: Blackwell. Mastenbroek, W. (1989), Negotiate, New York: Basil Blackwell. Schwartz, S.H. (1992), ‘Universals in the content and structure of values: theoretical advances and empirical tests in 20 countries’, in M.P. Zanna (ed.), Advances in Experimental Social Psychology, Vol. 25, New York: Academic Press, pp. 1–65. Schwartz, S.H. (1994), ‘Beyond individualism/collectivism: new cultural dimensions of values’, in U. Kim, H.C. Triandis, C. Kagitcibasi, S.-C. Choi and G. Yoon (eds), Individualism and Collectivism: Theory, Method, and Applications, Thousand Oaks, CA: Sage, pp. 85–122. Spekman, R.E., L.A. Isabella and T.C. MacAvoy (2000), Alliance Competence: Maximizing the Value of your Partnerships, New York: Wiley. Sybrands, S. and D.J. Eppink (1994), ‘The internationalization of Dutch banks: a new beginning?’, Long Range Planning, 27 (4), 35–47. Thomas, K. (1976), ‘Conflict and conflict management’, in M. Dunnette (ed.), The Handbook of Industrial and Organizational Psychology, Chicago, IL: Rand McNally, pp. 889–935. Thomas, K. and R. Kilmann (1974), Conflict Mode Instrument, Tuxedo, NY: Xicom. Triandis, H.C. (1994), Culture and Social Behavior, New York: McGraw-Hill. Triandis, H.C. (1995), Individualism and Collectivism, Boulder, CO: Westview Press. Trompenaars, F. and Hampden-Turner, C. (1999), Riding the Waves of Culture: Understanding Cultural Diversity in Business, London: Economist Books. Ulijn, J., D. Drillon and F. Lasch (2007), ‘Entrepreneurship and cooperation: the emergence and survival of high tech ventures in Europe’, in J. Ulijn, D. Drillon and F. Lasch (eds), Entrepreneurship, Cooperation and the Firm: The Emergence and Survival of High Tech Ventures in Europe, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 1–52. Ulijn, J. and R. Kumar (2000), ‘Technical communication in a multicultural world: how to make it an asset in managing international businesses, lessons from Europe and Asia for the 21st century’, in P.J. Hager and H.J. Scheiber (eds), Managing Global Discourse: Essays on International Scientific and Technical Communication, New York: Wiley, pp. 319–48.

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Ulijn, J. and K. St Amant (2000), ‘Mutual intercultural perception: how does it affect technical communication, some data from China, the Netherlands, Germany, France and Italy’, Technical Communication, 47 (2), 220–37. Ulijn, J. and J.B. Strother (1995), Communicating in Business and Technology: From Psycholinguistic Theory to International Practice, New York, USA and Frankfurt, Germany: Lang. Ulijn, J., B. van der Heijden and R. Festen (2009), ‘The influence of cultural differences upon cooperation in a European banking group: results from a study on mutual perception of bank employees across seven countries’, International Journal of Business and Globalisation, 39 (2), 188–206. Ulijn, J. and M. Weggeman (2001), ‘Towards an innovation culture: what are its national, corporate, marketing and engineering aspects: some experimental evidence’, in C. Cooper, S. Cartwright and C. Early (eds), Handbook of Organisational Culture and Climate, London: Wiley, pp. 487–517. Ulijn, J., F. Wynstra and A. Lincke (2004), ‘The effect of Dutch and German cultures on negotiation strategy: an exploratory study to compare operations and innovation contexts’, special issue of International Negotiation, on Innovation and Negotiation: Content and Style (edited by J. Ulijn and D. Tjosvold), 9 (3), 201–28. Yoshino, M.Y. and U. Srinivasa Ragan (1995), Strategic Alliances: An Entrepreneurial Approach to Globalization, Boston, MA: Harvard Business School Press.

9.

Portrait of an odd-eyed cat: cultural crossing as a trademark for a Dutch–Thai strategic alliance Nantawan Noi Kwanjai and J. Friso den Hertog

INTRODUCTION Strategic alliances inherently dictate ‘crossing’ of cultures. Most particularly, when culture is conceived to include, as well as distinguish all levels and forms it can take – national, organizational and professional, to list the most prominent in corporate world, as asserted in Ulijn (2000) – strategic alliances then involve cultural crossing at many levels. Although failures of strategic alliances are not uncommon (Park and Ungson, 1997), impressive cases of success also abound (Mohr and Spekman, 1994), motivating inquiries into the factors behind such opposing stories (Kogut, 1988; Spekman et al., 1998). How can we explain, or rather understand, the dissolution or longevity of such partnerships that involve multifaceted crossing of cultures? This chapter attempts a step forward in such understanding. We report selected materials from a study designed to build a theory of culture and learning in organizations based on observations of and open-ended interviews with Dutch and Thai employees working for four selected Dutch firms in Thailand (Kwanjai, forthcoming). The key outcome of this work – a grounded theory of cultural intelligence that we label ‘crosscultural intelligence (XCQ) amidst intricate cultural webs’ (Kwanjai and den Hertog, 2008), emerged primarily from evidence in the four thickdescriptive cases. Here we present one of those cases, a Dutch–Thai joint venture that thrived by weaving together the many intricate cultural webs to achieve a unique pattern of partnership which, metaphorically speaking, became its indispensible trademark. The case illustrates how the three levels of culture expounded in this book – national, organizational and professional cultures – could all interlace in a real-world setting and serve as an instrumental force of success amidst tension in one particular cross-border strategic alliance. 227

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First, we adopt a thick descriptive style of case narration (Chase, 2005; Dyer and Wilkins, 1991; Eisenhardt, 1991; Simons, 1996, Stake, 1995, 2000, 1978, 2005; Stake and Trumbull, 1982; van der Blonk, 2003) to present the case of a Dutch–Thai joint venture, Chuchawal–De Weger Internationaal (CDW), painting a portrait of its origin, evolution and characteristics. Next, we turn to elaborate on the particular issue of cultural crossing, its exact theorized properties, dimensions and implications. Finally, we relate the case of CDW to the proposed theory and conclude with a reflection on how this case and our interpretation of it illuminate the complex role culture can play in the dynamics of strategic alliances.

CHUCHAWAL–DE WEGER INTERNATIONAAL (CDW) Chuchawal–De Weger Internationaal (CDW) is a Dutch–Thai joint venture consultancy providing services in the civil engineering field with extensive expertise in architecture and building and prospective expansion into water and environment. CDW’s portfolio of expertise includes feasibility study, design, engineering, interior work, construction management and project management. CDW’s services span the range from conception, construction and maintenance of industrial and commercial facilities, office buildings, civil works and infrastructure, with recent expansion to maritime works and water and environment. CDW has over 30 years of experience in Thailand and the South-East Asian region. A recent acquisition of its former Dutch parent (De Weger Architects and Consulting Engineers) by Royal Haskoning has made present-day CDW a partially owned but independently-run subsidiary of this top-notch Dutch engineering multinational consultancy group, a status which reaffirms as well as enhances its solid position in the Thai and Asian market. The Origin In the early 1970s, a burgeoning Dutch civil engineering consultancy – De Weger Architects and Consulting Engineers – won a contract to design and manage a construction project for a new head office building for the Bank of Thailand. This was of a landmark calibre and an impressive achievement of De Weger’s representative, Khun Geert Halsema,1 especially since De Weger did not even have an office in Thailand at that time and was working only from its site in Indonesia. The nature of the civil engineering industry made it necessary to incorporate a local presence and local knowledge to meet legal requirements as well as to attain familiarity

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with native practices. Therefore, the Dutch firm sought and found a local partner in Design 103, a young and dynamic Thai architectural firm founded and managed by a budding Thai architect, Khun Chuchawal Prempreecha. Although the initial intention of the alliance was only to carry out the one prestigious project, the union turned out to be quite a success, not only with regard to the project itself but also, and perhaps more impressively, in relation with the resulting synergy of the two partners. Because of this success, the two companies decided to develop the partnership into a joint venture, CDW. Both of CDW’s parent companies maintained their presence and continued their businesses as before – De Weger as an international Dutch engineering consultancy and Design 103 as a Thai architectural firm – while the offspring firm CDW concentrated itself on exploring a lucrative niche market, namely targeting multinational companies that were expanding their operations into Thailand and in need of architectural and construction expertise to set up their facilities. The Evolution The two decades after the birth of CDW proved to be a prosperous period for the new alliance to exploit. The Thai economy was blooming into a little tiger, with an influx of huge multinationals all wanting to establish a firm footing in Thailand and the neighbouring countries. CDW, with the prestige of its Dutch parent, could attract an impressive number of highcalibre projects from well-known multinationals, particularly those from the Netherlands and Western Europe. At the same time, with support from Design 103, CDW also steadily secured a foothold among prominent Thai clients: governmental, non-governmental and businesses alike. CDW’s list of past, ongoing and repeated clients reads like a roll-call of world-class businesses and agencies. CDW grew impressively over the years, expanding its operations into other countries in the South-East Asian region and accumulating a remarkable portfolio of projects. Even though the Indonesian office of De Weger was its predecessor in the region for the Dutch parent, CDW Thailand was eventually established as the regional hub of the growing CDW group. This was partly due to the advantageous economic and political environment in Thailand and partly a result of the effectiveness of CDW Thailand itself. As of 2006, CDW had branch offices in Cambodia, Vietnam and the Philippines, plus representative or partner offices in China, India, Indonesia and Malaysia. Externally, CDW operated independently from its parent companies but exhibited a strong tie with both. For all practical purposes, the three firms (that is, De Weger, Design 103

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and CDW) operated very much as one party, drawing resources from one another and capitalizing on the diversity of strength within the group. When De Weger became part of Royal Haskoning in 2001, the plan was to continue capitalizing on CDW’s reputable goodwill in the Asian market by letting the joint venture operate independently in its captured market of architecture and building, while gradually injecting whatever extra capabilities the Dutch conglomerate had to offer into the local operation in Asia. To the outsider, however, CDW will still be the same reputable consultancy, only with even more ‘promise’, strengthened by the calibre of its adopted well-known Dutch parent. As of 2006, the entire CDW group of offices in Asia employed a total of a 400-plus workforce, with Bangkok as the home base. CDW’s office in Bangkok (including Design 103) had about 250 employees, most of whom were local Thai staff in the middle management, professional (namely engineers, architects, draftsmen and construction supervisors) and supporting functions. The need for expatriates was only for high-level and special positions that required their expertise, seniority or calibre. Generally, CDW had about five such expatriate posts, including that of president, which has always been held by a Dutch executive. The Characteristics Partnership of cultures CDW has a robust tradition of the strong Dutch–Thai partnership and takes pride in this. The company’s name itself reflects a conscious effort to nurture this mutual respect – the Thai part of the name uses the first name of the Thai co-founder rather than his family name, following Thai convention of formal addressing, while the Dutch spelling of ‘Internationaal’ purposefully signals its Dutch legacy. This conscious blend of the two heritages reflects both a desire and a necessity. Indeed, this unique blend of international, Dutch aura and local, Thai fluency renders CDW the edge in its target market. In the civil engineering consultancy business, what a firm sells is virtually a promise – a proposal of a product yet to be delivered. As such, CDW operates in an environment where prestige and reputation form the single critical success factor. With large organizations – commercial corporations as well as public agencies – as its client base, CDW’s products encapsulate engineering and architectural capabilities, visibly manifested only in successfully completed projects, in the form of landmark office buildings, prolific production plants, or celebrated public facilities and infrastructures. To win high-calibre contracts that involve hefty outlay on the clients’ part, CDW needs constantly to maintain and build on

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the image of its capabilities, by both capitalizing on past successes and cultivating new accomplishments. This requires a harmonious interplay between perceived and real qualifications: the alliance must make a convincing impression to win a contract which, once won, must be followed by a finished project that at least meets or, better yet, exceeds that impression. Moreover, since CDW targets huge projects of high calibre and price tags, from clients that operate on a global playing field, promises and achievements (or perceived and real capabilities) have to make up two sides of a coin for CDW. In the same vein, global prestige and local stature also have to reinforce each other and make up two sides of yet another coin for CDW. This means CDW’s daily operation represents a complex orchestration of myriad capabilities. Its core competency resides in its key professionals, the chief engineers and architects, whose professionalism and qualification mark the beginning and conclusion of a project. At the same time, the supporting teams of project management, construction and interior work, and quality control must operate to carry out their functions effectively to ensure that each project is delivered as conceived, planned and pledged. Additionally, CDW also needs to cooperate well with all external parties including outside contractors, governmental agencies and, most importantly, the clients throughout a project life cycle to guarantee satisfactory completion as well as to pre-empt costly rework. Partnership is thus the origin and lifeblood of CDW – partnerships of myriad actors, activities, functions, professions, entities, agendas, interests, or in a nutshell, partnerships of cultures at many levels and in many ways, shapes and forms. An ideal match: a tale of two founders Sitting in a quiet, cosy living room of his apartment in Leiden, the Netherlands, Khun Geert, the Dutch co-founder, often reminisced about the many memorable years he spent living and working in Thailand. He was back ‘home’ now, in a sense, since this country was where he was born and raised. Yet, in a way, here was no longer entirely his home; well, not his only home at the very least. After over four decades outside of his native land, a large proportion of which was in Bangkok, Thailand, he and his wife had eventually retired to their home country to be closer to the children and grandchildren. To his mild surprise, he found himself having to grow back into the Dutch culture. At the shop the other day, for instance, he found himself feeling affronted when addressed by a young assistant with the familiar ‘je’ instead of the respectful ‘u’.2 This would never happen in Thailand. No young Thai would behave that way to a man of his maturity and stature.

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This was nothing new to Khun Geert, of course. He had done it many times before, this ‘growing into’ an unfamiliar way of living. As a lifelong expatriate, Khun Geert learned early on that one had to adapt gradually to a new culture if one were to survive and thrive in it. Of his years in Thailand, he was glad that the adapting experience turned out to be pleasantly memorable. For that, he believed he owed it to a partnership he had with his Thai counterpart, Khun Chuchawal, the Thai co-founder of CDW. As a matter of fact, Khun Chuchawal has eventually become not only a fine business partner but also his lifetime friend. To Khun Geert, their partnership was a true partnership, an ideal match, if there was such a one. Khun Geert considered himself lucky to have Khun Chuchawal as his counterpart in the Dutch–Thai alliance when he first entered Thailand. They complemented each other well and operated on equal footing. He remembered fondly the usual shouting matches they had had over the years and how he appreciated greatly that Khun Chuchawal would be comfortable with direct confrontation, without ever making a personal fuss about it afterwards, as most Thais would have. The usual shouting matches would transpire; frictions got sorted out; and their partnership and friendship continued undamaged. Things would not have been as smooth and productive if Khun Geert had to struggle with the usual roundabout Thai way in his dealing with a Thai partner when the business was still in its infancy. Indeed, many a time Khun Geert wished that he could find this raw honesty in other members of his Thai colleagues and staff. The memory reminded him of the one thing he liked about Khun Chuchawal – the upfront, say-it-asit-is style that gave mystery not a chance and left the air clear and easy to breath. Hence, they learned to use each other, to exploit each other’s complementary quality for the benefit of a mutual business advantage. Khun Geert focused his effort on developing CDW for the then parent De Weger, and he certainly needed the rare, almost ideal, blend of quality he found in Khun Chuchawal: local familiarity, Western sympathy and honest, Dutch-like, direct interpersonal style. Khun Chuchawal, as a Thai who appreciated the value of Western know-how for the still-developing economy of Thailand, welcomed the advanced technical expertise that he could tap into through the Dutch–Thai alliance. Moreover, he could even use the Dutch blunt approach, in the living figure of Khun Geert, to achieve certain results with his own countrymen when he knew he himself could never do so as a Thai. When the ‘kraeng jai’3 value could get in the way of business, he would turn to Khun Geert to cut through it, since the Thai would not take to a direct approach so seriously when it came from a ‘farang’.4 Khun Geert, on the other hand, relied on Khun Chuchawal to

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share openly and honestly the local fluency that he needed to run CDW effectively. Thus, although heading two seemingly different companies: Khun Geert as the CDW’s president and Khun Chuchawal as Design 103’s director, the two co-founders of CDW operated virtually as one team, one family. Their synergic partnership indeed fuelled the eventual growth of all the business entities they founded and managed. It also established the identity of the sequel of their initial alliance, in more ways than one. Even now when both co-founders have retired, the legacy of their intriguing partnership still permeates the present CDW–Design 103 group in the very fabric of its organizational culture. As for the origin of that legacy, the tie still binds. Both Khun Geert and Khun Chuchawal maintain an advisory role in the CDW–Design 103 group and their experience benefits the current generation. Personally, they remain close friends and enjoy each other’s company on a regular basis, while their mutual legacy continues to operate successfully and shows no sign of abating.

MODES OF CROSS-CULTURAL CONDITION Culture Culture is a concept that defies universal definition. Any definition of culture is in essence a statement of what the definer perceives as its most important aspect (Kroeber and Kluckhohn, 1963). In our study, we conceptualize culture as an intricate web of shared meanings that underlies two basic social processes: (1) cognitive processes, which make sense of and interpret all individual encounters, whether material objects, social happenings, or mental concepts; and (2) behavioural processes, which comprise action, inaction and interaction, depending on the meanings given to each object or event. Thus, culture is a shared way of being and sense-making that is unique to a distinct group of people and can distinguish that group from others. From this perspective, culture influences how people think, feel and act, not in a one-to-one manner, but through their interpretations of the thoughts, feelings and acts of those they come into contact with. Yet surprisingly, with the notable exception of anthropologist Clifford Geertz (1993), most prominent cultural theorists have paid little, or virtually no, attention to this interpretive influence of culture, which our study has shown to be a vital aspect of cultural dynamics. Indeed, in our study finding, this interpretative influence of culture is the prime, and supremely significant, force in any cross-cultural encounter because it

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fundamentally drives the directive influence. In other words, individuals think, feel and act based on the meanings they give to the objects of their thoughts, feelings and acts. A cultural onion model One widely accepted symbol of culture’s internal dynamics is the cultural onion model (Adler, 2002; Hofstede 2001; Schneider and Barsoux, 2003). Although there are as many variations of the cultural onion as there are cultural theorists, all variants of the model, ours included, share the following fundamental messages. First, culture manifests itself in diverse ways, shapes and forms – ranging from the most visible to the least fathomable – that may be likened to the many layers of an onion. The most easily seen and comprehended cultural layers are those on the outside, which include material objects, costumes, verbal and non-verbal languages, and architectures. The less visible inner layers comprise institutions and various cognitive attributes. Second, most theorists would go on to state that all these layers are interrelated in a particular fashion. The most widely theorized relationship is that the inner layers influence the outer layers; and the innermost layer, or cultural core, is the key to all the influences. From this point, though, the diverse cultural onion models vary in two respects: (1) what components make up the layers and what their relative positions are (including which elements constitute the core); and (2) the exact nature of the onion’s internal dynamics. We illustrate in Figure 9.1 the cultural onion conceptualized for our theory. It should be noted, however, that this representation of culture’s internal components only attempts a pragmatic classification: it is not a strict portrayal of the complex abstract phenomenon under analysis. In actuality, the relationship among the layers is not a straightforward unidirectional correlation, a fact that foreshadows the concept of intricate cultural webs. Level of culture Level of culture refers to the external associations of culture and involves its properties and boundaries. The property of a culture is the glue that holds a cultural group together – a set of unique attributes that identifies the group as distinct from other groups. For example, national culture has a complex set of attributes, the most prominent of which include geographical border, nationality, legal legitimacy, a political system, an economic system, social institutions and a history, among the most prominent. The boundary of a culture is the limit of its properties and hence of that culture. For example, a national culture is bounded by its geographical boundary, which is physical and definite. However, a boundary can

Cultural crossing as a trademark for a Dutch–Thai strategic alliance

tangible artefacts

tutional apparatu insti s

235

material and institutional embodiments

core meanings of … • self • others • environments • (inter-)relationships bel

s rm o iefs, v n alues &

atti Figure 9.1

u tudes & behavio

rs

cognitive and behavioural expressions

A cultural onion model

formalized level

incidental level

formal ~ hierarchy

social ~ labyrinth

global regional (continental) national regional (provincial) sectoral industrial organizational departmental team

biological familial/clan ethnic spiritual social class professional ‘community of practice’ clique

Figure 9.2

Major categories of cultural level and their sub-categories

also be abstract and flexible, such as that which defines a particular clique or team. Whichever the case, a boundary signifies the coverage of a particular culture’s influence and can be classified into two major categories of cultural level: the formalized and the incidental. These are summarily catalogued in Figure 9.2.

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Intricate Cultural Webs The concept of a ‘cultural web’ of meanings is obviously not new, having been rigorously presented by Clifford Geertz (1993), whose conceptualization very much foreshadowed the expanded interpretation we propose here. Two concepts underlie this image of the cultural web: a ‘cultural unit’ – an entity or group of entities whose individual or collective identity is shaped by one or (most likely) multiple cultures; and a ‘cultural identity’, which refers to the combined cultural forces within a cultural unit, whether an individual, group, organization, nation, and so forth. Because a cultural unit, even if an individual, invariably belongs to or is made up of one or more cultural groups or levels, its property can be depicted as a cluster of many cultural onions. The underlying condition of such a cultural unit constitutes its cultural identity, which has the following properties. First, it is a complex web of cultural layers and levels to which a cultural unit belongs, of which it is made up, and by which it is constantly being influenced. Second, it is always in flux, shaping and reshaping itself as the unit continues to operate in a variety of environments. Third, its focal point of cultural stimulus is constantly changing, dependent on a particular context. Cultural webs characterize both a cultural unit and a cross-cultural condition, two constructs that share one critical property: both are made up of a multitude of cultural webs – complex networks of interlacing cultural layers and levels. Such cultural webs themselves have one key property: the exponential complexity that inspired our choice of the metaphor ‘intricate cultural webs’. Even in simple situations like one interaction between a Dutch manager and a Thai subordinate, the entire event actually operates under the forces of a multitude of cultures and subcultures, all of which comprise many complex layers. Thus, every analysis must effectively examine multiple, complex and complicated cultural webs and all their forces. Modes of Cross-Cultural Condition Because the term ‘cross-cultural’ takes on ambiguous and confusing definitions in the literature but serves an imperative choice in our study, we must first justify and establish its exact meaning. Traditionally, the term ‘cross-cultural’ designates mostly its comparative connotation: ‘cross-cultural studies’ typically stand for comparative studies of different cultures, mostly national. This has to do with the history of cross-cultural research in general and cross-cultural management studies in particular, for both of which comparative inquiries dominated the early phase (Adler,

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1983; Boyacigiller et al., 2004; Roberts, 1970). However, recent debate has raised the need to expand the meaning of the term to reflect greater sophistication in the field. For example, Jackson and Aycan’s early proposition (Jackson and Aycan, 2001, 7–8) elaborated extensively on the fine distinction between ‘international’ and ‘cross-cultural’ research but still resonated the notion that cross-cultural studies involved mostly, if not exclusively, a comparative element. Five years later, they moved to argue that although ‘cross cultural theory has developed strength in comparing nations (as the cultural unit of analysis) in terms of broad value dimensions . . . little attention has been paid to cross cultural interactions or interfaces as the unit of analysis’ (Jackson and Aycan, 2006, 10). They argued further that: ‘Cross cultural interactions and interfaces at multiple levels including intercontinental, inter-national, inter-ethnic, inter-group, inter-organizational levels’ must be one of the pressing issues for future cross-cultural research (Jackson and Aycan, 2006, 11). Our study’s finding corroborates their proposition. Hence, the meaning of the term ‘cross-cultural’ must expand to designate issues involving different cultures not only from a comparative angel but also, and most specifically, from an interactive viewpoint – namely at their interfaces or ‘crossings’. Thus, although the ambiguity of the term ‘cross-cultural’ in the literature instigated a dilemma during the earlier theorizing phase in our study, we prefer the term over its alternative, namely ‘intercultural’, solely by virtue of the significance of the word ‘cross’. Specifically, the subtle implication of the term ‘cross’ in relation to cultural interfaces emerged as a crucial concept in the eventual grounded theory in our study, compelling us to retain its use despite the lingering tendency to associate the term solely with its comparative connotation. To emphasize, ‘cross-cultural’ here signifies not only a comparative aspect but also, and even more importantly, an interaction element of a cross-cultural phenomenon. In this light, strategic alliances such as CDW inherently involve crossing in both dimensions – comparative and interactive – of more than one culture, and at many levels. Specifically, though, the emphasis of our elaboration is on the interactive aspect of the term ‘cross’. That is, the locus of our analysis is not the nature of our focused entity – namely, culture – but rather that of its interactive feature – namely a cross-cultural condition. What, then, is the importance of the crossing factor in our conceptualization? First, simple dictionary definitions of ‘cross’ usually denote several subtle modes of interaction of which clashing is only one. When applied to the crossing of cultures, in reality many possible conditions can result. Our study evidence suggests three distinct modes of crossing when cultures cross or interact: clashing, reciprocal and hybrid. These modes are

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Table 9.1

Strategic alliances, mergers and acquisitions

Modes of cross-cultural condition

Key properties

Dominant catalyst Predominant interaction Key instrument Steady-state resolution Mathematical analogy

Modes Of Cross-Cultural Condition clash

reciprocal

unification

difference conflict controller either assimilation, division or separation 1 + 1 = 1, ½ or 0

mutuality exchange mediator combination

affinity cultivation hybridizer hybrid

1+1=2

1+1>2

summarized in Table 9.1, which serves as the framework for subsequent discussion. Key properties of cross-cultural condition The first property when cultures cross relates to its ‘dominant catalyst’, which refers to the primary force in the interaction. This signifies what the actors identify as the salient ingredient of a particular cross-cultural condition – the initial or primary engine that motivates their interpretation of the thoughts, feelings and acts of themselves and others within that cross-cultural context. Next, the property ‘predominant interaction’ refers to the most prevailing activity in an interface, which correlates strongly with the dominant catalyst. Third, the property ‘key instrument’ relates the primary mechanism used in order to carry out the predominant interaction and bring about the possible steady-state resolution. Last, the property ‘steady-state resolution’ signifies a state of a cross-cultural condition that is sustained over a certain period.5 ‘Steady state’ denotes a sustained but not static condition, because a certain cross-cultural phenomenon may start in one mode but later develop into another mode altogether. Finally, a mathematical analogy for each of the three modes serves a simple inferential device. For the purposes of this chapter, three important points should be made about this taxonomy. First, our theorizing involves no underlying judgement about the modes of cross-cultural condition: the taxonomy simply reports the range of options and possibilities indicated by our grounded evidence. Thus, any assessment of one mode’s superiority to others is relative to the situation. What is informative and valuable is an understanding of what contributes to a particular situation’s engendering of one mode rather than another, and the consequences of such a development. Second, rather than deriving an exhaustive list of all possibilities, which would render the taxonomy redundant and cumbersome, the three

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modes indicate the range of possibilities that may characterize a crosscultural condition. Lastly, these three modes are not mutually exclusive in a single cross-cultural situation: more than one mode may (and usually does) coexist in a cross-cultural context or within intricate cultural webs. The key is to discern what mode is the dominant one for a particular phenomenon under analysis and what that entails. Clashing mode The clashing mode is one in which difference denotes the dominant catalyst and conflict often emerges as the crux of the interface. This is the most recognized and recognizable of all the modes because of its vivid nature and persistent prevalence. Indeed, this is the mode identified as the most significant by many prominent cultural theorists such as Hofstede and Huntington (Hofstede, 1980, 2001; Huntington, 1993). In this mode, difference between cultures significantly, if not solely, influences how actors interpret and act. ‘Difference’, under our interpretative analytical lens, is the difference in meanings given to concepts, entities or acts. The fixation on difference often, though not necessarily always, leads actors to contemplate conflict, because one meaning will want to exert its force on its counterpart. When this happens, the key instrument is generally a sort of ‘controller’ – something that renders one party the ability to govern the situation in the direction of its own meaning. A controller can be in any form that ranges from formal authoritative power to subtle manipulating tactic. Whatever form a controller takes, its main effect is to establish the meaning in one culture as the governing meaning of the cross-cultural situation. In the clashing mode, there are three possible steady-state resolutions: assimilation, division or separation. Assimilation occurs when one cultural meaning totally subsumes the other(s), thereby effectively eradicating the forces of all other competing meanings. Division results when the differing actors from different cultures maintain their own meanings but still operate in the crosscultural context in which conflict persists. Separation transpires when actors from all involving cultures go their separate way, terminating the cross-cultural condition altogether. Obviously there are numerous everyday examples of the clashing crosscultural mode. The one identified by Huntington, for example, is believed by many to characterize today’s world affairs according to his proposed thesis (Huntington, 1993, 1996a, 1996b). The clash of civilizations theory, in brief, predicts international relations to operate with cultural difference as the key catalyst, and conflict persists and characterizes the relationship among major cultures of the world. Hofstede’s work provided countless examples illuminating how difference among cultures in organizations and

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societies could result in vivid tension (Hofstede 1980, 2001; Hofstede and Hofstede, 2005). The clashing mode is the most prevalent mode and invariably exists in most cross-cultural conditions, especially at the initial crossing stage, but not necessarily as the only lasting dominant mode. Even so, in many cross-cultural encounters, this mode could persist so that it then becomes the dominant mode. Reciprocal mode The reciprocal mode has some sort of mutuality as its main force. In this mode, the focus of the actors involves some kind of mutual interest, desire, need, goal, or the like. Thus, mutuality refers to a common target that can only be achieved by having actors from the different cultures contributing inputs that are unique to their own cultures. Such a situation occurs when actors from each of the cultures have what the others do not have by virtue of their distinctive cultural heritage. In this mode of crossing, the focus of the interaction is mainly exchange, meaning straightforward give and take, where some sort of mediator is the key instrument. Actors from one culture give what those from other cultures need but lack, and vice versa, in order for all to achieve a mutual target – hence the label ‘reciprocal’. The steady-state resolution of a reciprocal cross-cultural condition is a straightforward combination of cultural meanings that retain the essence of their original cultural sources, without critical change or adaptation. In simple terms, this is an uncomplicated case of one plus one equals two, as in basic mathematics. This second crossing mode is less easily recognizable but exists more often than most people realize. The case of CDW, the ‘odd-eyed cat’ – each eye needs to retain its distinct colour for the creature to earn the title of an odd-eyed cat – is a vivid example of such a cross-cultural condition. CDW thrives on a reciprocal cross-cultural condition because its key strategy and trademark, local fluency with international expertise, is a mutual target of all concerned and can only be achieved by having each of its key cultural groups, particularly the Dutch and Thai national cultures, retaining or even brandishing their own cultural essence – an issue to be revisited in subsequent sections. Unification mode In the unification mode, actors’ affinity with the meanings in the other culture denotes the dominant catalyst. This mode is, in a simple sense, the reverse of the clashing mode and one step beyond the reciprocal mode. In this mode, actors in a culture discern that actors from the other culture have different meanings than in their own, yet find those meanings to be

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more admirable and desirable. Thus, in this mode, what is reciprocal is a fundamental affinity between actors from different cultures, each admiring, not merely in want or need of, elements or meanings in the other culture that do not exist in their own. In this mode, the predominant interaction is cultivation, because actors will attempt to assume the desirable meanings and make them part of their system of meanings. For this cultivation, a sort of ‘hybridizer’ is the needed instrument. A hybridizer signifies a mechanism that fuses various competing meanings into one new system of meanings altogether. Such fusion evolves from genuine appreciation and aims at creating a new fused meaning hitherto not in existence. A hybrid entity – a novel entity entirely – then emerges as a result of this cultivation. A cross-cultural unification and its hybrid creation may be more common in everyday life than most would imagine. An immigrant who is well received by and has integrated well in a new country, is a good example. Such an individual has developed a new national cultural identity, at his own individual level, that is neither his birth culture nor the adopted one, but actually a fusion of both. His new cultural identity reflects some cultural traits from his own motherland, some from the adopted country, and some totally new but with influences from both. A successful mixed marriage is another everyday life example. In such a household, elements from all involved cultures blend together to form a new unique household, a hybrid cultural group.

CDW AS AN ODD-EYED CAT Given the above view of modes of cross-cultural condition, we locate CDW, at the time of our narration in 1996, as a curious combination of cultures – an instance of the reciprocal mode. If CDW were to be a biological entity, its appearance would probably carry a tell-tale sign of its reciprocal cultural steady-state resolution. CDW might then be akin to those peculiar creatures, the odd-eyed cats (ones with each eye being a different colour, such as one blue eye and one orange or copper eye). This is a striking but apt analogy, for CDW thrived on an odd combination of various partnerships: odd in that all the partnerships at CDW were based on one crucial characteristic: the need for each partner to uphold its own unique quality while contending with and exploiting the unique quality of the other partner(s) at the same time. In such a particular form of partnership, if one partner were to be completely absorbed into the other’s identity (either through assimilation or hybridization), the partnership itself would no longer work, hence the aptness of the odd-eyed cat analogy. This may

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sound rather obscure, so let us scrutinize the many odd-eyed partnerships at CDW. Partnership of Nationals A key policy at CDW was always, as Khun Karel Westerveld, CDW president, put it, ‘local expertise with international standards’. In simple terms, ‘local’ meant Thai while ‘international’ meant Dutch or Western (as a touchstone for international standards). But what did the policy really mean in real terms? The requisite need for local expertise was driven of course by the nature of the industry the alliance operated in. For one thing, in the construction and architectural industry (as in other professional fields such as law, medicine and accounting), legality always mandates locally certified professionalism, the initial reason why Khun Geert needed the locally certified architect, Khun Chuchawal, to ‘sign off’ their initial landmark project. However, legality is but the tip of the iceberg since local expertise also involves an on-the-ground familiarity with local practices, preferences and quirks, some of which are too subtle for an outsider to recognize, let alone appreciate. To give an obvious example, even though the Thai do not subscribe strictly to such beliefs as the Chinese ‘feng shui’,6 they do observe a looser form of such practice. A building front gate needs to be positioned in such and such a way in order to induce stability and prosperity. Internal arrangement of different types of rooms and spaces should follow certain principles to ensure physical and spiritual harmony. One does not sleep with one’s head towards the south or the west; else one may be subject to inferiority or misfortune (because another meaning of the Thai word ‘south’ is ‘to be under’ while that of ‘west’ is ‘to fall’). Certain colours are not to be used for such and such spaces or purposes. And so on and so forth. Thus, it is not uncommon in Thailand to have a building torn down or renovated to ‘correct’ spiritual (not physical) mistakes. As a result, a religious-cum-spiritual ceremony performed on sites always marks the inauguration of a construction project, particularly a major one. This ritual requires an involvement of many experts in diverse specialized teachings, an occasion that would pose average foreigners quite a challenge to orchestrate. No wonder CDW needed local expertise to help carry out its business. Ignorance or inobservance of such seemingly immaterial familiarity could spell disaster. And this represents but one example of the many instances of local familiarity that played a subtle yet influential role in the daily operation of CDW. On the other hand, CDW’s particular choice of niche market compelled

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the need for an international calibre. CDW’s clients comprised major players in the global scene, the majority of which were big-name multinationals that needed to observe international standards in all their facets, particularly those of industrial, environmental and quality control. The Dutch ownership of CDW in effect created a trademark of international standards for the alliance. Indeed, as Khun Chaowalit Saenamuang, one of CDW’s key project managers, put it: When I deal with Western clients, I’m practically selling ‘farangs’ or ‘Westernness’ if you know what I mean. To be honest, I think some of the Thai engineers and architects may be better at their functional tasks than their expatriate counterparts may, well, at least better at those here in Thailand for sure. But I can’t sell Thainess to the ‘farangs’. They won’t buy it. It’s just a fact of life and you’ve simply got to take it or leave it.

So, for many such projects, Khun Chaowalit needed to put up front the appropriate expatriate professionals to cultivate the expatriate clients’ trust. These expatriate professionals of course earned expatriate pay, which drove up project costs considerably. Still, the majority of CDW’s multinational clients were more than willing to pay higher prices for such a trademark. It did not really matter if in many cases the actual projects might make heavy use of the internal Thai expertise at CDW, or Design 103. Paramount was to secure a project. And if it took the expatriate stamp for that, so be it. But international standards were in many senses more than just a literal stamp. As with local expertise, CDW’s tie with Western know-how and practices also carried a unique quality of material value. In an industry where advance in technology is critical, Western experience and knowhow did give CDW a cutting edge. Khun Geert, the Dutch co-founder, remembered how he needed to bring people in from the Netherlands to train his Thai professionals on computer-aided design and computeraided manufacturing (CAD/CAM) technology during the early years. Khun Chuchawal, the Thai co-founder, valued the Dutch–Thai partnership, first and foremost, because he knew that it was the best way to tap into Western know-how and move Thailand forward. Khun Karel, the 1996 president, knew for certain that in some areas, such as quality control or the specialized field of water and environment, the Thais had quite a bit to learn from the Dutch. Khun Chaowalit himself professed genuine respect for the Dutch expertise with waterworks. And that is that. The Thai are good at some things and the Dutch at others. At CDW, they both needed each other’s unique qualities to create the unique blend of cultural identity. Moreover, each needed to excel at their qualities in order to reinforce the eventual combined identity, at least

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at the ‘appearance’ level, and more importantly at a more profound level. Still, the odd-eyed appearance could be a cause of unavoidable rift and tension. Two Thai employees, Khun Chaowalit, the project manager and Khun Busara Navarat, executive secretary to the president, for example, witnessed on a regular basis how such ‘keeping up appearances’ could cause resentment among the Thai staff and create friction between the locals and the expatriates. Looking from the Dutch expatriates’ view, the higher prestige and pay were of course not much more than they would earn in the Netherlands. It would make no ‘Dutch’ sense, at the very least, to expect them to be rewarded at the same rate as the local Thais. Most qualified Dutch professionals would expect at least the same reward that they would get in the Netherlands, if not more for coming to work in a foreign country. With the cost of living in the Netherlands and Thailand being starkly different, this situation would not change any time soon. Still, many fine Thai engineers and architects at CDW could not help feeling that it was not quite fair for them to earn a lot less for the same type of work (that they were often better at) simply because they were Thai. Khun Busara sympathized very much with her Thai colleagues. They were quality people and their loyalty to their professions and the alliance was unquestionable. She understood their sentiment perfectly and it pained her to witness the undercurrent of this ‘double standard’. She questioned whether the need to impress Western clients was justification enough for the double standard and, even if it was, that still did not make the situation any less unfair. Khun Chaowalit couldn’t agree more. A fine Thai engineer himself, he could hold his own with any Westerner in his functional capability. Yet, he could not have secured as many prestigious projects as he had done, if he had not had the ‘Westerness’ as a trademark of his wares. Trademark was nothing but appearance, of course. But it was somehow an appearance that was more than skin deep. It would have been fine, of course, if business would allow CDW to upgrade all Thai professionals to earn the same as their expatriate counterparts. Yet, that would surely render CDW’s service ridiculously expensive and utterly uncompetitive in the Thai and Asian market. At the end of the day, it was the bottom line that counted and Khun Chaowalit’s job hinged on the kind of bottom line that necessitated the double standard. So double standard it must be, then. Odd as it is, the odd-eyed quality that CDW boasted was unavoidable as well as indispensable, even though it may be a cause for much concern. As Khun Chaowalit put it: ‘It’s just a fact of life and you’ve simply got to take it or leave it!’

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Partnership of Professionals Unfortunately, the inevitable friction between the Thai employees and Dutch expatriates was not the only tension Khun Chaowalit had to deal with. As a project manager, he also had to orchestrate the many departments within the group so that they worked in harmony and brought each and every project to a successful completion. He would not say it was a simple task. For one thing, he was constantly spinning at the centre of all functional divisions: conception and design, budgeting, procurement, construction, interior work and quality control. In effect, as a project manager, Khun Chaowalit operated at the hub of the many partnerships of professionals and functions at CDW. Of course, each profession has its own professional culture that influences the beliefs, values and norms of the community and informs their attitudes and behaviours. Thus, at CDW, tension emerged whenever two or more professional groups needed to come together and cross each other’s comfort zones, signifying another crossing of cultures – ‘professional’ cultures, that is – which Khun Chaowalit must turn into a partnership rather than a combat. This partnership of professionals had the same principle that drove the partnership of nationals at CDW: that is, each professional group must excel at its own expertise while contending with and exploiting the unique expertise of the other partner(s). Let us take the case of procurement and quality control as a vivid example. The procurement people’s main concern was to keep to the budget and schedule. Not that they were eager to sacrifice quality, but their foremost ‘bottom line’ items were, first, the timely and correct delivery of materials and, second and most importantly, the cut-and-dry figures in the final project account. Therefore, cutting corners might come into play, compelling quality control professionals to step in and have their say. Indeed, the interplay between budget, time and quality control could easily make or break a project. Khun Chaowalit, again as project manager, must make sure that an optimal balance was struck, with the least discord possible: far from straightforward. Additionally, Khun Chaowalit witnessed yet another partnership of professionals at CDW, that of the engineers, the architects and the interior designers, three closely related but distinct professionals who took great pride in their expertise – pride that could sometimes turn into prejudice against the other professions. At the same time, each party had to have enough respect and confidence in the others’ expertise in order to carry out their mutual assignment: turning conceptual design into physical reality. Once more, this dictated a good balance of healthy self-esteem versus courteous trust in and respect for the other parties for the partnership

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to work. For instance, if a design did not work out quite well in the construction phase, who was to blame: the designer or the builder? As far as Khun Chaowalit was concerned, he would prefer that his various colleagues resorted to the blame game as seldom as possible. Yet, with such a threesome of esteemed and proud professional groups this was not straightforward either. The above illustrate but a few examples of the myriad partnerships of professionals simultaneously transpiring at CDW. Moreover, these many professional partnerships often overlapped one another, thereby complicating the situation even further. Given the countless professions that made up the CDW’s symphony orchestra – architects, designers, draftsmen, engineers, foremen, mechanics, technicians, attorneys, accountants, quality controllers, and others – Khun Chaowalit and his fellow project managers indeed needed constantly to exercise their conductor-like skill to create a harmonious project execution. Even for a maestro like Khun Chaowalit, this was still not straightforward. Partnership of Organizations Finally, Khun Chaowalit stood at yet another crucial junction in CDW’s operation, one between the alliance and three indispensible external parties: the clients, the contractors and subcontractors, and the authorities. With all these three external parties, he had to orchestrate yet another special partnership where all factions must uphold their functions, while contending with the views of the other partner(s). Take CDW’s relationship with the clients, for example. Convincing the clients to take up the best decisions and actions possible constitutes a hallmark of excellent consultancy. Coming up with proficient advice was critical but usually straightforward, because it was after all what CDW professionals were trained and qualified to deliver. The architects, designers, engineers, mechanics and other specialists generally had no real difficulty delivering expert advice vis-à-vis their professions. Yet, necessary as smart advice was, it was certainly not sufficient in itself. The clients had to see and agree that these were indeed ‘smart’ – a matter not so straightforward. For one thing, what about the old adage that ‘the customer is always right’? Now, that is not always the case with consultancy. In fact, in the consultancy business, customers cannot always be right, or else why would they seek the consultants’ expert advice in the first place? Nevertheless, a client is a client is a client, and consultants must always walk the fine line between upholding their expertise without offending the clients. They must confront and challenge the clients when the clients are not quite right, eventually convincing the clients to take up their advice.

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The ability to handle this oxymoronic condition is the key to consultancy business. It requires a good interplay of confidence, trust, respect and assertiveness. Interestingly, Khun Karel, CDW president, observed that the Dutch appeared to be better at this little game, particularly when it concerned Dutch or Western clients who were used to separating emotion from subject matter: yet another reason for the need to have expatriate involvement. Khun Chaowalit, on the other hand, also witnessed how in some circumstances involving Thai clients, a touch of Thainess was often called for to establish good rapport. Still, in some other instances, a dose of opposite cultural tendency turned out to be more useful, such as when a stubborn Thai client would listen with less sense of losing face to a blunt expert foreigner. Take the historic case mentioned earlier when Khun Chuchawal turned to Khun Geert to deal with a Thai client, for example. Khun Chuchawal suspected that as a Thai, the kraeng jai notion could make it awkward, if not impossible, for him to confront the Thai client with a dose of strong medicine. Khun Geert, in his Dutch cloak, could deliver the difficult message more easily. All things considered, in most cases a combined Dutch–Thai team proved to be the most effective for CDW. Whatever the case may be, though, partnership with the clients demanded that CDW professionals must balance well the respect for their own professions, for their clients, and for the end results. These three distinct types of respect were not automatically in harmony and a project manager like Khun Chaowalit stood always at the centre of the balancing act. The same applied to the partnerships with outside contractors and official authorities, two external parties that CDW needed to constantly concur with, who did not necessarily see eye to eye with the firm’s agenda. Contractors, such as construction companies or other specialists, naturally had their own business agendas to tend to, agendas that might or might not be in line with those of CDW. Yet CDW must work with them to ensure the successful completion of projects, much in the same way as with the clients, only maybe in a reverse fashion. Finally, CDW must also deal with governmental agencies on a regular basis. The need to obtain a variety of permits alone meant that CDW must concur with many public offices, a transaction where local practice and international standards must form a harmonious agreement. Therefore, partnership with local authorities became another balancing act of diverse organizational cultures. Khun Chaowalit and other project managers functioned at the hub of all these partnerships: of nationals, professionals and organizations. Their main instrument to orchestrate these partnerships was to convince all partners that they were all in it together – for better rather than for worse, for richer rather than for poorer.

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Thus, life went on at CDW, in spite of and because of the frictions and puzzles created by the odd-eyed identity of this strategic alliance. It was as it was, and most at CDW had learned to live with it or even thrive in it. Here and there, one may hear some jarring notes or see some out-of-step moves. But, after more than three decades of successful operation, CDW was certainly not out of tune or step in any major fashion. ‘De wereld draait door.’7 And as the world turned, life went on. All things considered, it seemed to be a rather intriguing world and a rewarding life at the oddeyed CDW – the fact that the alliance now ranks among the top in their industry in both the Thai and regional markets serves as a testimonial to this assertion. Multilevel Cultural Partnership as Strategic Trademark of CDW The most striking imprint of the origin and evolution of CDW was how cultures, in various shapes and forms, and their particular mode of crossing, served as a symbolic trademark of competence for CDW. As a company that operated in an industry dependent upon the perception and promise of competence, CDW needed to carry a prominent mark of distinction, something that conveyed past success as well as warranting future fulfilment. Success and fulfilment were of course in the eye of the beholder and since CDW had many groups of beholders, it needed to carry a trademark of competence that has many facets to attract the various beholders. Hence, multifaceted national culture is the first distinctive trademark of competence for CDW. For Western or Dutch clients, Dutch ownership served as a trademark of international competence; for Thai clients, Thai involvement that of local fluency. For all clients, its Dutch–Thai alliance afforded a trademark of desirable combined expertise. In all these instances, a particular national culture, or a unique combination thereof, served as a trademark of an exclusive type of proficiency, the reason Khun Karel, the president, emphasized the value of a ‘combined’ team, which epitomized the unique trademark of the total sum of CDW’s competence. Professional culture was of course another distinct trademark of CDW’s competence. Granted, most if not all professionals at CDW were legally certified; yet legal certificate was but one stamp of qualification. Generally, each profession has its own culture, which bonds the members of each profession to one another and guards them against those outside of their circle. The ‘guarding’ function of the professional culture trademark had a decisive role at CDW because the firm operated in a consultancy business where professional advice must carry a dominant weight when set against the clients’ stance. It was not only the material capability of the professionals, but their authoritative aura and clout that made them an equal

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partner, not a mere servant, to the clients. Hence, CDW had to retain its ‘professional’ eye colour on par with that of its client – another odd-eyed instance. CDW also needed to blend many organizational cultures in its simultaneous dealing with clients, suppliers, contractors and governmental agencies. Each of these organizations had its organizational culture that was a particular blend of internal and sectoral cultures, at the very least. The competence of CDW as a consultancy must be constantly upheld by successful management of the partnership of its own organizational culture with those of these other establishments. As mentioned earlier, as a consultancy, CDW had to maintain its own standards without denting the prestige of these other business partners and clients – once more, an odd-eyed sort of balance. The significance of context in strategic alliances The odd-eyed personality of CDW is thus a unique case of cultural crossing. The uniqueness of the odd-eyed characteristic is in its contending yet bonding condition. CDW needed this particular instance of cross-cultural identity. It created constant tension yet it provided the very lifeblood of the alliance’s existence. Because the odd-eyed identity was the cultural trademark of competence that the joint venture needed for its chosen business, the alliance’s context in effect defined its operative identity and qualified its eventual livelihood. Consequently, the story of CDW illustrates vividly how significant context is in any cross-cultural encounter. In the final analysis, what matters is the total sum of a particular context. To wit, there are no two CDWs, so to speak, and if we want to understand what is going on at a particular strategic alliance, we need to take its general and specific context into account, simultaneously. Although all cases of a cross-cultural platform share the same general properties, the eventual identity of each setting is unique unto itself. This makes an analysis of context indispensible if we were to truly understand a particular case of strategic alliance. For example, in the case of CDW, the context defined the definite type of partnership and the exact mode and nature of cross-cultural condition for the alliance. First and foremost, the combined context of its industry and its niche business made the cultural odd-eyed quality a necessary trademark of its competence. Additionally, other conditions and entities that made up the alliance all contributed to how CDW was what it was. Finally and just as importantly, the context also defined the eventual effectiveness of the cross-cultural condition itself. In brief, if a cross-cultural condition contributes to the prime objective of an alliance, then it is effective, despite and because of all the oddities and difficulties it creates.

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The significance of cross-cultural instruments in strategic alliances The case of CDW also illuminates the significance of having the right instrument to foster the desired (and perhaps desirable) cross-cultural mode. Because the reciprocal mode characterized CDW’s prevalent crosscultural condition, at the time of this narration, the importance of a mediator as the key instrument became evident. A mediator refers to any instrument that acts as a ‘go-between’ for different parties in order to render a mediating effect (Ulijn and St Amant, 2000). The need for a ‘go-between’ arises from some fundamental differences that call for a certain level of synchronization before the parties can interact with a tolerable level of friction, incompatibility or detrimental side-effects. A mediator comes in a variety of shapes and forms, each performing synchronization in different manners. From our study, we theorize three primary functions that a mediator can perform: as a ‘bumper’, a ‘connector’, and a ‘translator’. Acting as a bumper is the crudest and most basic function of a mediator and serves a simple purpose of collision control through sheer diversion or absorption. A mediator, when acting as a bumper, simply absorbs or diverts potential frictions that result from differences. Connecting is the second function a mediator can perform. As a connector, a mediator provides a channel for exchange and reconciliation. The need for a connector arises from any sort of distances or incompatibilities – conceptual or physical – that exist among different parties. The final primary function of a mediator is as an interpreter. As the name implies, this mediating function serves to translate or, better yet, interpret meanings in one culture into their equivalent in another culture. The simplest example of a translator is of course a dictionary, and the most sophisticated example of a cultural interpreter is arguably a cultural theorist and their messages. Various mediators were active at CDW. As we see, although the tension was certainly there, a mechanism must have been in place that prevented it from degenerating into total negativity: the mechanism came in the form of numerous mediators. First were the human mediators in the figures such as Khun Busara and Khun Chaowalit. Both actors operated at the centre of critical activities in CDW, and both acted as mediators for the many forms of partnerships at CDW as illustrated in the case. In the case of the co-founders – Khun Geert and Khun Chuchawal – however, the mediator took the form of a common denominator that was the mutual need for and appreciation in each other’s contributions to the partnership. The importance of a mediator exemplified in the story of CDW provides a strong hint at the significance of a key instrument in cross-cultural interchanges. Two other types of cross-cultural instruments are indicated in Table 9.1, making up the three types of key instrument – controller,

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mediator and hydridizer – each serving different purposes and suitable for different situations. The case of CDW illustrates the critical role that the right instrument can play in the success of a strategic alliance. Although Table 9.1 locates each key instrument to a particular mode of crosscultural condition, it should be noted that, as in most issues pertaining to cultural analysis, real-world settings are never as clear-cut as a theorized taxonomy. In many, if not all, cross-cultural conditions, any of the key instruments may be in force, and even more than one instrument may be employed simultaneously. Once again, the significance of context comes into play regarding this issue. Such is our interpretation of CDW as an odd-eyed strategic alliance. Although we do not claim to have achieved an exhaustive analysis of the case and our proposed theory, we believe we have offered illuminating interpretations of both.

CONCLUSION We have attempted to illustrate how an interpretation of a real-world case of a single strategic alliance could elucidate the inherent complex crosscultural condition underlying strategic alliances. Our analysis is but one interpretation of only one particular case. Yet in the tradition of Clifford Geertz (1993) we believe, as Simons (1996, 227) espoused, that the value of a case study lies not in a statistical ‘sample of one’ fashion, but rather in its interpretive paradox, that is ‘By studying the uniqueness of the particular, we come to understand the universal’. In the same vein, we believe that the particular strategic alliance that was CDW could help us understand more the universals of strategic alliances. Among the ‘universals’ that the case of CDW as an odd-eyed cat has illustrated are the following. First, as stated at the very beginning, strategic alliances inherently dictate cultural crossing, at many levels. It follows that better understanding of the role culture plays and the complexity this role can take will enrich our collective effort in the inquiry into strategic alliances – their origin, development and outcome. Second, the many shapes and forms of cultural crossing, as proposed in our theorization, suggest that the range of how cultural forces can influence, or even define, the nature and performance of strategic alliances is not a simple cut-and-dried matter. The insights we gain from our study indicate that further probing into the role of culture could shed more light on the effort to understand the success and failure of strategic alliances, when viewed from a cultural perspective. Last, our presentation of the odd-eyed CDW may help convince scholars of strategic alliances that a qualitative,

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interpretative view of the issue could deepen our reading of real-world phenomena and provide complementary insights to those that already gained by the sister quantitative approach. As the thick-descriptive style of the case reveals, in every story of a strategic alliance, multiple living actors breathe and live through its success or failure. In the final analysis, these actors are what make or break the alliances and it seems prudent to listen carefully to the stories they have to tell.

ACKNOWLEDGEMENT The study and this chapter would have been impossible if not for Chuchawal–De Weger Internationaal and its people who generously shared their experiences and insights, for which we can never repay them except by sharing what we have learned with the wider community. We are also grateful to the reviewers, particularly Gert-Jan Hofstede, Rajesh Kumar and Jan Ulijn, whose critiques, questions, comments and suggestions are intertwined with our labour in this final delivery. Any shortcomings remain our own.

NOTES 1. To preserve informants’ privacy and anonymity, all characters’ names are fictitious and, to give local flavour to the narration, they are addressed in Thai convention with the Thai ‘Khun’, which is equivalent to ‘Mr’ or ‘Mrs’ in English, followed by the first name, except when first introduced. Character job titles follow what they were in real life. 2. In Dutch, two forms of second person pronoun exist: the formal ‘u’ and the intimate ‘je’. Interestingly, the Thai language has a similar, although much more elaborated, system of distinction in the proper use of all pronouns (a subject that deserves an entire chapter in itself). 3. ‘Kraeng jai’ is one of those Thai terms and traits that are hard to translate, let alone explicate. Briefly, it refers to the tendency to avoid any act or word that could harm someone’s feeling, put them in an awkward position, cause them to lose face, or create inconvenience to any party involved. This usually results in an avoidance of direct confrontation altogether. See Komin (1991) for further details. 4. ‘Farang’ is a Thai word for Westerner, most likely originating from the English word ‘foreigner’ or ‘foreign’. 5. The terminology ‘steady state’ follows its use in the discipline of computer simulation in general and discrete event simulation in particular. Because of its relative neutrality, we prefer this term to its alternative in economics – ‘equilibrium’. However, we use the term here in a very broad sense and do not embrace all the fine properties and implications of the terminology as used in the above two disciplines. 6. Feng shui is: ‘(in Chinese thought), a system of laws considered to govern spatial arrangement and orientation in relation to the flow of energy . . . and whose favourable or unfavourable effects are taken into account when sitting and designing buildings’ (Pearsall and Trumble, 1989, 674) 7. Literally, this translates into ‘The world continues to turn’. Figuratively, it has the same

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connotation as the English expression ‘Life goes on’. The daily Dutch television talk/ variety show De Wereld Draait Door, which was running successfully at the time of writing in 2008, inspired our use of it here.

REFERENCES Adler, Nancy J. (1983), ‘A typology of management studies involving culture’, Journal of International Business Studies, 14 (2), 29–47. Adler, Nancy J. (2002), International Dimensions of Organizational Behavior, 4th edn, Cincinnati, OH: South-Western. Boyacigiller, Nakiye Avdan, M. Jill Kleinberg, Margaret E. Phillips and Sonja A. Sackmann (2004), ‘Conceptualizing culture: elucidating the streams of research in international cross-cultural management’, in Betty Jane Punnett and Oded Shenkar (eds), Handbook for International Management Research, 2nd edn, Ann Arbor, MI: University of Michigan Press, pp. 99–167. Chase, Susan E. (2005), ‘Narrative inquiry: multiple lenses, approaches, voices’, in N.K. Denzin and Y.S. Lincoln (eds), The Sage Handbook of Qualitative Research, 3rd edn, Thousand Oaks, CA: Sage Publications, pp. 651–79. Dyer, W. Gibb, Jr and Alan L. Wilkins (1991), ‘Better stories, not better constructs, to generate better theory: a rejoinder to Eisenhardt’, Academy of Management Review, 16 (3), 613–19. Eisenhardt, Kathleen M. (1991), ‘Better stories and better constructs: the case for rigor and comparative logic’, Academy of Management Review, 16 (3), 620–27. Geertz, Clifford (1993), The Interpretation of Cultures: Selected Essays, London: Fontana Press. Hofstede, Geert (1980), Culture’s Consequences: International Differences in WorkRelated Values, 1st edn, Beverly Hills, CA: Sage Publications. Hofstede, Geert (2001), Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations across Nations, 2nd edn, London: Sage Publications. Hofstede, Geert and Gert Jan Hofstede (2005), Cultures and Organizations: Software of the Mind, 2nd edn, New York: McGraw-Hill. Huntington, Samuel P. (1993), ‘The clash of civilizations?’, Foreign Affairs, 72 (3), 22–49. Huntington, Samuel P. (1996a), The Clash of Civilizations and the Remaking of World Order, New York: Simon & Schuster. Huntington, Samuel P. (ed.) (1996b), The Clash of Civilizations? The Debate, New York: Foreign Affairs. Jackson, Terence and Zeynep Aycan (2001), ‘International Journal of Cross Cultural Management: towards the future’, International Journal of Cross Cultural Management, 1, 5–9. Jackson, Terence and Zeynep Aycan (2006), ‘From cultural values to cross cultural interfaces’, International Journal of Cross Cultural Management, 6 (1), 5–13. Kogut, Bruce (1988), ‘Joint ventures: theoretical and empirical perspectives’, Strategic Management Journal, 9 (4), 319–32. Komin, Suntaree (1991), Psychology of the Thai People: Values and Behavioral Patterns, Bangkok: National Institute of Development Administration (NIDA).

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Kroeber, Alfred L. and Clyde Kluckhohn (1963), Culture: A Critical Review of Concepts and Definitions, new edn, New York: Random House. Kwanjai, Nantawan Noi (forthcoming), ‘Cross-cultural intelligence amidst intricate cultural webs: a tale of the unDutchables in the Land of 1001 Smiles’, Maastricht University, the Netherlands. Kwanjai, Nantawan Noi and J. Friso den Hertog (2008), ‘Cultural intelligence: a qualitative angle’, paper presented at the 24th European Group for Organizational Studies (EGOS) Colloquium, 10–12 July, Vrije University Amsterdam. Mohr, Jakki and Robert Spekman (1994), ‘Characteristics of partnership success: partnership attributes, communication behavior, and conflict resolution techniques’, Strategic Management Journal, 15 (2), 135–52. Park, Seung Ho and Gerardo R. Ungson (1997), ‘The effect of national culture, organizational complementarity, and economic motivation on joint venture dissolution’, Academy of Management Journal, 40 (2), 279–307. Pearsall, J. and B. Trumble (ed.) (1989), Oxford English Dictionary, 2nd edn, Oxford: Oxford University Press. Roberts, Karlene H. (1970), ‘On looking at an elephant: an evaluation of crosscultural research related to organizations’, Psychological Bulletin, 74, 327–50. Schneider, Susan C. and Jean-Louis Barsoux (2003), Managing across Cultures, 2nd edn, New York: Prentice Hall. Simons, Helen (1996), ‘The paradox of case study’, Journal of Education, 26 (2), 225–40. Spekman, Robert E., Theodore M. Forbes III, Lynn A. Isabella and Thomas C. MacAvoy (1998), ‘Alliance management: a view from the past and a look to the future’, Journal of Management Studies, 35 (6), 747. Stake, Robert E. (1978), ‘The case study method in social inquiry’, Educational Researcher, 7 (2), 5–9. Stake, Robert E. (1995), The Art of Case Study Research, Thousand Oaks, CA: Sage Publications. Stake, Robert E. (2000), ‘Case studies’, in N.K. Denzin, Y.S. Lincoln and E.G. Guba (eds), Handbook of Qualitative Research, 2nd edn, Thousand Oaks, CA: Sage Publications, pp. 236–47. Stake, Robert E. (2005), ‘Qualitative case studies’, in N.K. Denzin and Y.S. Lincoln (eds), The Sage Handbook of Qualitative Research, 3rd edn, Thousand Oaks, CA: Sage Publications, pp. 443–66. Stake, Robert E. and Deborah J. Trumbull (1982), ‘Naturalistic generalizations’, Review Journal of Philosophy and Social Science, 7 (1), 1–12. Ulijn, Jan (2000), ‘Innovation and international business communication: can European research help to increase the validity and reliability for our business and teaching practice?’, Journal of Business Communication, 37 (2), 173–87. Ulijn, Jan and K. St Amant (2000), ‘Mutual intercultural perception: how does it affect technical communication? Some data from China, the Netherlands, Germany, France and Italy’, Technical Communication, 47 (2), 220–37. van der Blonk, Heico (2003), ‘Writing case studies in information systems research’, Journal of Information Technology, 18, 45–52.

10.

Resistance to the transfer of management knowledge in international ventures: steps towards a pathologic interpretation Gerhard Fink and Nigel J. Holden

INTRODUCTION Cartwright and Schoenberg (2006) confirm what Michael Porter had already published by 1987: managers and scholars alike should know that cross-border acquisitions are overly risky ventures. Many publications confirm that only about half of the acquisitions are partially successful (Barnes, 1984; Gregory, 1997; Lessard, 1995; Limmack, 1991; Pettway and Yamada, 1986; Meschi and Metais, 2006). Irrespective of persistent failures, in 2004 the total value of international acquisitions was close to US$ 2 trillion. This inspiring record raises serious doubts as to whether strategic management is on the right track. In recent years, Probst and Raisch (2005), Toh and DeNisi (2005) and Rossetti and Choi (2005) have indicated the need to explore deeper into the motives and reasons for failure of foreign direct investment activities. Let us consider a stylized case, which we have derived from 15 interviews with middle and top managers of Austrian firms at different time points after a takeover by a US firm. The well-established and successful US firm has developed a clear and explicit corporate culture. The vision and mission statement, guiding principles and compliance code have been explicitly formulated. When hired, each staff member gets a booklet and has to sign that they have taken note of the vision, mission, guiding principles and compliance code, and explicitly confirm that they will comply with or live up to the expected standards. This strong business culture is supported by a relatively centralized model of management control systems. When this firm acquires a firm in Austria, the first thing that happens after the acquisition contract comes into force is that each employee of the newly acquired firm also gets the booklet. Very often as a surprise to 255

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most American expatriate managers, usually one-third of staff leave within three to four months. Labour productivity is declining significantly. People then are not performing according to expectations, and exert passive resistance. Over time more and more people, including the best people, leave the firm. In several instances, when the US firm has acquired a competitor which it wanted to close down, that was plainly not an undesired effect. In the other cases, the first expatriate management team from the headquarters to the new local subsidiaries is soon replaced by new managers, with the task of retaining the rest of the best by offering them more favourable contracts than they had before. In close discussion with those remaining staff, usually a hybrid form between the headquarters (HQ) management culture and a local management culture is developed. Sooner or later, the new management hires new staff, of course people with a good fit to the corporate culture of the US firm. After another three to four years most of the rest of the original staff have left the firm. All or almost all previous staff members are replaced by new ones who better fit the corporate culture of the US firm. Then, in a final attempt, it is possible to push through the original US corporate culture with a few amendments, which have to do with local laws and labour regulations. Why is a pattern like that emerging? (Fink and Holden, 2008, 113). A standard explanation would be that the main issue is cultural difference: national cultures of Austrian and US American managers differ and so does their management behaviour (that is, their cultural standards). Based on Schwartz (2004), Sagiv and Schwartz (2007) find some contrasting value perceptions along their three bipolar dimensions: the USA is high on mastery, but Austria is high on harmony; the USA is medium high on hierarchy, but Austria is high on egalitarianism; the USA is medium high on embeddedness, but Austria is high on intellectual autonomy. Correspondingly, Elias (2004) finds that Austrian managers perceive the behaviour of US managers as extremely highly performance- and actionoriented; this corresponds to a high value of mastery. Austrians consider Americans to be extremely patriotic and strongly conformist regarding rules and ‘political correctness’, a manifestation associated with the higher value of embeddedness and hierarchy in the US culture. However, Americans offer embeddedness also to others: Americans instantly offer communication on a first-name basis, and invite new acquaintances to private parties and to other forms of socializing. First contact is made easily, but from the Austrian perspective, it takes a very long while to get to know the very private attitudes and opinions of Americans. In conversation with others, Americans tend to be ‘politically correct’ and hierarchy-obedient. Austrians exhibit their intellectual autonomy. Thus, Austrian managers more often than not perceive US managers as

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superficial. Austrians surmise not only a lack of openness and the presence of hidden agendas, but also a lack of interest in other peoples’ concerns. In this chapter we propose that another factor is at work; a factor that is not necessarily visible and for that reason is almost certainly discounted until it is too late: psychological reactions to the disorienting impact of the change processes, which are often misinterpreted as staff resistance, but which are symptomatic of the very pathology of cross-cultural business encounters. To support this proposition, we develop concepts of collective culture shock and cultural stretch. Our starting point is a consideration of four cases involving prominent organizations in their quest to find ‘common cognitive ground’ (Nonaka and Takeuchi, 1995) with protagonists in a variety of cross-cultural interactions, all of which have evolved over several years. The four cases concern the merger between Daimler and Chrysler, the failure of WalMart in Germany, the eight-years attempt to transfer French retail management know-how to Poland, and the indifferent results of the EU’s €3 billion flagship programme for transferring market economy know-how to the former Soviet Union from 1991 to 2003. Regardless of the disparity in the situations as to actors, cultural diversity, timescales and so forth, we propose that eight factors emerge which will allow us to develop a replicable, universal pathology of cross-cultural interactions. This pathologic statement suggests clues as to causes of cross-cultural breakdowns and the consequences that flow from them. We will posit cultural stretch in relation to collective culture shock (a term we discuss at some length) and hybridization, which we see as a protracted, often painful feature of major events that link the life systems of two organizations in new formats of variable viability. But our key conceptual starting point is the social viable systems model developed by Yolles and Iles (2006). Behind this model is the assumption that there can in principle exist ‘a structure that enables the system to recognize its own existence, maintain itself, change, and develop manifestations that can be seen as indicative of systemic content’ (Yolles, 2007). This model takes an abstract view of culture; we are using it to demonstrate the viability of organizations in the face of cross-culturally mediated impacts.

TOWARDS A REPLICABLE, UNIVERSAL PATHOLOGIC STATEMENT OF CROSS-CULTURAL INTERACTIONS It is a commonplace in the management literature to read that internationally operating firms will experience cultural impacts on their operations

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which will result in ‘conflicts’, generate ‘uncertainty’ or create ‘ambiguity’. Some cross-cultural encounters might even lead to the ‘psychologically disorienting condition’ (Ferraro, 1994) known as culture shock. Rather less do we read that such conflicts, uncertainties and ambiguities may not be an inevitable, even logical consequence of two distinct business cultures, or that culture shock may be a result of bad management decisions. Take the case of the merger between Daimler and Chrysler at the end of the 1990s. The German carmaker, knowing that international mergers have a very high probability of failing, underperforming or not delivering the expected shareholder value, set up a project team to study 100 international mergers so that their venture would not founder. Two years into the project – hailed as ‘a marriage made in heaven’ – tensions arose over differences between the German and US management styles. But these were almost trivial in comparison with the consequence of a key decision made by the German management: it was made plain that US designers would not be invited to help design Mercedes-Benz cars (The Economist, 1999). Exclusion from designing the company’s best-engineered vehicles offended the American designers so much that it caused their mass defection to the other big Detroit-based carmakers. This was not then an inevitable clash, preordained by US–German cultural differences; this was the result of managerial ineptitude of a very high order. It was a manifest signal that the German arm of the newly merged corporation had no confidence in US design capabilities. It surely did not intend to deliver an insult, but it did. This scenario suggests that cross-cultural clashes may sometimes be a symptom of bad management rather than an occurrence with built-in inevitability. As it happens, we can find other instances in the management literature which support this conviction. The retreat of Wal-Mart from Germany in 2006 shows how management decisions made at corporate HQ in blithe indifference to ‘how things are done’ in other countries can undermine strategy. The wise men of Wal-Mart based in Arkansas saw no point in workers’ councils, which happen to be enshrined in German law. They underestimated not only their legal importance in the German system of labour relations, but also their psychological importance to their German employees. As in the case of DaimlerChrysler and the defection of its US designers, the Wal-Mart experience suggests that bad management – neutrally bad management – led to cross-cultural tensions with its German employees and ultimately to Wal-Mart’s quitting of the German market (The Economist, 2006; Ghauri and Cateora, 2005).1 In these two examples we have cases of two major corporations which have made bad management decisions. Let us look at the example of a

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business operation in which the protagonists consciously attempted at the outset to close a cross-cultural gap. The case concerns a consortium of French retailers who wished to transfer their know-how in a culturally sympathetic way to Poland. This took nearly eight years: from 1995 to 2003, to be precise. Had the French management known that it would take so long, they may well have not embarked on the venture. What exactly went wrong? In the first place the French miscalculated the legacy of behaviours and attitudes learned in the socialist era and still persisting: resistance to new ideas, conformity, non-assertiveness, reluctance to handle information, and so on (Hurt and Hurt, 2005). This case involving Poland brings us to another instance of Western misapprehensions about former socialist countries. We consider the EU’s TACIS (Technical Assistance to the Commonwealth of Independent States) programme, under whose aegis from 1991 to 2003 €3 billion was allocated by the EU to transfer market economy know-how and to reinforce democracy and the rule of law in the former Soviet Union. This process involved hundreds of EU universities, business schools and consultancies. In 2006 the EU Court of Auditors found that the effectiveness of EU funds was ‘very low’ and the results were ‘poor’, especially concerning sustainability, dissemination and project evaluation.2 In the above very contrasting cases we have considered how firms and organizations have seemingly lost their way as their operations, policies and assumptions were not in harmony with local realities. Regardless of the context of the cross-cultural interactions – an international merger, establishing retail operations in other countries, and transferring management knowledge across borders – we see a consistent pattern: ● ● ● ● ●

The strategies were undermined relatively quickly. There were massive financial losses. There were instances of bad management, for which differences in culture are emphatically not an excuse. Cultural differences were not so much a cause of friction as a symptom of anger, resentment and frustration – and bad management. The originally cooperative atmosphere was spoiled. Here we take atmosphere to be: ‘a pervasive feeling, which is derived from experience and serves as a determinant of expectations concerning future cooperation in a business relationship’ (Holden, 2002).

Beyond that, we can note that: ●

The outcomes are anticipated neither by managers nor (it seems) by cross-cultural experts.

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The uniqueness of situations makes it difficult for insiders and outsiders to predict cultural impacts and their longer-term consequences. The impact of the headquarters’ way of seeing the world (Weltanschauung) was detrimental.

Out of the above eight factors we have in effect developed a replicable, universal pathologic statement of cross-cultural interactions. They are clues as to causes of cross-cultural breakdowns and the consequences that flow from them. We make no excuse for applying this medical term to the operations of the corporate world. Business ventures, like human beings, are prone to influences which conspire to enhance and, especially in the context of this contribution, undermine performance. As in real illnesses, the causes may not be apparent even though the consequences are fully manifest. Similarly, causes may be established, but the consequences may not always be predictable. People in their collective capacity as organizational employees qua actors, who are directly affected by the pathological stressors that we have indicated, experience unease and uncertainty. In the standard international management literature this is called ‘culture shock,’ but this term needs modification so that what it describes is not narrowly focused on individuals, but on entire groups of people. We term the experience ‘collective culture shock’. As it happens, there is a nation which has one word (as opposed to three) to denote it. After their defeat in 1945, the Japanese descended into a state which they called kyodatsu. In pre-war Japan this word had been a clinical term used to describe physical or emotional prostration in individual patients. Only after the surrender did the world kyodatsu gain wide currency to describe the dejected condition of the people as a whole (Dower, 2000). In the lexicon in which the term with its war-induced connotations first appeared in 1946, it was stated that this ‘despondency posed the greatest of all possible dangers to the country – that it had become “the great enemy that could destroy Japan”’ (Dower, 2000). As for immediate post-Second World War Germany, where great despondency also fell upon an entire national population, an American naval officer based in the Western zone noted that: ‘From 1945 to the middle of 1948 one saw the probable collapse, disintegration and destruction of a whole nation’ (cited in Bacque, 2002). This period of trauma is known to the Germans as Stunde Null (literally ‘zero hour’), when ‘almost everything was destroyed, including material and immaterial values’, and when ‘holding onto existence was the preoccupation of most people’ (Müller, 2002). At first glance, it may seem that the word kyodatsu, given the truly terrible conditions to which it refers, may be too dramatic as an analogue for

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human experiences in cross-cultural interactions in the world of organizations. Yet it represents a clearly identified human condition, collectively experienced at times of considerable stress, uncertainty and despondency. We should note that people who experience collective culture shock may find it necessary to reject one belief system or set of values, rethink their lives and take appropriate action to survive as individuals and ensure that society itself remains viable. In human beings as in societies these processes, which should be seen as inextricably intertwined, are extremely complex and involve simultaneous action and learning. We argue that the cross-cultural dimensions of major organizational events such as a cross-border merger or the enactment of a knowledge transfer process throughout international networks cannot be understood without reference to cultural factors. It is essential to take account of the pathological circumstances shaping and being shaped by such events. To explain this proposition, we turn to the work of Yolles (2007) and Yolles and Iles (2006), who have extended a particular variation of the social viable systems (SVS) model as developed by Schwarz (1997). We shall next consider the Yolles–Iles scheme, making reference to collective culture shock, and then discuss the concept of cultural stretch for pathological insights into cross-cultural business behaviour.

A NEW CONTEXT FOR CULTURE: IN PATHOLOGIES OF SOCIAL COLLECTIVES3 Yolles and Iles (2006) note: It is not new to say that there is a relationship between thinking and action, and this relationship is conditioned by belief and knowledge. Here, thinking affects action, while action and its trials and tribulations are reflected in our thinking and the images that we have and wish to manifest in our social and physical environment.

This interconnection is shown in Figure 10.1, and its formalization and generalization establishes a basis for understanding Social Viable Systems (SVS) theory. In the context of a multinational corporation this system approach applies to the multinational corporation as a whole, but also to its headquarters, and to subsidiaries. The model leads to the conclusion that every organization, which belongs to a society or is established within a society, needs to have characteristics which distinguish it from the society as such. This distinction has to lie in the value system (beliefs), in the personality systems (thinking) and in the actions taken (cultural standards which

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Personality system (Thinking)

Distribution of the types of knowledge across SVS

Yolles and Iles (2006).

Figure 10.1

Source:

Value system (Beliefs)

values adjusted depending on learning from experience

AG2

AG1

has influence on

Organization domain

AP2

AP1

experiences influence learning processes

Action system (Cultural standards, Language, Communication) Empirical data

affects related behaviour

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regulate actions, language and communication within this organization or suborganization). We distinguish two autopoietic processes: AP1 – thinking influences action, and AP2 – experience with action feeds back into modes of thinking; and two processes of autogenesis: AG1 – values and beliefs influence thinking and action, and AG2 – learning from evaluated experience with action leads to adjustment of values and beliefs. We can describe a cross-border acquisition or some other major interorganizational event in terms of the SVS model. Before an acquisition takes place, we can observe two distinct social systems: the domain of the prospective new owner, which we call the ‘headquarters domain’, and the prospective ‘subsidiary domain’, that is, the domain of the acquisition. Each of them is embedded into a distinct national culture and has its own distinct corporate culture. These organizations remain socially viable only if within the organization the autopoietic processes between the personality and the action domain function well, and only if the value systems approximately guide the autopoietic processes AP1 and AP2, but also are adaptive to changes perceived necessary, what is described by the processes of autogenesis AG1 and AG2. Interaction between the two separate social systems takes place in the phenomenological domain (that is, by action) (Figure 10.2). Conclusions and assessments usually are based on observed phenomena. Sense-making of these phenomena depends on available theory. Next, we offer a pathologic interpretation of observable phenomena in the case of hesistancy to act and perceived resistance.

COLLECTIVE CULTURE SHOCK We have already introduced the notion of collective culture shock, by which we mean a general, complex concomitant of radical systemic change. Specific outward signs are apparent: staff have problems adjusting to new conditions and may well be disoriented and disillusioned. The following concept of collective culture shock was developed after comparing several international comparative culture studies on East Central Europe, which were undertaken in the course of the 1990s (Fink and Feichtinger, 1998; Fink and Meierewert, 1999) and after studying the literature on the issues of acculturation and repatriation of individuals, on identifying appropriate persons for expatriate assignments, and on psychological adjustment of individuals to assignments abroad (Black et al., 1991; Birdseye and Hill, 1995; Brett, 1980; Dunbar, 1994; Feldman and Thomas, 1992; Fisher, 1986; Gudykunst, 1998a, 1998b; Harvey, 1997; Jones, 1986; Louis, 1980; Parker and McEvoy, 1993; Pinder and Schroeder, 1987; Rogers and Ward, 1993; Van Maanen and Schein,

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Headquarters domain AG1

AP1

Value system Headquarters

Action system (Cultural Standards) Headquarters

Personality system Headquarters

AG2 AP2

Phenomenological domain Subsidiary domain (new acquisition) AG1

AP1

Value system Subsidiary

AG2

Figure 10.2

Action system (Cultural Standards) Subsidiary

Personality system Subsidiary

AP2

Types of knowledge in headquarters and new acquisition

1979; and so on). We believe that the concept of collective culture shock is useful for the study of cultural issues in cross-border mergers and acquisitions where important factors, which can only marginally be influenced by the HQ organizations, have not as yet been explicitly conceptualized After an acquisition headquarters delegates expatriates as new managers to the acquired firm with the main task of gaining control over the acquisition, that is, in order to implement headquarters management knowledge in the acquired subsidiary. By that, the expatriates declare the ‘old’ subsidiary cultural standards as no longer valid and create pathologies in the acquired subsidiary. Staff (personalities) cannot make sense of the newly implemented rules. The autopoietic processes are blocked. Local staff cannot adequately apply the new rules: AP1 is blocked. Thinking (in old terms) does not help to find the appropriate way of acting. And

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reflection on outcomes of action does not help: AP2 is blocked. The reason for inadequate action is ascribed to the new rules, which are not understood. It is not possible to learn from failed action, because the reasons for failures are not understood either. Combination and internalization in the sense of the Nonaka–Takeuchi model (1995) is not possible. So it is that staff of the newly acquired subsidiary suffer from a collective culture shock (Figure 10.3). Expatriates suffer from individual culture shock. To the best of their knowledge and abilities they might have conscientiously tried to implement the rules and management practices, and yet they fail (compare the case described by Friel, 2005). The outcomes are a disaster or close to disaster. That obvious deviation from expected outcomes can only be explained with reference to resistance by local staff, which in effect becomes visible. But, expatriates are mistaken, being inclined to interpret symptoms as causes. Guidance by headquarters (values, personality) does not solve the problems. Appropriate interpretation of the failure does not appear to be possible. The reflective processes are blocked (Figure 10.4). Expatriates cannot make sense of the outcomes of newly implemented ‘best practices’. Headquarters managers’ reflections about their expatriates’ performance makes little or no headway, and reconsideration of corporate values in the light of evaluative perceived experience is blocked, too. Culture shock as experienced by the individual has been described as being: precipitated by the anxiety that results from losing all our familiar signs and symbols of social intercourse. These signs or cues include the thousand and one ways in which we orient ourselves to the situations of daily life: how to give orders, how to make purchases, when and when not to respond. Now these cues which may be words, gestures, facial expressions, customs, or norms are acquired by all of us in the course of growing up and are as much a part of our culture, as the language we speak or the beliefs we accept. All of us depend for our peace of mind on hundreds of these cues, most of which we are not consciously aware. (Oberg, in Harris and Moran, 1979)

Ferraro (1994) refers to it as a summation of ‘psychologically disorienting experiences’. In conditions of collective culture shock, as in a cross-border merger, it can be exceptionally tricky for organizations to identify the right people who can rise above the turmoil. At the organizational level collective culture shock is manifested as more than accumulations of ‘psychologically disorienting experiences’. It appears to induce a form of social paralysis characterized by passivity, endless discussions and hesitant decision-making regardless of the society. It is apparently not even a question of whether people want to adjust or not. It appears to be the case that large sections of the staff including

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Figure 10.3

AG2

Personality system Subsidiary

AP2

AP1

Action system Cultural Standards Subsidiary

Action system Cultural Standards Headquarters

The impact of expatriates implementing headquarters management knowledge

Value system Subsidiary

AG1

Expatriates’ Personality Headquarters

Subsidiary domain

267

Figure 10.4

Action (Cultural Standards) Subsidiary

Personality Subsidiary

Values Subsidiary

The process of hybridization

Interface

Interface

Action (Cultural Standards) Headquarters

Inpatriate

Expatriate

Personality Headquarters

Common Values

Common Values

Values Headquarters

HQ- Subsidiary Hybrid

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previous managers have difficulty coping with change on this scale. People feel extremely uncertain. They may even react arrogantly, but they shrink from taking determined action. It is not entirely surprising therefore that firms entering into other markets find that they must adjust their management principles and normal practices. Foreign firms are challenged to combine management by confidence-building, provide orientation, and support the self-esteem of local businesses and institutions. Management by objectives, as traditionally conceived, is often out of place. The adjustment to the new circumstances can be confusing and even traumatic (see, for example, Black et al., 1991, 298; Ward, 1996). The degree of confusion of a collective culture shock may be influenced by interests, voids between the actual and the perceived change, expectations, learning capabilities and available resources. Expatriates may be under orders to dismantle old rules and regulations, and to introduce new rules. If local people cannot make sense of newly imposed rules, expatriates merely create vacuums and confusions. Although collective cultural shock is not a very much studied phenomenon, we can suggest that important insights from the study of individual cultural shock will apply to collective cultural shocks, too. We certainly have to distinguish different effects of desired and undesired change, of gaps between actual and perceived change, of unrealistic expectations and surprise (compare the constructs ‘change’, ‘contrast’ and ‘surprise’ by Louis, 1980; and ‘life changing variables’ by Birdseye and Hill, 1995). We suggest that the confusion following a radical system change will be less pronounced if: ● ● ● ●

an integrative strategy is pursued; expectations are realistic; information is broadly available; resources are devoted to cope with the change.

Under such conditions, we may posit a relatively higher chance of acceptance and that overall satisfaction could be reached again. Against that, the process to overcome confusion becomes more difficult and more protracted if neither civic nor instrumental identity is desired. People feel marginalized and a negatively charged atmosphere is created. Resistance to change is an inevitable consequence. Collective adjustment processes take much longer than individual adjustment, for the simple reason that at the turning point most of the rules and organization of the ‘new’ system do not exist. Information about the new system is not available. The system has yet to be negotiated and created. While individuals can go back home, institutions can never return to their old system. What has happened is

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that the cross-border merger has created an organization which is in effect perceived by headquarters managers as a scarcely manageable hybrid.

HYBRIDIZATION Evidence of the kind we considered at the beginning of this chapter shows that hybridization – the process of creating a manageable hybrid – is all too often a taxing, protracted experience. Hurt and Hurt (2005) investigate into some eight years’ experiences of several French retail chains with market entry into Poland, and their difficulties in managing local subsidiaries. In the first wave after takeover French expatriates separate themselves from local people, proudly show off their wealth and drive fancy cars. In a period of about two years these French expatriates can surely cope with the refusal and passive resistance of local workers. Nextgeneration French expatriates begin to notice that they have to learn from their Polish staff and begin to socialize, concealing rather than parading their comparatively good income. During that period French expatriates manage to establish a hybrid corporate culture in local Polish subsidiaries. Hurt and Hurt (2005) call that a ‘common space’. In a third wave, after about 5–6 years when possibly most of the original local staff have been replaced, another generation of French expatriates can establish a corporate culture that comes close to the headquarters culture. Napier (2005) describes the attempt of a Vietnam business school to import MBA courses from the USA or Western Europe. In spite of all the good intentions the Vietnamese scholars remained passive during the first 18 months. Western scholars had difficulties in coping with that attitude. Only after a new generation of Western scholars began to socialize with the Vietnamese did a process of reverse learning establish itself. Western scholars learned about local conditions. Based on that experience, Western scholars together with the Vietnamese could adapt Western management knowledge to local Vietnamese needs. In a long process of about ten years hybrid forms were developed, which could be absorbed by the Vietnamese scholars. In both cases the development of hybrid forms of corporate culture or of hybrid management concepts is of decisive importance for the process of coping with collective culture shock. Therefore, in order to explore the processes of coping with collective culture shock, we have to refine and extend the Berry (1980) concepts of assimilation, integration, separation and marginalization by introducing the concept of hybridization. Hybridization could constitute intermediary stages in integration and assimilation processes.

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Let us briefly reconsider the French–Polish retail case (Hurt and Hurt, 2005) The first step was marginalization: the French implemented their corporate culture (management knowledge) without further ado. When this failed, because of the unanticipated cultural shock on both sides, a new generation of expatriates socialized with local Polish middle managers and ‘reintegration’ took place (the term ‘common space’ of Hurt and Hurt clearly describes a hybrid corporate culture). In the final step marginalization strategy was pushed through, staff who did not fit were fired, and assimilation was enforced. As in the Vietnam case (Napier, 2005), the imported and adapted form of management knowledge prevailed. Transfer of management knowledge to Vietnam finally led to the integration of Western management knowledge into the Vietnamese context (Napier, 2005). All too often that hybrid system is finally aborted by ‘sociopathic leaders’ from headquarters or sent from headquarters (to use a term of Yolles and Iles, 2006) with a desire for self-gain at any cost. In terms of the social viable systems model, hybridization means a partial adjustment process of all three domains, while the four processes remain open. Blockages of type AP1, AP2, AG1 and AG2 (see Figure 10.4) will not persist after the initial cultural shock is overcome. We find several articles which highlight specific measures and conditions that facilitate the process of hybridization. We have already mentioned socializing of expatriates with locals (Hurt and Hurt, 2005; Napier, 2005). Vance and Paik (2005) emphasize the importance of ‘inpatriation’, whereby local staff identified as ‘management potential’ are delegated to headquarters to assume tasks, to socialize with headquarters staff, and to acquire tacit and explicit knowledge of headquarters management principles ‘at source’. Although issues of inpatriate acculturation are emerging (Harvey, 1997; Harvey and Miceli, 1999; Harvey et al., 1999; Ward et al., 2001), upon return to the subsidiary these former inpatriates can more easily interact with expatriates and create hybrid forms of organizational cultures that rely on elements of headquarters culture and of prevailing subsidiary cultures, but also define the cross-cultural interfaces (Figure 10.4). If the processes of autogenesis are not blocked then organizational values are adjusted to the hybrid subsystem and action, and to a new composition of managers and staff (Figure 10.5).

VIA HYBRIDIZATION TO CULTURAL STRETCH There is now sufficient evidence that attempts to create mergers are beset with problems directly connected with the failure to harmonize knowledge

Resistance to the transfer of management knowledge AG1

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Hybrid- Subsidiary AP1

Values Headquarters

AG1

Expat Personality Inpat

AG2 Values Subsidiary

Figure 10.5

Action (Cultural Standards) Hybrid-Subsidiary

AP2 AG2

A pathologic subsidiary in cultural stretch

systems (Hurt and Hurt, 2005; Kuznetsov and Yakavenka, 2005; May et al., 2005; Napier, 2005). These contributions demonstrate that knowledge transfer takes longer to succeed than is originally envisaged. We are often talking in terms of years rather than weeks or months, resulting in the allocation of unanticipated resources including managers’ time for coping with that most recurrent of events, namely ‘today’s crisis’. What can be the response to such intractable problems? We suggest a new concept and explain how it can work in practice. The concept is cultural stretch. Cultural stretch refers to how individuals or groups of people adjust their behaviour to suit the demands of working under the impact of a strong corporate culture, which significantly differs from a prevailing culture into which a local subsidiary of a firm is embedded. Meeting organizational goals calls for alignment of individual staff with the headquarters’ requirements alongside the norms and values embedded in manifold stakeholder cultures. Cultural stretch is the effort that individuals as organizational actors make to reduce the sense of mutual alienation and wariness, as well as an anarchic impulse to resistance, that often accompanies processes aimed at merging organizations. At the individual level cultural stretch means more than mere flexibility and applying, as they say, cross-cultural awareness. Cultural stretch is evident when an individual takes specific psychological and emotional steps to create what Nonaka and Takeuchi (1995) call ‘common cognitive ground’ with the cultural others. However, overall cultural stretch should be viewed as an organizational tendency, whose effects may only become apparent after the passage of years. What is also important to grasp about

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cultural stretch is that it is notionally and practically linked with the concept of hybridization. Hybridization can take various forms, some of which probably happen simultaneously, others consecutively: substitution, sense-making, changing interpretation of texts, improvisation, combination, internalization, integration. Substitution would mean that part of the existing rules are replaced by rules imported from another organization, for example from the new headquarters. A hybrid’s rules would consist of a set of rules from the new headquarters and another set that remains from the acquired local subsidiary. As we already know, this may not suffice, since knowledge changes its meaning when migrating, and locals may not be in a position to make sense of the newly imported rules. In a process of sense-making (Weick, 1995) locals and expatriates may develop ‘a mixture of two social languages within the limits of a single utterance’ (Bakhtin, 1996, 304). The same text, ‘an utterance that belongs, by its grammatical and compositional makers, to a single speaker’ (Bakhtin, 1996, 304) may contain two speech manners, two styles, two languages, two semantic and axiological belief systems (Bakhtin, 1996; Fink et al., 2007). ‘It frequently happens that even one and the same word will belong simultaneously to two languages, two belief systems that intersect in a hybrid construction’ (Bakhtin, 1996, 305). Changing interpretation of identical texts is often accompanied by improvisation (Weick, 1998). Local managers and staff adopt variations of known themes in order to suit the purpose better. The process of hybridization (Figure 10.4 may be complemented by combination in the sense of Nonaka and Takeuchi (1995), when new knowledge is combined with previously existing local knowledge; and by internalization, when the combined explicit knowledge is converted into new tacit, applicable knowledge. If and only if there is also a back transfer of that new knowledge into the headquarters, may that conclude a process of integration as perceived by Berry (1980). New concepts replace both previous concepts that existed separately before, at the headquarters and at the acquisition. Blockages of type AG1 and AG2 (autogenesis, Figures 10.4 and 10.5) possibly will persist, if headquarters insists on imposing its value system (vision, mission, basic principles) on local staff. In that case, cultural identity of local staff with the organization (as a subsidiary of a foreign firm) might become impossible forever. Extrinsic motivation will become the main guiding principle: better pay than elsewhere, not necessarily good pay. Yolles (2007) describes that as a ‘sociopathic organization’. The consequences are: (1) marginalization of others who do not have access to resources; and (2) marginalization of local staff and of local managers, in particular. On the one hand, expatriates do not identify with that

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set of values which derives from the local community and from previous subsidiary values. On the other hand, local staff and local managers do not identify with that set of corporate values which is not compatible with prevailing national values and host-country cultural standards (Figure 10.5). Those who have to behave within an organization according to rules and values which they cannot accept, are under permanent ‘cultural stretch’.

DISCUSSION AND CONCLUSION The evidence we have considered from the perspective of cultural stretch suggests that values, rules, managers and staff are divergent, depending on the time that has elapsed after ‘the event’ – the merger, the cross-border acquisition, the transfer of all the knowledge judged to be necessary – has taken place. In the context of foreign direct investment (greenfield investments, joint ventures, acquisitions and mergers), there is apparent need of more longitudinal studies. Research should not solely be based on interviews with the currently present expatriate managers, but also has to investigate the interests, perceptions and behaviour of local managers and staff: those who have left the firm, those who remain, and those who were hired to fit the new corporate culture. There is also apparent need to assess the ‘success’ of firms not by the expatriate managers’ perceptions voiced in interviews, but by ‘hard data’ from the profit and loss accounts; not estimated, but actually measured labour productivity in physical terms (per employed person and per hour); not overall sales and cash flows, but sales and cash flows per employed person, and so on. Industry context may play an important role, too. This is well exemplified in the aircraft industry with respect to the failed takeover in the 1990s of the Dutch concern Fokker by the German aerospace giant, DASA (Heerkens and Ulijn, 2000). There may be vast differences between technology-driven corporations and consumer-oriented firms, between industries with strong competitive pressures and industries with established oligopolistic or even monopolistic competition. Relations between value systems (national, corporate, personal) have been not deeply researched, although they have been addressed by a few scholars (Hofstede et al., 1990; Hofstede and McCrae, 2004; Sagiv and Lee, 2006; Sagiv et al., 2005). At the organizational level, these interrelations need to be studied within the framework of negotiations and learning processes (Yolles, 2006; Magala, 2005). We have been concerned with cross-cultural situations, although it is surely clear that cultural stretch also has conceptual applicability to a purely ‘national-monocultural’ set of circumstances: for example, when

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one French company takes over another French company, because corporate cultures differ also within one nation. The notion of cultural stretch would appear to meet the need for more phenomenon-driven research (Cheng, 2007; Dunning, 2006; Oesterle and Laudien, 2007) aiming at identification and learning of actual behaviour, communication, and decisionmaking within organizations. This kind of research could be undertaken within the currently predominant paradigm of quantified cultural dimensions or personality traits, but more also needs to be done outside ‘the dimension paradigm’. It is important to stress that the concept of cultural stretch that we have elaborated in this chapter is derived from a commentary of several instances of forms of human resistance to forms of organizational change or the imposition of ‘new’ knowledge. We have attempted to relate cultural stretch to the SVS model of Yolles and Iles, as we have wished to demonstrate that cultural impacts on organizations under the immense strain of major events such as a cross-border merger can be helpfully viewed in pathological terms. This perspective can shed useful light on behaviours associated with familiar concepts such as marginalization and assimilation (Berry, 1980) – even Nonaka and Takeuchi’s (1995) famous model of knowledge creation.

NOTES 1. See also: (http://www.dw-world.de/dw/article/0,2144,318142,00.html; and http://www. wams.de/data/2006/06/18/921179.html. 2. http://eca.europa.eu/audit_reports/special_reports/docs/2006/rs02_06en.pdf; and http:// www.rferl.org/featuresarticle/2006/04/c890a3ed-62d6-41f1-b431-6fed09ddf294.html. 3. The theory is based on Fink and Holden (2008).

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Index Abravanel, R. 212 acceptance of outsiders 76–7 acquisitions definitions 0 see also M&A ad hoc pool type alliances 210 adhocracies 42 Adler, Nancy J. 16, 234, 236 affiliation 49–50 African cultures 54 Afuah, A. 65 Ahmed, P.K. 65, 68, 70, 71, 73, 74, 79, 90 Ahold case study 55–6 Air France KLM Royal Dutch Airlines acquisition 202, 209 see also Spinetta, Jean-Cyril Airbus 211 A380 development 206 Akdere, M. 72 alliance management 32 theoretical frameworks 33–5 Amabile, T.M. 68, 71, 80 Andersen, P.H. 26 Anderson, P.H. 63, 76 Anglo world culture 43, 45 Arab world culture 45 Ashkanasy, N.M. 1 AT&T 206–7 attributional conflicts 18 Austrian culture 256 authority 47–8; see also leadership Avebe 24–5 Aycan, Zeynep 237 Bacque, J. 260 Bakhtin, M. 272 Balkan culture 49 Barkema, H.G. 1, 2, 13, 97, 98 Barnes, P. 255

Barsoux, Jean-Louis 234 Bartlett, C.A. 122 Bassett, N. 76 behavioural conflicts 18 Bell, C.G. 73 Bergek, A. 60, 64 Berry, J.W. 269, 272, 274 Bessant, J. 64, 68, 70, 71, 72, 76, 77, 78, 79, 80 Bettignies, H.-C. de 18 Bijlsma-Frankema, Katinka 158 Birchall, D. 63, 64 Birdseye, M.G. 263, 268 Birkinshaw, J. 1 Bjorkman, I. 19 Black, S. 263, 268 Bleeke, J. 207, 212 Block, Z. 63 BMW X-3 211 Boselie, D. 55 Bossink, B.A.G. 204, 208 Bowditch, James L. 156 Bower, J.L. 63 Boyacigiller, Nakiye Avdan 237 Boyd, Robert 37 Bratatjandra, G.H. 102 breakthrough innovations 63 Brett, J.M. 263 British society 43 uncertainty tolerance 42 Bronder, C. 108 Brown, L. 1 Bruton, G.D. 97 Bunderson, J.S. 8 Buono, Anthony F. 156 Burgelman, R.A. 64, 73, 77, 78, 82, 86 business discipline, and professional discipline 68–9 Butler, C. 18 Butler, R.J. 14

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280

Index

Calantone, R. 62 Calgene 81–2 ‘Calimero’ effect 117 Calori, R. 2 Camerer, C.F. 158 Cameron, Kim S. 157 Carayannis, E.G. 70, 73, 74, 76 Cartwright, S. 1, 3, 7, 156, 179, 255 case study, definitions 188 Cateora, P. 258 CDW, see Chuchawal–De Weger Internationaal CE (corporate entrepreneurship) culture to support 60–62, 68–9, 88–9 dimension 1 – process vs results orientation 69–71, 83 dimension 2 – employee vs job orientation 71–3, 83 dimension 3 – parochial vs professional focus of interest 73–5, 83–5 dimension 4 – open vs closed system 76–8, 85 dimension 5 – loose vs tight work discipline 78–81, 85 dimension 6 – normative vs pragmatic-driven 81–3, 85 empirical findings 83–6 definitions 60, 63–5 strategic alliances 86–8 Chanaron, J.J. 70, 73, 74, 76 Chandy, R.K. 82 chaos within guidelines 70 Chase, Susan E. 228 Chen, C.C. 23 Cheng, J. 274 Chengdu 23–4 Chesbrough, H.W. 77, 86 Chiang-Sho Ltd (CSL) 23–4 Child, J. 1, 210, 211 Chinese society 44, 45 uncertainty tolerance 42 Choi, T.Y. 255 Christensen, C.M. 60, 62, 63, 64, 66, 67, 69, 74, 211 Chrysler 209

Chuchawal–De Weger Internationaal (CDW) characteristics company founders 231–3 partnership of cultures 230–31 evolution 229–30 national cultures 248 as odd-eyed cat 241–2 organizational cultures 249 origin 228–9 overview 228 partnership of nationals 242–4 partnership of organizations 246–8 partnership of professionals 245–6 professional cultures 248–9 Clark, K.B. 63, 69 clash of civilizations theory 239 clashing mode 239–40 cognitive interpartner legitimacy 22 collective culture shock 260–61, 263–9 collectivistic approach 46 collectivistic cultures 23, 24 identity 40 Color (company, Slovenia) 150, 163–4, 171–9 company culture 164–9 strategic fit within Helios Group 154–6 common space 269 company culture 158; see also organizational/corporate culture comparison with German culture, Netherlands/Dutch culture 101–5 Compass model 215, 217–18, 223 competition–cooperation 51 conflict, and performance 76–7 conflict resolution styles, Euroba banks 220–21 consortium type alliances 210 Cooke, Ron 18 Cooper, C.L. 1, 3, 7, 156, 179 Cooper, M.C. 52 Cooper, R.G. 62, 64 Cormican, K. 65 corporate culture, see organizational/ corporate culture corporate entrepreneurship, see CE corporate venturing 64, 86; see also CE Creative Destruction 62 creativity 68

Index cross-border marriages 184 cross-cultural condition key properties 238–9 modes 236–8 clashing 239–40 reciprocal 240 unification 240–41 cross-cultural interaction pathology of 255–7, 273–4 collective culture shock 260–61, 263–9 cultural stretch 270–73 hybridization 269–70 towards a replicable universal pathology 257–61 social collectives as context 261–3 cross-cultural misunderstandings 46–7 ‘cross-cultural’, ambiguity of term 236–7 Crucell 207 CSL (Chiang-Sho Ltd) 23–4 cultural blending 34 cultural distance 2 cultural fit definitions 186 Helios Group 156 cultural identity 236 cultural onion model 234 cultural stretch 270–73 cultural units 236 cultural webs 236 culture definitions 1, 31, 65, 97, 233–4 dimensions 39, 42–3 impact on strategic alliances and M&A 43–4, 56–7 alliance management framework 33 future research directions 8–9, 26–7 overview 7–8 research on 1–3 level of 234–5 to support corporate entrepreneurship 60–62, 68–9, 88–9 dimension 1 – process vs results orientation 69–71, 83 dimension 2 – employee vs job orientation 71–3, 83

281

dimension 3 – parochial vs professional focus of interest 73–5, 83–5 dimension 4 – open vs closed system 76–8, 85 dimension 5 – loose vs tight work discipline 78–81, 85 dimension 6 – normative vs pragmatic-driven 81–3, 85 empirical findings 83–6 see also national culture; organizational/corporate culture; professional culture culture shock 258, 260 and individuals 265 customer orientation, supporting corporate entrepreneurship 81–3, 85 Daimler Benz 209 Daimler–Chrysler merger, managerial ineptitude 258 Damjan, Jože P. 151 Danneels, E. 82 Das and Teng (1998) alliance management framework 34–5 Das and Teng (2000) alliance management framework 33–4 Das, T.K. 13, 14, 15, 16, 17, 19, 20, 21, 25, 26, 30, 33, 34, 36, 38, 47, 51 DASA, Fokker takeover 273 Datta, D.K. 1, 2 Davila, T. 68, 70, 72, 79 De Meyer, A. 2, 157 Debruyne, M. 62 DEI (Deutsche Elektro-Informatica) 19–20 DeMartino, R. 63 DeNisi, A.S. 255 department culture 158 Deshpande, R. 81 Design 103 (Dutch firm) 229–30 Deutsche Elektro-Informatica (DEI) 19–20 discrepancy framework of alliance functioning 15, 17–21, 26 distributive justice 35 Divorce pattern 188 case study 192–5, 198 Dodgson, M. 62

282

Index

dominant catalyst 238 Dong, L. 14 Dooley, R.M. 32 dot.com crash 79 Douma, M.U. 89 Dower, J. 260 Doz, Y.L. 13, 204, 211 Draulans, J. 108, 110 Dunbar, E. 263 Dunning, J.H. 274 Dussauge, P. 203, 208, 210 Duysters, G. 30, 61, 86, 96, 121 Dyer, W. Gibb, Jr 228 Eiffel Tower organizational culture 132–3, 134 Eisenhardt, K.M. 86, 87, 228 Elias, A. 256 employee health, and corporate entrepreneurship 73 employee orientation, supporting corporate entrepreneurship 71–3, 83 Eppink, D.J. 204, 206, 208, 212, 213 Ernst, D. 207, 212 ethical business methods 81–2 Euroba study 214–21 expatriates, individual culture shock 265 failure, handling of 70 family, and collaboration 40 Family organizational culture 133, 134 family quadrant 45–6 Faulkner, D. 1, 210, 211 Feichtinger, C. 263 Feldman, D.C. 263 Ferarro, G.P. 258, 265 Fèvre, J.-M. 99, 100, 101 Fink, G. 256, 263, 272, 274 Finkelstein, S. 1 Fisher, C. 263 Flavr Savr Tomato 81–2 flexibility control tension 79 fox, see Compass model Freedom Car initiative 206 French society 43 uncertainty tolerance 42 Friel, D. 265 Fruitful project 53–5

Funakawa, A. 116 future orientation of employees, and corporate entrepreneurship 75 Gancel, G. 96 Garcia, R. 62 Garrette, B. 203, 208, 210 Garvin, D.A. 70, 80, 90 Gates, Bill 77 Gazprom 48 Geertz, Clifford 233, 236, 251 gender roles and aggression 41–2, 43 and competition–cooperation 51 German culture comparison with Netherlands/Dutch culture 101–5 domestic cultural discrepancies 99–100 implications for Dutch–German Cooperation 106–7 see also mutual perception cultural fit study of Dutch–German strategic alliances German society 43, 45 uncertainty tolerance 42 Ghauri, P. 258 Ghemawat, P. 206 Gibson, C.B. 9 Giebels, R. 56 Gill, J. 14 Ginsberg, A. 86 Glaister, K.W. 14 Globe Engine Company 23–4 goal orientation, supporting corporate entrepreneurship 69–71, 83 Google 79 Gregory, A. 255 Grievink, J.W. 56 Grotenhuis, F.D.J. 98, 185, 186, 187, 188, 190, 191, 192, 193, 194, 195, 196, 197, 199 Gudykunst, W.B. 263 Guided Missile organizational culture 132, 134 Guis, E. 53 Guisinger, S.E. 13 Gulati, R. 86 Gupta, A.K. 80 Guth, W.D. 86

Index Hagedoorn, J. 61, 86, 121 Hall, E.T. 16, 39, 107 Hall, M.R. 107 Hall, W. 7, 98, 107, 117, 204, 215, 216, 218, 219 Ham, A. van der 53 Hambrick, D.C. 2, 9 Hamel, G. 204, 211 Hampden-Turner, C. 39, 69, 215 Haner, U.-E. 72, 73 Harris, P. 265 Harvey, M.G. 263, 270 Haspeslagh, P.C. 184, 187 Hauser, M. 76, 77, 82 headquarters domain 263 Heerkens, H. 273 Heineken–Carlsberg bid on Scottish and Newcastle 204 Helios 150, 163–4 Helios Group business strategy 152–4 cultural fit 156 horizontal fit 164–7 horizontal fit among functional areas 167–9 importance 156 methodology for analysing 159–62 strategic fit related to acquisitions of Zvezda and Color 154–6 study, overview 150–52, 177–81 vertical fit between organizational culture and business strategy 169–73 vertical fit of functional areas 173–7 Henderson, R.M. 63, 69, 82 Hendriks, E. 108, 114 Hendrikse, G.W.J. 35 Herstatt, C. 82 Hertog, J. Friso den 227 hierarchy and collaboration 40–41 see also power distance High Definition video disks 205 Hill, J.S. 263, 268 Hofstede, Geert 1, 2, 16, 31, 39, 43, 44, 45, 48, 53, 61, 65, 66, 67, 68, 69, 74, 84, 87, 88, 90, 97, 102, 104, 105, 121, 157, 188, 215, 219, 220, 234, 239, 240, 273

283

Hofstede, Gert Jan 31, 43, 44, 45, 46, 53, 65, 66, 219, 240 Holden, N.J. 256, 259, 274 Hornsby, J. S. 64 Huang, C.T.W. 156 Huntington, Samuel P. 239 Hurt, M. 259, 269, 270, 271 Hurt, S. 259, 269, 270, 271 hybrid organizations 35–6 hybridization 269–70 IBM 77, 80 identification with job, and corporate entrepreneurship 74 identity 50 and collaboration 39–40 Iles, P. 257, 261, 270 incremental innovations 62–3 Incubator organizational culture 132, 134 Indian culture 45 individualism Germany 102–4 Netherlands 102–4 individualistic cultures 23, 43 identity 39–40 innovation 62–3 innovation culture 135 innovation drive Germany 102–4 Netherlands 102–4 inpatriation 270 interactional justice 35 internal tension model 51–2 interpartner legitimacy 21–2 national culture influences 22–5 interpretational conflicts 18 intrapreneurs 60; see also CE Jackson, Terence 237 Jamrog, J. 68, 70, 71, 72, 76, 78, 79, 80, 82 Japanese culture 45 Jazbec, Marijana 162 Jemison, D.B. 184, 187 Johansson, J.K. 122 Johne, F.A. 61, 64 Johnson, Gerry 153 Johnson, M.M. 68 Jones, G.R. 263

284

Index

Jotischky, H. 181 Judge, W.Q. 68, 70 justice 50–51 impact on strategic alliances and M&A, alliance management framework 35 Kale, P. 211, 212, 213 Kamminga, P.E. 192, 195, 197 Kauser, S. 19, 121 Kavanagh, M.H. 1 key instrument 238 Khazanchi, S. 70, 79 Kilmann, R. 217, 220 Klein, Herbert 20 Kleiner, B.H. 156 Klidas, A.K. 45 KLM 48, 209 KLM–Northwest Airlines alliance 203, 209 Kluckhohn, Clyde 233 Kluckhohn, F.R. 16 Kogut, Bruce 227 Koh, J. 212 Kolman, L. 65 Komin, Suntaree 252 Korea Beral 18 Kovinooprema 123 Kovinsko podjetje Trebnje 123 Kroeber, Alfred L. 233 Kumar and Nti alliance management framework 33 Kumar, R. 13, 14, 15, 16, 17, 20, 21, 25, 26, 33, 35, 47, 52, 98, 185, 199, 200, 205, 219 Kuznetsov, A. 271 Kwanjai, Nantawan Noi 227 Kwon, Y.-C. 14, 19 kyodatsu 260–61 Lambert, D.M. 52 Lane, H.W. 23 Lane, P.J. 3, 7, 8, 13, 44, 69, 157 Larsson, R. 1 LAT (Living Apart Together) pattern 188 case study 190–92, 198 Latin world culture 45 Laudien, S. 274 Lazzarini, S.G. 52

leadership 38–9; see also authority Leavy, B. 76, 79 Lee, F. 273 legitimacy framework of alliance functioning 15, 21–5, 26 Lessard, J.P. 255 Leung, K. 8, 9, 16, 157, 198 Levesque, L.C. 70, 80, 90 Lewin, A.Y. 87 Lewis, P. 67, 68 LG Philips 209 Li, J. 9, 13 Li–Mikkelsen incident 32, 33, 35, 46 Limaye, M. 107 Limmack, R.J. 255 Lin, X. 14 Living Apart Together (LAT) pattern 188 case study 190–92, 198 long/short-term orientation 42, 52 Germany 102–4 Netherlands 102–4 Lorange, P. 208, 210 Louis, M.R. 263, 268 Lubatkin, M. 1, 3 Luimes, W. 186 Luo (2007) alliance management framework 35 Luo, Yadong 35, 50 Lyles, M.A. 2 M&A definitions 209 failure rate 1, 184 role of culture 185–7 machine quadrant 45–6 Magala, S. 273 Malekzadeh, A.R. 1 Man, A.P. de 30 market quadrant 45–6 Marks, L.M. 184 Markus, H. 16 Marriage after Engagement pattern 188 case study 195–7, 198–9 Marriage model 187–8, 197–200 Living Apart Together (LAT) pattern 190–92, 198 Marriage after Engagement pattern 195–7, 198–9

Index research method 188–90 Shotgun Wedding and Divorce patterns 192–5, 198 Martins, E.C. 67, 68, 70, 72, 76, 78, 79, 81 masculinity Germany 102–4 Netherlands 102–4 Maslow, Abraham 37 Mastenbroek, W. 221 May, R.C. 271 McCrae, R.R. 273 McEvoy, G.M. 263 McLean, L.D. 70, 72, 76, 79, 80, 90 McNamara, J.E. 73 mediators, functions 250 Meglino, B.M. 16 Meierewert, S. 263 Ménard, C. 35, 36 Menzel, H.C. 61, 64, 66, 68, 70, 72, 74, 76, 78, 81 mergers definitions 10 see also M&A Meschi, P.-X. 13, 255 Metais, E. 255 Miceli, N. 270 micro behavioural processes 15–16 future research directions 26 importance in strategic alliances 14 Miller, J.G. 117 Miller, W.L. 62 Minkov, Michael 39 Mintzberg, Henry 45 Mirvis, P.H. 184 Mody, A. 86 Mohr, Jakki 227 Montes, F.J.L. 71, 76 Moore, G. 82 moral circles 37 moral interpartner legitimacy 22 Moran, R. 265 Morosini, P. 1, 2, 186 Mrak, Mojmir 150 Müller, H.M. 260 Müller, K. 99 mutual perception cultural fit study of Dutch–German strategic alliances implications for SA practice 115–17 method 108–10

285 overview 107–8 results 111–15

Nahavandi, A. 1 Nakata, C. 61, 64, 117 Napier, N. 269, 270, 271 Narayanan, V.K. 62 national culture definitions 16–17, 65 dimensions 65 and discrepancy management in international alliances 17–21 Dutch–German comparison 102–4 importance in strategic alliances 13–14, 97–9 methodological constraints on study 100–101 and legitimacy management in international alliances 21–5 Mintzberg quadrants 45–6 research on impact on strategic alliances and M&A 1–2 negotiation, cultural differences 41 netchains case study 52–3 definitions 31 Netherlands/Dutch culture 43, 53 and aggression 41 domestic cultural discrepancies 100 implications for Dutch–German cooperation 106–7 uncertainty tolerance 42 see also mutual perception cultural fit study of Dutch–German strategic alliances Netscape 79 Neuman, W.L. 100 Nonaka, Ikujiro 7, 257, 265, 271, 272, 274 Nooteboom, B. 61, 86, 89 Norrman, C. 60, 64 Noveon 24–5 Nti, Kofo O. 13, 14, 15, 17, 20, 26, 33, 35, 47, 52 Oberlin, John Frederic 101 O’Connor, G.C. 63 odd-eyed cats 240, 241 Oesterle, J.-M. 274 Olie, R. 184, 188

286

Index

Olson, E.M. 3 open innovation 77–8 open systems, supporting corporate entrepreneurship O’Reilly, C.A. 68, 79 organizational cultural types 132–3 organizational/corporate culture definitions 44, 66–8, 157 Dutch–German comparison 104–5 research on impact on strategic alliances and M&A 2–3 see also company culture Osborn, R.N. 121 O’Sullivan, D. 65 outcome discrepancies 17 Overdorf, M. 60, 62, 63, 64, 66, 67, 69, 74 owl, see Compass model Oyserman, D. 117 Pablo, A.L. 9 Park, S.H. 1, 2, 227 Parker, B. 263 Parkhe, A. 1, 2 Pearsall, J. 252 Peljhan, D. 122, 124 Peters, T.J. 65, 66 Pettway, R.H. 255 Pfleging, B. 74 Philips 206–7, 219 Pinder, C.C. 263 Polanec, Sašo 151 Porter, M.E. 62, 63 Pothukuchi, V. 2, 13 Powell, W.W. 53 power distance 40–41, 43 Germany 102 Netherlands 102 practice dimensions 66 pragmatic interpartner legitimacy 21–2 pragmatism, vs principle 50 Prašnikar, Janez 162, 164 predominant interaction 238 principle, vs pragmatism 50 Probst, G. 255 procedural justice 35 procedures, vs flexibility 81 process discrepancies 17 professional culture 136–42, 248–9 definitions 44, 66–7

research on impact on strategic alliances and M&A 3 see also Chuchawal–De Weger Internationaal (CDW); Trimo/ Trimo Trebnje (Slovenia) alliance study professional discipline, and business discipline 68–9 professional focus, supporting corporate entrepreneurship 83–4 Puia, G. 1, 2 pyramid quadrant 45–6 Quinn, Robert E. 157 Rademakers, M.F.L. 53 radical innovations 63 Raisch, S. 255 reciprocal mode 240 Reigle, R.F. 72, 90 Remer, S. 116 reverse take-over, case study 192–5, 198 rewards 71 Riccio, E.L. 13 Richerson, Peter J. 37 rigidity–flexibility 51–2 Ring, P.S. 13 Roberts, E.B. 89 Roberts, Karlene H. 237 Robson, M.J. 19 Roche–Genentech merger 207 Rogers, J. 263 Roos, J. 208, 210 Rossetti, C. 255 Rotterdam Port Authority–Dutch Railways–shipping companies collaboration 204–5 Royal Bank of Scotland–Banco Santander–Fortis consortium 204 Rural Red Star 19–20 Russian culture 45 Sagiv, L. 256, 273 Salk, J.E. 2, 3 Sarkar, M.B. 1, 86 Scandinavian culture 45 Schätzlein, R. 116 Schein, E.H. 66, 67, 68, 76, 90, 157, 263 Schneider, S.C. 2, 157, 234

Index Schoenberg, R. 255 Scholes, Kevan 153 Schoonhoven, C.B. 86, 87 Schroeder, K.G. 263 Schultz, M. 3, 8 Schumpeter, J.A. 62, 87 Schwartz, S.H. 215, 256 Schwarz, E. 261 secrecy, and corporate entrepreneurship 77 sector culture 215, 216 Serbian culture 162–4 Ševič, Ž. 123 shark, see Compass model Shaughnessy, T. 68 Shaw, V. 19, 121 Shell 48 Shenkar, O. 1, 2, 3 Shotgun Wedding pattern 188 case study 192–5, 198 Si, S.X. 97 Simonin, B.L. 1, 3 Simons, Helen 228, 251 Sirmon, D.G. 3, 7, 8, 13, 44, 69, 157 Sirower, M. 184, 186 situational approach 46 Sivakumar, K. 61, 64, 117 Sky Team Alliance 209 Slovenia 150–51 Slovenian culture 162–4 an innovation 125–8 social control, and corporate entrepreneurship 74 Social Viable Systems (SVS) theory 261 sociopathic organizations 272 Sørensen, J.B. 88 Souder, W.E. 62 South African fruit case study 53–5 Spekman, R.E. 211, 227 Spinetta, Jean-Cyril 48 Spitholt, M. 186 Srinivasa Rangan, U. 208 St Amant, K. 107, 215, 250 Stahl, G.K. 1, 8, 10 Stake, Robert E. 228 Starbucks Coffee Company 72 Staw, B.M. 16 steady-state resolution 238 Steensma, H.K. 13, 107 Štembergar, Mateja 181

287

strategic alliances assessing success or failure 212–14 CE (corporate entrepreneurship) 86–8 between competitors 211 definitions 10, 30, 86, 121 as economical entities 35–6 failure rate 1, 30, 96 importance of micro behavioural processes 14 importance of national culture 13–14, 97–9 methodological constraints on study 100–101 and leadership 38–9 as part of human nature 37–9 preparing for culture 221–4 reasons for failure 31–2 significance of context 249 significance of cross-cultural instruments 250–51 types and evolution 210–12 strategic cooperation definitions 203 forms of 208–9 reasons for 204 entering new markets 206 keeping abreast of new technologies 207 market position 204 optimalization of management talent 207–8 quicker product development 204–5 spreading risk 205–6 withdrawing from markets 206–7 strategic renewal 86–7 Strodtbeck, F.L. 16 Strother, J.B. 221 Stunde Null 260 subsidiary domain 263 SVS (Social Viable Systems) theory 261 Sybrands, S. 206 Sykes, H.B. 63 TACIS (Technical Assistance to the Commonwealth of Independent States) programme 259 Takeuchi, H. 7, 257, 265, 271, 272, 274 technological innovations 62

288

Index

teddy bear, see Compass model Tekavčič, M. 122, 124 Tellis, G.J. 82 Teng, B.-S. 13, 14, 15, 17, 19, 20, 30, 33, 34, 36, 38, 47, 51, 60, 86, 87, 88 Terblanche, F. 67, 68, 70, 72, 76, 78, 79, 81 Tesluk, M.L. 68 Thailand, food production 55 Thomas, D. 263 Thomas, K. 217, 220 Thorelli, H.B. 53 Thornberry, N.E. 63, 64, 90 Thornhill, A. 67, 68 3M 70, 79 Tidd, J. 64, 68, 70, 71, 72, 76, 77, 78, 79, 80 Tihanyi, L. 184, 198 time perceptions 23; see also long/ short-term orientation Toh, S.M. 255 Tovstiga, G. 63, 64 Triandis, H.C. 99, 185, 205, 214, 219 Trimo Dialogues 125, 135 Trimo/Trimo Trebnje (Slovenia) alliance study methodology 128–30 national/organizational culture at company level 130–36 overview 121–2, 145–7 practical implications for Trimo 143–5 professional culture at departmental level 136–42 theoretical implications 143 Trimo Trebnje (Slovenia) organizational culture 122–5 Trimo VSK (Russia) 124–5 True Trimo Employee characteristics 126 Trompenaars, F. 39, 69, 157, 170, 215 Trumble, B. 252 Trumbull, Deborah J. 228 trust impact on strategic alliances and M&A, alliance management framework 33–5 in international strategic alliances 19–20

turtle, see Compass model Tushman, M.L. 63, 68, 76, 79 Ulijn, J. 3, 7, 66, 67, 74, 84, 87, 97, 98, 101, 102, 103, 105, 106, 107, 116, 117, 121, 151, 157, 180, 185, 199, 200, 205, 214, 215, 216, 219, 221, 222, 223, 227, 250, 273 Ullrich, J. 198 uncertainty avoidance 42, 43 Germany 102–4 Netherlands 102–4 Ungson, G.R. 1, 2, 227 unification mode 240–41 US culture 256–7 Utterback, J.M. 70, 78 Uzzi, B. 53 values 65 van der Blonk, Heico 228 Van der Vegt, G.S. 8 van Luxemburg, A.P.D. 67, 68 Van Maanen, J. 263 Van de Ven, A.H. 13 van Rhijn, B.M. 206 Venkatraman, N. 212 Vermeulen, F. 2, 13, 97, 98 Voigt, A. 1, 8, 10 Volberda, H.W. 86, 87 Vorst, J.G.A.J. van der 47 Wahyuni, S. 24, 25 Wal-Mart retreat from Germany 258 Wang, C.L. 14 Ward, C. 263, 268, 270 Waterman, R.H. 65, 66, 188 Weber, R.A. 158 Weber, Y. 1, 3, 104, 107, 186 Weggeman, M. 3, 7, 74, 75, 97, 102, 105, 106, 121, 157, 180, 185, 222 Weick, K.E. 272 West, J. 23 Wever, U.A. 106 White, S. 9 Whitley, Richard D. 2 Wijk, Leo van 202 Wilkins, Alan L. 228 Williamson, Oliver E. 43 Wilson, David Sloan 37

Index Woolliams, Peter 157, 170 work discipline, supporting corporate entrepreneurship 78–81, 85 work environment 72 Xerox PARC 73, 77, 78 Yakavenka, H. 271 Yamada, T. 255 Yin, R.K. 108, 188 Yolles, M. 257, 261, 270, 272, 273

289

Yolles–Iles scheme 261–3 Yoshino, M.Y. 208 Zagoršek, Hugo 181 Zahra, S.A. 60, 86, 87 Zeira, Y. 2 Zetlin, M. 74 Zvezda Helios 150, 163–4, 171–7, 179 company culture 164–9 strategic fit within Helios Group 154–6