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Cultural Differences and International Ventures [SAV sirmon 2010 v.9]

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Lecture notes to accompany discussion of National, Organizational and Professional culture.

Lecture notes to accompany discussion of National, Organizational and Professional culture.

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  • Based on Work by Sirmon and Lane (2004)David Sirmon and Peter LaneClemson University. Durham, NH USA“A Model of Cultural Differences and International Alliance Performance”, 2004. JIBS. 35, 306-319. www.jibs.net.
  • International alliances offer firms opportunities to draw uponknowledge and capabilities not currently controlled or availablewithin their home country (OECD, 2000). Among other benefits,this can help firms share costs, enter new markets (Glaister andBuckley, 1996), supplement their capabilities (Inkpen and Dinur,1998; Hitt et al., 2000; Lane et al., 2001), seek more radicalinnovations by integrating knowledge from different areas ofscience and technology (Lubatkin et al., 2001; Nummela, 2003),and create common platforms for products and services (Moweryet al., 1998; Caloghirou et al., 2003). However, internationalalliances also bring However, the conclusion that national culturedifferences alone disrupt knowledge sharing between partnersrecently has been questioned. Pothukuchi et al. (2002) suggestedthat the importance accorded to national culture differences oninternational alliance performance may be overstated because moststudies have failed to consider or specify the influence oforganizational culture differences as well. Whereas national culturerelates primarily to deep-seated values, organizational culturerelates primarily to shared beliefs in organizational practices andprocesses (Hofstede et al., 1990). Examining a large sample ofinternational joint ventures, Pothukuchi et al.(2002, p. 258) found that ‘the presumed negativeeffect from partner dissimilarity on IJV performanceoriginates more from differences in organizationalculture than from differences in nationalculture’.challenges not found within domestic alliances.
  • The stages will require different kinds of activities as they progress calling for different resources to be devoted to the venture. Thus the cultural needs will vary over time, requiring greater cross-cultural cooperation.Year -1, year 1, year 2, year 5, year 10.Regardless, an effective pooling of complementary resources is necessary for value creation at each stage of the ventures lifecycle.
  • P1: The complementarity of partners’ resourcespositively affects alliance performance only whenthose resources are related to the primary value creatingactivities of the international alliance,and when the employees involved in thoseactivities interact effectively.Thus, assuming that the appropriate resources aremade available, understanding why some internationalalliances fail to create value effectivelyrequires the exploration of systematic differencesin the partners’ employees’ socialization. Threesources of such socialization are explored in thispaper: one’s nation, one’s organization and one’sprofession. We address each in sequence.The interaction of the employees involved in theprimary value-creating activity of the alliance islikely to be driven by sensemaking. Sensemaking isthe process of placing stimuli into categories inorder ‘to comprehend, understand, explain, attribute,extrapolate, and predict’ (Starbuck and Milliken,1988, 51). Because sensemaking is shaped bypersonal experiences, the interacting employeescan differ in their categorization and linking of stimuli.
  • National cultureAs stated previously, national culture refers todeeply set values that are common to the membersof a nation (Hofstede, 1991; Hill, 1997). It is asystem of shared norms, values, and priorities that,taken together, constitute a ‘design for living’ fora people (Hill, 1997, 67). Importantly, nationalculture is learned, and provides meaning to ‘howthings ought to be’ and ‘how things ought to bedone’ for individuals in a country (Berger andLuckmann, 1967; Terpstra and David, 1991). Theseshared beliefs are acquired early in life through aperson’s primary socializing in families, in schoolsand at play (Berger and Luckmann, 1967; Terpstraand David, 1991). Further, the influence of nationalculture is strong and long lasting. For example,Hofstede (1991) found that national cultureexplains 50% of the differences in managers’attitudes, beliefs, and values, and Laurent (1983)found that managers of multinational organizationsretain many of their original national valuesdespite routinely working in culturally diversesituations.No nation is expected to have a completelyhomogeneous national culture, but national differencesare clearly seen in economic and politicalsystems (Albert, 1991; Thurow, 1993), educationalsystems (Calori et al., 1997), and other institutions(DiMaggio and Powell, 1983; Hall, 1986; Clegg andRedding, 1990; Sorge and Maurice, 1990). Thus,national culture differences between alliance partnerscan challenge the development of successfulrelationships.These challenges stem partially from the lack ofshared norms or values (Park and Ungson, 1997).This lack of common understanding may underminethe partners’ interpretation of each other’sstrategic intent, which is crucial in global marketsand partnerships (Hitt et al., 1995). Further, a lackof shared norms and values may reduce effectivecommunication (Rao and Schmidt, 1998), trust(Aulakh et al., 1996; Doney et al., 1998) andknowledge sharing in joint ventures (Parkhe,1991; Mohr and Spekman, 1994; Lyles and Salk,1996). These problems, in turn, have been found tolead to lower alliance performance (Lane et al.,2001).In one noteworthy study, Barkema and Vermeulen(1997) examined the influence of differences inpartners’ national cultures on international allianceperformance using Hofstede’s (1980, 1991) dimensionsof national culture. They found that partnerdifferences in two of the dimensions (uncertaintyavoidance and long-term orientation) had a strongnegative relationship with the survival of thecollaboration over several different periods. However,the other three dimensions of national culture(individualism, power distance, masculinity) didnot. Differences in uncertainty avoidance and
  • Develop outside your company or even country.Do not fit within any single organizational culture
  • Transcript

    • 1. Cultural DifferencesandInternational Alliance Performance
      Based on Work by Sirmon and Lane (2004)
    • 2. International Alliances
      • Opportunity to use knowledge and capabilities not available in the home country.
      • 3. Benefits:
      • 4. Share Costs, Enter New Markets, Innovate Products, Increase Knowledge & Grow the Business. =Value Creation.
      • 5. Challenge:
      • 6. Differences in National Culture often cited but few practical methods to analyze and overcome the collaboration and learning difficulties. = Frustration.
      • 7. Deeper Analysis Shows:
      • 8. Challenges are caused by more than National Culture: Additional Professional& OrganizationalCulture have impact on venture performance.
      • 9. We cant focus on one without addressing the others and expect success
    • Understanding the Problem
      National culture (norms, legal system, business customs, rights, fairness, equality, accountability, independence etc.)
      • Influences Professional Culture. (how people act in this industry, management expectations, how customers interact with salespeople and sales managers, what incentives are customary, expenses, compensation, customer ownership ).
      • 10. Influences Organizational Culture (employee handbook, expected behavior at this company, company benefits, recognition, privilege, etc.)
      Do Taiwanese and American professionals speak the same language?
      If so, what is it? If not, how to we understand & manager it to reach success?
    • 11. To achieve: increased performance (higher sales, lower costs, increased market feedback, better product development opportunities) better brand recognition, advertising efforts, etc.)
      We have three levels of culture to contend with:
      National C: Legal Systems, Business Purpose, Equality, Fairness
      Professional C: Trade language, sales activities, managerial communications, relationships, shared expectations, compensation…
      Organizational C: Benefits, rights, perks, recognition, authority, accountability, office size, furniture,
      To achieve: increased (value adding) performance (higher sales, lower costs, increased market feedback, better product development opportunities) better brand recognition, advertising efforts, etc.)
      What we need to understand…
    • 12. Marketing Alliance
      Product customization
      Distribution selection
      Sales & service
      Up selling
      Co-Branding
      Value Creating Activity Effectiveness
      R&D Alliance
      Knowledge transfer
      Innovation centers
      Product development
      Research facilities
      International alliances differ in primary value creating activities…depending on what stage they are in (e.g. start-up, mature) or what industry they are in (tools, electronics, auto’s)…
      The stages will require different kinds of activities as they progress calling for different resources to be devoted to the venture. Thus the cultural needs will vary over time, requiring greater cross-cultural cooperation.
    • 13. Partner Compatibility Underdeveloped
      Failure of “Sensemaking”
      or the failure to comprehend, understand, explain, attribute, extrapolate and/or predict new stimuli.
      Failure to consider the differences in how each firm approaches the tasks
      Alliances fail to achieve their goals because the partners fail to recognize the difficulty in working together…
      What I say and single out and conclude are determined by
      who socialized me and how I was socialized, as well as the
      audience I anticipate will audit the conclusions I will reach.
      --Weick:Sensemaking in Organizations (1995, 62)
    • 14. Acquired early in life:
      Family socialization
      Schools, play
      Influence is long and lasting – holidays, ceremonies,
      National Culture
      Reinforced by
      Economic institutions (social security, federal bank)
      Political Parties
      Recreation
      Deep values common to members. Shared norms, values and priorities that together are known as their peoples: “design for living”
      Hofstede (1991) found that 50% of the differences in managers attitudes were influenced by National Culture.
    • 15. Stem from a lack of shared norms or values.
      Lack of common understanding may limit the partners interpretation of the others strategic intent
      National Culture Challenges
      Research by Barkema & Vermeulen (1997) found that:
      Long term orientation
      Uncertainty avoidance
      Had them ost impact on the success of international alliances.
      However, other evidence suggest that differences in national culture can be beneficial … people are more willing to spend additional effort on avoiding misunderstandings.
    • 16. Forms a kind of social control that identifies appropriate behaviors and attitudes for organizational members to display
      Organizational Culture (Company)
      Provides closer clues to members’ behavior than does national culture
      It provides members with an organizational identity and collective commitment.
      Social or normative glue that holds an organization together… it expresses the values or social ideals and the beliefs that organization members come to share. (Smircich, 1983)
      Brown (1988) in a study of Japanese and western Firms found that differences in organizational culture have a profound negative impact in venture performance. Firms spend too much time on cooperation than on the business itself.
    • 17. Organizational Cultural differences negatively impact the inter-organizational learning
      Organizational Culture Challenges
      Organizational Cultural differences negatively impact the employee satisfaction and effectiveness in interactions
      Domestic alliances also suffer from the same organizational performance issues.
      As a result, International Venture Partners with dissimilar organizational cultures will be less likely to effectively achieve the alliance's primary goals. (even when the necessary resources are available)
    • 18. Developed through socialization members receive during occupational or academic training (company or industry or university)
      Professional Culture
      …When a group of people who are employed in a functionally similar organization share a set of norms, values, and beliefs related to that occupation.
      Reinforced through professional experiences and interactions.
      Lead to a broad understanding on how their occupation should be conducted
      Trice and Beyer (1993) argue that an individuals professional culture is the most organized, distinctive and pervasive sources of sub-culture in work organizations. (accounting, marketing, sales, engineering)
    • 19. Separate professional cultures lack a shared set of basic knowledge because their occupational socialization involved different material
      Professional Culture Challenges
      Often lack experience communicating with members outside their professional culture.
      Communication is impaired
      Frustration emerges from a lack of “Common Ground”
      When ventures need employees from different professional cultures to interface on a project… we expect difficulty, specifically:
      Again, energy must be diverted from value creating business activities to simple activities that form a basis to communicate and interact with one another.
    • 20. An Example:
    • 21. Summary
      The three challenges inhibit the effective interaction of individuals from different cultures.
      This then decreases the likelihood that the alliances pooled resources will be shared, combined and leveraged in a manner that achieves the ventures goals.
    • 22. Appendix
      Culture
    • 23. Questions???
    • 24. International Business is as much an Art as it is a Science.
      Wrap Up