Culture

Question 1

Approaches to building and measuring supply chain culture

Answer 1

Aim of the paper  
This paper presents several different views on culture and aims to discover how they each can be used to overcome the intercultural management implications. → These implications are suggested to be cultural differences that are sources of miscommunications and misunderstandings.

Intercultural management broadly refers to the handling of cultural differences in business and organizations

• Being multicultural competent is more than just being polite or empathetic to people from other cultures; it is getting things done through people by capitalizing on cultural diversity.
• Intercultural management broadly refers to the handling of cultural differences in businesses and organizations.
• A guiding principle in IM is cultural relativism. Cultural relativism treats all cultures as equal and posits that each culture be understood within its own interlocking physical, historical, economic, social and political circumstances in a holistic way.
• The opposite being not accepting people of other cultures and instead imposing one’s own cultural values on another culture – or in other words being ethnocentric, which implies that one’s own culture is universal, if not superior.
• Practicing cultural relativism can be easier said than done

Different people and companies, however, have different understandings of the nature of culture and how culture changes. These views in turn shape their intercultural management strategies.

There are three main views are the essentialist, functionalist and negotiated, which will be presented in the following

1. Essentialist culture
   Culture is strongly established in a community or society over time and cultural change is slow. In intercultural management, one must adapt and accept the fixed cultural differences of others. Because of the deep-seated nature of cultural traits, essential cultural differences can be used to depict a culture and community. In order to do that, Geert Hofstede came up with dimensions of culture:

• Power distance
o Degree of which members of a country expect and accept the unequal distribution of power
• Uncertainty avoidance
o Degree of discomfort felt when faced with uncertainty and ambiguity. Are people willing to take risk?
• Individualism versus collectivism
o Refers to the social network that an individual expects to take care of in society. In a more individualistic society individuals and immediate family take care of themselves, while a collectivistic society expects an individual to support and be supported by a larger social network in society
• Masculinity versus femininity
o The fundamental issue here is what motivates people, wanting to be the best (Masculine) or liking what you do (Feminine)..
• Long term orientation
o Pragmatic focuses on emerging challenges and encourages preparation for the future. Normative focuses on traditions and norms.
• Indulgence versus restraint
o The extent to which people try to control their desires and impulses

Unlike the essentialist view, the dynamic view sees culture as changeable. Cultural change can take place quickly since members in society interact and have space to transform society and culture.

In the dynamic view, the classical anthropological method of “ethnographic present” is often used to understand the relationship between culture and society at a particular moment in time, space and circumstance. An ethnographic present gives only a snapchat view of society and culture over a limited period of time.

The two main dynamic views of culture are the following:

2. Functionalist culture
   This functionalist culture views many cultural practices as serving basic needs and functions in society. Good intercultural management services and strategies must therefore relate to these purposes.
   For illustration, a company’s human resource services and strategies may not fit the society if they go overseas. The centralized welfare systems in northern Europe serve the needs of looking after the young, old, sick, and unemployed, but in many other societies, friends and family serve various welfare and support functions. As a result, for instance, northern European companies have to modify their incentives for their workers in China. Generous, European-style annual leave schemes are welcome, but many Chinese workers prefer to have fewer days off and be given health insurance for their family instead.
3. Negotiated culture
   In negotiated culture, there are diverse interest groups in society all interacting in ways to further their own agenda an influence the culture. Culture is constituted by processes of negotiation, persuasion and manipulation. Marketing is often an explicit attempt at changing consumer behavior for the benefit of firms. Starbuck is a prime example with their success in changing coffee drinking habits around the world for their own success

Intercultural Management of Dynamic Cultures
Both the functionalist and the negotiated view of culture see change as inherent in society and both focuses on how culture changes and emerges. In taking the dynamic view of culture, despite the entrenched cultural practices in many countries, many firms can introduce new services, promote sexual equality in the workplace, change consumer behavior, and foster more transparent and accountable business practices.

Findings 
There are different views of culture, and these
views affect intercultural management strategies as seen in Table 1. These views are
not necessarily mutually exclusive. More often than not, different approaches are applied to different situations. The essentialist views of culture see change as slow and individuals as culturally wired. The dynamic views of culture see culture as malleable. Individuals are shaped by their cultures, but their actions correspond to the social setting, context, and situation. Both the functionalist and the negotiated views of culture avoid applying generalized views onto individuals. And in all approaches, being respectful of cultural differences and avoiding misunderstandings are central in intercultural management.

Question 2

What is the institutions role?

Answer 2

Aim of the paper  
Institutions have been created to establish order and reduce uncertainty in exchange. Together with the standard constraints of economics they define the choice set and therefore determine transaction and production costs and hence the profitability and feasibility of engaging in economic activity. The author intends to elaborate on the role of institutions in the performance of economies and illustrate my analysis from economic history.

Resume 
Why is human interaction with institutions necessary? Individuals would like to cooperate with other players IF the play is repeated, they have complete information about their counterparts and the number of players is low. Institutions, that permit low cost transacting and producing in a world of specialization and division of labour, require solving the problems of human cooperation in the event when none of the above condition happens (endgame, no info, large number).

Institutions and their enforcement determine the cost of transacting. In fact, effective institutions raise the benefits of cooperative solutions or the costs of defection, to use game theoretic terms. In transaction cost terms, institutions reduce transaction and production costs per exchange so that the potential gains from trade are realizable.

Villages: It all starts with the exchange of basic resources from small villages. People have an intimate understanding of each other, and the threat of violence is a continuous force for preserving order because of its implications for other members of society.

Merchants: As trade expands beyond a single village, however, the possibilities for conflict over the exchange grow therefore religious precepts are needed to impose code of conduct. The growth of long distance trade poses two distinct transaction cost problems:
• It covers the direct cost of managing relationship such as search and information costs, bargaining and decisions, and thus monitoring and enforcing arrangements, but also the opportunity cost of making inferior governance decisions such as asset specificity, bounded rationality (no complete information) and opportunism (self-interested behaviour).

Town and cities: These societies needed effective, impersonal contract enforcement, because personal ties, voluntaristic constraints, and ostracism are no longer effective as more complex and impersonal forms of exchange emerge. Two solution were found:
• Capital market: it entails security of property rights over time
• Effective markets with secured property rights, which entail a polity and judicial system to permit low costs contracting, flexible laws permitting a wide latitude of organizational structures, and the creation of complex governance structures to limit the problems of agency in hierarchical organizations

Modern time: the transaction sector rises to be a large percentage of gross national product. This is so because specialization in trade, finance, banking, insurance, as well as the simple coordination of economic activity, involves an increasing proportion of the labor force. Out of necessity, therefore, highly specialized forms of transaction organizations emerge. International specialization and division of labor requires institutions and organizations to safeguard property rights across international boundaries so that capital markets (as well as other kinds of exchange) can take place with credible commitment on the part of the players.

Problem: Institution do not always evolve
In some primitive institutional settings, the kind of knowledge and skills that will pay off will not result in institutional evolution towards more productive economies.
Suq (particular type of society village-like): the central features of the Suq are
(1) High measurement costs (no standard units of measures);
(2) Continuous effort at clientization (the development of repeat-exchange relationships with other partners, however imperfect); and
(3) Intensive bargaining at every margin. In essence, the name of the game is to raise the costs of transacting to the other party to exchange.
→ What is missing in the Suq are the fundamental underpinnings of institutions that would make such voluntary organizations viable and profitable. In their absence there is no incentive to alter the system.
Caravan trade: informal constraints that made trade possible in a world where protection was essential and no organized state existed. While tribal chieftains found it profitable to protect merchant caravans they had neither the military muscle nor the political structure to extend, develop, and enforce more permanent property rights.

Institutional evolution in Early modern Europe
Innovations that lowered transaction costs consisted of organizational changes, instruments, and specific techniques and enforcement characteristics that lowered the costs of engaging in exchange over long distances. These innovations occurred at three cost margins: (1) those that increased the mobility of capital, (2) those that lowered information costs, and (3) those that spread risk. Obviously, the categories are overlapping, but they provide a useful way to distinguish cost-reducing features of transacting

Contrasting Stories of Stability and Change
These contrasting stories of stability and change account for changes in the human economic condition. In the former cases, maximizing activity by the actors will not induce increments to knowledge and skills which will modify the institutional framework to induce greater productivity; in the latter case, evolution is a consistent story of incremental change induced by the private gains to be realized by productivity-raising organizational and institutional changes

Why do we have this contrast? It is due to two factors: the relationship between the basic institutional framework, the consequent organizational structure, and institutional change; and the path dependent nature of economic change that is a consequence of the increasing returns characteristic of an institutional framework. (In each case the trader was constrained by the institutional framework, as well as the traditional constraints common to economic theory.)

Question 3

What is the structural paradox?

Answer 3

Chuang et al.: Walmart and Carrefour experiences in China: resolving the structural paradox

Aim of the paper:

• Explore the structural paradox faced by retail multinational firms in China as they balance the competing demands of standardization and localization.

Originality/value of the paper:
• Many multinational corporations are aware of the topology of the Chinese market, what they lack is an in-depth understanding and the skills needed for effective operations. This paper discusses the effectiveness of the strategies adopted by two leading global retailers as they attempt to resolve the paradox presented by the competing demands for standardization and localization and includes information provided by three of Walmart’s and Carrefour’s local Chinese suppliers.
• Experiences of Walmart and Carrefour illustrate the challenges retail MNCs face as they attempt to transfer their cost leadership customer value propositions to China.

• The authors describe the challenges faced by two retail giants, Walmart and Carrefour, as they attempt to replicate in China their lean retailing successes elsewhere in the world.
• In each case, the retail MNCs entered the Chinese market with a value proposition based on solely price and have been unable to replicate their success elsewhere without their usual efficient supply chain.
• The structural paradox in retail (MNCs) lies in the balance between their objective in enforcing standardization (at the national level) and the need to conduct localization (at the sub‐national level) to ensure customer acquisition.
• From the operational perspective, standardization, or a direct transfer of retail (MNCs’) strategic assets – formats, commodities, various retail practices and know‐how (e.g. shelving and display, sales events, distribution practices), is an important and cost effective means to achieve scale economies (Aoyama, 2007, p. 473).

Problem:
• There are costs associated with implementation of localization;
o The MNCs must identify areas in which the local culture must be accommodated and adapt their operations to satisfy their target customers. Localization often defeats economies of scale and may subvert corporate identity.
• Under-localized retail MNCs may fail to gain customer acceptance but over-localized retail MNCs may lose their very identity and not find a niche because they are inadequately differentiated from domestic competitors.

→ The study shows the importance of integration of front- and back-end operations as retail MNCs enter new markets.

• Walmart and Carrefour have so far failed to extend their oligopolistic dominance to the Chinese market; without standardization they cannot obtain oligopolistic power, and without oligopolistic power they cannot enforce standardization in the still chaotic Chinese markets.

• Walmart has stressed its well‐known standardization of operations, whereas Carrefour has better adapted to the Chinese economic culture.
• Issues identified are:
• The formation of partnership alliances and their impact on store location choice
• The effect of under‐developed infrastructure on distribution and logistics
• The unique Chinese business culture – guanxi (using social capital to build business relationships) and its influence on supplier relationships
• The variety of consumer behaviour i.e. market segmentation and its effect on procurement and sourcing
• An immature information technology environment, which hinders information sharing between supply chain partners.
• Protectionism from local government
• While both firms have had some degree of success, neither has been able to match the combined growth of their larger Chinese competitors.

In sum, the Chinese retailers thoroughly understand local customs and consumers and have long-established relationships with suppliers and local governments based on guanxi. From their foreign rivals the local companies are learning and implementing new front- and back-end techniques.

The study has two main limitations
• Primarily relied on secondary sources for information
• Information obtaines is of limited reliability

Managing conflicts and compromise: Process strategies for resolving conflicts
Questions to ask:
1. How important is the relationship?
2. How important is the outcome?

Question 4

Does cultural distance have an impact on the choice of market entry modes?

Answer 4

Gollhofer and Turkina, 2015
Purpose: to take a strategic perspective on how MNEs in the retails sector decide to enter a new market by looking at transaction cost theory, contingency approach and resource-based theory.
 
Findings: there is a positive relationship between resource commitment, entry mode strategy and cultural distance for the case company. Nevertheless, these findings are contrary to the mainstream argument that high cultural distance is related to entry strategies based on relatively low resource commitment.
 
When entering a new market, MNEs need to choose between
• Global integration strategy: aligning operations across cultures.
• National responsiveness strategy: strategy and implementation are tailored to the host country
 
Similarly:
• Global brand strategy: global brand with little or no adaptation
• Local brand strategy: portfolio of local brands
 

Resume
• To conquer new markets, companies have to choose an entry mode.
• These entry mode strategies are often placed on a continuum going from relatively low resource commitment to high resource commitment strategies.
• Entry mode choice should be consistent with the firm’s overall strategy of the firm to drive alignment. In doing so, firms can choose between various entry modes that are classified under the following categories:  
• Ownership level (wholly owned subsidiary vs partially owned subsidiary)
• Establishment mode ( e.g. greenfield vs acquisition)
• Contract (franchising) vs equity (joint ventures vs wholly owned subsidiaries)
• Levels of control and risk
• Levels of resource commitment
• Cultural distance has shown to be a crucial factor in a global strategy: prior research has suggested that cultural distance plays a major role in ensuring the effectiveness in distant global markets of the chosen entry mode.
• For a company to be successful internationally, it is important for it to integrate the cultural component into its overall strategy.
• → Main point: The choice of entry mode can either help to decrease or contribute to increasing cultural distance.

The paper continues with the application of cultural distance theory on the retail sector through the discussion of cultural distance in relation to the following 3 theories:

H1: The likelihood that a retail-sector MNE enters a new market through a low resource commitment entry mode, like franchising or a joint venture, rather than through a WOS (greenfield investment, acquisition) increases as cultural distance increases.

Case study: Carrefour
 
Fairly global brand
Operating in more than 30 countries in the world
Relied on different market entry strategies in the past
 
Aim: determining whether Carrefour has integrated cultural distance in their strategic decision making process.

Results:
Cultural distance is significant in predicting the probability of joint venture and greenfield investment mode.
Insignificant in predicting acquisition and franchise entry modes
The study yields contrary results to the hypothesis
By choosing high resource commitment entry strategy, Carrefour ensures that there is an unhindered flow of competences and an efficient transfer of practices between headquarters and the subsidiaries in markets with high cultural distance so that its business model is successfully implemented.

Main takeaways:
The view of cultural distance cannot be explained from a narrow viewpoint but, rather, from a broader strategic perspective.
Entry mode choice is not only based on the cultural distance factor, but, rather, on overall strategy.
Theories developed for the manufacturing service cannot be transferred to the retail sector.
 
Implications for practitioners: 
 
Retailers should pay attention to cultural distance and keep in mind their overall strategy in order to align both
In the case of high cultural distance, retailers should not decrease cultural distance by entering a foreign market via a franchise or joint venture. Rather, they should seek to mitigate the cultural distance by entering through high control modes such as acquisition or greenfield investment in order to offer a consistent brand image.