gmj vol. 2, no. 1/2010

3/ LOOKING AT THE LINK BETWEEN LEADERSHIP,

ORGANIZATIONAL LEARNING

AND THE INTERNATIONALIZATION SIGMOID Florinel-Frank Cotae

17/ A CULTURALLY SENSITIVE APPROACH

TO SUSTAINABLE BUSINESS IN EMERGING MARKETS:

HOW TO MANAGE THE CHALLENGES

AND OPPORTUNITIES IN VIEW OF THE GLOBAL

ECONOMIC CRISIS? Vipin Gupta

31/ ETHICS PERCEPTIONS OF THE U.S. AND ITS LARGE

DEVELOPING-COUNTRY TRADING PARTNERS

Inder P. Khera

40/ COMPOSITE INDEXES AND INDICATORS

OF INNOVATIVENESS: SOME CRITICAL COMMENTS

Wojciech Nasierowski

50/ EXAMINING THE IMPACT OF ORGANISATIONAL

VALUES ON CORPORATE PERFORMANCE IN SELECTED

GHANAIAN

Daniel F. Ofori, Evans Sokro

64/ AN EXPLORATION OF RESEARCH PRACTICES

IN THE MANAGEMENT SCIENCES IN SOUTH AFRICA René Pellissier

86/ HOW TO INCREASE LOCAL PARTNERS’ BARGAINING

POWER AND ABSORPTIVE CAPACITY IN JOINT

VENTURES? Sari Wahyuni, Lili Sudhartio

The Global Management Journal (GMJ) is committed to the publication of original papers ranging from empirical scholarly research to theoretical or speculative articles, all on a variety of topics under the category of business management with a global context. In addition to the global management focus, however, the GMJ seeks submissions for publication with a decidedly social science application or approach; that is, writing on global management predominately connected with the subfi elds of the social science, and management fi elds such as:

• business education • business ethics• communication studies• economics• entrepreneurship• ethnic and ethnographic studies• fi nancial and risk management• globalization and globalization studies• history• geopolitics and international relations• human resource management• human values and belief systems• intercultural studies• organizational behavior and theory• psychology• sociology• strategic management• tourism and service management

The GMJ, while desiring to publish works which may have an important impact on the fi eld of management, also encourages new approaches, ideas and perspecti-ves on well-established theories and existing research.

Vol. 2, No. 1/2010 ISSN 2080-2951

CHAIR OF EDITORIAL BOARDDr Peter Odrakiewicz, Assistant Prof

CO-CHAIR Prof. Dr Philippa Collins

EDITORIAL BOARD MEMBERS

Prof Dr Jan AlpenbergTyndale University College, Toronto

Dr Katarzyna Czainska, Assistant ProfessorPoznan University College of Business

Prof. Dr Helena DesivilyaMax Stern Academic College of Emek Yezreel

Dr Jussi Kantola, Assoc Prof.Institute for Design of Complex Systems, Korea

Prof. Dr Liora KatzensteinThe Institue for the Study of Entrepreneurship & Management of Innovation

Prof. Dr Hamid H. KazeroonyWalden University

Prof. Dr Sławomir MagalaRotterdam School of Management Erasmus University

Prof. Dr Wojciech NasierowskiUniveristy of New Brunswick

Dr Hubert Paluch, Assistant ProfPoznan University College of Business

William Strnad, Assistant ProfessorPoznan University College of Business

Dr Adam Sułkowski, Assistant ProfessorUniversity of Massachusetts Dartmouth

Prof. Dr Charles WankelSt. John’s University

Prof. Dr Hannu VanharantaTampere University of Technology

Prof. Dr Paul WongTyndale University College, Toronto

Prof. Dr Nilay YajnikNMIMS University

Prof. Dr Agata Stachowicz-Stanusch Silesian Technical University

LOCAL ORGANIZING COMMITTEETomasz SworowskiKrystyna HoremskaMateusz KaczmarekBartosz Skotarek

EDITOR - CONTACTDr Peter [email protected]

EDITORIAL OFFICEAddress: Global Management JournalNiedziałkowskiego 1861-579 Poznań, Polandphone: +48 61 8331465fax: +48 61 061 833 14 33mobile: +48 501 443 014

GRAPHIC DESIGNMaja Popiak Flower Power

PUBLISHED BYPoznańska Wyższa Szkoła Biznesu Poznan University College of Business

Fundacja na Rzecz Edukacji Obywatelskiej, PoznańFoundation for Citizenship Education, Poznań, Poland

Copyright© PWSB Poznań, 2010

ISSN 2080-2951

INTRODUCTION

At the publication of our fi rst issue of the year 2010, we wish to thank Professor Charles Wankel for his leadership during his time as the Chair of the Global Management Journal (GMJ) Editorial Board, and for his scholarly guidance and vision which were central in the creation and progress of our journal. With the coming of 2010, Professor Wankel stepped down from his position as Chair, GMJ, and was replaced by Professor Odrakiewicz. Fortunately, Professor Wankel is not leaving us, and we welcome him as a member of the GMJ Editorial Board. Additionally, we wish to welcome three new members of the GMJ Editorial Board: Professor Jan Alpenberg of Tyndale University College in Toronto, Canada, Professor Wojciech Nasierowski of the University of New Brunswick in Fredericton, Canada, and Professor Sławomir J. Magala of the Rotterdam School of Management, Erasmus University in Rotterdam, The Netherlands. Their acumen and enthusiasm will be appreciated.This era calls for solutions appropriate to the global uncertainties and immense challenges which are faced by managers in every corner of the earth. We at GMJ are dedicated to bringing our readers articles which span global geography and a diverse range of global issues, or local issues with global relevance. In this issue of GMJ:

• Florinel-Frank Cotae examines multinational enterprise leadership, the relationship between the degrees of voluntarism subscribed to by leaders and its impact upon a fi rm’s international performance, and the importance of organizational learning modalities in the context of a successful internationalization process.

• Vipin Gupta, addressing multinational corporations seeking opportunities to transmit technological and organizational solutions for sustainable business in emerging markets, reviews the literature on sustainable business and culturally sensitive business behaviors, and proposes a framework for measuring the role of culture.

• Inder P. Khera, against the backdrop of ever increasing internationalization of retailing, presents survey results on perceptions of ethical behavior among six countries, which included the United States, China, India, Mexico, Germany and Italy, and advances some possible explanations for correlations and divergences.

• Wojciech Nasierowski explores composite indexes and the European Innovation Scoreboard, the innovation measurement standard in the European Union, the advantages of non-parametric approaches in analyzing issues of innovativeness, and formulates suggestions for crafting strategies for improvement of pro-innovative policies.

• Daniel F. Ofori and Evans Sokro, using a hybrid of quantitative and qualitative research methodologies, seek to identify the core organizational values espoused by selected Ghanaian fi rms, and the degree to which they are implemented both by the organizations and employees.

• René Pellessier focuses on management journals in South Africa to determine possible interdependencies between the research problems and the research designs utilizing using a content analysis approach in conjunction with theory building and modelling, and develops a conceptual framework to review management research.

• Sari Wahyuni and Lily Suhartio study the infl uence of bargaining power and absorptive capacity on value appropriation, both appropriated relational rent and inbound spillover rent, in international joint ventures which are part of the Indonesian-Japanese automotive industry.

GMJ Editorial BoardDr Peter Odrakiewicz -Editor

2 / GLOBAL MANAGEMENT JOURNAL

TABLE OF CONTENTS

Florinel-Frank Cotae – Looking at the Link between Leadership, Organizational Learning and the Internationalization Sigmoid ...................................................................3

Vipin Gupta – A Culturally Sensitive Approach to Sustainable Business in Emerging Markets: How to Manage the Challenges and Opportunities in View of the Global Economic Crisis?...............................................................................................................................................17

Inder P. Khera – Ethics Perceptions of the U.S. and Its Large Developing-Country Trading Partners...............................................................................................................................................31

Wojciech Nasierowski – Composite Indexes and Indicators of Innovativeness:Some Critical Comments..................................................................................................................................40

Daniel F. Ofori, Evans Sokro – Examining the Impact of Organisational Values on Corporate Performance in Selected Ghanaian ............................................................................50

René Pellissier – An Exploration of Research Practices in the Management Sciences in South Africa....................................................................................................................................64

Sari Wahyuni, Lili Sudhartio – How to Increase Local Partners’ Bargaining Power and Absorptive Capacity in Joint Ventures? .................................................................................................86

Florinel-Frank Cotae / 3

Looking at the Link between Leadership, Organizational Learning and the Internationalization

Sigmoid

FLORINEL-FRANK COTAEInternational School of Management, New York

18984 Canyon Tree DriveTrabuco Canyon, CaliforniaUnited States of America

[email protected]

1 IntroductionThe continuous quest of growth and diversifi cations

has pressured companies to pursue internationalization for their operations as an outlet for achieving better fi nancial results, increase competitive position and market share, reduce business risk and diversify op-erations. Understanding the rationales and limitations of such efforts has been the subject of much research and discussion for several decades.

The pursuit of increased international presence has not come without a cost as the process does carry a certain cost element and it weighs on an MNE’s core capabilities and resource inventory. Firms unable to

Abstract: The article aims at pointing out the complex relationship between the leadership of a multinational enterprise (MNE), focus and importance of organizational learning in the context of a successful internationalization process. As the title suggests the paper presents the theoretical scaffold for the correlation between internationalization, MNE’s leadership and organizational learning. Leadership’s direction and vision from a learning organization perspective is looked as methodical and synthetic theoretical modes which are intersected. The results of such junction bring to the forefront the relationship between the degrees of voluntarism’s subscribed to by an MNE’s leaders and its impact upon a fi rm’s international performance. The choice of organizational learning modalities are looked at through the ensuing decisions made by respective leaderships and results with regards to internationalization registered at: Mabuchi Motors, eBay, Whirlpool and Interbrew. Prolonging a fi rm’s growth, viability and providing a continuum model for increasing its profi ts have been and will be the object of debate and research for many decades. Concluding and limitation points are also acknowledged.

Key words: multinational enterprise (MNE), leadership, organizational learning, learning organization, internationalization process, sigmoid

cope with the new demands of continuous internation-alization are seen to regress in their registered results. To what extent leadership, alongside organizational learning can prevent this is the subject matter of this paper. The following sections present a literature focus of the internationalization, leadership and organiza-tional learning, while applying them to actual MNE’s predicaments to achieve a certain level of authenticity and applicability for the realization of a set of realistic expectations with regards to modifying the sigmoid.


2 Problem Formulation2.1 Literature Review

The literature review segment would be undertaken in a progressive matter as the customary neutral tone is being replaced by a active participation with regards to defi ning different terms and issuing pertinent opinions vis-à-vis each contributing element. The aims is to transfer a certain level of participation and interactivity to the implied concepts.

Internationalization is defi ned as the “process by which fi rms increase their awareness of the infl uence of international activities on their future, and establish and conduct transactions with other fi rms from other countries (Beamish, Morisson, Inkpen, Rosenzweig, 2003)”. Although, most related literature seems to either reconcile or promote internationalization as the appropriate direction for warranting a MNE’s superior performance attainment (Contractor, 2007, Riahi-Belkaoui, 1998, Sullivan, 1994 and Tallman/Li, 1996), there are voices doubting the linear and equating relationship between a fi rms’s degree of globalization and its level of performance (Hennart, 1982, 2007 and Johanson/Vahlne, 1990). Other voices are merely questioning the process (Glaum/Osterle, 2007 and Lopez, Duarte, Garcia-Canal, 2007) as the absolute promise for increased performance levels; process which is generally seen as not existing devoid but rather as a result of interactions between leadership decisions and organizational learning.

A multi-stage and s-curve hypothesis is advanced as the model for the multinational degree of international expansion (DOI) and performance relationship (P) (Beamish/Lu, 2004). There are three distinct stages of internationalization in the life of a fi rm, best exempli-fi ed by the General Sigmoid (Johanson/Vahlne 1977, Lu/Beamish 2004 and Thomas/Eden 2004) model -Figure 1-: stage I - early internationalization, stage II – later internationalization and stage III – excessive internationalization. At the fi rst stage a multinational is expected to incur costs as it sets up “shop” in a for-eign place (Thomas/Eden, 2004), yet these costs are expected to be recovered during the second stage as the fi rm’s performance reaches superior or often fore-casted results. The third stage has been the matter of debate as multinationals eventually reach a point where increasing the degree of internationalization becomes a counterproductive activity (Beamish et al, 2003) as the fi rm gradually reaches a level of operational resource saturation, so to speak. The saturation point is where the core operational capabilities of a fi rm are no longer adequate for servicing the needs stemming from oper-

ating a large number of global vendors, subsidiaries, retail channels, customers and associates.

Figure 1: The General Sigmoid 3-Stage Model (Beamish, Morisson, Inkpen, Rosenzweig, 2003)

Furthermore, during the third stage the cost or maintaining a global operation and/or growing inter-nationally renders the internationalization strategy as ineffi cient and usually requires efforts outside a fi rm’s realm of operational logistics/realities. Re-sults, productivity and profi ts are expected to decline. Simply put the fi rm fi nds itself overleveraged and overextended.

Current research has not yet produced a model or factor by virtue which this stage on internationalization can be predicted or its effects ameliorated, postponed or diminished. It is therefore suggested as necessary for a MNE to continuously attempt to assess and forecast its operational environment, degree of operational knowledge and core abilities before pursuing higher degree of globalization.

Leadership, the second consideration, as a concept often gets defi ned as been related to an existing/present management team active at an organization’s different functional and operational levels. “Leadership is the behavior of an individual in directing through commu-nication and interpersonal infl uence, the activities of a group toward a shared goal (Kouzes/Posner, 1987).” Leadership comes into play as an organization faces the ever-changing need of dealing with changes in the business, social, cultural and political landscapes. “Leadership is coping with change, whereas manage-ment is coping with complexity (Kotter, 1990)”. There-fore, there is a clear link between management and leadership, yet while the relationship appears organic the two terms are not congruent as not all managers are organizational leaders. Second, management is task and process oriented, whereas leadership deals with getting people to do what needs to be done.

Managers carry out responsibilities, exercise authority, and worry about how to get things done,


whereas leaders are concerned with understanding or-ganizational needs, core capabilities, peoples’ beliefs and gaining their commitment (Zaleznick, 1990).

Managers are task oriented, while leadership is the progression, the evolution of task performance. Leadership comes into play as an organization faces the ever-changing need of dealing with changes in the business, social, cultural and political landscapes. It takes leadership to guide a business endeavor under these circumstances. The capable leader is “one who can lead others through diffi cult situations where signifi cant changes are taking place (Guariello, 1996; Beers et al, 1996; Kotter, 1990)”.

These considerations seem to place leadership of an MNE at the forefront of the decision making process. To what extent does leadership affects a fi rm’s foray into global expansion or prevents it form becoming overextended? The question is mostly introspective as an organization’s leaders are and should be the one charged with making the global expansion derived decisions as well as estimating the consequences of such operational directions.

Summarizing, leadership is an integral part of a learning organization as it is called in to manage chang-es, be they internal and external. The list of challenges affecting contemporary management is complex, yet dealing with multicultural and internationalization considerations seems to take priority over all other as business endeavors are increasingly asked to operate in a global environment.

The concept of organizational learning, the third piece of the puzzle, is seen as instrumental to a business entity success and competitive advantage acquisition. Four different perspectives of the idea of learning organization have been advanced, as well as a specifi c label for each of them, as a way of simplify-ing the communication for the underlying idea. First, the term learning organization is used synonymously with old organizational learning, the knowledge that the individuals have learned (often over a certain time period) as “agents for the organization is stored in the organizational memory (Mills, 1996)”. Second, the term learning organization can mean an organization where the learning takes place at work and not on courses-learning at work. Third, the label can be used to describe an organization that facilitates the learn-ing of all its employees-a learning climate. Fourth, a popular perspective today is to consider the “learning organization as an organic structure with a high degree of fl exibility, in order to satisfy the customers of the company (Beer/Davenport/Long, 1998)”. The aim of creating a fl awless semantic framework for the idea of learning organization emerges through the prism

of the above four labels. However, the existence of different perspectives of the learning organization in the literature probably not only gives a vague picture of the overall concept but it also creates opportunities for companies to choose a variant of the idea that fi ts their strategic interest (Beers et al, 1996). Simply put by defi nition a learning organization presumes the existence of certain operational fl exibility and com-mitment to learning.

The task of arriving at a defi nition of learning as a cognitive process remains somewhat formless, as some researchers defi ne learning as a “change in behavior in response to a stimulus (Cyert/March, 1963)”. Other scholars suggest that “learning requires some conscious acquisition of knowledge or insight on the part of organization members” (Argyris/Schon, 1978; Huber, 1991). Yet this knowledge is not seen as unrelated to organizational goals, activity, action or decision making, as it seen to be relevant not only to individual learning, but also to that of organizations. Fiol and Lyles (1985) noted that “organization learn-ing means the process of improving actions through better knowledge and understanding.” Therefore is seems that an agreement had been reached with regards to including both cognitive and behavioral elements into the defi nition of organizational learn-ing. Considering the existing research a defi nition of organizational learning, through the prism of an MNE’s business purpose, can be advanced as being the action of “acquiring knowledge necessary for im-proving the strategic decision making process needed for successfully dealing with change stimuli (Cotae, 2009)”. Several researchers (Hampton, 2007) have pointed out that MNE success relies upon the form’s ability to create a “knowledge warehouse” where in-formation would be collected from a diverse array of sources- best competitor practices, country particular norms/values/legal environment, industry particular risk factor, geo-political facts…-and accessed as foundation for any changes in strategic direction and/or goals formulation.

There is no debate that the terms share a strategic intent and purpose, yet the two concepts are not con-gruent. Organizational learning point to a particular action on the part of a corporations, while a learning organization can be best portrayed best as a “mind set”, a commitment to a certain environment.

The current research suggests that gender, age, managerial behavior and actual training received are determinants of organizational learning. Findlay at al (2000) indicates that there are “several structural factors that predict successful learning”. Their ini-tial observations about shared understandings and


experiences revealed that “the concept of the learn-ing organization is quite distinct from the process of learning undertaken by its individual members (Matthews, 1994)”. People embody learning in their own minds, but organizations have no “minds” except in a fi gurative sense. Organizations have to develop the institutional structures through which experience can be gathered and accumulated, and embodied in organizational routines, also called “organizational memory (Findlay et al., 2000).

Organizational learning is seen to require two defi n-ing characteristics for its existence:

(a) Enable managers not only to act in a way that is perceived as fair, but to develop mechanisms which allow all groups of employees and managers to be able to articulate views. Employees need to be part of the learning process by generating “best practices” and continuous improvement, at the same time as maintaining a genuine level of autonomy. Open com-munication of views, ideas and opinions is seen as of intrinsic value.

(b) Guarantee not only that learning is a two-way process, but also that employees gain benefi t from formal learning processes. Developing training courses that have applicability to employees’ lives outside of the workplace and accepting that employees have skills that they can bring to the workplace, are important steps in developing organizational learning.

2.2 Voluntarism vs. Determinism and Methodical vs. Emergent paradigms

The research undertaken in the fi eld of organi-zational behavior has been often characterized as eclectic for the past literature faux pas with regards to defi ning a clear interpretation of organizational para-digms (Miller, 1996). Paradigms that today are seen to contain two content comparisons: voluntarism vs. determinism and methodical vs. emergent behavior. Bellow each antagonistic comparison will be under-taken so as to shed an evolved understanding of their signifi cance upon an organization.

The voluntarism-determinism refers to the extent to which people and their institutions are “deemed intelligent and independent role players rather than entities severely restricted in cognition and action (Astley/Van de Ven, 1983; Hrebiniak/Joyce, 1985)”. Strategy oriented researchers, for example, adopt voluntaristic perspectives, allowing much latitude for free choice by decision makers (Ansoff, 1979; Porter, 1985). Bureaucratic and pro-bureaucratic theorists are more deterministic and view “cognition as being channeled and behavior as being constrained (Cyert/

March, 1963)”. Simply said the paradigms enable an organization to understand its own learning dimen-sion based on its preferences and expectations. An organization aiming for an autocratic model based on strong preferences for bureaucracy and constraints would be less inclined to harvest benefi ts from a free choice, independent thinking staff. The reciprocal also stands with the caveat that many organizations could experience both forms depending of the situation or industry they operate in.

To exemplify, Google the giant Internet search engine, praises itself as a MNE on cultivating free independent thoughts applied to decisions and orga-nizational learning by every team member; yet the same company defi nes the bureaucracy overlooking employee actions as well as the limitations for the direction of voluntarism. To exemplify: Google’s ex-ecutives encourage free thought and the undertaking of new ideas with regards to R&D, yet employees are still supervised with regards to the direction, cost and purpose or their research engagement; which also are subordinated to completing existing tasks. Learning is encouraged, yet the paradigms apply in a selective manner due to different organizational priorities (Fran-cesca/Gold, 2005).

A second dimension – methodical vs. emergent- that contrasts theories of organizations measures whether decisions are based on methodical analyses and concrete standards versus emergent intuitions and subtle values. Transaction cost theorists, industrial or-ganization economists (Porter, 1985), and proponents of corporate planning (Steiner, 1980), view leaders just as Miller does as “intended rational actors who make decisions by systematically analyzing hard information about competitive options and costs (Miller, 1996)”. Norms of economic or technical rationale are given a primordial signifi cance. By contrast, institutional theorists (DiMaggio/Powell, 1991) and those who have studied entrepreneurs (Collins/Moore, 1970) empha-size how organizational actions are more spontaneous and emergent as they are driven by sensitive norma-tive considerations and even personal motives and experiences. These paradigmatic distinctions suggest a substantial difference in the way organizations learn as entrepreneurs, usually new ventures, seem to be lean towards emergent mode, while larger bureaucracies follow a methodical line. Methodical inquiry is analytical and prizes facts; Mill-er goes as far as sustaining that “it is systematic and often tests notions deductively (Miller, 1996)”. Objec-tives are clear, and facts are gathered and evaluated in an orderly way, and with explicit purpose (Ansoff, 1965). Examples of methodical learning include sys-


tematic analyses of competitive markets and business strategy, experiments with products or technologies that aim to reduce costs or increase profi ts (Google Annual Report, 2008; CKE Annual Report, 2008), and the use of statistical quality control procedures to identify problems or opportunities in process design (Francesca/Gold, 2005).

Emergent rationality, considered of influential consequences, is spontaneous and intuitive, and the same author -Miller (1996) points out that “it centers on instincts and impressions”. Intuitive managers learn tacitly and intuitively, gathering information by inter-preting unstructured impressions and diverse streams of data. These administrators may not have clearly enunciated goals, gathering facts been an indirect effort, and might make choices quite unconsciously (Mintzberg, 1989) with consequences that could yield unforeseen results. Emergent learning may be evidenced by conceptual insights that provide execu-tives with a new vision for their enterprises. Emergent learning can also come from the social, cultural and political interchanges managers have with parties inside and outside the organization. Executives, man-agers and employees alike participate in this emergent paradigm even during retreats, in-house seminars and sporting events.

The recommendation for this subcompact regard-ing the most enabling learning mode positions points to the degree of voluntarism as the core factor-see Figure 2, as organizations with a higher degree of such factor are seen in a better position to adapt, learn, communicate, disseminate freely information, function and ultimately build competitive advantage. Organizational leaders are though the ones that set the tone regarding to the degree to voluntarism that is to be implemented in any MNE (Miller, 1996). Voluntarism existence is a direct function of a MNE’s leadership decisions as it occurs, at a nascent level, top to bottom organization wise.

While it is generally seen as advisable for an organization to learn in a methodical mode and ap-ply analysis as a systematic approach the emergent mode cannot always be recommended as is clouded by a multitude of operational factors. Elongating the emergent mode related contents is this analyst’s opinion that no singular model can be prioritized or applied as a standard for all organizations. A man-ager’s intuition is valuable, yet so are the interaction and institutional models as an organization and its members accumulate knowledge based on interacting with others-vendor, colleagues, subsidiaries…-and the overall learning is often guided by social norms and rules. Furthermore, such social norms and rules

differ signifi cantly from one culture to another and as such an MNE needs to remain fl exible and possibly be able to employ a diverse mode spectrum, tailored for each market it operates in.

2.3 Types of Organizational Learning

Miller (1996) writes “the voluntarism /determinism and methodical/emergent dimensions in combination evoke six common types of organizational learning: types that vary in their approaches, outcomes and contexts” (Miller, 1996). Three kinds of methodical learning and three kinds of emergent learning have been identifi ed and are required to be examined in this assignment, each been distinguished by the level of vol-untarism (by the constraints on thought and action).

For methodical learning the identifi ed models are: analysis, experimentation and structural. Analysis, relates to the systematic approach that some manag-ers undertake when formulating or implementing a particular strategy, they are said to scan the environ-ment for information, to analyze that information along with data on internal resources and processes, for the purpose of generating action options (Beers at al., 1998). An alternative is chosen among these op-tions. Ultimately, “management methodically evalu-ates achievements against predetermined objectives (Hart, 1992)”. Other researchers, while endorsing such methodical inquiry, have called attention to the time and resource limitations that constrain its thor-oughness. Experimentation, points to the learning that is characterized by problem-driven search during which managers are said to engage in little refl ection, as they are focused on gathering only the most acces-sible information leading to an “adequate” solution (Francesca/Gold, 2005). The third methodical mode that allows even less scope voluntarism is structural learning, which is driven by routines that standard-ize information processing and behavior. “Routines specify what data managers must gather and attend to, and they guide how managers interpret that informa-tion (Levitt/March, 1988)”.

Analysis, experiment and structural learning are all methodical and deliberate. They test ideas by systemati-cally gathering factual information and changing be-havior. Results are then monitored, and the cycle begins again. However, as we “move from analysis to routines there is a progression towards less voluntarism (Miller, 1996)”. Analysis places few restrictions on learners, small experiments limit action, and routines channel both thought and action. Simply put there is an inverse degree of voluntarism as an organization moves from analysis towards the routine (structural) mode.


Three emergent forms of learning are also quite common, and again, they may be distinguished ac-cording to their degree of voluntarism. These identi-fi ed forms are: synthesis, interactive and institutional. Researchers have pointed to “synthesis-learning that is intuitive and holistic (Mintzberg, 1989)”. Miller (1996) fi nds that “such learning represents an instinctive form of pattern recognition-an ability to generate global insights about issues facing an organization (Miller, 1996)”. Its existence cannot be predicted as it may occur unintentionally as an internal trait present and applied uniquely to a particular manager.

A less voluntaristic form of emergent learning takes place via interaction and occurs when there is much social, cultural and political activity. Contrast-ing ideas and confl icting objectives among members of an organization may cause “search and choice to be based on-and limited by-a complex force fi eld of different aims and issues (March/Olsen, 1976)”. The chosen course of action derives from involved parties’ interaction to other players, competitors, subsidiaries, associates, business partners.

Institutional learning, the third model for the emer-gent paradigm, is determined by ideologies and insti-tutional forces such as laws, social norms or personal values that shape managerial thinking (DiMaggio/Powell, 1983). Here learning is a product of indoctrina-tion and possibly rigid social expectations, either subtle or direct (Scott, 1995). As one moves from synthetic to institutional learning there is a progression from more voluntaristic modes of emergent places few restric-tions on organizational players, political interaction limits action, and institutional learning channels both thought and action.

Figure 2: Degree of Voluntarism

The above fi gure, a graphic representation for the degree of voluntarism expected during an organiza-tion’s learning model movement indicates that during the analysis and synthesis stages the independent thinking and choice making appear at their highest point. Point which is not advance as being the optimum as each organization requires its own unique approach to learning.

2.4 Defining a Learning Organization

Four different perspectives of the idea of learning organization have also been advanced, as well as a specifi c label for each of them, as a way of simplify-ing the communication for the underlying idea. First, the term learning organization is used synonymously with old organizational learning, the knowledge that the individuals have learned (often over a certain time period) as “agents for the organization is stored in the organizational memory (Mills, 1996)”. Second, the term learning organization can mean an organization where the learning takes place at work and not on courses-learning at work. Third, the label can be used to describe an organization that facilitates the learn-ing of all its employees-a learning climate. Fourth, a popular perspective today is to consider the “learning organization as an organic structure with a high degree of fl exibility, in order to satisfy the customers of the company (Beer/Davenport/Long, 1998)”. The aim of creating a fl awless semantic framework for the idea of learning organization emerges through the prism of the above four labels. However, the existence of different perspectives of the learning organization in the literature probably not only gives a vague picture of the overall concept but it also creates opportunities for companies to choose a variant of the idea that fi ts their strategic interest (Beers et al, 1996).

Organizational learning and learning organizations are related yet not interchangeably terms, as a busi-ness enterprise can opt for a learning purpose without becoming a learning organization. The defi nitions advanced above are placed side by side so as to clarify the terminology involved.

Becoming a learning organization is seen as a ne-cessity, as an organization willing to learn is enabled


to address market and competitive pressures with a higher degree of success. The process of becoming a learning organization may be simplifi ed with a better understanding of what kind of learning organization is intended and for what purpose. As the section con-cludes the need to formulate a clear defi nition for a learning organization arrives and it is advanced by this analyst as a compilation of the above four labels: a learning organization is an organization that adopts an organic structure that includes and promotes a work related learning climate where knowledge is learned, used and transferred so as to further and/or satisfy strategic goals (Cotae, 2009).

A learning organization can only occur if the executive echelon encourages, promotes and invests into the learning efforts needed, despite challenges and obstacles. The following section touches upon the need and role of /for leadership as foster caretaker of a learning organization.

2.5 Observations from the Field

The fi eld observations chosen for the paper sur-round leadership decisions, organizational learning, voluntarism and repercussions at several companies that cover diverse industry formats. Mabuchi Motors is possibly representative of small electronics, eBay is the world’s largest online auctioneer, Whirlpool is the world’s largest appliance manufacturer and Interbrew (now InBev Anheuser) has achieved the number one status as planet’s largest brewer.

Each player is analyzed under several headings: background, implications and implementation of lead-ership decisions, outcome under fi nancial and market results and fi nally overview of organizational learning and voluntarism pertinent contents.

2.5.1 Mabuchi Motors

Background

Mabuchi Motors, is a Japanese company that has never produced anything in Japan (Takeda, 1997) due to the high labor cost is involved in a global expan-sion; expansion targeting Asia in general and China in particular. Business summary wise, Mabuchi Motors is engaged in the manufacture and sale of small electric motors for AV equipment, auto electronics and tools, precision and offi ce equipment, toys and models, and consumer electronics and tools. Co.’s products are used for DVD players, CD players, MD players, radio cassette players, rearview mirrors, retractable rearview mirrors, door lock actuators, air conditioning damper actuators, door closer, printers, laptop computers, CD/

DVD-ROM drives, copiers, cameras, radio control models, toy/plastic models, CD/DVD-ROM games, hair dryers, hair clippers, electric shavers, hair remov-ers, toothbrushes, blenders, blood pressure measuring equipment, drills, and drivers1. Programs which are the subject matter for the segment.

Mabuchi’s executives decided, in the late 1990s un-der competitor pressures to pursue an expansion strategy into China. The company leadership faced a balancing act, as it had to seek equilibrium between the attractive labor costs with the low skill level, cultural differences and need to diversify its holdings. This balancing act took place in an environment where its major competitor consolidated their international position.

The leadership teams focus on quality and cost reduction and as such it appeared instrumental as low skill level of the Chinese labor force needed to be addressed and corrected. The implementation of a standardized management and training programs for technical, plant and engineering staff became the fi rst order of business. Training became an integral part of this standardization, as the company’s operations ranged from Singapore, Malaysia, Taiwan, Hong Kong and several mainland China production plants. Standardizing the labor performance despite the dif-ferences in skill levels, manufacturing experience and work habits became of imperious importance for a company that needed to timely manufacture and de-liver products that were virtually equivalent in quality and technical parameters.

NIHAO

The training program opted for at Mabuchi was called New Integrated Headquarters and Overseas Operations (NIHAO). The scope of the program was to, as described above, “train local personnel to enable them to achieve Mabuchi’s standards of production effi ciency and product quality” (Beamish et al, 2003). Anther substantial goal of the NIHAO’s program was to enable technical staff and engineers to perform at prescribed levels of operational quality and to enable them to move into management ranks by taking over key positions (Kalantaridis, 2004) within the com-pany as their skill levels evolved. It was believed that the program would be better received and followed if it led to personal development. The modules and the implementation revolved around the following modules: standardizing technical performance, man-

1 Mabuchi Motors Business Summary, Mergent Online Database, URL: http://www.mergentonline.com/compdetail.asp?company=-1&company_mer=88970&fvtype=a&Page=business


agement practices and performance evaluations for all employees.

NIHAO was based on the premise that engineers and technicians individual interests and capabilities were seen as inutile when it came to quality controls or overall company business. Instead they were seen as generalists that needed to perform specifi cally designed duties as per company policy. The system of management was carefully orchestrated so all tasks were known before hand and assigned to each employee. In essence, managing each task was seen not as a science or a byproduct of individual capa-bilities but rather as a standardized business practice focused on task performance alone. It should be mentioned that NIHAO was a program created trough the collaboration between a relatively inexperienced manager- Nobukatsu Hirano- and a consulting fi rm – Andersen Consulting and that the fi rst plant chosen for implementing it was Dalian, China.

The implementation of NIHAO at the Dalian plant was designed as a series of seminars that attempted to present the contents of the fi ve training manuals. Each seminar was presented in Japanese and later translated in Chinese. Later seminars were conducted by a Mandarin speaking Mabuchi employee and a Chinese Andersen Consulting employee (Beamish at al 2003). This analyst cannot but wonder again why this framework for training was chosen. To require a Chinese trainee to attend a seminar held in Japanese about capitalist enterprise and operational standardiza-tion tasks while a copy in Chinese was to follow at a later date appears somewhat comical. Mentioning that the training included no less than fi ve (5) manuals and the fact that only the later sessions were held in Chinese completes the framework and dynamics for the training process.

Implications

The implications for MMI case scenario can be followed in two directions: cultural, fi nancial and mar-ket. Addressing the cultural implications of the above referenced training needs to follow certain background content. Fist, the plant chosen for rolling the program was in China-Dalian. To recap the mid to late 1990s was a time when China had fully opened its economy to foreign investors. The population making up the workforce was both from rural and urban areas. The Chinese market economy was at its inceptions with state/communist enterprise control concepts still at work. Now, after this reminder the report can return to Mabuchi scenario. From a cultural standpoint there are several weaknesses with the new program.

First, the program never took into considerations the actual ground realities, so to speak, as Chinese trainees, coming of decades of Communism and egali-tarian policies, were not prepared for the responsibili-ties management functions required. A point should be made about the program’s main requirement: create managers while divorcing them of personal aptitudes and skills. Turning in several seminars a trainee into standardized management professional appears a somewhat uneasy, if not aberrant goal. Eliminating any kind of voluntarism on the part of the staff was demeaning as turning people into robots is hardly the option for quality standardization.

Second, the cornerstone of the NIHAO were the performance reviews that were suppose to raise mo-rale as employees and managers alike would get their performance rewarded by their respective supervisors with bonuses and promotions. There are two weak-nesses here. One, regarding the fact that each employee would write his/her own review. So at what point an employee would write a negative review about his/her own performance knowing that a positive one could result in a bonus while a negative one would not. Two, the Chinese workforce shared a certain commonality of behavior as when one employee received a bonus the entire team/department expected one regardless of other considerations (Elashmawi, 2001). When it did not happen it is safe to presume that for every employee that was happy for receiving a bonus was an entire department that was unhappy for not partaking in the bonanza.

To summarize the cultural implications this analysts can safely deduce that NIHAO in absence of feedback and domestic realities appeared to be counterproduc-tive at the Dailan plant. The program and its creators did not research the market to best adjust the program and the effort fell largely without the positive conse-quences it was intended to achieve; rather it had the potential to harm the very morale it hoped to elevate. Placing one in the affected employees’ shoes, so to speak, earns NIHAO’s a non-complimentary opinion: “Why write yourself a positive review if you might not get a bonus or if someone else (or only a few) gets it?”

Financial Ramifi cations

Between the years 1997 and 1998 Mabuchi’s sales increased by a margin of 2.31%, years 1999 to 2000 brought Mabuchi its fi rst negative growth year by registering 5.7% negative revenue and years 2000 vs. 2001 culminated in a 10.56% drop in net sales. Today, the company has lost signifi cant market share, drop-


ping from the second spot to a distant sixth. The one promising 56% of the market has dropped to 11%.

While the lower results attained at MMI cannot fully be blamed on the NIHAO program, as currency and recession conditions also existed on global scale, one cannot but wonder about the coincidence between the program’s implementation, leadership decisions, quality of organizational learning and the reverse in fortunes for the business endeavor.

Organizational Learning Considerations

Mabuchi’s leadership opted for an international ex-pansion based on the institutional and structural modes, both allowing for a limited degree of voluntarism. Given the results, alongside the fractured implemen-tation of the learning program it is safe to infer that a better choice for organizational learning should have been opted for as local cultural differences should have been mediated and not exacerbated.

2.5.2 Ebay in China

Background

EBay is an American company that provides online marketplaces for the sale of goods and services. It also provides platforms, online payments services and online communications offerings to individuals and businesses. The company is headquartered in San Jose, California and employs around 15,500 people. China, with its massive economy and growing internet user market presented an extraordinary potential for a foreign com-pany aiming to tap such potential for business. EBay’s strong fi nancial results, superior brand identity and vast capitalization pointed the leadership towards venturing into China as a perfect business decision. Pursuing such an expansion decision was to be accomplished through alliances and acquisition strategies.

The rationales for the expansion was that payoff created by diversifi cation through acquiring foreign companies could also be magnifi ed when multination-al corporations (MNCs) capitalize on economic rents derived not only from product and market diversity but also from the various advantages embodied in for-eign activities such as knowledge acquisition, capabil-ity development, risk reduction, and complementary synergies (Buckley & Casson 1976,). Leveraging existing competencies and exploiting established capabilities through market and geographical diver-sifi cation help MNCs pursue maximum risk-adjusted economic returns. This boosts cash fl ow from product diversifi cation and economic return from resource investment.

EBay and EachNet

EBay’s entrance into the Chinese market took a form of an initial minority stake acquisition in Each-Net, a Chinese internet auction company that appeared to be a mirror image of its American counterpart, in 2002, followed by a full acquisition in 2003. Once it acquired the entire company, EBay, instead of adopt-ing EachNet’s business model, it replaced it with its own, considered better as it had registered staggering success in the US, UK and Germany. Soon after the full acquisition Chinese decision makers were mar-ginalized in favor of US based managers. Chinese managers and leadership were no longer allowed any input into the business model or onto the day to day operation, instead managers based in North America were placed in charge with no ability to either ask or receive feedback from the locals. Reacting to the development all key managers from EachNet left the company, taking to them signifi cant domestic market operational knowledge (Hemingway et al, 2003). This coupled with a complete misunderstanding of Chinese cultural, sociological and economic conditions ended in substantial losses or investment, revenues, market share, customer base, staff and brand identity.

Financial and Market Considerations

EBay fi rst invested $30 million for a 33% share of Each Net and then followed it up with a full acquisition for $$150 million in 2003. To elongate the fi nancial concerns, EBay entered an otherwise promising market by investing more that it should have with no clear valuation of the asset to be acquired. Paying a total of $180 million for a company whose revenues reached $1.8 million points out to a 1% return on investment. Therefore, since many other investments would have yielded a better return EBay’s entrance in China came at an opportunity cost. Three years later eBay abandoned China, therefore losing over $300 million and the opportunity to reach a 1.3 billion potential customer base.

Organizational Social and Geo-political Learning Considerations

EBay’s model for China did not take into consid-erations the exact social and geo-political implica-tions that introducing an American model were about to have. EBay’s auction model during which prices would go up went against the “fl ow” of Chinese cul-tures where prices were expected to drop and not rise with time. The differences between American and


Chinese cultural values were not neither understood nor addressed resulting in confusion. Confusion that empowered competitors such as: Alibaba and TaoBao to acquire signifi cant shares of the online auction mar-ket. It should also be said that the above competitors were also keen on respecting and addressing the local clientele’s needs and market particularities.

EBay’s operations in China completely disregarded the need for interactions between buyers and sellers as well as the need for an adequate and responsive customer service department. When instant messag-ing became in vogue with Chinese customers, TaoBao capitalized on it by adjusting its customer service to accommodate such interaction through the interface. EBay completely missed the opportunity, instead rest-ing in the belief that the company’s North American brand equity would eventually translate well onto the Chinese market.

Adopting a learning mode that was infl exible and eliminated any voluntarism from the local manage-ment staff and leadership also did not bide well for the North American endeavor. One can pinpoint the organizational mode enrolled at eBay as institutional organizational learning mode seems to have been chosen. From the same learning standpoint company’s leadership should have opted for analysis as having collected all the pertinent information about the Chi-nese auction model could have offered the premise for either not pursuing the expansion or adjusting the exist-ing business model to better refl ect local demand.

2.5.3 Whirlpool and European Expansion

Background

Whirlpool, an US business entity, faced with a mature domestic market and declining margins decided to expand its operations outside the home market. Europe appeared to provide the opportunities missing in the US. Each country specifi c market also presented certain complexities, although each came with its own special array of requirements and cus-tomer preferences.

Whirlpool Corporation is a global manufacturer and marketer of major home appliances. The company has principal manufacturing operations and marketing activities in North and South America, Europe, and Asia. Whirlpool’s primary brand names -- KitchenAid, Roper, Bauknecht, Ignis, Brastemp, Consul and its global Whirlpool brand -- are marketed in more than 170 countries worldwide. In Europe the selection, although less diverse from a name wise standpoint includes: Whirlpool, Ignis, Laden and Bauknecht.

WHR’s leadership looked at the Europe as a market that still allowed room for growth, unlike the mature North America, and appeared ripe for consolidation. As such, the company began its expansion into the area by focusing on brand segmentation, product in-novation, cost reduction and operational effi ciency. To enter the market WHR bought a Dutch endeavor – N. V. Philips and utilized its European subsidiary –Whirlpool Europe BV (WEBV) to launch a brand portfolio segmented by price. The framework for the expansion (Menezes/Ronkainen, 1996) included the following elements: Whirlpool name was actively promoted, distribution was centralized, and signifi cant efforts were focused on new product development while achieving operational effi ciency. Some of brands that have performed well in the past were modestly supported as Whirlpool name was positions as a mid-range and primordial product line.

WHR also promoted an interchange and crossover of ideas by rotating managers between Europe and North America despite the fact that this created dis-ruptions in operations as European vendors counted on their relationships with the company’s represen-tatives. The company also tapped into the Eastern Europe’s potential by opening several offi ces there. WHR leadership decisions for expansion in Europe can be summarized as follows: introduce and support the Whirlpool brand, rotate managers between Europe and North America, centralize distribution, expand into Eastern Europe, product innovation and continuous focus on cost reduction.

Financial and Operational/Market Results and Consequences

Introducing and supporting the Whirlpool brand came at a cost as many customers could not even pronounce the name and other brands that had enjoyed great success in the past got their promotion budgets slashed reducing therefore the company’s presence in some markets. The rotation of managers between North America and Europe triggered a certain level of frustration as retailers and distributors found no opera-tional continuity with ever changing senior operators (Chiarra, 2002).

The product innovation and focus on cost reduction would have been successful if it would not have been for the improvement in competitors’ position. As such WHR had to contend with a much improved and up to date cost reduction and innovation wise competition. This in fact voided any potential advantage for the company. The expansion into the Eastern European markets was somewhat premature as 1990s marked a


time of political insecurity in the area along with low economic prospects rendering as mediocre the demand for new appliances.

By the end of the 1990s the company had lost $41 million and seemed in complete disarray with regards to implementing any strategy for improvement. De-spite these mediocre beginnings presently Whirlpool has the largest market share of the European appliance market. What happened?


While the company’s learning started in the experimentation-focus on Whirlpool as the “Green-fi eld” brand- and interaction-as North American and European managers were interchanged- once its lead-ership realized that results were suffering a different approach was employed: feedback from all levels of the organization, vendors, retailers and customers. Lo-cal managers were allowed to make decisions based on their knowledge of local markets, retailer’s demands and customer needs.

Once a higher degree of voluntarism was achieved the company entered an analysis and possibly syn-thesis modes of organizational learning by creating a deliberate forum where input of ideas followed organizational objectives of superior performance in the European arena.

2.5.4 Interbrew in Hungary

Background

The beer industry is a highly fragmented industry where a multitude of brewers large and small retail their products on large and small markets. Market dominance can only be achieved up to a certain point as most countries and their nationals prefer certain domestic related elements in their beer choices.

Interbrew, a European brewer and global player in the beer industry facing a mature domestic demand and market, had decided during the early to mid 1990s to expand internationally while focusing its attention on promoting one of its brands and products-Stella Artois, as the forefront and equivalent image for the entire company. Interbrew’s leadership undertook several environmental scanning efforts as the foundation for undertaking an organized planning for its expansion in Eastern Europe in general and Hungary in particular.

First, a clear look at the competition was taken as the company did not strife to replace the fi rst ranked brewer, but rather looked at the second and third major player in the beer industry: Heineken and Carsberg.

Upon deciding that Heineken’s business model and structure was the closest to Interbrew’s predicament and aspiration a clear analysis of the competitor’s results was undertaken.

Second, once Heineken’s perceived or real weak-nesses were identifi ed the management moved quickly to prevent them for taking place at Interbrew’s. An example here would be the large investment under-taken by Heineken to support its marketing, retail and distribution presence in many countries instead of focusing on cities as market hubs leaving it focus somewhat undefi ned.

Third, Interbrew decided to reorganize its inter-nal operations to better deal with its expansion into Hungary, therefore prolonging the positive effects of internationalization and postponing the potential downturn of over-internationalization.

The company consolidated its headquarters opera-tions under one department capable of overseeing and designing marketing plans while allowing a certain degree of “controlled” autonomy for its international subsidiaries, partners and distributors. New markets were entered not by challenging local brewers but by employing a fl exible case by case strategy which included the outright buyout of local breweries (Hun-gary), yet in doing so the company did not replace the local operators but rather elevated them to higher positions and enlisted their feedback as part of the operational model.

Hungary was the fi rst country chosen for the East-ern European expansion. Expansion, materialized through the buyout of one of the countries largest brewer- Borsodi. True to its principles, Interbrew’s strategy was that after promoting Borsodi’s local lager: Vilagos into a prime time position, so to speak, to introduce, produce, distribute and retail its fl agship brand Stella Artois. To do so, the company assured itself of the goodwill of the local market by fi rst in-vesting signifi cant capital in modernizing the plant, setting up a marketing program and by allowing the existing managers and workers to continue to run the daily operations with minimum interference form the Belgian headquarters.

The results have been mixed initially as despite the initial $40 million investment and local acceptance, Stella Artois proved to be too expensive as a brand offering for the locals’ purchasing power. It took the company a half of a decade to fi nally see the brand positioned in the local beer landscape, yet by 2005 Interbrew had the largest share of the Hungarian market and Vilagos had become the national brand. The additional positive ramifi cations laid in the fact that the mediocre results achieved initially served


as a learning model for the expansion into Bulgaria, Romania, Russia and Ukraine. Interbrew is therefore an example of a company that had to adjust to an ever-changing business environment. Adjusting its global expansion with respect to national preferences and perceptions have allowed the brewer to register both extraordinary results as well as position itself under a distinctive banner product-Stella Artois.

Financial and Market Results

Today Interbrew has become InBev through the merger with a Brazilian brewer and as of 2008 it had bought Anheuser-Busch to become the largest brewer in the world. The company not only did not reach the excessive-internationalization stage but it is actually on its way to realizing continuous growth from pursu-ing additional internationalization.


It is safe to conclude that the key to Interbrew’s success was patience and adoption of an analysis mode of learning based on a high degree of voluntarism on the part of all involved parties. Hungarian managers were for example promoted and included in the local decision making process and while the results did not impress in a short run the end results have been to directly modify the internationalization sigmoid by extending the internationalization curve.

3 Problem SolutionIntersecting the concepts a certain understanding

seems to emerge: leadership is responsible for the deci-sion making process directed at dealing with changes, changes which in turn can be successfully dealt with by having had acquired the necessary knowledge/information through a fl exible organizational learning based on high degree of voluntarism.

The above companies used as examples seem to indicate an intrinsic correlation between leadership decisions, organizational learning and international-ization results. Leadership’s promotion and support of organizational learning through voluntarism offers the advantage of transforming a fi rm into a learning organization where an analysis mode triggers market translated success.

Applying these concepts to the MNE’s third stage of internationalization one could point out that to a degree, the profi t/results decline registered by the fi rm during the excessive internationalization stage, could

be possibly prevented, postponed, arrested, managed or even reversed by the leadership’s ability to ac-cumulate, disseminate and apply certain knowledge necessary to improving the overall decision making process. Simply put a fi rm that had access to certain fi eld/market related information could, theoretically at least, amass the core capabilities to decide if it has the best fi t resource so as to enter/expand into new (or even existing) markets. Would a better informed decision making process, a more permeable and func-tional organizational learning entry mode provide the background against which the effects of excessive internationalization could be prevented? What is to be accomplished as a realistic end effect?

The end effect could be-just as presented in Figure 3—a modifi ed sigmoid with option A as prolonged stage II or option B as a non-existent stage III due to expansion stoppage initiated before the critical point-time at which the overextended fi rm registers losses—was reached.

Intersecting the concepts a certain understanding seems to emerge: leadership is responsible for the deci-sion making process directed at dealing with changes, changes which in turn can be successfully dealt with by having had acquired the necessary knowledge/information through a fl exible organizational learning based on high degree of voluntarism.

The above companies used as examples seem to indicate an intrinsic correlation between leadership decisions, organizational learning and international-ization results. Leadership’s promotion and support of organizational learning through voluntarism offers the advantage of transforming a fi rm into a learning organization where an analysis mode triggers market translated success.

Applying these concepts to the MNE’s third stage of internationalization one could point out that to a degree, the profi t/results decline registered by the fi rm during the excessive internationalization stage, could be possibly prevented, postponed, arrested, managed or even reversed by the leadership’s ability to ac-cumulate, disseminate and apply certain knowledge necessary to improving the overall decision making process. Simply put a fi rm that had access to certain fi eld/market related information could, theoretically at least, amass the core capabilities to decide if it has the best fi t resource so as to enter/expand into new (or even existing) markets. Would a better informed decision making process, a more permeable and func-tional organizational learning entry mode provide the background against which the effects of excessive internationalization could be prevented? What is to be accomplished as a realistic end effect?


Figure 3: Modifi ed Sigmoid

4 ConclusionKnowing that the third stage of internationaliza-

tion occurs as a result of a MNE’s inability to cope with increased demands upon its resources, stemming from growing globalization demands, it appears only natural to look for answers to prevent it. The compa-nies presented above each had to wrestle its own set of diffi culties deriving from leadership decisions with regards to organizational learning and voluntarism.

Ideally then, a fi rm’s leadership is seen as charged with enabling the existence of a learning organization, which in turn would provide meaningful data/infor-mation for an educated decision making process with regards to strategy formulation and the undertaking of any additional globalization efforts. The latter would provide an operational guideline for either dealing with unexpected changes or forecasting the resources and information needed for further expansion activities.

Further research and dialogue are and will be needed so as to defi ne the linear –if it is linear -cor-relation between leadership and the modality of ac-cessing the pertinent quality information/knowledge enabling a better decision making process with regards to increasing or reducing a MNE’s degree of interna-tionalization. Having the right information will be the key. What information or knowledge is thought to offer pertinent solutions for a leadership to draw upon for strategic direction? So far organizational learning and leadership seem to only provide a nascent foundation for a control model, yet one could start with a benefi t vs. cost analysis punctuated by fi eld and organiza-

tional needs vs. MNE’s core capabilities and available resource inventory.

The main limitation of the paper is that it does not offer a comprehensive and absolute model for studying learning modes and it arrives at conclusions mostly supported by theorists that believe that international-ization success is highly dependent on the degree of applicability of such theory.

Higher degrees of internationalization are therefore supported and promoted as semi-guarantees of orga-nizational performance. Theorists, such as Hennart (2007) have disagreed with such equivalence and such point would further affect the supported correlation and the advanced link between leadership, volunta-rism, organizational learning and their effect upon the internationalization sigmoid.

The sample taken for exemplifying the above has served the purpose of an exemplifi cation and can-not be the ultimate foundation for theory building. A much larger sample will have to be analyzed and the results tabulated so as they would offer the theoretical foreground.

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Vipin Gupta / 17

A Culturally Sensitive Approach to Sustainable Business in Emerging Markets: How to Manage

the Challenges and Opportunities in View of the Global Economic Crisis?

VIPIN GUPTARos Jaffe Chair Professor of Strategy

Simmons School of ManagementSimmons College300 The Fenway

Boston, MA 02115-5820 United States

[email protected]

Abstract:The global economic crisis has heightened the sensitivity around the race to the bottom in environmental, social and human (organizational) standards, as the industrial market fi rms strive to gain competitiveness through increased downsizing and offshoring of their operations to the emerging markets where the institutional regulation of these standards is lower. To deal with these stewardship challenges, the leading multinational corporations are seeking opportunities to transmit technological and organizational solutions for sustainable business in the emerging markets. This paper reviews three generations of literature on sustainable business in relation to the emerging markets. The role of culture, as a direct factor as well as a moderating factor, in infl uencing the sustainability of technological and organizational solutions is investigated. A framework for measuring the role of culture is proposed, comprising of a model of sustainable development, a typology of culturally sensitive sustainable business behaviors in terms of technological and organizational solutions, and a measure of the sustainable development index and its four components – ecological, economic, social, and organizational. The implications for the multinational corporations and for the multilateral organizations are discussed.

Key words: global economic crisis, technological and organizational solutions, sustainable business, emerging markets, culturally sensitive business behaviors, sustainable development index

1 IntroductionThe current global economic crisis has heightened

the sensitivity around the multinational corporations using foreign direct investment and trade as a mecha-nism for transferring their operations from the higher cost industrial markets to the less costly emerging markets. Recent regional and multilateral negotiations on international trade and investments have put the is-sues of environment standards, social issues, economic issues (intellectual property rights, transparency in

public procurement and subsidies), and organizations (competition law) in the emerging markets on the forefront of dialogue (Jones & Marti, 2009). These challenges for business in the emerging markets have emerged in the backdrop of a rapid surge of interest in sustainable business in the industrial markets over the recent years.

All major multinational corporations have adopted sustainability principles. And, with the adoption of the practice of sustainability reports, their practices for oper-ations, sourcing, and marketing in the emerging markets


are under heightened public scrutiny. For many leading multinational corporations, the changed environment and the global economic crisis offers an opportunity to transfer their technological and organizational solutions for sustainability to the emerging markets.

As the multinational corporations pursue this op-portunity, and address the challenges to their operations and relationships in the emerging markets, it would be desirable for them to have a systematic approach to assess sustainable development in the emerging mar-kets. A scientifi c assessment methodology will help them gain credibility with their constituencies, and also identify opportunities for not only transfer of their own solutions, but also modifi cation of those solutions to the local context, and to reverse exchange of local solutions for further driving their global sustainability initiatives.

The debate appears to suggest that the emerging markets lag behind the industrial markets in progress towards sustainability, and are dependent for the transfer of effi cient technologies and organizational practices in order to catch up and attain world-class levels of sustainability. However, much of this debate is based on subjective claims and presumptions, se-lective criteria, and a lack of rigorous and systematic cross-national comparisons, giving due regard to the cultural factor. Many scholars have noted how the cultural factors in the emerging markets offer a unique pathway to sustainability. Consider, for instance, the following quote from O’Hara (1998) who noted the sustainability struggles faced by the emerging markets as they adopted the industrial worldviews:

“As the time demands of technological services

grow time is no longer available for the caring, sup-port, nurturing, networking and communicative ser-vices necessary to sustain families and communities. Nurture/caring services traditionally provided outside the realm of economics in social interactions and institutions like families, extended families, friends, neighbors or extended communities are displaced into the market economy or lost altogether… The economization of the life world …does not add to but, at best, replaces services previously provided outside the economy. Direct material impacts may include increased needs for transportation, housing, communication and human services. Less visible ones include the effects of increased isolation, stress, crime or health care needs. Least noticed are probably the effects associated with the loss of participation in civil society, public discourse and information.”

Over the past fi fteen years, I have conducted a

series of studies, fi rst focusing on the Japanese mul-

tinational fi rms during my Ph.D. dissertation at the Wharton School with the support of The Japan Founda-tion and the University of Tokyo (Gupta, 1998), second investigating the meaning of culture and its relation-ship with leadership as a principal co-investigator of the 62-society GLOBE research program funded by the National Science Foundation (House et al., 2004), third constructing and analyzing culturally sensitive models of family business within and across ten cul-tural regions of the world, with a particular focus on gender (Gupta et al., 2008; Gupta, 2009), and fi nally, several side studies of organizational development and technological growth at corporate, regional, and national levels. Taken together, these studies underline the importance of the cultural factor in sustainable business, and of the cross-cultural variations in ex-plaining differing models of sustainable development in industrial vs. emerging markets. In this paper, I extend the cultural insights based on my research to propose a systematic and rigorous culturally sensitive approach to conducting and assessing sustainable busi-ness, and highlight the special situation of the emerg-ing markets. Illustrative examples show how from a culturally sensitive approach, some emerging markets may be at par with – if not ahead of – the industrial markets on sustainable business behavior and sustain-able development. Implications for the multinational corporations interested in pursuing sustainable busi-ness in emerging markets are noted.

Next, I organize the literature on sustainable busi-ness into three generations of scholarship, and discuss their relevance for the emerging markets. I identify two types of cultural infl uences on sustainable business behavior – cultural geography effects at the system level, and cultural group effects at the attribute level. The system level cultural geography effects are of four types – work culture, workforce, networking, and ex-change. Cultural group effects – that may be measured using GLOBE and other typologies of cultural dimen-sions – moderate the relationship between sustainable business behaviors and sustainable development.

A major challenge faced by the emerging market vendors is exchange rate disadvantage due to an in-ability to demonstrate sustainable impact metrics. I propose a holistic framework for measuring sus-tainable development with four domain components – ecological, economic, social, and organizational, each scored on nine functional aspects. Sustainable development requires culturally sensitive sustainable business behaviors – and to assess that, I propose a nine dimensional typology, comprising fi ve technological and four organizational aspects. A short case study shows how culturally sensitive sustainable business

Vipin Gupta / 19

behaviors translate into sustainable development in the emerging markets.

An important insight from the case study is the importance of the corporate mission in appropriate weighting of the four domains of sustainability. Sus-tainability strategy requires developing sustainability goals, impact metrics, implementation programs, and cost-effectiveness assessment. In conclusions, the importance of sustainability assessment to inform the sustainability debate, and to create authentic awareness about the sustainability dimension of the emerging market operations, is noted.

2 Problem Formulation 2.1 A Critical Review of Literature on Sustainable Business and Emerging Markets

We can identify three generations of sustainability scholarship pertinent to emerging markets. The fi rst generation of scholarship focused on the market fail-ure hypothesis. The second generation emphasized the business case for sustainability, clarifying how corporate social responsibility translates into private competitive advantages for the corporations. The third generation is concerned with the relationship between the industrial markets and the emerging markets with respect to accessing and sharing sustainability knowl-edge and the resulting benefi ts.

2.1.1 First Generation Sustainability Scholarship

The fi rst generation of scholars studied sustain-ability from the lens of market failure hypothesis (Hartwick, 1977). From a market failure perspec-tive, sustainability is a public good, because it is about larger than the organization health – i.e. health of the environment, economy, society, and the entire organizational system. A public good implies that the costs of sustainability are shared by the entire society, and so are the benefi ts (O’Hara, 1998). Therefore the free inter-play of market does not produce sustainable results. Since a fi rm’s benefi t as well as cost function is truncated because of social spillovers, the incentives for sustainable business are mitigated. The implica-tion is the sustainable business will be more likely in the industrial markets, where the institutions – such as political and legal system, consumer groups, and community groups –impose and enforce penalties for not being sustainable (Gjølberg, 2009). In an early study, the World Bank (1992) found higher national incomes to be correlated with better environmental

quality, based on both cross sectional and time series data. However, in the emerging markets, some indica-tors of environment quality declined with economic growth. The World Bank also found that in both mar-kets, biodiversity declined with economic growth, and global environmental risks rise.

Investments in sustainability are like a prisoner’s dilemma game (Lozano, 2007). If no fi rm adopts sustainable business characteristics, then all the fi rms achieve minimal development. If only one fi rm adopts such characteristics, then other fi rms may enjoy signifi -cant benefi ts, but it may lose working with those fi rms. However, if all the fi rms adopt such characteristics, then all the fi rms achieve sustainable development. A higher level of education make people conscious of this “problem of commons”, and a higher level of income gives them capacity to invest into voluntary action and institutional structures that promote sustain-able business characteristics. Again, as an implication, sustainable business is less likely in the emerging markets, where the knowledge about and the capability to address the commons problem is low.

In reality, for a fi rm in the emerging markets, the issue of sustainability is not necessarily a public goods issue. A major challenge for the emerging market fi rms is their lack of absorptive capacity for the dominant visible technology of the industrial markets (Forsyth & Solomon, 1977). The technology of the industrial markets tends to be inappropriate to the capabilities of the emerging market fi rms. Therefore, it is in the private interest of the emerging market fi rms to invest in transforming these technologies into sustainable ones, and/or in developing alternative sustainable technologies. While the emerging markets face limited education and income, many fi rms are championed by resourceful entrepreneurial leaders and their leader-ship teams. Entrepreneurial leadership helps mobilize advocates – including board members, volunteers, and different constituencies – who promote the motiva-tion and the capacity for sustainability even in the face of illiteracy and constraints (Ras & Vermeulen, 2009). Consequently, one may expect and fi nd several important sustainability initiatives to originate in the emerging markets. Nobel Prize Winner Muhammad Yunus and his Grameen Bank and micro fi nance move-ment in Bangladesh, and Mumbai Dabbawallas who deliver tiffi ns (packed meals) using public transporta-tion with clockwise precision and near perfection, are two such examples.


2.1.2 Second Generation Sustainability Scholarship

A second generation of sustainability scholars focuses on how sustainability initiatives under the umbrella of corporate social responsibility (CSR) help the industrial market fi rms achieve distinctive private advantages. Several studies underline the business case for sustainability, from the perspective of both cost savings through greater effi ciency and reduced waste, as well as of market premium, loyalty, and reach, due to pro-sustainability shifts in the social, economic, political and technological trends (Brønn & Vidaver-Cohen, 2009).

For a fi rm in the emerging markets, potential for cost savings from sustainable initiatives is rather lim-ited because the operations are already sensitive to the conservation of energy and other natural resources, in a context where the cost is the dominant basis for competition. A more important benefi t of sustainable business is scalability – sustainability helps alleviate the resource constraints and thereby enables growth without escalating costs (Javetski, 2009). In order to secure these scalability benefi ts, the emerging market fi rms face a challenge of managing the costs of sus-tainability. They can’t simply use the logic that the sustainable alternative should reap a market premium. Given the comparatively limited purchasing power of the customers in the emerging markets, such logic will impede capturing of the scalability benefi ts. Sustain-ability needs to be cost-effective, not cost-escalating, and that requires a holistic and integrated approach encompassing environmental, economic, social and organizational factors. That is, environmental sustain-ability initiatives can be sustainable in the emerging markets only if combined with socio-economic and organizational sustainability that empowers and en-hances the income of the masses and alleviates the growth constraints. ITC eChoupal initiative in India is an example (Mishra, 2008). Traditionally, farmers in India sold their products through local marketplaces (mandi) as price takers accepting whatever price of-fered, with limited access to information and education on sustainable farming practices, and enjoying little surplus to be sustainable consumers and producers. ITC developed the eChoupal system to reengineer the supply chain using digital technology in villages, which offered effective method of price discovery, profi table trading, and information sharing and en-hanced sustainability for the farmers, for ITC and for the nation in terms of exports of this produce.

2.1.3 Third Generation Sustainability Scholarship

A third generation of sustainability scholars is focusing on how the international conventions set the principle of recognizing the emerging nation commu-nities’ sovereign rights over their biological resources and traditional knowledge (Firestone, 2003). The con-ventions facilitate access for environmentally sound uses, in exchange for fair and equitable sharing of the results of research and development based on this knowledge and of the benefi ts arising from commercial and other uses of biological resources and traditional knowledge, including the issues of fair distribution within the community and the inter-generational and gender dimensions. Sensitivity to the ecological and other traditional knowledge of the local communities, and to their rights to sharing the benefi ts from this knowledge, offers an opportunity to construct a scal-able sustainable business model.

The ecological and other traditional knowledge of the local communities is part of the broader cultural system of a society, and also manifests in the specifi c cultural attributes of that society. Next, we present a framework for assessing the impact of these two types of cultural infl uences on sustainability.

2.2 Culture and Sustainable Business Behavior

One of the challenges in studying sustainability is to recognize the wide diversity across cultures and over time. Cultures offer multiple possibilities for the businesses to be sustainable – including taking differ-ent organizational forms (family-owned, partnerships, publicly held, non-government organizations, public), offering different imperatives (such as bottom of the pyramid, ethnic harmony, ground, air, and water re-sources, biodiversity, cost and price stability, access and equity), and emphasizing varying approaches (such as harmony with nature vs. mastery over con-servation, using traditional knowledge vs. modern technology, present orientation vs. future orientation, environment as business responsibility executed by businesses, possibly with public subsidies, vs. public responsibility funded by businesses).

Cultural infl uences can be put into two categories: cultural geography effects and cultural group effects. As shown in Figure 1, cultural geography effects are system-wide holistic infl uences of different nations or regions. Cultural group effects are identifi able and specifi c infl uences of the cultural attributes of specifi c particular nations or regions (Gupta, 2010). Culture is transmitted to and gets manifested in the sustainable

Vipin Gupta / 21

business behaviors through both direct and moderating mechanisms. Direct mechanisms include the role of work-culture, workforce, networking, and exchange, all of which in turn are infl uenced by other factors such as history, economic development, legal institu-tions, education, and religion. Moderating mechanisms include different dimensions of culture.

Several theories predict geography-effects in the factors associated with sustainable development (See Table 1 for a partial list). For instance, Environmental Kuznet theory predicts that the sustainability stan-dards differ between the industrial and the emerging markets (Grossman & Krueger, 1995). The human capital theory predicts geographies with greater human capital to encourage balancing of personal rights with collective responsibilities towards natural resources (Etzioni, 1995). Park et al. (2007) fi nd that when Hofstede’s (1980) cultural measure of power distance is controlled in predicting environmental sustainabil-ity, human capital and income level variables become non-signifi cant. This indicates that the geographies with authoritarian cultures have low human capital, low income, as well as low environmental standards.

Similarly, theoretical rationale exists for the cultural group-effects on the factors associated with sustain-able development. Value-belief theory, for instance, predicts that societal culture shapes normative ethical beliefs about what is morally appropriate, and these beliefs infl uence the perception of environmentally responsible behavior, common business practices, and government regulation of business (Hofstede, 1980; Vitell, et al., 1993; Cohen & Nelson, 1994). One of the cultural values is harmony vs. mastery (Schwartz,

2004). In harmony cultures, emphasis is on environ-ment protection, social peace, and unity with nature, so people strive to appreciate their environment, rather than change it. In mastery cultures, emphasis is on mastering, directing and changing the natural and social environment to attain personal or group goals. Therefore, institutional environmental activism may be perceived positively and be more effective in the mastery oriented cultures, where individuals are rec-ognized to have a tendency to disregard sustainability; but perceived negatively and not be as effective in the harmony oriented cultures, where individuals are believed to be sustainability conscious.

Cultural attributes moderate the relationship be-tween sustainable business behaviors and sustainable development. For instance, in high in-group collectiv-ism cultures, the boundaries among different members of the community tend to be thin and collective group goals are salient (Hofstede, 1980). Here, the fi rms relying on the community-embedded capability will realize more sustainable development. Conversely, in low in-group collectivism cultures, the boundar-ies among different members tend to be thick and individualist goals are salient. Here, the fi rms with proprietary capability will realize more sustainable development.

Cultural change and exchange might encourage a shift in what business behaviors are sustainable. For instance, the Confucian Asian businesses – such as in Japan, China and South Korea – traditionally sought community-embedded technological capability in or-der to realize sustainable cost-effective development. With cross-cultural competition, the group bonds have loosened, and these fi rms have put greater priorities on proprietary technological capability in order to sustain

Figure 1: A Culturally Sensitive Model of Sustainable Development


their advantage. Further, as internationally, there has been an increased focus on proprietary capability, empirical studies have found individualist cultural orientation to be associated with more sustainable development (e.g. Husted, 2005).

2.3 Cultural System and Sustainable Business Behavior

Emerging models of sustainability are infl uenced by several aspects of the cultural system – both at the global level encompassing the industrial markets,

Table 1: Selected Theories and Schools of Thought on Sustainable Development

as well as at the local level peculiar to the emerging markets. Four salient aspects of this cultural system include work culture, workforce, networking, and exchange and exchange rate. These are discussed below.

2.3.1 Work Culture

The global work culture is undergoing a massive transformation (Loza, 2004). The customers are be-coming green focused. The communities are adopting participatory action norms, and demanding greater

Vipin Gupta / 23

Timberland – that ships more than 25 pairs of shoes per year – redesigned its shoe boxes to eliminate 15 per-cent of the material used in them. However, the cost of effort to plan, design, and implement these initiatives often outweigh the cost savings, so that sustainability still implies higher costs for the consumers.

2.3.2 Workforce

The workforce system globally has shifted dra-matically over the recent years (Rossi, Brown & Baas, 2000). The distinction between the thinkers and the doers has blurred. The workforce is demanding professional empowerment and co-participation in management and governance. The organizations are recognizing that an average worker can also make an important contribution moving them toward sustain-ability. Sustainability is not just about fair trade, posi-tive work climate, ecology sensitive practices, or social philanthropy. Rather, sustainability permeates each and every function and activity of the organization, where each member of the workforce has a creative role to play. This is true for human resource, health and safety, supply chain, research and development, fi nance and accounting, operations, information tech-nology, marketing, management, governance, as well as public relations.

In the emerging markets, a vast majority of the workforce is struggling with the basic needs of security and necessities of life. For this workforce, sustainabil-ity is fi rst and foremost about ensuring a security of tenure, as well as assuring a challenging work envi-ronment with continuous skill upgrading and healthy regular growth in compensation levels. In addition, this workforce aspires to be part of a bigger vision and endeavor of making a difference. Therefore, a healthy expansion of the organization, generating additional employment, is also valued by this workforce.

All this can be achieved by the organization only if the sustainability equation is core to its business model. There exists signifi cant scarcity of quality resources in all functions, and other functions can support the growth in human resource budget only if they are each founded on sustainability. Further, a growing workforce itself can be managed sustainability only if it is based on the principles of empowerment, positive work climate, and fair wages.

2.3.3 Networking

Networking is a critical aspect of contemporary organizations. Sustainability movement got an early impetus during the 1980s and 1990s with the issues around globally supply chain networking, particularly

accountability for accessing the community-based resources. The societies are introducing stricter legal codes for environmental stewardship. Sustainability equation has come out of closet from being an optional feel good factor to a critical business imperative.

The emerging markets offer a different challenge than do the industrial markets – in the industrial markets, the thrust is on identifying non-sustainable activities, and investing to transition that to sustain-able ones. The sustainable initiatives allow the fi rms to earn a brand and reputation premium in the marketplace, e.g. in terms of attracting investors and customers, and avoiding legal and community penal-ties. In the emerging markets, the gains from transi-tioning non-sustainable activities are more modest. A majority of the population lacks purchasing power to bear the premium for sustainable initiatives, even if it values them. The legal codes, even when present, lack implementation wherewithal, often due to more pressing priorities facing the governments.

The benefi ts of sustainable initiatives in the emerg-ing markets are not as much in the higher unit revenue realization, as in the greater cost-effectiveness of resource utilization. The effective cost of resources in the emerging markets, even if they are rich in those resources, tends to high. Most resources in these markets require investments to bring them up to the quality required by the mass market. And their quality resources are in strong demand from even the industrial markets that seek to specialize in adding innovative value to the resources and have ability to put higher bids on access to those resources. The challenge for the emerging markets is to meet the need for replen-ishing resources, and to maintain a sustainable level of resource consumption and trade. The winners are the fi rms with capability to reduce the unit revenue realization through a more cost-effective resource development and utilization system, and expanding the base of the consumer pyramid served by the business (Prahalad & Hammond, 2002).

The consumers in the industrial markets love to pay a premium for sustainable businesses and their products and services. The consumers in the emerging markets love those businesses that develop sustainable equations, and are able and willing to pass on the sav-ings from this sustainability to them.

Even in the industrial markets, some fi rms have used sustainability initiatives to reduce their costs. According to Esty and Winston (2006), chipmaker AMD modifi ed a “wet processing” tool to use fewer chemicals and less water to clean silicon wafers. The process, which once used 18 gallons of water per minute, now uses fewer than six. Shoe manufacturer


involving offshoring and importing by the industrial markets (Marsden, Murdoch, & Morgan, 1999). Glob-ally, supply chain network sustainability has replaced monetary cost, value, and speed as the dominating factor in supply management. Supply sustainability has become a key driver of profi tability. More gener-ally, networking allows businesses to measure and manage the economic wastage, business risks, social impact, and ecological footprint of the entire value chain, extending out from their business operations to include their suppliers and the customers also. Networking also offers opportunities to connect with other like-focused organizations, to help build and share infl uence, motivation, information, knowledge and resources for sustainability.

In the emerging markets, sustainable networking has a much stronger social inclusion element – and cannot be exclusionary in its spirit (e.g. network only with like-focused organizations). Successful organiza-tions are the ones whose networks are able to access, cultivate, qualify, and advance resources at the base of the pyramid.

2.3.4 Exchange and Exchange Rate

As the value of sustainability has grown, the risks and costs of non-sustainability have also increased. These developments become a basis for negotiat-ing lower exchange value for the resources that lack sustainable properties (low ecological footprint, high social impact) of their own or of their source (sustain-ably minded organizations, economic value adding networks). The fi rms in the emerging markets are most vulnerable to the adverse terms of exchange if they lack sustainability capacity. The adverse terms impede their already precarious fi nancial and competi-tive capability.

However, sustainability need not be a challenge for the fi rms in the emerging markets. Sustainability is a huge opportunity for them to negotiate favorable exchange terms. The emerging market fi rms enjoy an edge in social impact – their activities frequently make a visible and identifi able difference to the lives of the workforce, investors, partners, vendors, and customers. They should assess their functions for sustainability impact, so that the invisible sustainable properties of their business become visible and can be translated into a negotiation advantage.

Next, we discuss how a sustainability index may be constructed for the purposes of assessing sustainable development, and using that for communication and negotiation purposes in exchange encounters.

3 Problem Solution3.1 Sustainable Development

From an organizational perspective, a useful index of sustainable development is one that can be cor-related with the existing responsibility centers. Every organization has functional responsibility centers, either embedded within business or geographical divisions, or superseding them. In general, most organizations must perform nine functions, which may be captured using the 9 M model (Gupta, 2009). The 9 M’s include manpower for human resource function, material for supply chain function, method for R&D function, monetary for fi nance and account-ing function, manufacturing for operations function, machinery for information technology function, marketing for sales and services function, motivat-ing for leadership function, and manipulating for stewardship function.

A holistic model of sustainable development in-cludes four types of domain components – ecological, economic, social, and organization. As noted by the World Commission on Environment and Development (1987), poverty, particularly in emerging market na-tions, is the main cause of environmental degradation. Concerned development efforts for economic, social and organizational impact are essential in order to make possible worldwide environmental protection/conservation.

Each of the 9M’s offers a mechanism for the de-velopment effort, and has a measurable impact on the four sustainability domains. A sub-index captures the impact on each domain of sustainability, and apply-ing appropriate weights, we can construct an overall sustainability index. The sustainability index can help the emerging market fi rms identify their true sustain-ability equation, and clarify how this equation may be strengthened by investing in various stakeholders to help them also become more sustainable. And, the resources for investment can be generated through improved negotiation capacity based on authentic data on each component of sustainability. Let’s discuss these domain components.

3.1.1 Ecological Sustainability

Ecological sustainability includes eco-effi ciency (i.e. low wastage and resource consumption) and eco-design (i.e. products and system designed for low carbon footprint). The 9M assessment, and its auditing by trusted independent agencies, can help the fi rm secure a negotiation advantage, by showing how the overall value added by it has a positive ecological

Vipin Gupta / 25

footprint. And, the negotiation gains then improve the fi nancial and organizational capability of the fi rm to help its vendors also reduce their own ecological footprints.

3.1.2 Economic Sustainability

Economic sustainability includes income and tech-nological growth. A fi rm contributes to income growth by employing workforce in productive activities, and offering advancement opportunity. Income growth also accrues through other functions, such as managing supply chain to support vendor growth, managing sales and services to support enhanced customer purchas-ing power and productivity. Similarly, technological growth accrues by investing in research and develop-ment, and motivating the workforce to be innovative and creative. It is also driven by other functions, such as empowering the vendors and stewarding the com-munity to discover their under-recognized capabilities and traditional knowledge, and then to capitalize on this through the fi rm’s complementary assets.

3.1.3 Social Sustainability

Social sustainability includes community develop-ment and social inclusion. Many fi rms are the primary engines of development in their communities – they are co-evolving and co-developing with their local, regional or national communities. Their community development role is not just a philanthropic element in the stewardship function. It also encompasses their contributions to the development of other functions, such as innovative information technology base, cre-ative sales and services channels, and transparent and trusted fi nance and accounting function. A byproduct of many community development initiatives is the inequity in the opportunities offered to members varying by their prior capabilities. These inequities eventually engender social tensions and frictions, and produce a non-sustainable community where the risks for business are higher. Social inclusion initiatives are focused on engaging the members of the community that are under-represented because they fall in par-ticular categories of race, religion, gender, age, social class, ethnicity, education, and geographical origin. Social inclusion is relevant not only for the manpower function (i.e. inclusive HRM policies), but also for the other functions, such as the vendors from the under-represented groups, the under-served customers, and the under-recognized investors. Social inclusion on each of these functions helps contribute towards the creation of a sustainable business.

3.1.4 Organizational Sustainability

Organizational sustainability includes rights-sen-sitive governance and management, as well as rights-sensitive stakeholder engagement. The ecological, eco-nomic, and social sustainability initiatives can’t happen by osmosis. Firms need to put in place governance and management structures and processes that are sensitive to the development rights of different communities in which they participate or do not participate, and to the human rights of different members they include or ex-clude in their organization. Their decision to participate in one community and not others, or to have a higher-order participation in that community, also implies that they are putting their vote on the development rights of that community vs. others. It is diffi cult to put a value on these votes, especially on sustainability criteria. How would one quantify whether investing in an affl uent urban area of South India makes for a more sustain-able world, or investing in an impoverished rural area of Northeast India?

But one can still use a scientifi c approach to assess if an organization casts its votes being sensitive to their development rights and human rights implications. In other words, to what extent the governance and man-agement is sensitive to the organizational activities being sustainable, on ecological, economic and social parameters, without externalizing the non-sustainable impacts. For instance, if an organization projects an image of a responsible company in one community, while discarding all its hazardous waste, placing all its energy-intensive operations, or deputing all its authori-tarian leaders, in other communities or nations, then it cannot really claim to be rights sensitive. Similarly, the fi rms should also seek to engage different stake-holders in a way that is sensitive to their rights. For instance, hard selling a product to an illiterate income constrained customer, by sharing partial information, on the plea of ‘let the consumer beware’, does not give consumer rights sensitive brownie points. Or, forc-ing a small vendor to give up rights to its intellectual property and to sign exclusive agreement for gaining access to the fi rm as a customer is also not sensitive to the vendor’s rights.

3.2 Sustainable Business Behaviors

In order to secure sustainable development, cul-turally sensitive sustainable business behaviors are required. Sustainable business behaviors include both appropriate technology as well as appropriate organization. Culture is transmitted and gets mani-fested through both technological and organizational mechanisms in the behavior of the businesses. We


propose a nine dimensional typology of sustainable business behaviors – fi ve related to the technological aspect of sustainable business, and four pertaining to the organizational aspect. These dimensions are sum-marized in Table 2.

Consider the example of Pratham, who with the support of UNICEF and several local Mumbai industri-alists, set the goal in 1994 to ensure that every Mumbai child between three and ten years went to school. In

the West, a multinational corporation will typically donate at least $30,000 as a start-up investment to open a pre-school for 30-50 students. The same model, if implemented in Mumbai, would have cost $75 per child per year in operating costs. Pratham, however, designed a model costing only $7.50 per child per year in operating costs that was more appropriate and effec-tive in the local culture. First, it recruited housewives as teachers who could conduct classes at their own

Table 2: A Culturally Sensitive Typology of Sustainable Business Behaviors

Vipin Gupta / 27

homes for only $5/ month by publicizing the social import and impact of the program, and thus offered accessible neighborhood classrooms to bottom of the pyramid children and gained buy-in from their parents happy with the community orientation of the class-room. Those teachers who had no spare room at their homes obtained space in neighborhood community centers, mosques and temples, schools, and corpora-tions, thereby mobilizing the support of the commu-nity. Second, it built partnerships with local universi-ties and corporations to offer volunteers to perform a variety of administrative and support roles, including teacher performance reviews and training, and children learning assessment, and to donate equipment such as computers. Third, it created a health program with the support of a local hospital, and administered through the teacher network, which dramatically improved the child health. This model was highly scalable, and by 2006, had been expanded to 50 cities, with an annual budget of $10 million serving 100,000 children a year with the help of 4,000 employees.

Pratham was able to achieve sustainable devel-opment, because it effectively leveraged communal technological capability, based on evolutionary tech-nological investments, inclusionary technological trading, and exogenous technological growth. Its technological servicing, however, was focused specifi -cally on the bottom of the pyramid, given its mission to bring about a cultural change in that segment. Further, it adopted an unconstrained organizational planning, a generalist programming that was scalable and rep-licable in other geographies, an ascending performing calling upon the will power and values of the members, and an immanent profi ting where sustainability per-meated in each and every function and action of the organization. The key to the success of Pratham was its mission-sensitive alliances and action that created a range of opportunities inherent in the Indian cultural system, and also helped remove various impediments to their exploitation.

3.3 Sustainable Business Behavior and Sustainable Development

We have discussed how sustainable business behaviors are culturally sensitive – the best practice technology and organization in the industrial markets may not be appropriate to the culture of the emerg-ing markets and therefore be non sustainable without a corresponding initiative to bring about a cultural change within and without the organization. Moreover, it is not necessary that the cultural change takes place only in the emerging markets. GLOBE, a 62-society

landmark study of societal cultures based on a survey of nearly 17,000 middle level managers, demonstrates that the asymmetry between actual and aspired cultural attributes is pervasive in the industrial markets also. Therefore, it is important that the multinational fi rms do not blindly seek to transfer their cultural practices, and the associated business practices intended to support sustainability, to the emerging markets. The results otherwise can be costly and counter-productive to sustainable development.

To guide the sustainability initiatives of the multinational corporations operating in the emerg-ing markets, we offered a framework for evaluating nine sustainable business behaviors, in terms of both technological as well as organizational aspects. We also offered a methodology for measuring sustainable development through a weighted sustainability index, based on its four domain components.

What still remains is an approach to decide the weights among these four domain components – ecological, economic, social and organizational. As suggested by the case study of Pratham, these weights will vary by the strategic priorities of each organiza-tion, and should be mission sensitive. Sustainability strategy should derive from the mission statement. Based on its mission for the corporate as a whole and for the operations in specifi c emerging markets, the multinational corporation should articulate its key sus-tainability goals in each of the four domains. For each goal, appropriate sustainability impact metrics should be identifi ed, and specifi c sustainability programs should be designed and resourced. Finally, appropri-ate checks should be instituted to ensure that these programs remain cost-effective given that emerging market’s context. If the costs are not in line with the goals, that indicates a need for making corrections in the program, and if necessary, substituting and replac-ing it with another program logic.

4 ConclusionThis paper started with the accountability chal-

lenges being faced by the multinational corporations in the face of global economic crisis, as they try to design a more effective confi guration of their value chain, and as they seek to forge stronger cooperation with the emerging markets. Another face of these chal-lenges is the opportunities to transfer technological and organizational solutions for sustainable development in the emerging markets.

A larger issue around managing these challenges and opportunities is the extent of validity of the as-sumption that the emerging markets are defi cient in


sustainability consciousness. Low levels of sustainable development in the emerging markets do not necessar-ily imply low levels of sustainability consciousness. Our framework showed that prior technological and organizational solutions from the industrial markets could be responsible for impeding sustainable de-velopment in the emerging markets. Selected case examples underlined how alternative technological and organizational solutions indigenous to the emerging markets have translated into remarkably sustainable development. The missing link explaining this para-doxical result is the cultural factor. Lack of cultural sensitivity of the business behaviors transplanted from the industrial markets, and not the lack of sustainability consciousness, can be the dominant factor impeding sustainable development in emerging markets.

Over much of the 20th century, studies suggested how the industrial market fi rms sought to change envi-ronmentally, socially, economically and organizationally sustainable indigenous technologies and techniques, and replace them with their “modern” technologies and tech-niques. The debate was on how the cultural, political, human, and social forces in the emerging markets had a heightened sense of concern about the environmental and community appropriateness of Western know-how. The emerging markets were labeled as irrational and laggards in adopting modern know-how. Now, in the 21st century, the new debate is labeling the emerging markets as laggards in sustainability. According to the critics, the emerging markets are over-occupied with economic advancement, at the cost of social, human, and environmental sustainability.

Just like over the 20th century, the critics failed to appreciate why the emerging market communities were concerned with supra-economic sustainability, the present day critics show a lack of appreciation about the deep and widespread roots of sustainability consciousness in the emerging markets. Therefore, there is an urgent need to assess how the technological and organizational dimensions in the emerging markets are focused on realizing multi-faceted sustainability. This paper demonstrates how such an assessment should take place. It also cautions against introduc-ing technological and organizational solutions in the emerging markets, without sensitivity to their cultures. The industrialized solutions could in fact hinder sus-tainable development in the emerging markets, if their unique cultural factors are overlooked. Conversely, the current technological and organizational approaches in the emerging markets may, if used scientifi cally, in fact translate into sustainable development.

The multilateral agencies, such as USAID, EU, and UN, should sponsor and encourage assessment studies

to document the hitherto untold stories of sustain-ability in the emerging markets. These studies should include an explicit consideration of the gender and other diversity factors, because women and men, and different cultural sub-groups, usually have distinctive sub-approaches to sustainability. Global dissemination of these stories can help the emerging market fi rms get the respect they deserve for the challenges tackled and the difference made by them, and also help recog-nize the unique and distinct role of women and men and other diverse subgroups. The resulting exchange system would allow a fair, reciprocal trading of the sustainability solutions, and promote a positive cultural exchange to allow plurality and diversity of effective approaches to sustainable development.

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Inder P. Khera / 31

Ethics Perceptions of the U.S. and Its Large Developing-Country Trading Partners

INDER P. KHERAProfessor of Marketing & International Business

Raj Soin College of BusinessWright State University

Dayton, OH 45335United States of [email protected]

Abstract: There has been substantial applied research on business ethics focused primarily on measuring attitudes of various types of respondents towards such things as unethical business practices, ethics training, need for organizational codes of ethics, etc. In almost all cases, the respondents are asked about value systems in their own countries or in countries they are vary familiar with because they work or currently reside there. This study is different in that it asked American respondents to provide their perceptions of the extent of unethical behavior in countries with which they were not intimately familiar (except for the United States). The survey instrument presented eight different scenarios of unethical behavior and asked the respondents to indicate the percentage of the actors in each of the six countries (United States, Mexico, India, China, Italy and Germany) who would likely engage in unethical behavior described in each scenario. Results indicated signifi cant differences in perceived levels of unethical behavior between countries. American actors portrayed in the scenarios were perceived to be most ethical while Mexican actors were seen as being the least ethical. The article discusses the results and some possible explanations for such differences in perceptions.

Key words: personal ethics, business ethics, personal values and corporate ethics, culture and ethics, cross-cultural ethical differences, applied ethics, global business ethics

1 IntroductionEven though the issue of ethics has been discussed

for many decades, it is only during the past couple of decades that the topic has come to prominence in busi-ness literature. While ethics theorists divide the fi eld of ethics into three general categories – metaethics, normative ethics, and applied ethics –the business literature has focused more on applied ethics which consider specifi c controversial issues, such as abor-tion, animal rights, environmental degradation, same sex marriage, capital punishment, and more. The consideration of metaethics which ponders the likely sources of our ethical principles and their meaning, and

normative ethics which deals with a more practical task of attempting to arrive at moral standards that regulate right and wrong conduct, have largely been left under-explored by business researchers (Fieser, 2006).

Most of the recent research in perception of busi-ness ethics has focused on the perceptions of business ethics in an applied sense. Kun et al. (2008) who stud-ied responses of students in the United States (US), Japan, China, and South Korea, found substantial differences in reactions to scenarios depicting poten-tially unethical business behavior between Asian and US respondents as well as within the Asian responses. Rautwas et al. (2005) studied ethical beliefs of Turk-ish and American consumers and found the Turkish


respondents who were more sensitive to unethical business practices were more likely to follow rules and norms and were more idealistic and less Machiavel-lian than their American counterparts. Ergeneli (2005) reported that Kirghiz and Kazak marketing employees’ ethical behavior choices were similar to each other but different from their Turkish and Egyptian counter-parts. Additionally, even though all respondents were ethically more sensitive toward the whistle-blowing problem, they showed signifi cantly less sensitivity to the issue of bribery. Ralston et al. (2006) compared perceived upward ethical infl uence of Vietnamese vs. US, French and Chinese executives and found that Vietnamese executives were unique in that they perceived a much greater upward infl uence of ethics within organizations rather than the usual downward pattern. Shu-Hui Su (2006) reported on ethical atti-tudes among accounting students in the US and Taiwan and found signifi cant differences both countries with respect to all fi ve of Hofstede’s cultural dimensions. Swaidan and Hayes (2005) reviewed a large number of studies exploring cross-cultural ethics using Hofst-ede’s theoretical framework. Based on the fi ndings of these studies, they came to the general conclusion that individuals from developed countries were more sensitive to ethical issues than their counterparts from developing countries.

Other recent studies include Robertson et al. (2008) who surveyed respondents from Peru and China about their ethical ideologies, fi rm practices, and commit-ment to organizational performance, and reported that the Chinese workers were more relativistic and less idealistic than their Peruvian counterparts. Based on a late 1990s survey that was repeated in 2004, Rottig and Heischmidt (2007) reported that the existence of cor-porate codes of conduct and ethics training increased American and German executives’ appreciation of corporate ethics and their propensity to make ethical organizational decisions.

The present study is an attempt to explore norma-tive ethics scenarios which fall under the moral rela-tivism stream of the philosophy of ethics, specifi cally, cultural relativism which maintains that morality is neither universal nor other-worldly. Nor is it simply in the preferences of individual people. Rather, it is grounded in the approval of one’s society. In other words, ethical values are relative to time, place and culture. Such this-worldly approaches deny the abso-lute and universal nature of morality (which contends that moral truths hold for all people in all places at all times) and hold, instead, that moral values in fact change from society to society over time and through-out the world.

2 Problem Formulation2.1 Business Ethics

Because many lapses in organizational and profes-sional ethics started to be brought to public attention in the latter half of the 20th century, there grew a strong demand to study ethics in the applied contexts such as business ethics, medical ethics, information ethics, engineering ethics, etc. Rest (1986) introduced a four-stage process for making ethical decisions in specifi c situations. These stages were: recognizing moral issues, making moral judgments, establishing moral intent, and engaging in moral behavior. Based on this sequence, Jones (1991) proposed one of the most comprehensive theoretical models of ethical decision making in organizations. He introduced the concept of moral intensity (the extent of issue-related moral imperative in a situation) and the idea that ethi-cal choices are not just individual decisions, but are determined by social learning in organizations.

Although ethical lapses among business and busi-ness owners have been publically condemned for centuries, modern empirical research on business ethics began in late 1960’s with the publication of Baumhart’s (1968) descriptive study on ethical behav-ior of managers which, in turn, was triggered by rising scandals in business corporations. During the last two decades of the 20th. Century, a phenomenal growth in the globalization of business and a corresponding increase in ethical confl icts faced by multinational fi rms spurred renewed and widespread interest in or-ganizational ethics. In 2000, Loe et al. reviewed the large body of empirical research on ethical decision making in organizational settings, and cited over 200 studies in areas such as awareness of ethical issues, and the infl uence of such things as personal factors (personal moral philosophy, moral intensity, gender, religion etc)., organizational factors (codes of ethics, rewards and sanctions, organizational culture, etc.), and cultural factors (Hofstede’s cultural typologies, belief systems, religion, history, etc.), as factors that infl uence organizational ethical decision making. They identifi ed only 2 published studies among the 200 they reviewed that dealt with moral intensity. Since then, the number and contexts of empirical studies have grown exponentially indeed. A recent search of an electronic database by the author retrieved over 40 articles be-tween 2000 and 2008 on moral intensity alone.

2.2 Personal Values, Morals and Corporate Ethics

Since individuals are the instruments who carry out the process of making ethical decisions, many factors

Inder P. Khera / 33

infl uence that process. These may include things all the way from early childhood understanding of ethical behavior through examples set by parents, teachers and spiritual leaders, to the behavior of organizational leaders, and formal organizational codes of ethics.

Research evidence overwhelmingly indicates that managers who have high personal ethical standards are less likely to make unethical business decisions. Singh, et al. (2007) compared personal moral philoso-phy and moral intensity of marketers in China and the US and found that perceived moral intensity was a signifi cant and direct predictor of ethical judgments, and ethical judgments were signifi cant direct predic-tors of behavioral intentions in both countries. Forsyth (1992) also found a strong link between personal moral philosophies and business practices. Similarly, Singhapakdi et al. (1996) surveyed 453 US members of the American Marketing Association and found that a marketer’s decision-making process appeared to be infl uenced by situation-specifi c issues such as the moral intensity of the situation

Even though most instances of ethical misconduct are motivated for positive business or corporate per-formance reasons (fi nancial, productivity, effi ciency, effectiveness, etc), i.e., good people sometimes do bad things believing that they are acting in the corporation’s best interest (Chandler, 2006), much more evidence has come out in recent years indicating that many instances of executive misbehavior are for personal gain or because of a lack of personal ethics. In many cases, such personal behavior has been extremely costly to the fi rms or the institutions with which such persons were affi liated (Enron, Global Crossing, Tyco, Siemens, Hyundai, AIG, and others).

2.3 Culture and Business Ethics

Much of the research relating business ethics to culture has been done by Geertz Hofstede himself (1984, 1985, 1994, 1996, 2003), or by others using one or more of his cultural dimensions, i.e., the concepts of power distance, individualism vs. collectivism, uncertainty avoidance, long vs. short term orienta-tion and masculinity/femininity particular to different cultures. Such studies include ethical attitudes of busi-ness mangers in India, Korea, and the US (Christie et al., 2003), effects of Hofstede’s typologies on ethical decision making, on sales force performance (Weeks, et al., 2006) and many more. In fact, Kirkman et al. (2006) cited over 180 published empirical studies in which researchers used Hofstede’s cultural dimensions framework.

In addition to national culture, respondents’ gen-eral attitudes toward business ethics, sensitivity to

questionable business practices, personal integrity, individualism and power distance, gender and other personal variables have been shown to have a strong influence on business managers’ ethical attitudes (Christie et al., 2003).

There is also a rich body of literature on cross-cultural business and marketing ethics that deals with perceptions of various subjects about the ethics of fi rms in different cultures. Foremost among such studies is the Transparency International’s annual Corruption Perception Index which is derived from fourteen sur-veys of business people and evaluations by non-resident and resident country experts from several international institutions (Asian Development Bank, African Devel-opment Bank, Bertelsmann Foundation, World Bank, the Economist Intelligence Unit, International Institute for Management Development, etc.). An essential condition for inclusion is that a source must provide rankings of nations using the same measurement techniques in each nation and no other criteria such as political instability or nationalism be mixed-in with corruption measurements. Generally speaking, Scan-dinavian countries and a few other Western European countries along with New Zealand, Singapore, Canada, and Australia have, over the years, been perceived to be the least corrupt countries while the very poor or undemocratic countries of Africa and Asia (Myanmar, Somalia, Haiti, Uzbekistan, Sudan, Congo, Democratic Republic, Guinea, etc., in 2007) typically bring up the rear. In the 2007 survey, China, India and Mexico tied for the number 72 spot (along with Brazil, Morocco, Peru and Suriname), while the US occupied number 20 (Transparency International, 2007).

2.4 Methodology

Since the early 1960s, a large number of research-ers in the business ethics have used scenarios as a data gathering device to measure ethical reasoning (Baumhart (1961), Brenner & Molander (1977), Fritz-sche & Becker (1984), Akaah (1989), Zinkham, Bisesi & Saxton (1989), Weber (1990, 1992, and others), to assess ethical judgments or decision-making prefer-ences, and to determine a subject’s intent to behave in an ethical or unethical manner. Given the large number of recent studies using this technique, scenarios seem to have become a basic and indeed the preferred tool in empirical business ethics research.

The questionnaire used in this study to collect the data contained eight scenarios depicting a variety of unethical behaviors. These included such things as: What percent of shoppers in an upscale clothing store that has no surveillance to check on shoppers, do you


believe would shoplift? What percent of the police of-fi cers in each country would accept a small bribe from motorists they stop for minor traffi c violations and let the drivers go? What percent of residents would keep a parcel containing merchandise mistakenly delivered to their home? What percent of nurses in a hospital would not report a life-threatening medical mistake made by them? etc. Below each scenario, four countries – US, Mexico, India and China – were listed with space for fi lling in the percent answer next to each country. The remainder of the questionnaire asked for demographic information.

The surveys were conducted by undergraduate business students during the 2004-5 academic year. Each student chose a convenience sample of residents in a mid-size Midwestern US metro area. Random call backs to twenty percent of the respondents were made to establish the veracity of the surveys. Any surveys that were not verifi ed were discarded (and an additional call-back was made). If three of the 15 surveys that a student had conducted could not be verifi ed, then all fi fteen surveys done by that student were discarded. During the process of creating the dataset, questionnaires where answers to fi ve or more of the eight scenarios were left blank were discarded (13 surveys) as were the ones that appeared to be in-tentionally misanswered, e.g., the same exact percent answer for each question for each country for all eight scenarios (5 surveys). A total of 978 usable surveys resulted. Details of respondent characteristics are presented in Table 1.

The sample was divided almost evenly between males (46.9%) and females (53.1%). A relatively larger proportion of the sample was younger (50.8% between 21 – 30 years of age), followed by 25.6% between 31 and 45 years, 17.6% between 46 and 60, and 5.9% older than 60 years. The combined 21 – 45 age group in the sample (76.4%) was substantially larger that the national proportion of about 47% that fall into this age category. This higher incidence of the 21 – 45 year olds most likely occurred because student chose to survey other students who were easily available on campus. Regarding income categories, the largest percentage of the respondents reported household earnings between $20,000 and $50,000 (37.9%) followed by 24.1% below $20,000. Those between $ 75,000 to 100,000 constituted 18.5% of the respondents, while 8.6% reported income of over $100,000.

3 Problem Solution3.1 Results

Differences between countries were calculated us-ing the z-test to compare pairs of mean percentages. The results are listed below:

For scenario #1 which asked the respondents about the percentage of the employees of a fast food restau-rant they believed would steal from the restaurant, dif-ferences between all six country pairs were signifi cant at p ≤ .05. In each case, the US was perceived to be more ethical compared to its developing partners and Mexico came out to be least ethical country. Table 2 presents the results of Z tests for scenarios 1 to 4.

Table 1: Respondent Characteristics

Inder P. Khera / 35

3.1.1 Country Comparisons, Scenarios 1-4

Table 2: Country Comparisons, Scenarios 1 to 4

Scenario #1: Fast food employees steal from storeScenario #2: Shoppers steal from upscale clothing store with no surveillance Scenario #3: Doctor keeps extra payment mistakenly made by patientScenario #4: Resident keeps merchandise package mistakenly delivered to his/her address

For Scenario #2 (Shoppers would steal from an upscale clothing store) all country-pair differences were again signifi cant. Regarding Scenario #3 (doc-tor will knowingly keep an extra payment made by a patient), there were no signifi cant differences in respondents’ perceptions for US versus India while all other comparisons were signifi cantly different. Finally, for Scenario #4 (Residents would keep a pack-age containing merchandise mistakenly delivered to their home), fi ve of the 6 comparisons were signifi cant while the US-India pair was not signifi cant. Overall, 22 of the 24 country comparisons presented in Table 2 showed signifi cant differences in the respondents’ perceptions.

Looking at the percentage answers presented in Table 2, Mexican actors were perceived to have the lowest ethical standards (highest cheating percentages) than those from the other three countries for all four scenarios. For both, China and India, the respondents ranked shoppers at upscale clothing stores as being


more ethical (lowest percent were judged likely to steal) than employees in a fast food restaurant, doctors, and ordinary residents. Also, as indicated by percent scores alone, US and Chinese doctors were very similar (23.31% for US doctors vs. 24.68 for Chinese doctors) as were the percentages assigned to US and Indian residents (26.82% for US residents vs. 27.96% for Indian residents). Fast food employees in India were also judged as being less ethical than upscale shoppers, doctors, and ordinary residents. However, doctors in both, India and China came in second after upscale clothing shoppers who were assigned the highest ethical ranking.

Results for Scenario 5 (Police offi cer takes small bribe from drivers-Table 3) differed signifi cantly for 13 out the 15 country comparisons. Only about 20% of American police offi cers were judged likely to extract small bribes from motorists while more that twice as many Mexican offi cers (45%) were judged likely to do so. While Chinese police offi cers’ ethics were perceived to be signifi cantly lower than their American counterparts; they were still judged sig-nifi cantly more ethical that their Indian and Mexican offi cers. One explanation for this result might be that Americans generally view American police offi cers as very well trained, the Chinese as being under very strict government control but the Indians and Mexi-cans as being infl uenced by generally more corrupt national cultures.


3.1.2 Country Comparisons, Scenarios 5-8


Scenario #5: Police offi cer takes small bribe from driverScenario #6: Customer keeps double credit from catalog fi rm for returned merchandiseScenario #7: Nurse does not report life-threatening medical mistakeScenario #8: Accountant does not report major cheat-ing by client

On the question of whether ordinary customers would keep the double credit mistakenly given to them by a catalog fi rm for returned merchandise (Sce-nario 6), the respondents gave signifi cantly different responses in all six of the country comparisons. Here again, the US received the highest scores for ethical standards while Mexico was perceived as having the lowest. China was perceived to have higher ethical standards than India which in turn was perceived as being more ethical than Mexico. There were no signifi cant differences between the US and China for Scenario 7 (nurse not reporting life-threatening medi-cal mistake) and Scenario 8 (accountant not reporting major cheating by client to tax authorities). Results for China and India were also not signifi cant for Scenario 7 for India-China pair as well.

Regarding the perceived likelihood of nurses not re-porting a life-threatening error in medicating a patient (Scenario 7), only four of the six country comparisons were signifi cantly different. Furthermore, nurses in all


four countries received the lowest percent score for all scenarios for ethical lapses, i.e., they were judged likely to have the highest ethical standards of nearly all actors in the study except for China where shop-pers in upscale clothing stores (19.64%) and doctors (20.55%) slightly edged out nurses (20.67%) for their perceived ethical behavior. For accountants not report-ing major cheating by a client to a government agency (Scenario 8), the differences were not signifi cant for six of the 15 country comparisons (US-Germany, US-Italy, US-China, Germany-Italy, Germany-China, and Italy-China). In terms of percentages, accountants were perceived to be less ethical than doctors and nurses for all six countries. However, while accountants were perceived to be more ethical (lower percentages for unethical behavior) than police offi cers for Italy, Mexico, and China, they were still perceived as likely to be less ethical than police offi cers for US, Germany, and India.

3.2 Summation of Results

A majority of the results obtained from the survey turned out to be consistent with expectations, i.e., actors in the US were expected to be perceived as being more ethical than those in Mexico, India and China. This fi nding was generally consistent with the stereotypical notion that levels of ethics in Third World countries are generally lower than those in Western countries. Hegarty and Sims (1978, 1979) reported that foreign nationals studying in the U.S. were less ethical than were U.S. students. White and Rhodeback (1992) found that Taiwanese managers provided lower

Inder P. Khera / 37

ethicality ratings than did U.S. managers. McCabe et al.’s (1993) results showed that Asian students just entering a U.S. MBA program made more unethical choices than did their US-citizen counterparts. Baker et al. (2008) discussed the vast extent of corruption in developing countries and the role of various public agencies, including, citizens, in fi ghting such corrup-tion; Kruger (2008) discovered (and lamented) the low ethical standards in Chinese toys, textiles and con-sumer electronic industries; Jamali (2007) suggested a lack of a systematic, focused, and institutionalized approach to corporate social responsibility (CSR) and that the understanding and practice of CSR in Lebanon; Egels-Zandén, discovered that over two-thirds of the Chinese suppliers did not comply with the majority of the ethical studied standards laid down by large toy retailers by successfully deceiving toy retailers’ monitoring organizations. Venard and Hanafi (2008) reported on widespread corruption in fi nancial insti-tutions in emerging countries. While these and other studies do give credence to the notion of higher ethical standards in the West, events of the past decade or so have amply demonstrated the existence of low ethical standards at least among Western executives. ethical standards of ordinary individuals and professionals are still presumed to be higher in the West.

In spite of such commonly demonstrated and ac-cepted Western notions of lower ethical standards in the Third World, some of the fi ndings of this study indicate a probable change emerging in the percep-tions of Western respondents about such differences. Even though the Third World countries studied in this research, especially Mexico, were perceived to have lower ethical standards, several country comparisons showed no statistically signifi cant differences between a First World and a Third World country. Thus, while Mexico came out as being statistically less ethical in all comparisons with the US, both China and India had two instances of no statistical differences in ethical standards from the US.

Statistically speaking, China was perceived as be-ing no different than the US for Scenario 2 (Shoppers steal from upscale clothing store), Scenario 3 (Doctor keeps extra payment mistakenly made by a patient), and Scenario 4 (Resident keeps merchandise package mistakenly delivered to his/her address). Similarly, China was judged as being no different from Italy for Scenarios 3 and 4, and was not perceived as being statistically different from the US on Scenario 7 (Nurse does not report life-threatening medical mistake) and Scenario 8 (Accountant does not report major cheat-ing by client. Nor was it different from Germany for Scenario 6 (Customer keeps double payment-credit

from catalog fi rm) and Scenario 8. In addition, results for China were not statistically different from those for Italy for Scenarios 5, 7 and 8. All these similari-ties strongly indicate that ethical standards in China were perceived to be quite similar to those in the US, Germany, and Italy in 12 of the 24 comparisons of China with these countries. Similarly, India came out no different that the US, Germany and Italy in 6 of the 24 such comparisons.

It is, however, worth noting that this survey was done before the US population became aware of such repeated Chinese corporate fraudulent activities as 2007 exports of contaminated gluten that caused numerous cat and dog deaths in North America, Europe and South America; toothpaste containing poisonous diethylene glycol exported in 2007 to the US and Africa; these and other cases such as high lead-content paint used in children’s toys and furniture and, most recent (2008) cases of deadly chemical melamine deliberately added to milk, baby formula and other dairy products to artifi cially show higher protein content have severely damaged perceptions of Chinese fi rms’ integrity in the West. Consequently, similar studies now or in the near future might result in Chinese ethics being perceived as lower than what was found in this study.

4 ConclusionWhile the US was perceived to have higher ethical

standards than the three big emerging economies for most of the scenarios, the results were not absolute. This indicated that American respondents may be starting to ascribe higher ethical standards to non-Westerners. This trend, if correct, can have important implications for executives in all four countries includ-ed in this study. It may, for example, make US man-agers less shy of hiring and promoting non-Western personnel for positions of greater responsibility that require a greater sense of ethical behavior. Also, US and other Western multinationals may begin to institute similar standards of customer service and product war-ranties in non-Western, especially rapidly advancing countries because consumer ethics in at least some of those countries may not be that different than Western consumer ethics. This similarity in consumer ethics implies similarly responsible consumer behavior to-wards returns, warranty claims and other rights that Western fi rms routinely grant to Western customers because they regard such customers as being generally less likely to abuse such privileges.

With the ever increasing internationalization of retailing and a corresponding increase in international


travel, many customers the world over are likely to start demanding similar levels of service from multi-national fi rms no matter where they are located. Just as an American customer expects to be able to return a purchase made at a Sears store in Ohio to a Sears store in California, a customers in China will expect and demand the same level of service at an IKEA store in China as that afforded to an IKEA customer in the US or Europe. Multinational companies need to understand not only things like culture, purchasing power, behavior patterns etc. of their international cus-tomers but also their value systems in order to devise appropriate and equitable customer service policies in different countries.

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1 IntroductionIssues related to the enhancement of innovativeness

are of pivotal importance when attempting to increase the competitive advantage of enterprises and their distinctive competencies, thus fostering economic ef-fi ciency and growth of countries. Numerous studies (e.g., [39], [14]) highlight the importance of innova-tion for economic development and well-being. The ability of governments, businesses, and individuals to identify, respond to, and most importantly, introduce change, as the bedrock of competitive ability (e.g., [32], [5], [36]). At a microeconomic level, a practi-tioner’s viewpoint prevails. Continuous improvement in technology and business processes are recognized as being vital to economic prosperity, thereby providing a strong incentive to invest in innovation [9, pp.133-140], [33, p.16]. Yet, it still remains unclear whether

Composite Indexes and Indicators of Innovativeness:Some Critical Comments

WOJCIECH NASIEROWSKIAcademy of Management (SWSPiZ)

Łódź, Polandand

Faculty of Business AdministrationUniversity of New Brunswick

334 Tilley HallFredericton, NB, E3B 5A3

[email protected]

Abstract: This paper explores upon concerns regarding composite indexes, along with drawbacks of the European Innovation Scoreboard, which is an innovation measurement standard in the European Union. Advantages of non-parametric approaches to analyzing issues of innovativeness have been highlighted. This paper makes suggestions for further research in the area of crafting strategies for improvement of pro-innovative policies.

Key words: composite index, innovation, National Innovation System (NIS), European Innovation Scoreboard (EIS), innovation measurement standard, pro-innovative policies

countries are innovative because they are rich, or rich because they are innovative. Examination of the National Innovation System (NIS) can be regarded as a starting point to the discussion of innovative-ness. It is widely accepted that results of studies dealing with innovativeness, and in particular with effi ciency of pro-innovative programs and NIS, are critical to the formulation of improvement initiatives. Such endeavors gain even more attention because of globalization, and in particular, the unifi cation of the European Union (EU).

This paper is organized into the following parts. First, the role of National Innovation Systems is de-scribed along with the limitations of this idea stem-ming mainly from imprecision of defi nitions. Next, constraints imposed by indicators of innovativeness that form composite indexes, and questions regarding methodology of forming them such indexes, are out-

Wojciech Nasierowski / 41

lined. Objections regarding the European Innovation Scoreboard are mentioned. The next section is devoted to suggestions for studies relative to assessment of technical effi ciency of innovation systems. In the last part a summary of the paper is provided.

2 Problem Formulation 2.1 National Innovation System (NIS):A Means to Organize, Stimulate and Control Pro-innovative Activities

At the macroeconomic level, questions of innova-tiveness are discussed from the perspective of National Innovation Systems (NIS), defi ned as a “network of agents and set policies and institutions that affect the introduction of technology that is new to economy” [10, p. 541], are critical for economic betterment (e.g., [12], [18], [31], [37]) and represent an important com-ponent of economic performance (e.g., [30], [43]).

Descriptions of NIS are easily available, yet there is a scarcity of methods to operationalize NIS and its components. Consequently, interrelationships be-tween various elements that form NIS cannot be fully, quantitatively examined. The same is true when the impact of the context of operation upon the design of NIS is analyzed. Some frequently used policy themes pertaining to investigation of NIS include (see also [3]), yet are not limited to:

governmental policies (including promotion of 1. innovation friendly environment) and NIS gov-ernance;commercialization of public research; 2. development of Human Resource for innova-3. tions;funding innovations. 4.

Generally, these topics are consistent with the Lis-bon Strategy [44] that is endorsed as a guide to scien-

tifi c development of the European Union. It should be noted, the elements in thematic areas overlap, making reports on NIS at times redundant in terms of infor-mation content. Conclusions from such studies are diffi cult to quantify, as it is diffi cult to identify which solutions are correct, effi cient and effective within the specifi c context of operations. Consequently, the idea of NIS, though very stimulating, is an abstract one, with little possibility of being translated into the language of daily business.

2.2 Innovation: Definition Related Dilemmas

One of the problems relevant to research on in-novativeness is the diffi culty to establish a precise defi nition of innovations. There seems to be agree-ment on considering innovation to be a novelty applied to something that already exists. The disagreement arises as to whether the change should be new to the market in general or only to a particular company (e.g., [48]). The former, denoted for the purposes of this discussion as the Frascati [17] approach suggests that innovation is rooted in notion of novelty in global terms. These novelties are assessed indirectly by the level of various educational attainment statistics [12], [27], R&D expenditures [12], and patent counts [29] [22]. The latter, the Oslo Manual [37] approach, takes a more micro-economic perspective. It deals primarily with implementation and adaptation of solutions, and is oriented towards a practitioner’s viewpoint. This approach conceptualizes innovation as an application for commercial purposes.

Results of literature analysis related to innovations, persistently suggest that even though discussion is about similar phenomena, there is a gap between macro and micro perspectives of innovativeness. Some dif-ferences between macro and micro perspectives are summarized in Table 1:


2.3 Indicators and Indexes of Innovativeness

Composite indexes are used in a variety of eco-nomic performance and policy areas. Such indexes integrate large amounts of information into easily understood formats and can be manipulated to pro-duce desired outcomes. Despite this, there are several methodological problems regarding the creation of composite indexes [40]. Problems arise when exam-ining the accuracy and reliability of these indexes. Quandaries regarding missing data, along with the question of index sensitivity to the weighing of in-dicators and their aggregation are inevitable [19, p. 5]. Composite indexes measure complex, dynamic systems and “many of their properties emerge from interactions among the entities in them” [28, p. 893]. Additional dilemmas become evident with the concep-tual dichotomy between allocative effi ciency (“Are we doing the right things?”) versus technical effi ciency (“Are we doing things the right way?”) and these are investigated. Moreover, there are ambiguous defi ni-tions and the various taxonomies used to measure the consequences of achieved output (e.g., [42]).

Despite these problems, there has been a prolifera-tion of composite indexes (e.g., [2], pp.179-181]. With several notable problems, the need and/or usefulness of such diversity among indexes is questionable. Despite being created with different intentions, and using varying series’ for calculations, these composite indexes actually produce similar results when ranking countries [36]. This occurs irrespective of whether they intend to measure the level of innovative capabil-ity, competitiveness, productivity, level of wealth, or standard of living.

It is important to note that several items from the composite indexes that may relate to the notion of in-novativeness, deal primarily with inventiveness (e.g., on the Input side - expenditures on R&D and S&E graduates, or on the Output side - patents and trade-marks, or “new-products”). Thus, these indicators lean more towards the Frascati interpretation of innovations (hence inventions) [17, para.21 and 63]. This marks a divergence from innovations as interpreted by Oslo Manual [32, para.131]. Consequently, it is arguable as to whether common composite innovativeness indexes such as European Innovation Scoreboard - EIS [13], World Competitiveness Yearbook - WCY [49], the Growth Competitiveness Report - GCR [28] [29], the Knowledge Assessment Methodology - KAM [27], [6], and Human Development Index – HDI [24] serve the needs of practitioners interested in the improve-ment of economic prosperity at a “shop fl oor level”

[9], [25], or if they are primarily a policy formulation aid at the macroeconomic level.

Composite indexes typically use a variety of indica-tors (data series) to measure innovativeness. In such a way, they indicate which items of economic perfor-mance may contribute to the enhancement of innova-tiveness. This may provide policy formulation related suggestions. This implies an assumption however, that some ‘policies’, as suggested by innovativeness indicators, will produce similar results irrespective of context in various countries. This may not be a correct assumption. Indicators used to measure innovativeness overlap causing information redundancy. From the viewpoint of assessing outcomes, or statistical-type assessments, such a variety may not be needed. Thus, it is worth verifying whether or not a more simplistic composite index of innovativeness can be formed, and eventually applied to a broader range of countries.

Despite the aforementioned reservations, some researchers and experts claim that there is an extensive body of literature about indicators of innovativeness, and therefore the search for new concepts is fruitless. Such an opinion is only partly justifi ed. Indeed there are descriptions, but they do not take several important elements into account:

1. How can one consider using some of indicators of innovativeness as undeniable indicators of inno-vativeness, when a precise, unequivocal defi nition of innovativeness has not yet been agreed upon? Thus, are these indicators really dealing with innovativeness? It may be easier and more justifi ed, to use the approach used in some psychological studies: intelligence is the phenomenon measured by IQ tests. Similarly, inno-vativeness can be regarded as a construct determined as a result of questionnaire type studies.

2. The question of assessment of the level of in-novativeness is still not clearly answered. It is par-ticularly true when we take into account dichotomies between inventiveness and innovativeness; defi nitions that follow Frascati Manual and those that favour sug-gestions of Oslo Manual; differences between macro and micro approaches to innovativeness: differences between big companies’ and small companies’ per-spectives. Paradoxically, despite the fact that these dilemmas are known, when we are approaching the idea of measurement of the level of innovativeness, the consequences of these different perspectives are ignored. The temptation to create one universal index is human nature. In reality, one thing can be said about such an index for certain: it is not known what is measured by such an index.


3. Several indicators of innovativeness that are used, are diffi cult to be measured and their values are impacted by the context. Therefore, they cannot be used in comparative studies. For example, Community Innovation Survey (CIS) that is used in EIS model, is EU specifi c.

4. In their actual form, indexes of innovativeness (e.g. EISI), and in a broader context, indexes of stan-dard of living (HDI) and competitiveness (WCY, GCR) show some average value of arbitrarily selected inputs and outputs. After summing up values of inputs and outputs (normally after standardization of their values), an index is provided. Generally, when the level of inputs is higher, a level of outputs is higher. Thus, in countries where expenditures on innovativeness are higher, the value of innovativeness index is higher. However, it is still only one of the perspectives with which to examine the issue. According to the rankings by leading indexes, wealthy countries are ones where at the very least, living conditions are relatively high. These countries are more competitive and innovative, etc. To a large extent, it is a correct conclusion. It is an important question however, especially for countries that desire joining the league of the wealthy, whether or not resources for innovations are utilized effi ciently: that is, whatever the given level of inputs results in the maximum level of outputs. Nasierowski and Arcelus report [34] indicates that often, wealthy countries in-vest more in innovations and probably do it in a very appealing manner, but ineffi ciently. Quite frequently, countries that are classifi ed as laggards in innovations, do in fact spend less, but do it in effi cient ways. Aspects of technical effi ciency for turning inputs into outputs should be one of the main research topics in the area of innovativeness because results of such studies may highlight Best Pro-Innovative Policies (BPIP).

5. Additionally, a large number of indicators of innovativeness that “must” be used in the model have the effect that quantitative calculations of ef-fi ciency of innovation systems cannot be carried out. Consequently, if one wants to start discussion about technical effi ciency of innovation systems, one has to identify a method that would facilitate a reduction of the number of statistical data series. Certainly it may not cause the model developed on the basis of a reduced number of data series, not to have similar information content as currently used models. On the contrary, the new model may have more information content. Additionally, the orientation on measurement of technical effi ciency will result in processing data according to statistical algorithms (thus reducing bias),

and not according to arbitrary decisions based solely on expert knowledge.

6. One of the reasons for the critique of indexes used for the assessment of effi ciency rests in the gap between theory, practice and currently available as-sessments of reality. Theory and practice indicate that innovativeness and entrepreneurship form the roots for economic and social development. The Japanese economy received one of the lowest scores in terms of entrepreneurship [49]. The fact that one of the fastest growing economies in south-east Asia is labeled as non-innovative serves as indirect evidence that the currently used methods for assessing levels of inno-vativeness are questionable.

2.4 European Innovation Scoreboard (EIS): The Leading, But Disputable Model

The vital role of innovation in boosting national competitiveness is recognized by most nations. Know-ing a nation’s strengths and weaknesses allows a gov-ernment to institute interventions aimed at fostering and improving their innovation record. Innovative indicators provides evidence of the importance for nations to recognize which aspects of their national environment push the fi rms to evolve, how to measure the success of the value added in innovative sectors, and how to assess intellectual innovation [12, p.6].

One example of efforts to track national innovation ability is the annual European Innovation Scoreboard (heretofore, EIS) and its associated composite index of innovativeness (European Innovation Scoreboard Index - EISI). This scoreboard was “developed by the European Commission, under the Lisbon Strategy, to evaluate and compare the innovation performance of its Member States” [12, p. 3]. EIS is essentially confi ned to EU countries, because it uses indicators (data series) that are based on Community Innovation Surveys (CIS). The EIS concept deals mainly with:

1. Measurement of the level of innovativeness of EU countries and on such a basis, ranking of countries according to the level of innovativeness.

2. Setting indicators of innovativeness, showing governmental policies that can support innovativeness and indirectly, economic growth.

In its assumptions, EIS should also facilitate to make suggestions that determine elements of eco-nomic activity and identify areas of social policies that should be supported in order to increase the level


of innovativeness. In Europe EIS forms some sort of a framework for the discussion of the issue. EIS solutions/conclusions have many very strong points and it should be appreciated that it is one of the fi rst comprehensive methods to assess NIS, with many intellectually stimulating observations and practical guidelines. EIS model forms an index – EIS Index (EISI) - that contains drawbacks. It cannot be used as an instrument to stimulate pro-innovation policies and there are methodological controversies associ-ated with its composition. Among several objections expressed with respect to EISI, the following should be emphasized:

1. The fi rst objection deals with the selection of indicators of innovativeness. For example, EISI uses three patent related data series. These are highly positively correlated. Consequently, the same idea (concept) is used three times within the same index of innovativeness. One should also note that it is disputable whether patents indeed measure the level of innovativeness of SME. Patents are indicators of inventiveness and this is generally the domain of research institutes. Yet another example: one of the indicators used relates to ICT (Information Communi-cation Technology). Thus, Poland for example, is one of the leaders in ICT. Such a position does not result from the ease of access or density of access to ICT, but from exceptionally high costs of ICT in Poland; therefore, this indicator is simply misleading.

2. The second objection originates from the fact that despite the declaration that EISI measures innova-tions, it actually concentrates on inventiveness.

3. Furthermore, it is diffi cult to use EISI as an in-strument that impacts the crafting of pro-innovative policies, because the set of used indicators is being changed from one year to the next. As a consequence, it is impossible to empirically prove that an increase in the level of any one indicator is indeed due to the effi ciency of policies utilized. Longitudinal studies cannot be carried out. It is also not known which indicators are the most important because they all receive the same weight of importance.

4. Additionally, keeping in mind that innovative-ness evolves within NIS, indicators used in EISI do not allow us to determine which legal/institutional policies are correct. There is no room in EISI to as-sess the quality of rules, policies or stimulators; the strength of barriers; institutions and their interactions with business and/or their fi t to local conditions. These

elements may in fact be critical to the effi ciency of innovative systems.

5. An important question, which remains unan-swered, or a problem that has not been clarifi ed, relates to the following: why do all indicators of innovative-ness used by EISI have the same weight of importance? This implies that the process of identifying the inputs and outputs required in the computation of the index of innovativeness includes two implicit assumption of all countries: the fi rst of being being equally effi cient in the transformation of their inputs into outputs; and the second of having the same context of operations.

These assumptions are certainly incorrect. In practice, it is more probable that an entirely different situation occurs: two different countries that use differ-ent compositions, or levels of inputs, will gain similar results. Concurrently, the use of the same inputs at the same level and keeping in mind contextual elements, countries will achieve different outputs. This quandary certainly calls for a more detailed examination, yet at its current stage EIS underlying assumptions are, at minimum, incomplete.

6. The EIS concept assumes that NIS policies with-in the European Union should be uniform (similar). Improvement of innovative activities is impacted by context and should not only be an average determined on the basis of an average within the European Union. As well, importance of specifi c means to improve in-novativeness is different among countries: for example Poland should invest in ICT (though it is ranked high according to this indicator), to a larger extend than Austria (because it has a stock of accumulated ICT capability).

As it is evident from the above-presented com-ments, EISI that is constrained a solution in the mea-surement of innovativeness, has several limitations. In fact, it can hardly be practically used as an instrument to craft pro-innovative policies and is associated with methodological shortcomings. Therefore, there is a need to identify solutions that will be useful, not only for the purpose of ranking countries from the innova-tiveness viewpoint (that may be useful from statistical-publication type of perspective), but also that may have practical applications. Such methods should facilitate identifi cation of indicators of innovativeness, that in turn will allow the creation of a composite index or indexes that will satisfy the following criteria:

be based on credible and easily available, statisti-• cal data series;


be consistent with contemporary defi nitions of • innovativeness and refl ect themes relevant to NIS, and address aspects of inventiveness as well as innovativeness, and be adequate both for big and small companies;

facilitate the examination of the technical effi -• ciency of systems that will support innovativeness according to the description of the index;

be an instrument useful to formulate policies/solu-• tions oriented on the enhancement of innovative-ness, and an index that facilitates the control of effi ciency for such policies.

3 Problem Solution 3.1 Linking EIS Index to NIS (“Operationalization” of NIS, the Search for the Best Pro-Innovation Policies (BPIP), and Selection of Indicators of Innovativeness).

The list of the key topics used to discuss NIS can be used as a starting point to examine the link between NIS and EISI. Once the list of such topics is agreed upon, one can isolate key motives within each topic in an attempt to identify:

typical solutions / policies pertaining to the • specifi c subject in an attempt to identify the best pro-innovation policies (BPIP);

identify indicators (data series) that pertain • to the topic (indicators - that represent the phenomenon).

There is a need to fi nd adequate indicators of levels of innovativeness and means to enhance it. It is an important theoretical and practical topic. The discussion about the enhancement of innovativeness is a current one, but has not resulted in practically useful conclusions. Consequently its continuation is warranted because consequences that can be used in practice are very important. They can indicate which activities and which specifi cs of economic growth poli-cies will facilitate and increase the effects, keeping in mind available resources. Results of such studies can pinpoint solutions that brought positive results in other countries (BPIP), and can, following modifi cations, be transferred to other contexts of operations.

While many indicators of innovativeness are used, it cannot be taken for granted which ones should form

a composite index of innovativeness that will comply with the criteria discussed earlier in part 4 of the paper. Keeping in mind the importance of the issue to social and economic development, the topic should not be neglected. Thus, it can be suggested that the link be-tween “innovativeness leading themes” to indicators of innovativeness is created. These leading themes, in fact results of the assessment of the components of NIS, can be ‘somewhat’ quantifi ed. Even if this is not a measurement, and solely an ‘expert’s’ assessment of the quality of solutions, this will facilitate a more quantitative handling of the associated questions. An initial attempt to use such an approach is visible in EU Trend Chart reports [3]. Note, the criteria used in the assessments have not been disclosed.

The selection of indicators of innovativeness can be done on the basis of literature review, whereas the initial and the leading motive can be the set of indica-tors used in EIS. There can be two implications of such a line of reasoning:

1. Indicators that will be used to create an index will have the similar information content as EIS, but will be based on more easily available indicators. The adequacy of the result can be verifi ed with the use of Spearman Test.

2. Setting indexes of innovativeness can be done using two perspectives on innovativeness: the big en-terprises perspective, based on Frascati Manual, that assumes macro-economic perspectives; and the SME view, which covers improvements at the operational level, and is rooted in concepts described in Oslo Manual.

There are strong correlations between items in EIS index, thus creating redundancies of information within its contents. Many elements are counted two or more times. It may be that the EIS index can be refl ected by a simpler set of indicators yielding similar results of ranking the innovativeness of countries). Therefore:

Is there a need to use so many indicators as in • EIS (especially those that use data series specifi c to the EU alone) in order to measure innovative-ness?

How can a new (modifi ed) index of innovativeness • be constructed? - can an analysis of the data sug-gest an alternate categorization of the indicators, instead of the fi ve predetermined scales used by the EIS [12].


A “compression” indicators used in EISI produces a trade-off between an index as a policy making driver versus index as platforms for ranking purposes. While keeping in mind the number of “NIS themes” and the number of corresponding sub-topics, one may expect that the number of suggested indicators for innova-tiveness measurements will be extensive. In order to reduce the number of indicators (data series) and form a New Innovation Index (NII) a principal-components analysis can be performed on the 26 indicators used by EIS [12]. A similar approach is recommended by Saisana & Tarantola [40, p.12]. The following four-step procedure based upon Hair, et al. [23] can be used, and has already been tested [47]:

1. Scan the anti-image correlation matrix and elimi-nate from the analysis those indicators with a sample adequacy below 0.7.

2. Repeat the analysis until the Kaiser-Meyer-Olin indicator of sample adequacy reaches 0.8. If the value of such an indicator cannot reach that value, stop, since no statistically signifi cant principal-components analysis can be undertaken.

3. Extract all factors that explain at least 10% of the variation and/or their eigenvalue is at least 1.

4. Interpret the resulting factors on the basis of the indicators with a factor loading of at least 0.5.

Once the number of factors has been established, the next step is to compute another measure of the EIS, on the basis of the factor loadings obtained through the principal component analysis. The issue of contention is the weight to assign each factor in computing the overall score for each country. EIS [12] gives equal weight to each factor, thereby having the average of the factor loadings as the overall country measure from which to obtain the ranks. One of the problems with this approach is the lack of evidence that each item is equally important in the rankings. A possible solution to this problem is to weigh each factor by the percentage of total variance explained by the said factor. In this paper, we rank the countries according to both criteria and use the Spearman correlation coef-fi cient to test for the difference between the ranks. The evidence indicates that, with the p-values of the tests less than 10-4, the ranks are not suffi ciently affected by the ranking criterion utilized. Hence, both methods, i.e. with the inputs and outputs together and separately, yield similar rankings.

3.2 Technical Efficiency in Innovation Systems: DEA Results as a Measure of Quality in Innovation Systems

It is reasonably clear from the preceding discussion that the methodological base given in EIS [12] is not free from controversy. The important observations dealing with the equal weights of inputs and outputs, raises questions of comparability of the effi ciency in innovation systems. This leads to the important issue in this section, which is how to assess the technical effi ciency (EFF) of countries in the process of trans-forming inputs into outputs. From a micro-economic perspective, such issue epitomizes the concept of Paretto-Koopmans effi ciency [45], related to the ability of a country to minimize the number of inputs required to produce the maximum possible set of outputs. Hence a country “is fully effi cient if and only if it is not pos-sible to improve any input or output without worsening some other input or output.” [8, p.45].

To model such a concept one can use the non-parametric technique of Data Envelopment Analysis (DEA) [15] [16], and in particular [7], [8]), where the countries that fulfi ll the effi ciency defi nition form a benchmarking frontier against which all others are evaluated. The inputs and outputs of the model are the three factors obtained from each of the two principal component analyses on the EIS 26 indicators described in the previous section. For the EFF formulations, the paper uses an input orientation, consistent with the belief that countries are in a better position to control the inputs than the outputs. Within this context, EFF relates to the minimization of the resource endow-ment needed to produce a set of outputs. Benchmark countries have an EFF of 1. For the others, EFF is measured in terms of how far the other countries must reduce their input consumption to reach the levels of their effi cient counterparts.

Two crucial characteristics of a country’s produc-tion process may have an important impact on the effi ciency computations. These are, returns to scale (RS) and congestion (CON), two key concepts of production economics (e.g., [7], [8], [47]).

RS deals with the rate of change in the inputs utilized, as compared with the rate of change in the outputs obtained. Constant RS (CRS) occurs when the rate of changes in the inputs equals that of the output. Alternatively, if rates differ from each other, there is evidence of variable returns to scale (VRS). Another RS index used below is that associated with the non-increasing returns to scale (NRS). Generally, it may be assumed that other than optimal RS indicates a lack of economies of scale, and thus, probably also limited synergies stemming from country size.


The second characteristic, congestion, deals with the cost of disposing of unwanted inputs. The ineffi -ciency arises from the fact that the presence of conges-tion requires the use of resources for the elimination of the undesirable inputs that would otherwise have gone to generate more outputs. “Evidence of congestion is present when reductions in one or more inputs can be associated with increases in one or more outputs - or, proceeding in reverse, when increases in one or more inputs can be associated with decreases in one or more outputs - without worsening any other input or output.” [8]. Examples of input congestion appear in Coelli, et al [7] among many others, in cases of government or union-based controls on the use of certain inputs. The literature employs the terms weak (WD) and strong (SD) disposability to denote whether evidence of con-gestion exists or not. It may indicate that inadequate specialization patterns are used in pro-innovative activities, if congestion is different than “1”.

4 Conclusion This report has largely been based on European In-

novation Scoreboard 2005 [12], [41]. One of the main trusts of the EIS approach is that indicators included to create an innovativeness index, can be impacted by means or regulations and national innovation policies. The goal of subsequent EIS Methodology reports is “to further explore different dimensions of innovation and to identify areas that are not covered in the EIS” [4]. This trend may also be rooted in the recommendations of Aho Report [1] that suggests “a 4-pronged strategy focusing on the creation of innovation friendly mar-kets, on strengthening R&D resources, on increasing structural mobility as well as fostering a culture which celebrates innovation”.

In such a manner, there will be somewhat of a de-parture from an emphasis on innovation inputs (such as R&D expenditures), and innovation outputs (such as patents), more in the direction of capturing aspects related to creation of demand for innovation, and socio-cultural, education, entrepreneurial, and fl exible stimulators for implementation of innovations. Even though, the current “EIS provides considerably bet-ter coverage of innovation as a creative activity than innovation as a process of diffusing new technolo-gies and knowledge” [4, p.3], it still exhibits several disadvantages.

Results derived from the EIS [3], [4], reports present only a partial picture of the innovativeness of countries. This data focuses on a country’s ranking, and whether they are leading countries, exhibit average performance, are catching up, or are losing ground.

None of these measures considers specifi c economic and social conditions of the country. This paper has attempted to offer insight into whether available funds are spent effi ciently by countries, rather than focus-ing solely on the aforementioned classifi cations and rankings. The use of non-parametric techniques can essentially reformulate well established opinions and accepted levels of understanding the problems of in-novativeness.

Each composite index captures some information related to economic improvement. Since items in these indexes are strongly correlated, it should be asked which item acts as a stimuli for the development of the other. Recommended innovation policies should not be considered as “an average” of responses from different sectors, by companies of different size, which operate within very different economic, political, and social contexts, thus making one of objectives of the EIS approach – “that indicators have policy implica-tions” - diffi cult to endorse. It is important that aspects of effi ciency are addressed in a way, that permits a better modeling of EU policies, to the sectorial and regional specifi city [46].

It is at times expected that composite indexes may serve as a guide for policy settings. However, data series used in composite indexes change almost every year. Such a practice limits the possibility of identifying whether policy changes have contributed to the improvement of desired operational outcomes, and longitudinal type studies are limited .

Yet another topic worth exploration deals with elimination of the impact of contextual variables (mar-ket factors, culture, accumulated stock of experience, macro-economic structure of the country, developed business links, etc.) upon effi ciency of innovation systems. If the impact of contextual elements upon the level of innovativeness is isolated, a composite index could serve as a starting point to examine the effectiveness of programs oriented on support of in-novativeness (i.e., to which extent policies related to innovativeness indeed contribute to social and eco-nomic objectives).

Acknowledgements

This research was partly supported by grants from the University of New Brunswick, and the Faculty of Business Administration at the University of New Brunswick. This support is noted and appreciated.


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Examining the Impact of Organisational Values on Corporate Performance in Selected Ghanaian

DANIEL F. OFORI Department of OHRM

University of Ghana Business SchoolP. O. Box LG 78, Legon

[email protected]

EVANS SOKRO Department of OHRM

University of Ghana Business SchoolP. O. Box LG 78, Legon

Ghana

Abstract: One of the hallmarks of leading-edge organisations is the strict adherence to their core values. Organisational values are seen as the constant passionate beliefs that drive the behaviour of its people. All organisations have values, whether formally articulated or not. The companies that are classifi ed as high performers are assumed to have a strong value-driven culture and their core values guide the decisions and actions of organisational members. In light of the above, this study sought to identify the values espoused by selected Ghanaian organisations, how the values are lived out, and the factors that hinder fi rms in the process of living out their core values. This study uses a hybrid of quantitative and qualitative research methodologies. It used a cross-sectional survey technique as well as critical instance case study approach. Ghanaian fi rms espoused values such as focus on quality, the customer fi rst ethos, team work, being innovative, fl exibility, and trust. In living their core values, fi rms often integrated these into their company’s vision and mission statement, communicated them to organisational members, and ensured that behaviours of members are value congruent. However, the study also found that employee attitudes, organisational communication gap, lack of motivation, and favouritism on the part of management are some of the factors that hinder fi rms as they desire to live out their core values.Only seven organisations were selected from four sectors of the Ghanaian economy based on their willingness to take part in the study. Future research should expand the sample size to test and validate the fi ndings of this study and also investigate the role of managerial values in the formulation of organisational values. Also, a study of this kind could consider only senior managers and middle level managers as respondents to avoid the confusion of some junior staff who struggle with the meaning of a number of the concepts addressed. The value of this research is that this topic, that is, identifi cation and degree of practice of core values in Ghanaian fi rms, is the fi rst of its kind, and will be of interest to managers, organisational members and stakeholders.

Key words: core values, value-driven culture, corporate performance, organizations, Ghana, vision and mission statement

Daniel F. Ofori, Evans Sokro / 51

1 IntroductionThe fundamental purposes of any business fi rm are

to make profi t, expand operations, and gain competitive advantage in the marketplace. In pursuance of these objectives, enterprise managers need to take certain actions in order to compete more effectively and meet the needs of stakeholders. As a result, managers over the last few years have been directing their attention towards cultivating core organisational values since these are the fundamentals of ethical standards on how to relate with employees, customers, vendors, and com-petitors. Aldag and Kuzuhara (2002) emphasise that the sharing of values is key to successful performance.

In the drive to achieve a competitive edge, much is being made of the central role of core cultural val-ues in shaping organisational attitudes and employee behaviour. “Integrity”, “customer service”, “excel-lence”, and similar values have become the clichés of annual reports of shareholders around the world (Osborne, 1996). Core organisational values are a set of beliefs that specify universal expectations and pre-ferred modes of behaviour in a company. They point the way to purposeful action and approved behaviour. They are important because a fi rm’s underlying values and beliefs defi ne the organisation’s philosophy for achieving success. They refl ect a person’s underlying beliefs of what should be or should not be. Values are often consciously articulated, both in conversa-tion and in a company’s mission statement or annual reports (Debrah and Quick, 2006). These values serve as the fundamental laws and principles through which the organisation is governed. Simply put, values are powerful tools for directing behaviours and guidelines for decision making and policy implementation in any organisational setting. Businesses have shown increas-ing interest in values over recent years as a result of the signifi cant role played by organisations’ values in infl uencing the overall performance of fi rms to the delight of the various stakeholders (Debra and Quick 2006). Hence, if organisations in Ghana are to realise their objectives and be successful, there is the need for them to consider their core values and how these values are lived out within the organisation.

Organisational values can work for an organization by creating an environment that is conducive to perfor-mance improvement and the management of change. It can work against the organisation by erecting bar-riers that prevent the attainment of goals. The impact of values can include conveying a sense of identity and unity of purpose to organisational members, fa-cilitating the generation of commitment and shaping behaviour by providing guidance on what is expected.

The values of an organisation may only be recognized at the top level, or shared so that the enterprise could be described as value-driven. Statements describing general principles may support them.

Bronwyn (2004) contends that organisational values are a lever for change, as they underpin the culture needed to enable organisations to achieve key goals. In other words, an organisation’s performance is greatly infl uenced by its cultural values. Therefore useful lessons can be learnt from studying the dif-ferences in the corporate performance of different fi rms within the same country as well as efforts to transform moribund organisations that do not either have core values to guide their operations or live out their espoused values. Puplampu (2004) found that core organisational values and how these values are lived out greatly shape the behaviour of organisational members, set the scene for performance standards and drive managerial thinking, leading to competitive edge and higher performance of fi rms. Barrett (2005) adds that, when organizations unite around a shared set of values, they become more fl exible, less hierarchical, less bureaucratic, and develop an enhanced capacity for collective action.

Notwithstanding the importance of organisational values in the success of fi rms, very little work has been done in this area by both academics and practitioners in Ghana and other African countries. It appears also that, little work has been done on diving into the factors that hinder fi rms as they live out their espoused values. Perhaps, this is because, fi rms may have their espoused values, but whether these values are their enacted values or not is diffi cult to ascertain. In Ghana, there is anecdotal evidence that some fi rms are regarded as ‘leading’ in their fi elds, whilst others are regarded as the ‘best’ in their areas of operation. This can be seen in the plethora of awards organised by various industry associations like the Advertising Association of Ghana, the Ghana Banking Awards, the Transport Awards, etc. There are also nationally constituted awards like the Ghana Club 100 and the Millennium Awards, among others which seek to recognize company excellence. Some companies have become serial award winners based on the specifi c criteria set out by organizers.

The importance of the relationship between organi-sational values and corporate performance, coupled with the dearth of such information in the Ghanaian context has provided the impetus to undertake this study. It seeks to explore the phenomenon of the role of values on corporate performance within a developing country, specifi cally, in the African context.


2 Problem formulation2.1 Objectives of the Study

The general aim of the study is to investigate the impact of organisational values on corporate perfor-mance. The specifi c objectives are to:

Identify the core values espoused by Ghanaian • organisations.Evaluate how Ghanaian companies live out their • espoused values. Examine the factors that impede the operationali-• sation of fi rms’ core values.Find out if there is signifi cant difference in or-• ganiational values and performance by type of ownership.

2.2 The Significance of the Study

This study, among other things, intends to bring to light the existing core values of Ghanaian fi rms and how these values are operationalised to the attainment of organisational goals. Secondly, it would serve as a vital instrument to analyse and examine the importance of organisational values on corporate performance in Ghanaian fi rms. It would also draw the attention of corporate managers to the need to create values for their respective organisations and also ensure that organisational members live by these values in order to enhance organisation success. Finally, it is also expected that the fi ndings would assist managers of moribund organisations and institutions to revive and rejuvenate their organisations through the creation of core values which will guide the decisions and actions of organisational members, and act as a fi llip for im-proved performance.

2.3 Literature Review

Organisational values are often embedded within the defi nitions of organisational culture, hence a review of organisational culture will be undertaken to discover the origins of organisational values (Cooke & Rosseau, 1998; Hofstede, Neuijen, Ohaju & Sanders, 1990). Part of the diffi culty in understanding organisational values is due to its elusive nature. Culture permeates the entire organisation and provides its distinctive character. Most of the internal characteristics of an organisation evolve as a refl ection of its culture and vice-versa (Goodman, Zammuto & Gifford, 2001). A well-cited defi nition of organisational culture is “the enduring assumptions, values and beliefs that are shared by members of an organisation, that operate

unconsciously, and that defi ne in a basic ‘taken for granted fashion’ an organisation’s view of itself and its environment” (Schein, 1990). These beliefs and expectations serve as a normative order that infl uence how actors within the organisation perceive, think, feel and behave (O’Reilly, 1989). Corporate culture has been described as a pattern of shared values and beliefs that enable employees to understand the way an organisation functions, hence providing them with norms of behaviour in the fi rm (Deshpande and Webster, 1989). Organisational culture is the social glue that binds members of the organisation together through shared values, symbolic devices, and social ideals (Schein, 1990).

A common way by which organisational culture can be operationalised is through values (Chatman, 1989; O’Reilly et al., 1991). Interestingly, the concept of or-ganisational values has no single and widely accepted defi nition. Indeed, it often appears that researchers feel compelled to coin their own defi nitions, which range from the very broad to highly specifi c ones to suit their work. For example values may be defi ned as enduring beliefs that a specifi c mode of conduct or end state of existence is personally or socially preferable to an opposite or converse mode of conduct or end state of existence (Debra and Quick, 2006). Values give us a sense of right and wrong, good and bad.

Values are the behaviours particularly valued in an organisation, the principles of the way things are done around here, underpinning the culture (Schein, 1994, cited in Bronwyn, 2004). According to Aldag and Ku-zuhara (2002) organisational values are deep-seated, personal standards that infl uence our moral judgments, responses to others, and commitment to personal and organisational goals. Values let employees know how they are expected to behave and what actions are acceptable. For example, Procter & Gamble has core values of leadership, integrity, trust, passion for winning, and ownership, and it works to communicate these values and instill them in employees (Peters and Waterman, 1982). Collins and Porras (1994) note that core values are the organisation’s essential and endur-ing tenets: timeless, guiding principles requiring no external justifi cation, with intrinsic value to the organi-sation’s members. Organisations decide for themselves what values they hold as core, without compromise. For example, some organisations hold values such as wholesomeness, happiness and imagination; others value excellence and respect for the individual. Other examples of values includes Team work, Co-operation, Customers fi rst, Respect for others, Integrity, Being accountable, Being positive, Being open, Being in-novative, Focusing on quality and Trust. Values are


held inviolable forever, regardless of what changes around us (Bronwyn, 2004).

Dolan and Garcia (2002) contend that values are not usually transmitted through formal written procedures. They are more often diffused by softer means, specifi -cally: rituals, symbols, oral transmission of company legends and myths, company language code, com-munication, and rewards. McShane & Glinow (2003) say values are stable, long-lasting beliefs about what is important in a variety of situations. They are evaluative standards that help us defi ne what is right or wrong, or good or bad, in the world. Values do not just represent what we want; they state what we ought to do – socially desirable ways to achieve those needs. Values dictate our priorities, our preferences and actions.

Notwithstanding the varied concepts on values, Dose (1997) states that, most value theorists agree that values are standards or criteria for choosing goals or guiding action, and are relatively stable over time, developing through the infl uences of culture, society and personality. For the purpose of this study, organi-sational values are viewed as the pivot around which organisational life revolves. They act as catalysts for managerial thinking and a navigator of employee be-haviour. They are the guiding principles for conduct in organisations. It is the values that rule, but not the whims and caprices of management or individuals in the fi rm.

2.4 Organisational Values and Firm Performance

The external environment for organisations is changing (Child & McGrath, 2001). This requires learning about how to collaborate, how to have more trusting and open communications, how to deal with dependency in relationships, how to gain commitment of subordinates, and how to design organisations with fl exible boundaries (Schein, 1996). Due to the in-creased uncertainty within the environment, especially from more discerning customers, fi rms are expected to produce an improved quality performance with a more professional, fl exible and focused workforce. Values such as trust, creativity and honesty have become of equal importance than traditional economic concepts such as effi ciency or return on investment (Dolan & Garcia, 2002).

All organisations have values, whether formally articulated or not. The policies and practices of the company signal what is valued and important. How-ever, as noted, by O’Reilly, Chatman and Caldwell (1991), what senior managers say they will do and what they actually do is often ambiguous and perhaps

contradictory. Thus, regardless of what the mission statement or senior management espouses, employees will come to understand, through their own experience, how the company operates and what the company’s values are.

This means that espoused values are not always the values that are enacted. The values that are lived out in organisations are sometimes different from the desired values. The living expression of current, real values in the organisation emanate from the encourage-ment of desired behaviour by different individuals and groups within the organisation hence organisational members tend to behave in acceptable ways. Peters and Waterman (1982) popularized the concept of the ‘strong culture’ characterised by employees sharing the espoused values of top management. The notion of shared values or value congruence is posited as central to the pursuit of corporate ‘excellence’, signifying the alignment of employees in the achievement of cor-porate goals. Therefore, the guiding aim of corporate ‘culturism’ (Willmott, 1993) is to ‘win the hearts and minds of employees’ or to defi ne their purpose by managing what they think and feel not just how they behave. Shared values are regarded in the practitioner literature as fundamental to this idea of a strong unitary culture (Murphy & Mc Kenzie, 2002).

Attempts to explain the sustained superior fi nancial performance of fi rms like IBM, Hewlett Packard and Proctor and Gamble have focused on managerial val-ues and beliefs embodied in these fi rms’ organisational culture (Deal & Kennedy, 1982; Peters and Water-man, 1982; Tichy, 1983). Explanations suggest that fi rms with sustained superior performance typically are characterised by a strong set of core managerial values that defi ne the ways the fi rms conduct business. When core values (about how to treat employees, customers and suppliers) that foster innovativeness and fl exibility in fi rms are linked with management control, it leads to sustained superior fi nancial per-formance (Barney, 1986). A fi rm’s values and how it promotes and publicises those values can also affect how workers feel about their jobs and themselves. A study of 180 managers looked at their employers’ ef-fectiveness in communicating concern for employees’ welfare. Managers in organisations that consistently communicated concern for workers well-being and that focused on treating employees fairly reported feeling better about themselves and their role in the organisation (McAllister & Bigley, 2002). This implies that organisational values could signifi cantly affect organisational performance.

Kaliprasad (2006) claims that the quest to becom-ing a high-performing organisation from an internal


systems point of view, is simply a question of better understanding of people. From this, it could be said that if staff members do not buy into the visions, missions, shared values and actions of management, performance as well as the organisation as a whole is likely to suffer. Hyde and Williamson (2000) emphasis that clear organisational values can be a vital team motivator, the key to converting a humdrum business to an outstandingly successful one, and can make the difference between a hard grind project fl oundering in an atmosphere of distrust, and a smoothly run project delivered on time and on budget. Reid et al., (2001) contend that successful companies place a great deal of emphasis on organisational values.

2.5 Development of Hypotheses

Various researchers, including Loughling and Barlin (2001), have argued that our values, beliefs and attitudes signifi cantly infl uence our behaviour. It is therefore not surprising that Puplampu (2004) affi rms that corporate values seem congruent with what organisations actually do, and this contributes signifi cantly to organisational performance. Conse-quently, fi rms tend to engage in activities that refl ect, or are at least consistent with, their values (Ranson et al., 1980). Thus a fi rm’s values may infl uence the behaviour of organisational members leading to supe-rior performance. Again, a survey of 1,498 American managers suggested that greater congruence between individual and organisational values can enhance personal fulfi llments and organisational effectiveness (Posner, and Schmidt, 1992).

From Norburn et al.’s (1990) perspective, a busi-ness is considered to possess a high level of marketing effectiveness if it has a close association with custom-ers, is driven by a common set of values within the organisation and demonstrates an external orientation to its markets. In other studies, Dearlove and Coomber (1999) indicate that values-led companies outperform other companies. For example, growth in revenue was four times faster; rate of job creation was seven times higher; growth in stock price was twelve times faster; and profi t performance was 75% higher. Furthermore, another study, cited by Dearlove and Coomber (1999), found signifi cant lower turnover among 1,000 US graduates when the employing company espoused values like respect and teamwork (Sullivan, Sullivan, and Buffton, 2002). In this context, it is posited that the formulation of corporate values and ensuring that these desired values are enacted are eventually the key to gaining a competitive edge.

Given the strong links which have been established between organisational values and corporate perfor-

mance (Dearlove and Coomber 1999), we contend that organisations living their espoused values stand a greater possibility of chance achieving higher per-formance. The literature suggests that organisational performance is depended not only on the aims of the organisation, but also on the process for achieving such aims. Content and variables in a dynamic strategy need to be supported by the internal process and cohesion of the organisation. The relationship between internal drivers and organisational performance highlights the importance of values as an internal variable. Based on the foregoing discourse, it is meaningful to formulate these hypotheses:

The core values of organisations ensure the • achievement of higher performance.In successful organisations, managerial behaviour • is consistent with espoused values.In successful organisations, employee behaviour • is consistent with espoused values.

2.6 Theoretical Framework

The theoretical framework of this study is derived from the works of Collins and Porras (1994) and the European Foundation for Quality Management Excellence Model (2000). Collins and Porras (1994) use convincing examples of values derived from the personal convictions of Robert W. Johnson Junior (Johnson & Johnson); George Merck II (Merck); Thomas J. Watson Junior (IBM); and David Packard and Bob Hewlett (Hewlett-Packard) – all founders or leaders at one time or another of their respective companies. These values include team work, co-operation, customer fi rst, respect for others, integrity, being accountable, being positive, being open, being innovative, focusing on quality, and trust. The values are considered as an organisational legacy, whereby generations of leaders preside over the values; inherit-ing the company’s values from their predecessor, act-ing as custodians and stewards throughout their period of tenure, and passing them onto their successor.

In identifying the core values of Ghanaian fi rms, a list of the values mentioned above were provided. The respondents were asked to rank these values by numbering from 1 – 6 depending on how important these values are to their respective organisations.

In addition, the “European Foundation for Quality Management” (EFQM) Excellence model (2000) was used to measure the performance of the organisations studied. The EFQM Excellence Model (2000) pro-vides a holistic way of ensuring long-term success. The model is a diagnostic tool for self-assessment of the current health of an organisation – through self-


assessment the organisation is better able to balance its priorities, allocate resources and generate realistic business plans (Neely, 1998; Oakland, 1999). Private sector organisations have been more successful with the EFQM model than the public sector organisations (Pupius and Brusoni, 2000).

2.7 Research Methodology

This study uses a hybrid of quantitative and qualitative research methodologies and analysis. Harrigan (1983) note that hybrid methodologies are characterised by multiple data sources, and that such studies need a carefully structured sample design. This confi rms to Patton’s (1988) claim for a post-positivist view of research. The post-positivist approach is about using the approach which the researcher deems most appropriate for his/her study, each method being ad-opted at the appropriate stage of the study.

The case study is one of several ways of doing social science research. Flyvbjerg (2006) argues that, rather than using large samples and following rigid protocol to examine a limited number of variables, case study methods involve an in-depth, longitudinal examination of a single instance or event: a case. They provide a systematic way of looking at events, collecting data, analysing information, and reporting results. As a result, the researcher sharpened his/her understanding of why the instance happened as it did, and what might become important to look at more extensively in future research. Case studies lend them-selves to both generating and testing hypotheses.

Yin (2002) also suggests that case study should be defi ned as a research strategy, an empirical inquiry that investigates a phenomenon within its real-life context. Case study research means single and multiple case studies, can include quantitative evidence, relies on multiple sources of evidence and benefi ts from the prior development of theoretical prepositions. He notes that case studies should not be confused with qualita-tive research, and points out that they can be based on any mix of quantitative and qualitative evidence. Lamnek (2005) further adds that the case study is a research approach, situated between concrete data taking techniques and methodological paradigms. The study was therefore conducted using critical instance case study method. Besides, it also used elements of the cross-sectional survey approach. Cross-sectional research involves the measurement of all variable(s) for all cases within a narrow time span so that the measurements may be viewed as contemporaneous. Essentially, data are collected at only one point in time (Creswell, 1998). In cross-sectional studies, variables

of interest in a sample of subjects are assayed once and the relationships between them are determined.

2.7.1 Population

There are many organisations operating in Ghana which are all considered ideal for this study. Hence the population of the study is Ghanaian fi rms: whether public, private or joint. Initially, the researchers intend-ed to use the organisations listed in the Ghana Club 100 (GC100) so as to compare their performances based on their positions in the GC100 ranking. However, some of the organisations randomly selected at fi rst declined to participate in the study. Hence, the researchers were compelled to purposively select 7 organisations from four sectors based on their willingness to participate in the study. The sectors include manufacturing (Phyto Riker Pharmaceuticals and Kasapreko), fi nancial (uni-Bank, Vanguard Assurance, and the Ghanaian Internal Revenue Service), telecommunication (Ghana Tele-com, now Vodafone), and general services (Jospong Printing Press).

2.7.2 Sampling

The sample for the study consisted of senior man-agers, line managers, supervisors and the workforce. The simple random selection procedure was adopted in selecting organizational members to respond to the questionnaire. However, this procedure was not applied in the selection of the human resource manag-ers and the administrative managers included in the study. They were purposively selected based on their job description in the various organisations since they play a vital role in the day to day administration of the fi rm; being responsible for the creation and improve-ment of organizational culture and values, and also ensuring that the organisation achieves its vision. In all, 122 (85.7%) respondents out of a total number of 140 responded to the questionnaire from the 7 fi rms in which the study was carried out. A total number of 14 senior management staff, 64 middle level managers, and 44 junior staff responded to the questionnaire.

2.7.3 Procedure

The study required a thorough review of literature to address the relationship between the variables of interest and to provide a context relevant setting for the study. For the determination of core values of Ghanaian fi rms, the researchers sought for company hand books, brochures, and company profi les. In ad-dition, other research instruments like questionnaire and personal interviews were relied upon.


2.7.4 Data Collection

The researchers conducted personal interviews for 2 senior managers in each of the organisations studied. The questionnaire on the other hand, was employed for the rest of the respondents because, it effectively eliminates interviewer biases and controls for inhibi-tions people usually have in talking openly about issues of great concern in their organisations. This instrument consisted of both open-ended and structured items, and was divided into six sections. Data was collected between January and March 2008.

2.7.5 Method of Data Analysis

The study used some aspects of the grounded theory approach (Glaser and Strauss, 1967) to analyse the qualitative data, and for the quantitative data, the non-parametric techniques; Pearson’s product coeffi -cient of correlation and One-way ANOVA were used. In addition, some qualitative responses are presented verbatim in this report.

3 Problem SolutionThe One Way ANOVA technique was used to

determine signifi cant statistical differences in the

performance of the organisations studied based on the nature of their operations. The Pearson product moment coeffi cient of correlation was also used to determine the relationship between the following: (a) organisational values and the overall performance of fi rms, (b) managerial behaviour and organisational values, and (c) employee behaviour and organisa-tional values. The analysis of data however has not been wholly customized to the individual respondent organisations. Efforts have rather been made to deter-mine the signifi cance and the generality of the results across the organisations covered.

3.1 Identification of Core Values

The study showed every organisation has its own set of values depending on the nature of business of the fi rm as shown in the Table 1 below.

An identifi cation of fi rm’s core values revealed that the manufacturing companies and those that are in the general services category adhere to values such as focus on quality, customer fi rst, and being in-novative. The core values of the telecommunications industry include; effi ciency, sensitivity to customers, being innovative and sound people management. The fi nancial institutions on the other hand hold on

Table 1: Identifi cation of Firm’s Core Values


to the following values; caring for customers, being innovative, teamwork, fl exibility, integrity, effi ciency, and fairness.

Although two of the values, ‘customer fi rst’ and ‘be-ing innovative’ are dominant in the four sectors studied, it was also found that the values differ with respect to the nature of business of the fi rm. This goes to strengthen the fi ndings of Collins and Porras (1994) who note that core values are organisations’ essential and enduring tenets: timeless, guiding principles requiring no external justifi cation, with intrinsic value to the organisation’s members. Organisations decide for themselves what values they hold as core, without compromise. Bron-wyn (2004) adds that values are held inviolable forever, regardless of what changes around us.

Efforts were also made to rank the personal values of the respondents. In order to determine the ranking of the values of the respondents, a weighted average of the responses were determined. The values were ranked in six (6) levels and the accompanied weights were as follows starting from the highest 0.29, 0.24, 0.19, 0.14, 0.10, and 0.05. The results indicate that, the weighted average score for ‘Focus on quality’ is 0.24, ‘Customer fi rst’ 0.20, ‘Trust’ and ‘Respect for others’ obtained the same score of 0.17, ‘Teamwork’ 0.16, ‘Integrity’ 0.15, ‘Being innovative’ 0.14, ‘Being open’ and ‘Co-operation’ 0.13, ‘Fairness’ and ‘Being accountable’ 0.11, and ‘Politeness’ 0.10. This means, the dominant personal values of the respondents in-cludes; Focus on quality, Customer fi rst, Trust, Respect for others, Teamwork, and Integrity.

Comparing the personal values of respondents with the existing values of the organisations, it is quite clear that the organisational values are not radically different from the personal values of the organisational mem-bers. This fi nding is important since it has a bearing on whether the values of the fi rm can be lived out or not. This is because, it reinforces Debra and Quick’s (2006) suggestion that employees are exposed to

multiple value systems: their own, their supervisor’s, the company’s, the customers’ and others’. In most cases, the individual’s greatest allegiance will be to personal values. When the value system confl icts with the behaviour the person feels must be exhibited the person experiences a value confl ict.

Besides, McShane and Glinow (2003) say indi-viduals bring personal values into the organisations which are formed from past experience and interaction with others. Similarly, Weber (1993) maintains that every individual brings a set of personal beliefs and values into the workplace. Personal values and moral reasoning that translates these values into behaviour are important aspects of ethical decision making in organisations. Hence, for organisational members to live out the espoused values of their respective fi rms, there is the need for value congruence and this will be a source of intrinsic motivation to them. As emphasised by Begley (2000); McCune (1999); and Fenwick (1999), values foster a common bond and help ensure that organisational members pull in the same direction – irrespective of their individual tasks and ranks. The factors that hinder the operationalisa-tion of a fi rm’s values as identifi ed include; Individual differences, Employee attitude, Communication gap, Lack of motivation and favouritism.

3.2 Hypotheses Explored

Three hypotheses underlie the empirical investi-gations in this research. The three hypotheses have been tested by the use of Pearson’s product moment coeffi cient of correlation to determine whether there exists a positive and signifi cant relationship between organisational values and organisational performance. The same correlation was used to test the relationships that exist between managerial behaviour, employee behaviour, and organisational values. These are pre-sented in Table 2 below.

Table 2: Pearson’s Correlation Coeffi cients Indicators of Organizational Values

** Correlation is signifi cant at the 0.05 level (1-tailed)


3.2.1 Hypothesis 1: The core values of organisations ensure the achievement of higher performance.

The results in Table 1 show a correlation coef-fi cient of r = 0.397 for the relationship between core values and performance. The relationship was found to be signifi cant since p < 0.05. This means that there exists a positive and signifi cant relationship between core values and performance. Thus, when core values are emphasized organizational performance increases. Therefore, at 95% signifi cance level the hypothesis that the core values of fi rms ensure the achievement of higher performance was supported. This supports Barret’s (2005) work in which he notes that when em-ployees not only share the same core values but also share the same vision, the performance of a company is signifi cantly enhanced. This is because, shared values build trust, and trust is the glue that enhances performance.

Similarly, Reid et al. (2001) have emphasised that successful companies place a great deal of emphasis on organisational values. Since they have a clear and explicit philosophy about how they intend to conduct their business, they also ensure that management pays serious attention to the organisational values them-selves, as well as integrating them into the company’s way of doing business.

It is reasonable to point out that among the organi-sations studied, uniBank has the highest association between core values and corporate performance. This might perhaps be the reason for the outstanding per-formance of uniBank, taking into consideration the numerous awards the company has won from Cor-porate Initiative Ghana in the Ghana Banking Award ceremonies. For instance, for the Ghana Banking Awards 2006, uniBank won the following awards; Best Bank, Customer Care, Best Bank, Corporate Banking, Best Growing Bank and Third Best Bank, Advisory Services (Daily Graphic, Tuesday May 29, 2007).

Besides, interviews with the Top Management at Kasapreko Company Limited revealed that the company has competitive edge over others in their sector of operation, since it holds on to its core values of satisfying the needs and taste of customers, and also being innovative in its product design. This was evidenced in the company’s position with reference to the Ghana Club100 ranking. For example, in 2004 Kasapreko was the 2nd most profi table (Return on Equity) company in Ghana, and in 2005 it was the Third Best Manufacturing Company.

In the light of the above observations, it can be argued that fi rms that have their values integrated in

the company’s culture have the tendency to inspire organisational members into action and ensure the achievement of the future goals of the fi rm. These values are what drive the thinking of organisational members and determine the behaviours that ought to be rewarded and those that must be eschewed.

3.2.2 Hypothesis 2: In successful organisations, managerial behaviour is consistent with espoused values.

The correlation results indicate that managerial behaviour is greatly infl uenced by core organisational values. In other words, management holds on to the core values of the fi rm. A positive and signifi cant high correlation coeffi cient that is r = 0.885 (p < 0.05) was recorded for the relationship between managerial be-haviour and core values. Thus very high managerial behaviours match with core values. Therefore, at the 95% signifi cance level, the hypothesis that ‘in success-ful organisations, managerial behaviour is consistent with espoused values’ was supported.

The acceptance of hypothesis 2 is also in line with Barret’s (2005) assertion that, values infl uence overall behaviour and they inspire people into action. They drive the things we seek to accomplish and describe the things we will not do, the behaviours we reward and those we condemn. He also stressed that, values are the anchors we use to make decisions so we can weather a storm. They keep us aligned with our authentic self. They keep us true to ourselves and the future we want to experience. He went on with his argument that, for an organisation to reap the benefi ts of a strong set of shared values, the values must be lived by the senior people in the organisation.

Daft (2001) also suggests that values-based leaders engender a high level of trust and respect from employ-ees, based not only on their stated values but also on courage, determination, and self-sacrifi ce they dem-onstrate in upholding those values. In all organisations studied, managerial behaviour is found to be highly associated with organisational values. For example at Ghana Telecom, core values are 94.7% associated with managerial behaviour, 93.6% association was found at Internal Revenue Service, 89.4% at Jospong Print-ing Press, and 88.9% at Phyto Riker Pharmaceutical. At uniBank, the association between core values and managerial behaviour is 83.5% whilst at Vanguard Assurance, the observed association is 87.2%.

The results further indicate that there is overwhelm-ing support for the view that managerial behaviour must be consistent with core values of organisations if they are to achieve higher performance. This sug-


gests that Ghanaian managers strictly hold on to their organisational values as they argue that it is the core values that dominate their decisions and actions as well as the strategic direction of their respective com-panies. The researchers are however, inclined to think that managers are well informed about the concept of organisational values and are therefore careful in their responses during the data gathering. For example all the managers interviewed fully agree to the statement that “Leaders in the company are willing to make per-sonal sacrifi ces for the sake of values”, no manager disagrees with this statement.

3.2.3 Hypothesis 3: In successful organisations, employee behaviour is consistent with organisational values.

The results as shown in Person’s Correlation Coef-fi cient in Table 1 indicate that, employee behaviour was found to be consistent with organisational values. The relationship between employee behaviour and core

values was positive and signifi cant (r = .697, p<0.05). Thus, positive employee behaviour corresponded with emphasis on organizational values. Therefore at 0.05 level, the hypothesis that ‘in successful organisations employee behaviour is consistent with organisational values’ is confi rmed.

3.3 Analysis of Variance (ANOVA)

The One-Way ANOVA was used to test for sig-nifi cant differences, if any between the private, public and joint businesses with respect to the organizational values and performance. The results presented in Table 3 show how the different types of organizations scored on the various organizational values and performance measures.

In Table 3 the mean score on core values was 41.44 for private business, 39.53 for joint businesses and 39.07 for public businesses. Thus private busi-nesses emphasized more on core values than joint and public businesses. For Employee behaviour, the joint

Table 3: Mean and Standard Deviation of Indicators of Organizational Values by Type of Ownership


businesses (7.37) scored highest, followed by private businesses (7.11) and public institutions (6.71) in that order. Managerial behaviour was found to be highest among private businesses (16.56) with public institu-tions (16.00) and joint businesses (15.53) in 2nd and 3rd positions respectively. On performance, private businesses scored highest (53.44), followed by public institutions (51.07) and joint businesses scoring the least (47.95).

Using the One-Way ANOVA to test for the sig-nifi cant differences in the organizational values and performance of the different organizations, the result in Table 4 was obtained.

It can be observed that the mean scores on core values obtained by the three different organizations were almost equal, since F = 1.436 df = 2, 117 and p>0.05. This means that the differences in the mean scores on core values obtained by the three different organizations were not signifi cantly different. There-fore at 95% signifi cance level, there were no signifi cant differences in the scores on core values obtained by the three different organizations. On employee behaviour, the mean score obtained by private organizations was highest, followed by joint organizations and then pub-lic organizations. However, the differences between their mean score did not differ signifi cantly ( F (2,117) = 1.032, and p>0.05 ). Thus, at 95% signifi cance level, employee behaviour did not differ signifi cantly among the three different organizations.

The results in Table 4 also show no signifi cant differences in managerial behaviour in the three dif-

Table 4: Summary Table: One-Way ANOVA

ferent organizations ( F (2,117) = 0.772, and p>0.05 ). Thus, even though the mean scores on managerial behaviour obtained by the private organizations was slightly higher than the public and joint organizations, the differences in the scores were not signifi cant. Therefore, at the 0.05 level, the managers in the three organizations displayed almost equal positive behaviours.

The one-way ANOVA results in Table 4 reveal signifi cant differences in organizational performance of the three different organizations ( F (2,117) = 3.300, and p< 0.05 ). The mean scores in Table 4 clearly shows that the private organizations performed bet-ter, followed by the public organizations and the joint organizations in that order. Following from the results of ANOVA in Table 4, multiple comparison based on the mean scores was carried out to determine which two organizations differed signifi cantly in their per-formance. The results are shown in Table 5.

Since there was a signifi cant difference in the performance of the three different organizations, post-hoc or multiple comparison test was carried out to determine which two organizations differ in per-formance. The results indicate that private and public owned companies do not vary in terms of performance p > 0.05. The same result was observed for joint and public businesses. However, the comparison of joint and private owned businesses shows a signifi cant difference in terms of performance. The private organizations performed better than the joint orga-nizations.


Table 5: Mean and Standard Deviation of Indicators of Organizational Values by Type of Ownership

4 ConclusionOrganisational values can facilitate or hinder an

organisation’s overall performance. Comber (1999) indicated that values-led companies outperform other companies. For example, growth in revenue was four times faster; rate of job creation was seven times higher; growth in stock price was twelve times faster and profi t performance was 75% higher. Kono (1990) has emphasised the point that the culture of a success-ful fi rm must be appropriate to, and supportive of that fi rm’s strategy and that the culture must enshrine val-ues which can help the fi rm to adapt to environmental change. When fi rms are able to swiftly and quickly adapt to changes in their internal and external environ-ment, their performances are greatly enhanced.

The organisations studied are all indigenous Ghanaian fi rms which are either private, public or jointly owned and their existence have yielded societal dividends in the form of taxes and its administration, employment and economic stability. All the seven or-ganisations studied espoused certain core values which are either clearly stated and documented or integrated in the vision and mission statement of the organisation. Some of the organisations have managed to derive the full benefi ts of the values they espoused which refl ected in their performances and this is evidenced in the awards these organisations have received over the years from Ghana Club 100 and Corporate Initiative Ghana as the case of uniBank, Vanguard Assurance and Kasapreko Company limited indicate.

4.1 Recommendations

Organisations need to articulate and unite around a common set of values which make clear that practices that are responsible are also strategically sound. This is because, the core values of an organisation determines the kind of activity an organisation engages itself in. Firms that have not united around a common set of

shared values will struggle over what standards should guide the decisions and actions of its members towards the attainment of the goals and the strategic intent of the organisation.

Second, management should be committed to the agreed values; the values should be demonstrated in their decisions and actions. Leaders of the organisa-tion should not pay lip service to the values of the fi rm instead their behaviour should be value congruence. This is leadership by example and this will encourage employees to also live the values.

Third, management must endeavour to have the core values well documented in the company’s profi le, brochures, on the walls of the various offi ces, confer-ence room, training rooms, and canteen and staff com-mon room in the organisation. It is not enough having the values. They must be publicised and made known to all the rank and fi les of the members in the organisa-tion otherwise these espoused values will only remain in the minds of top management alone, and how can the employees hold on to something they are not aware of. Beside, the values must also be communicated suffi ciently to all stakeholders.

Fourth, performance systems must be properly established and an individual whose behaviour is constantly consistent with the values the organisation espouses should be rewarded. When this is done, the conformists will be motivated to always live the values whilst the non-conformists will be discouraged from the adoption of apathetic attitudes towards the living of the core values. It must be emphasised that rewards, promotions, salary increases and other incen-tives be based on the performance of the organisational members.

4.2 Suggested Future Research

Future research might expand the sample size to test and validate the fi ndings of this study and also investigate the role of managerial values in the for-mulation of organisational values. Also, a study of


this kind could consider only senior managers and middle level managers as respondents to avoid the tendency whereby other respondents like junior staff struggle to grasp the meaning of the concept or the topic of interest.

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An Exploration of Research Practices in the Management Sciences in South Africa

RENÉ PELLISSIERAssisted by Hester Nienaber, Nadine Lernhard, Filip Hamman and Zama Mkhize

Department of Business ManagementUniversity of South Africa

AJH van der Walt Building, Room 3-52Preller Street, Muckleneuk

Pretoria, 0003South Africa

[email protected]

Abstract: In the management sciences, there are different approaches to research. These depend upon the specifi c research questions and objectives and their impact upon the fi ndings. At post graduate level, the supervisor and the student need to be au fait with the full spectrum of research strategies and be able to link the appropriate design to the specifi c research question and objectives. More than that, qualitative and quantitative methods are viewed as opposites rather than strategies on continuum. This limits the research and its value and allows for the predisposition of the supervisor to infl uence the student’s work. In the past, it was believed that certain specialisations/functional areas in the management sciences use specifi c research strategies rather than employ the full spectrum available. This paper provides an objective view of the research strategies employed by matching these strategies to the fi eld of specialisation and to the planned outcomes from the research. This article looks at the fi ve accredited management journals in South African during the period 2006/2007 in order to determine the link between the research objectives and the research design employed. The journal articles were studied using proportional stratifi ed random sampling, the research design and strategies and the conclusion. A model as presented by Scandura and Williams (2000) was selected to use. However the model was not sensitive enough with respect to the vast range of inaccuracies picked up by the review team. The model was thus reworked using a content analysis approach in conjunction with theory building and modelling. The reworked research metric was then used to study a total of 120 of the 208 articles over the time period under review. The stratifi cation allows for possible differences between the journals and trends thus developed. From these fi ndings it seems that the current review process is not as strict as we believe and/or the reviewers are either not strict enough or not strong enough in all areas of research design and research methodologies in order to see the gaps in the articles. Also the formats of the review forms and the time constraints we face may infl uence the important function of the review process. Despite these, accredited outputs play an important role in funding and academic promotions. These aspects should be more intensely investigated and, to this, it is our aim to continue with this study and also to compare the local contribution to their international bedfellows. Key words: South African management research practices, management journals, research problem, research design, research ontologies, content analysis

René Pellissier / 65

1 IntroductionThis article researches research practices in the

fi eld of management in South Africa. Management scientists and researchers are particularly guilty of research outputs in a domain that begs for expansion because of its relevance and value added to society. It is thus appropriate to investigate the publications accepted by South African (accredited) management journals and match these to the pertinent research problems, hypotheses, and questions investigated by the researchers in the various fi elds in the management domain. Academic journal accreditation is undertaken by the Department of Education (DoE) and involves a rigorous process of review. Accredited journals have to follow a strict blind peer review process linked to the specifi c house style and specialisation or focus of the journal. Accepted articles are subsidised by the DoE based on an internal and external review system.

It is common knowledge that academics are not participating suffi ciently in (accredited) research ar-ticles. There are many reasons for this phenomenon. For instance, increasing administrative and academic workloads (based on student number increases and academic number decreases), a lack of research sup-port and, most importantly, a lack of understanding of research fundamentals specifi cally in the fi eld of management research. (This is a focal point of this article.) However, these do not negate the demand for (subsidisable) research outputs.

In researching research practices in the fi eld of man-agement, this article will thus investigate the research problem, the research design, the research domain and the research outcomes and cross tabulate these with respect to their interdependencies. The following questions arise: Is it possible that a specifi c fi eld in the management sciences relate to specifi c research design? Is it possible that the choice of technique could infl uence the outcome of the research? To what extent is the current body literature in the management sci-ences informed by inappropriate research design and subsequent outcomes? Design choices may, to some extent, impact upon the conclusion drawn and it is thus of extreme importance that the appropriate design is perfectly matched to the research problem and the specifi c domain in which the research is undertaken. One immediate benefi t from this research is the identi-fi cation of specifi c training and development that need to be undertaken to increase research outputs in terms of quality (research value to the body literature) and quantity (research value to the researcher and his/her affi liation). Another benefi cial aspect is the develop-ment of a conceptual framework for matching research

design against the research problem and the research fi eld, and the subsequent deeper understanding of the positivist and phenomenologist designs. To this end, an in-depth analysis of quantitative and qualitative strategies seems logical and the development of the conceptual framework should provide an understand-ing of the critical aspects involved in management research.

Given the importance of management research in terms of the developmental aspects for society and theory, and the growing importance of publication for the sake of accredited outputs, the strategies and design techniques specifi cally relevant to the fi eld of management theory and applications need to be in-vestigated. Previous research (Scandura & Williams, 2007; Beaty, Nkomo & Kriek, 2006; Hitt, Beamish, Jackson & Mathieu, 2007; Matzler & Renzl, 2005) seemed to focus on limited aspects of management research whereas our preliminary research work in-dicated a lack of structure, lack of planning and logic and little linkage between the research problem, the research design and the research outcomes. The Beaty, et al. research (2006) stresses the need for the building of management theory in the South African context, whereas generally formulations are still done in the US or Western Europe. The sample under investiga-tion was a selection of DoE accredited management journals between 1994 and 2004. Using an archival review technique, they used the Mendenhall, Beaty and Oddou (1993) classifi cation consisting of qualitative, quantitative, conceptual or joint research. Their survey found that quantitative research designs were the most prevalent (54%) and joint research designs the least (3%). We were unsure whether their results followed from a random sample which would invalidate the Chi-Square results offered. Their research could not link the research problem, research domain, research levels or research outcomes.

This leads us to our research objectives: The primary research objective is: To determine possible interdependencies between the research problem (in management research) and the research design and to develop a conceptual framework to review manage-ment research in terms of quality and value added to the body literature. The secondary research objectives are to: Investigate the interdependencies between the research ontologies, strategies, levels, domains, analysis techniques and the purposes of the research. The research employs a cross-sectional study of a randomly selected sample of the fi ve accredited gen-eral management journals in South Africa over the period 2006/2007. The research follows on a previous study undertaken by Scandura and Williams (2007)


in which they researched practices, trends and impli-cations in research methodologies in management. The research will follow a content analysis approach used on a random sample of all articles published in the domain of management research in South Africa. Specifi c hypotheses can then be investigated based on these outcomes.

2 Problem Formulation 2.1 Research Theories

This article investigates the implementation of re-search fundamentals and we thus need to put research itself in context. There are numerous defi nitions for research. Kerlinger (1986:6) writes that (scientifi c) research is ‘the systematic, controlled, empirical, and critical investigation of natural phenomena guided by theory and hypotheses about the presumed relations among such phenomena. Leedy and Omrod (2005:19) concur: [scientifi c] ‘research is the systematic process of collecting and analysing information to increase our understanding of the phenomenon being studied.’ It is the function of the researcher to contribute to the understanding of the phenomenon and to com-municate that understanding to others. Research is systematic (which implies the use of thorough and rigorous planning and procedures), controlled (which implies objectivity and consistency in the sense that results should be replicable by other researchers under the same conditions and in the same way), empirical (which implies that the research is grounded in real-ity), critical and analytical (which implies a probing process to identify problems and exacting methods to arrive at their solutions), logical (which implies arguments and conclusions that follow rationally from the evidence obtained) and theoretical and con-ceptual (which implies a grounding in conceptual and theoretical structures that direct the research). Our investigation will therefore have to explore the systematic process of research, review the critical and analytical aspects involved and the theoretical and conceptual aspects as well as the structures that direct the research in the management research con-ducted. In the planning phase, the research problem is matched to an appropriate research strategy that leads to a specifi c analysis framework and required outputs. These outputs are then assessed for quality and its contribution using rigorous peer review systems and happen through publication in accredited journals or some other formal review process. There are specifi c outcomes to be measured against. The broad aims of scientifi c research are typically accepted to be the

understanding, explanation, prediction and control of natural phenomena.

Most research can be categorised as belonging to one of the following categories (Rosenthal and Ros-now, 1991:3): Pure research (leading to theoretical development whether there are practical output or not), applied research (intended to solve a specifi c problem and of which the common form is evaluation of a particular course of action) and action research (where the main focus is that the research itself must lead to change). Researchers in the social sciences use a continuum of ontological approaches to ensure viability and integrity of their work. These range from the purely quantitative and traditional approach to the qualitative interpretive approach depending on our perceptions of reality. Pope and Mays (1995:42) pro-vide another perspective: ‘[research is] an overstated dichotomy between quantitative and qualitative social science’, whilst Hussey and Hussey (1997) maintain that all research falls within a band of possibilities (positivist to phenomenologist) which will allow combinations form both on a continuum.

According to Babbie and Mouton (2001), the research design relates to the planning of scientifi c inquiry -that is, designing a strategy for fi nding some-thing out. This entails specifying ‘what’, ‘why’ and ‘how’ the researcher needs to fi nd out. They differenti-ate research designs on the basis of (i) ‘empirical’ (e.g. survey, experiments, secondary data analysis, observa-tion, case study) vs. ‘non-empirical’; (ii) primary data vs. secondary data; and (iii) numerical vs. textual data sources. Furthermore, they refer to the research para-digm that can be quantitative (gain understanding by explaining human behaviour) as opposed to qualitative (gain understanding by describing human behaviour). Their use of the term ‘research paradigm’ corresponds to that of Shah and Gorley (2006).

Research methodology is defi ned as the methods, tools, techniques and procedures employed in the process of implementing the research design (Bab-bie & Mouton, 2001). Bryman and Bell (2007) are of the opinion that research designs refer to different frameworks, such as experiments, survey, cohort studies, case studies and comparative designs, used for collecting and analysing data. They use the term ‘research strategy’ to indicate a general orientation to conduct research, which can be either quantitative or qualitative in nature. Neuman (2006) uses the phrase ‘strategies for designing a study’ and points out that there are differences between a qualitative and quan-titative style of doing research, which have different design issues that need to be considered. He further differentiates between the deductive and inductive


reasoning approach to research, which aids in planning data collection and analysis.

2.2 Research Design

The primary research design in this research is content analysis in order to determine the presence of certain words or concepts within the publications under review. Content analysis requires manageable categories (for instance, themes, sentences or phrases) to be examined. The research is based on the cat-egories presented by Scandura and Williams (2007). In their study, Scandura and Williams compared the strategies employed in management research in two periods: 1995-97 and 1985-87. These authors used the following framework to review research methodology practices and trends in management research.

Hofstede (1996) posits that research traditions and publication patterns are mainly attributed to cultural

differences and the nationality of the author. He uses the example of what an organisation is to illustrate this point (in the French tradition it is ‘power’, in the German one it is ‘order’, in the American it is ‘the market; and in the Nordic countries it is ‘equality’). Matzler and Renzl (2005) concluded that German researchers focused more on theory development, publishing a very high number of purely conceptual articles, whereas the American approach is more em-pirical. According to them, American and European researchers frequently collaborate on an international and national level.

Beaty, Nkomo and Kriek (2006) selected what they believed to be the six primary research outlets in management in South Africa (South African Journal of Business Management, South African Journal of Labour relations, South African Journal of Industrial Psychology, South African Journal of Management Science, Management Dynamics and the Southern

Table 1: Review Framework for Research Methodology Practices and Trends in Management Research


African Business Review), selected because of their clear editorial focus in publishing South African management-related manuscripts. They pointed out that South African management research also ap-pears in international journals whose primary focus is publishing research from non-South African popula-tions. These authors studied the belief that qualitative research always precedes quantitative research in order for the subject fi eld to mature. They focused their study mainly on the application of qualitative or quantitative research or both. Their archival approach (1994-2004) reviewed all articles in these journals cat-egorising them as qualitative, quantitative, conceptual or joint research. They concluded that most management research followed quantitative approach, followed by a conceptual approach, then qualitative and then a joint approach. The authors fi nished their study using tests for independence, which of course is not appropriate as there is not evidence of a random sample (in their design it seems that either the population as a whole was used or the sample taken from the population is purposive not random, both cases exclude any inference). It was not clear how the design was constructed. However, the tal-lies obtained do seem indicative of their conclusion.

This research is based on the content analysis ap-proach. Berelson (1952) wrote that content analysis is the manual or automated coding of documents, transcripts, news articles, or even of audio of video media to obtain counts of words, phrases, or word-phrase clusters for purposes of statistical analysis. The researcher creates a ‘dictionary’ that clusters words and phrases into conceptual categories for purposes of counting. While generally focusing on the analysis of printed text and transcripts, DuRant et al. (1997) believe it applicable to any form of communication. Berelson (1952) listed the main applications of con-tent analysis: To describe trends in content over time, to describe the relative focus of attention for a set of topics, to compare international differences in content, to compare group differences in content, to compare individual differences in communication style, to trace conceptual development in intellectual history, to compare actual content with intended content, to name a few. Krippendorf (2004) identifi es fi ve key processes inherent to content analysis: Unitizing: The researcher must establish the unit of analysis (word, meaning, sentence, paragraph, article, news clip, docu-ment, etc.). Sampling: usually the universe of interest is too large to study the content of all units of analysis, and instead units must be sampled. Sampling involves counting, which may require the researcher to develop thesauruses (so different terms with like meanings will be counted under the same construct) and expert

systems or other rule engines (so the proper contex-tual valence is assigned to each counted construct). Reducing: content data must be reduced in complexity usually by employing conventional summary statistical measures. Coding and statistical analysis is covered by Hodson (1999). Inferring: contextual phenomena must be analyzed to provide the context for fi ndings. Narrating: conclusions in the content analytic tradition are usually communicated using narrative traditions and discursive conventions.

Brown (1969:21) wrote that content analysis is ‘at times, a scholarly discipline should examine itself.’ While Buboltz, Miller & Williams, 1999 and Hill, Nutt, & Jackson, 1994) believe that content analyses of jour-nal articles provide an excellent avenue to review the state of affairs. Content analysis as a review process can include the examination of the content of articles published in a journal across a specifi c time period (e.g. Buboltz et al., 1999; Nilsson et al., 2001; Pelsma & Cesari, 1989) or focuses on specifi c content areas, such as psychotherapy process (Hill, et al., 1994), school consultation (Alpert & Yammer, 1983), or racial/eth-nic minority research (Perez, Constantine, & Gerard, 2000; Ponterotto, 1988).There are two broad types of content analyses: conceptual analysis and relational analysis. In the fi rst, the existence and frequency of concepts (word or phrases) are established, whilst in the second, the relationships between the concepts are investigated. The research design employed in this paper is summarised in the table 2.

Because journal articles tend to mirror the values and interests of authors, journal editors, and the fi eld at large, content analyses offer insight into the values that drive scholarly activities during a certain period. Nilsson, Love, Taylor and Slusher (2001) used con-tent analysis to study the areas that received the most attention were academic/career, multicultural issues, symptoms/disorders, and counseling process in 1991 to 2001.

2.3 Research Method

The research was undertaken in distinct phases. During the initiation phase, relevant literature was studied and the research introduced to the editors of the journals selected for the study. Thereafter the actual work took place in three stages (pilot study, redesign of framework and review of journals).

2.3.1.Initialisation

A team consisting of fi ve researchers (reviewers) was formed to undertake the project. The fi ve man-agement research journals accredited by the DoE,


were selected for the study. The research project was introduced to the editors of the selected management journals through a letter sent by electronic mail. In a structured questionnaire, the editors were requested to provide information in terms of starting date, number of copies per year, number of copies published, number of submissions per issue, acceptance rate, reasons for non-acceptance, editorial policy, academic affi liation, cost per issue, price per issue, website address, ISSN number, scope of journal, date of accreditation, ratio of local to international content, and full text online. This initial phase allowed validation of the management journals in terms of accreditation, purpose and scope of journal and editorial policy (see Table 5).

2.3.2 Content Analysis According to the Identified Themes (Stages 1-3)

The project team conducted a thorough literature review into management research practices and the extant body theory. The research population is taken as the total number of articles published in the fi ve management journals during 2006/2007. In the time period under investigation (2006/2007), there were a total number of 208 articles published. The main thrust of the research was then undertaken in three progressive stages: In stage one a pilot study was conducted using ten randomly selected articles from the research population. The sample results were used to make changes to the selected framework according to the diversity of the responses and the problems in-

curred with the framework limitations. In stage two, the Scandura and Williams (2007) framework was revised a according to the outcomes from the pilot study to the research framework that will follow all the stages of research. This lead to the review framework for research practices in management publications in South Africa. In stage three, the four independent reviewers and the independent judge (acting as arbitra-tor), studied a random sample of 120 articles (using the fi ve journals as strata), and reached agreement on the content analysis outcomes according to the proposed review framework. These stages will be discussed be-low. All papers were read and marked independently according to the following scheme:

+ = Did not say – we interpreted to be relevant

= Analytical technique not fi t for sample

* = Domain not specifi ed explicitly

O = To be confi rmed at meeting with arbiter

√ = Agreement at meeting with four reviewers

√ √ = Agreed upon at meeting with arbiter.

2.3.3 Stage 1

A pilot study of ten articles randomly selected from the population was undertaken and reviewed using the Scandura and Williams framework and to assist the four independent reviewers to understand the frame-work and identify problem areas. This sample size is small because of the time taken to review the original

Table 2: Research Design Followed in This Paper


round of articles. The result of the pilot study was unexpected as we realised that in most of the articles, the purpose, method, sampling and analytical technique were in confl ict. The following is a brief list of inaccu-racies found that lead to the revision of the framework (see Tables 4a and 4b): Purpose not clearly stated (hence it is not clear whether the design and methodol-ogy were in accordance with the purpose), population not mentioned, sampling procedure and technique not specifi ed, domain not specifi ed (e.g. I.T; Marketing; HR etc), in minority of cases authors mention the time frame e.g. cross sectional survey, in a limited number of cases authors mention that the study is quantitative/qualitative, in a few cases we question the explicitly mentioned option as the ‘content’ does not correspond to the option, in a number of cases the authors indicate that the purpose is to test for relationships (as such prob-ability sampling is required to do inferential statistics) and though they use non-probability sampling (such as purposive or convenience sampling) and, if they do not explicitly state, it is implied that they generalise their fi ndings. Only one case highlighted that a convenience sample was used and non-parametric statistics, but the fi ndings were not generalised since a non-probability sample was used, prohibiting generalizations, the titles of the articles and the content did not correspond, the title and hypotheses tested did not correspond, the ana-lytical technique applied did not achieve the required outcomes and authors used populations but employed inferential statistics.

The implication of these observations was that, either these articles were fl awed and as such unreliable and invalid, rendering their contributions void, or that the framework used was not appropriate to determine the trends and linkages. It soon became apparent that the selected framework did not allow for a clear and unambiguous problem statement, research objectives, the clarity of the research design or process followed,

the sampling design as matched to the objectives and/or the analytical techniques employed, or the conclu-sions drawn. In some instances the panel agreed that the research fi ndings and conclusions had little bearing on the preceding objectives, designs or analytical tech-niques used. The framework by Scandura and Williams was thus expanded to include a detailed methodology review and issues of validity and reliability. This framework was revised through a number of iterations until the panel felt that the research framework was now identifying all the dimensions of good research identifi ed through the literature study. These dimen-sions were identifi ed as: research strategy, research domain, and research level and research technique.

2.3.4 Stage 2

The population was stratifi ed according to the fi ve management journals under investigation. The second phase used proportional random selection of the 208 articles spread over the fi ve journals (strata). This was done as the initial investigation showed dif-ferences in terms of house style, purpose and themes, numbers of articles, acceptance rate, price per copy and distribution. The stratifi cation allowed for the differ-ences between the journals and also achieves a higher level of signifi cance for the same sample size if done without stratifi cation. Proportional random sampling was used as numbers of articles differed between the journals (see Table 3). In the proportional allocation the percentage of articles selected per stratum remain the same although the numbers of articles may be different between journals (58% of the population).

The sample size of n=120 was chosen and propor-tional random allocation employed using a random number generator. The 120 articles were grouped into the fi ve heterogeneous groups based on the size of the population. Thus the sample sizes of n1=18, n2=20, n3=8,

Table 3: Proportional Stratifi cation Sampling Scheme


n4=27 and n5=47, correspond proportionally to the sizes of the subpopulations (N1=32, N2=35, N3=14, N4=46 and N5=81). All over, the sampling used around 58% of the population elements after the population had been grouped into units that belong (i.e. the specifi cs of the research journal, its style and requirements).

2.3.5 Stage Three

Four independent reviewers reviewed the 120 ar-ticles in the random sample according to the following scheme: each reviewer read seven articles per week (totaling 120 after 18 weeks), reached consensus every week. The group then presented fi ndings (specifi cally disagreements) weekly to the fi fth reviewer as arbiter for fi nality and agreement. In all cases, clear consensus was reached by the panel of fi ve. The selected articles were reviewed by the panel according to the amended framework as research framework. The research framework is presented in Tables 4a and 4b. The out-comes of the agreed upon reviews were captured onto the data sheet summarised in Annexure A.

2.4 Research Framework

Neuendorf (2002) listed the following as not ac-ceptable issues in research publications: inadequate methods or explanation of methods; limited or misused data; inadequate theory; inappropriate journal; presen-tation and style; unacknowledged bias (ideological, author dominance, selective data to fi t a favoured theory); inadequate knowledge, limited analysis;

inadequate discussion and dubious ethics. Following on the defi nition and process of research (Leedy & Omrod, 2005), the categories of research (Rosenthal & Rosnow, 1991), the research design (Babbie & Mouton, 2001), the issue of research paradigm and research methods (Shah & Gorley, 2006; Babbie & Mouton, 2001; Bryman & Bell, 2007 and Neuman (2006), the review framework of Scandura & Willams (2007) was expanded to make provision for an unam-biguous research framework that can incorporate all aspects of the research as identifi ed by the reviewers in the pilot study, and not only the research methods alone as per Scandura (2007).

Some of the comments provided by the four re-viewers on the nature of the analytical techniques were: ‘The authors made use of a ‘hedonic pricing model’, a technique used exclusively in Econometrics. The authors made use of ‘Seasonal unit root tests’, ‘Cointegration analysis’ and ‘Granger causality’, again techniques used in the subject of Econometrics. Therefore I thought we need to make provision for these ‘domain-specifi c’ techniques. Descriptive sta-tistics is also used in the article, but it’s only to show averages, not for the purpose of coming to the main conclusion. It also has occurred in a lot of the other articles. Shouldn’t we distinguish between ‘purpose-ful’ techniques and ‘side-issue/additional/supportive’ techniques?’

All articles selected were reviewed by the panel according to the following research framework cri-terion list:

Table 4a: Research Framework for Review of Management Research Articles


Table 4b: Research Framework for the Review of Analytical Techniques


3 Problem Solution3.1 Reliability and Validity of the Research

The design of this research allowed for reliability of the results. The four reviewers had to separately read the articles in the sample, complete the revised framework (see Tables 4a and 4b) and take the neces-sary steps to agree on the fi nal resolution. The coders re-examined any coding disagreement and arrived at a fi nal consensus coding (100% agreement) which provided the data for this analysis. They met weekly with the arbitrator (reviewer fi ve) to ensure overall consensus. Agreement was only achieved when all reviewers agreed.

The categories and items in our research framework were drawn from previous literature in management research and refine the Scandura and Williams’s framework. We did experience some problems with the large number of domain categories and the then small sample drawn that resulted in small cell frequencies. The problem with too few coding categories is that it potentially increases the likelihood of random agree-ment in coding decisions and subsequently results in an overestimation of reliability (Milne and Adler, 1999).

Similarly, higher numbers of items in the instrument increase the complexity (Beattie and Thomson, 2007) and may potentially increase coding variance.

3.2 Empirical Results

Table 5 summarises the results of the initial surveys sent to the editors of the journals to introduce the proj-ect. In the instances where the editors did not provide information, these were extracted from the websites or from the hard copies of the journals provided.

Tables 6 and 7 summarise the empirical fi ndings in the sample encountered by the reviewers.

The reviewers further observed that:

The domain was only specifi ed in a number of • cases while the readers had to interpret the re-mainder.In 20 out of a possible 68 cases it was stated that • the study was qualitative in nature, while the read-ers had to infer from the information provided that another 48 cases were qualitative in nature.In 15 out of a possible 71 articles, the authors • stated that the study was quantitative in nature, while the readers came to the conclusion that an

Table 5: Initiation Phase: Results of the Surveys Conducted with the Editors

Table 6: General Comments Made by Reviewers


additional 56 articles could have been quantita-tive in nature, given the information provided by the authors.Only in one of the 120 cases the readers had to • interpret the strategy, while the 119 other articles stated clearly the strategy (e.g. survey etc).All authors clearly stated the analytical techniques • used to analyse the data. These techniques were in line with the purpose of the study, but in a few cases these techniques were not appropriate to the sampling technique. This was especially ap-plicable to research with a causal purpose that used a non-probability sampling technique.None of the authors specifi ed the level of the • inquiry such as individual, organisation, industry or country. Readers had to infer this from the information provided.Purpose not explicitly stated as exploratory, de-• scriptive, causal or a combination.Only 34 authors stated the time frame of the study • as either cross sectional or longitudinal, while the readers had to infer in 86 cases based on the information provided in the article.

Furthermore, we found that sampling seemed the dimension that posed the major challenge. This was especially true in cases where authors stated that the purpose of the study is causal. In 27 of the 44 articles with a causal purpose, the authors used a non-prob-ability sample instead of a probability sample. The analytical techniques required to determine causal-ity (e.g. comparison of means, regression analysis, correlation analysis, analysis of contingency tables, factor analysis and clustering techniques, structural equation modelling and path analytical techniques; time dependent analysis) required specifi c statistical assumptions that were neither stated nor adhered to (see Table 7).

We subsequently looked at the research dimensions favoured by the journals. Table 8 contains a host of information that needs further examination. Only the dimensions critical to the validity and reliability (i.e. purpose, nature, strategy, sample) of the research are addressed. Firstly, the purpose of any published re-search needs to be noted as the purpose is the pivot of any article. Journals 1 and 5 favoured articles with a causal purpose, while journal 2 favoured articles with an exploratory purpose, journal 3 descriptive, and

Table 7: Dimensions of Research Encountered by the Researchers

Table 8: Summary of Research Dimensions Favoured by the DoE Accredited Management Journals


Journal 4 published an equal number of articles with an exploratory, descriptive and causal purpose. The research design follows the research purpose. Accord-ing to the literature (see for example Cresswell (2003), Neuman (2006)) research with an exploratory and/or descriptive purpose is qualitative in nature, while re-search with a causal purpose is quantitative in nature. Journals 2 and 3 favoured research that is qualitative in nature, while journals 4 and 5 favoured research that is quantitative in nature. Journal 1 published an equal amount of quantitative and qualitative research. Given that Journals 1 and 5 favoured causal research, there should be a general tendency towards probability sampling (which is then not the case).

3.3 Qualitative Data Analysis

The recorded fi ndings were captured on a data sheets (Annexure A) and analysed using SPSS (Statis-tical Package for the Social Sciences), release 16.0.1. The data were obtained through a stratifi ed random sampling technique which allows us to do inferential statistics.

Firstly, the Chi-square test for homogeneity was used to test whether the fi ve journals differed with regard to each of the research variables (domain, quali-tative and quantitative, strategy, analytical technique,

level, purpose, timeframe and sample), on the 5% level of signifi cance. A separate test was conducted for each variable in question. For all variables, except the timeframe of the study, some of the categories had to be merged to increase the expected cell frequen-cies (see annexure B). As a general rule, all expected frequencies should be at least fi ve. But only eight articles were sampled from the Journal of Contem-porary Management, causing very low observed (and expected cell) frequencies in the third column of the cross-tabulation tables. Therefore, to be more lenient, expected frequencies >2 were accepted. The expected cell frequencies < 2 are highlighted (see annexure B), in most cases this is only a very small percentage. Table 7 summarizes the results obtained for each of the eight research variables.

As can be seen from Table 9, it was found that the fi ve journals showed homogeneity in terms of the research strategy, analytical technique, purpose of the study, timeframe of the study and the sampling method used. However, homogeneity between the fi ve journals could not be confi rmed in terms of the research domain and the research level.

Secondly, multinomial logistic regression was used to determine if one, or more, of the research variables are infl uenced by the other variables. That is, to iden-

Table 9: Summary of the Results from the Chi-square Test for Homogeneity


Table 10: Parameter Estimates as Obtained from Multinomial Logistic Regression


tify potential response variables and its associated predictor variables, and then analysing the relation-ship between them. As an initial intuitive guess, it was thought that the sample type could be infl uenced by the purpose of the study, the research strategy and whether the study is qualitative or quantitative in nature (QL/QN). Therefore, the sample type was iden-tifi ed as response variable with associated predictor variables being the purpose, strategy and QL/QN. The non-probability sample type was chosen as reference category, since it occurred the most.

The likelihood ratio test (Chi-square statistic = 51.085, p-value = 0.001) indicated that the framework is signifi cant at the 5% level of signifi cance, leading to rejection of the null hypothesis that all population regression coeffi cients, except the constant, are zero. Thus, at least one population regression coeffi cient is non-zero. The deviance goodness-of-fi t test (Chi-square statistic = 95.953, p-value = 0.482) showed that the overall model fi t is adequate. According to the likelihood ratio test for the individual model pa-rameters, the research strategy (Chi-square statistic = 26.765, p-value = 0.002), as an independent variable, contributed signifi cantly to the framework at the 5% level of signifi cance. However, QL/QN (Chi-square statistic = 3.795, p-value = 0.704) did not make a signifi cant impact, while the purpose of the study (Chi-square statistic = 15.958, p-value = 0.068) was found to be signifi cant at the 10% level of signifi cance.

Only three of the estimated regression coeffi cients were found to be signifi cant at the 5% level of signifi -cance: For the ‘population or N/A’ sample type, the ‘survey/interview’ (Wald statistic = 9.759, p-value = 0.002) and ‘mixed’ (Wald statistic = 4.342, p-value = 0.037) categories of the predictor variable ‘strategy’ and, for the ‘mixed/unsure’ sample type, the ‘survey/

interview’ (Wald statistic = 3.928, p-value = 0.047) category of the predictor variable ‘strategy’.

From Table 10 it can be concluded that: The odds of an article having a mixed research strategy, where the sample is the whole population or not applicable, is 0.085 times the odds of an article having an ‘other’ re-search strategy. The odds of an article having a survey or interview as research strategy, where the sample is the whole population or not applicable, is 0.026 times the odds of an article having an ‘other’ research strat-egy. The odds of an article having a survey or interview as research strategy, where the authors used a mixed sample type, or it was unsure which sample type was used, is 0.09 times the odds of an article having an ‘other’ research strategy.

Classifi cation results indicated that the fi tted model predicted 52.5% of the cases correctly. Although not used as a measure of fi t, it does show that the fi tted model’s predictive ability is not satisfying.

4 ConclusionThe research focused on the current research prac-

tices of a selection of accredited management journals. It is generally accepted that accreditation of journals and the subsequent scrutiny of articles accepted after the review process, will allow for the theories present-ed to be acceptable and above scrutiny. Further, the body knowledge represented in accredited knowledge is valid and reliable and thus applicable to the emerging domain. However, our initial research gave us reason to believe that this is not necessarily true and that, despite the editorial policies and impressive review criteria, research is published that do not follow the principles of good research. This statement does not bode well for the future of the management fi eld as

Table 11: Classifi cation Results from Multinomial Logistic Regression

The complete output is provided in annexure B.


accreditation of research papers provide a mechanism for trust of the outcomes the research papers present.

We found signifi cant differences in the fi ve journals in terms of content. We found that journals are not strict on research design and fairly loose in terms of stating the purpose and following a rigorous research process that is valid and reliable. We found that the articles presented and accepted are sloppy in terms of design and method and mostly focus on surveys and cross sectional studies. The latter means that we limit the breadth and depth of the research as it is no longer generalisable and certainly cannot show any trends from which we can deduct the future.

Our framework shows that researchers do not al-ways abide by the specifi cs of quality research – the research statements are confusing or non existing, the purposes not adequate and the research designs defi nitely not appropriate in terms of the research statements. This conclusion puts a question mark on the merging theories and provides a mechanism for the reviews of papers in order to ensure that the outcomes are meaningful because we ensured realist and truthful mechanism.

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Annexure B: Complete Statistical Output


Signifi cance: *Signifi cant at the 10% level **Signifi cant at the 5% level ***Signifi cant at the 1% level

+Note - Two variables excluded: Timeframe (Since 119 articles = Cross-sectional, 1 article = Longitudinal) Analytical technique (Since more than one level per article occur)


How to Increase Local Partners’ Bargaining Power and Absorptive Capacity in Joint Ventures?

SARI WAHYUNIAssociate Professor

Faculty of EconomicsUniversity of Indonesia

Jl. Salemba Raya 4Depok

Jakarta 10430Indonesia

[email protected]

LILI SUDHARTIOManaging Partner

MD Consult IndonesiaKingkilaban 28, Villa Duta

Bogor 16143Indonesia

[email protected]

Abstract: This research examined the infl uence of bargaining power and absorptive capacity on value appropriation, both appropriated relational rent and inbound spillover rent in International Joint Ventures (IJVs). Within the Indonesia-Japan automotive industry, which is among the 112 top IJV in Indonesia, it is found that value appropriation, both appropriated relational rent and inbound spillover rent, could only be achieved by local partners through absorptive capacity improvement. Meanwhile, bargaining power held via control has no signifi cant relation to appropriate performance. The signifi cant implications are that resources with no appropriate ability, dominant design paradigm, and which are not the complementary assets of other partners, will become less useful resources in improving bargaining power. The managerial implication of this research shows that local partners have to improve their absorptive capacity in order to be able to appropriate their performance. A policy implications is that government is expected to be more concerned about developing infrastructures, providing better education structure and investment climates.

Key words: international joint venture (IJV), absorptive capacity, bargaining power, value appropriation, appropriated relational rent, inbound spillover rent, automobile industry, Indonesia, Japan

1 IntroductionForeign investment in the world economy has

decreased signifi cantly since 2000, from its value US$ 1,396 billion in 2000 to US$ 648 billion in 2004. Contrary to this global trend, foreign investment in

Asia slightly increased from US$ 146 billion in 2000 to US$ 148 billion in 2004. Most investment went to China (US$ 95 billion) and Southeast Asia (US$ 26 billion), while the total foreign investment to Indonesia was only US$1 billion (UNCTAC, 2005).

Sari Wahyuni, Lili Sudhartio / 87

The small investment stream into Indonesia reflected the nation’s low number of competitive advantages. It was getting worse when Japanese and Koreans corporations relocated their investments from Indonesia to other countries in 2002 (Thee, 2006). They relocated to other countries where the business climate is more conducive for investment, because of such factors as cheaper available workforces and clarity of law enforcement (Kinoshita, 2005). Despite there appearing to be a downsizing investment climate in Indonesia, the Japanese remained the biggest inves-tor since 1967 until 2004, with a total accumulation 19.47% of foreign investment in Indonesia (Thee, 2006). There are 875 Japanese companies operating in Indonesia; of these, 549 (63%) are Indonesian-Japanese IJVs (Jetro, 2006).

An IJV is a business organization with its own le-gal status, and consists of consolidated capital among partners (Gulati, 1998). IJVs are not only focused on developing into competitive companies, but also are concerned about the exchange of various knowledge and developing good cooperation with other fi rms related to products, technologies and services devel-opment (Gulati, 1998). There are numerous benefi ts of being an IJV, such as, gaining access to outside assets or complementary capabilities, learning of op-portunities from partners, and reducing risks or costs compared to running their own businesses (Ireland, Hitt & Vaidyanath, 2002; Boateng & Glaister, 2003). However, an IJV has many risks such as negotiation and coordination costs, the probability of being a target of opportunism based on the other party’s self-interests, and the most daunting one, the possibility of the leaking of specifi c knowledge and skills to competitors (Suend, 2001; Kemp, 1999).

In managing an IJV which might be infl uenced by opportunistic behavior, we need to have confi dence in our partner and maintain our bargaining power position. By having bargaining power, partners can control over their strategic and structural areas, as well as the daily operational decisions in order to appropri-ate the benefi ts of their cooperation (Coff, 1999). In the management fi eld, this is known as relational rent (Dyer & Singh, 1998).

Relational rent is a benefi t drawn from a relation-ship or connection (Dyer & Singh, 1998), or derived from benefi ts earned because of combination, ex-change and development of idiosyncratic resources in alliances (Lavie, 2006). Inbound spillover rent is a benefi t which intentionally or unintentionally is received by partners throughout their cooperation (Lavie, 2006). For example, the partnership between Astra and Toyota bring a positive image for Astra,

which eventually made it easier for them to get soft loans from banks.

Dyer & Singh’s (1998) research on the automotive industry found that brand holders could appropriate rent better than their suppliers. It means that relational rent in the automotive industry is not distributed very well. On the other hand, Coff (1999) highlighted the fact that many stakeholders who have bigger bargain-ing power could appropriate rent better than stakehold-ers who have less bargaining power.

The aim of this research is to scrutinize the impor-tant factors that can be used by local partners to appro-priate their performance, for example, by improving bargaining power, taking control, and increasing ab-sorptive capacity. Rather than analyzing appropriated relational rent and the components of inbound spillover rent that could be appropriated by local partners, this study also focused on each component of bargaining power, control and absorptive capacity.

2 Problem Formulation2.1 Theoretical Model

As explained earlier, this research strives to fi nd the important factors that can be used by local part-ners to appropriate their performance. Our research literature shows that partner appropriated performance is infl uenced by bargaining power position, absorp-tive capacity and control. Bargaining power can be defi ned as bargainers’ ability to change subjects to a more profi table direction (Lax & Sebenius, 1986), win over the discussions (Dwyer & Walker, 1981; Tung, 1988), and infl uence the results (Schelling, 1956). In relation to IJVs, bargaining power can be interpreted as the ability to control and manage the IJV (Yan & Gray, 2001).

Partners who have greater bargaining power normally have more control of the IJV. A partners’ control could be structural control, operational control or strategic control (Zhang & Li, 2001; Geringer & Hebert, 1989, Wahyuni et al. 2007). Structural con-trol is control related to IJV organizational structure development, decisions on human resource policies, IJV systems and standard operating procedures (SOP), and formulation of IJV contracts.

Another type of control is operational control in which the partners participate in decision-making of planning and budgeting, and daily operational policies. Participating in daily activities could include produc-tion, advertising, hiring and dismissing employees, and even in strategic planning routines (Douma & Schreuder, 2002). A third type of control is strategic


control which is related to strategic decision-making policies (Yan & Gray, 1994). By having strategic control, partners can infl uence the strategic decision-making process, marketing policies, investments, and distribution of profi ts and dividends.

A successful partnership can be indicated by a partner’s satisfaction with the IJV performance and partner’s ability to appropriate their performance (Coff, 1999; Lavie, 2006). This is how local partners can appropriate their relational rent, consisting of ap-propriated relational rent and inbound spillover rent (Lavie, 2006). The partner’s appropiate performance is highly infl uenced by exploratory, transformative and exploitative learning. Figure 1 shows the theoretical model of this study.

At the beginning of this study, we conducted exploratory research by using in-depth interviews. The aim of these interviews was to confi rm whether our local partners had been able to appropriate their performance or not. If they had, how did they achieve it? What were the important variables that infl uenced the process?

We interviewed 22 executives and experts in the automotive industry. They occupied such positions as board of director, or general manager of the local part-ner. Additionally, we interviewed 10 former executives of the Indonesian-Japan joint venture, the Chairman of the Indonesian Vehicle Industry Association (Gai-kindo) and the Chairman of the Indonesian Motorcycle and Car Parts Industry Association (Gabungan Industri Alat Mobil dan Motor (GIAMM)). All interviews were

tape recorded. Most of the interviews took more than one hour and many of them lasted more than two and a half hour.

The steps taken in analyzing the interview results were: (1) preparing transcripts of interviews; (2) grouping the interview results; and (3) analyzing those various signifi cant opinions. To ensure internal valid-ity of this study, we conducted triangulation between the experts. We sought whether there were matching patterns or similar meanings in the quotes that recon-fi rmed complemented or reconfi rmed other answers. This ultimately increased the reliability of the data.

The result of our explorative study shows the importance of local partners’ reputations, the superi-ority of local partners to foreign partners or Japanese partners, the importance of an IJV agreement, IJV benefi ts to local partners and Japanese partners, and the eminent role of government. Those variables infl u-ence each other. For example, partners who perceived IJV as an important part of their business normally like to execute more control in their cooperation. Nevertheless, most of our informants also stated that local partners normally have relatively less bargaining power compared to Japanese partners. Knowledge of the local market, which normally becomes the key bar-gaining position of Indonesian partners, is no longer a crucial point because through the time the Japanese have learned the workings of the local Indonesian market. During the last ten years, the Japanese have even acquired many key distribution channels, which eventually decreased the Japanese partner’s depen-

Figure 1: Theoretical Model


dence on local Indonesian partners. Generally, this low bargaining power eventually results in low levels of ability to control, as well. The result of the interviews will be incorporated into the analysis of this study.

2.2 Quantitative Research

We distributed 400 questioners to IJV corporate executives who were in the position as CEO (Chief Executive Offi cer), or at least General Manager of Indonesian-Japanese IJVs. Although there were 235 questionnaires returned, 84 were deemed invalid due to incomplete answers, fi lled-out by retired CEOs, or in some instances, because the company in question no longer was part of a joint venture anymore. Finally, we preceded with the research using 131 questionnaires.

The operational longevity categories of our respon-dents’ fi rms was as follows: IJV corporations having been operational for between 10-15 years was the highest category (23.81%); next was IJV corporations which had been operational for more than 30 years (20.63%); the smallest category were IJV corpora-tions which had been operational for only between 1-5 years (3.17 %).

Based on share holding composition, local part-ners had less than 50% share holding; i.e. Japanese partners’ share holding in IJVs is bigger than that of local partners.

2.2.1 Pre-test

A pre-test was performed before we distributed the questionnaire to the respondents. The aim of this pre-test was to ensure that the questionnaire was under-standable to the respondent. Hence, selected respon-

dents for pre test were experts who had considerable experiences in the IJV automotive industry.

The responses were grouped by using the Likert scale 1-6. For the data analysis, we use SPSS 11.5 software, which is able to show required spread pic-tures and other related information.

2.2.2 Structural Equation Model (SEM) Analysis

We employed SEM (structural equation model) analysis to measure latent variables by using multivari-ate (more than one variable). To analyze the research model, we used a two-step approach (Anderson & Gerbing, 1988; Wijanto, 2007): the measurement model and structural model analysis:

Step 1. Measurement Model AnalysisThis analysis is used to measure the fi t of the model,

validity and reliability of the research, and to develop interactive latent variables.

Step 2. Structural Model AnalysisThis analysis is applied to test the relationship

among the latent variables in the model. Data process-ing is performed using Lisrel 8.72 and SPSS 11.5.

3 Problem Solution 3.1 Results

From structural model goodness of fit results, we conclude that the model goodness of fi t level is good, and that only three measurers showed a close fi t; namely GFI, AGFI and RMR (see Table 1). Our analysis of each hypothesis is explained in the next section.

Table 1: Structural Model (Goodness of Fit (GOF) Test)


3.2 Hypotheses

Among fi ve hypothesis, there are two hypotheses which have been rejected. Explanations related to each hypothesis are below:

3.2.1 Hypothesis 1 (H1) : Bargaining power positively influences control (accepted hypothesis).

H1 posited that bargaining power positively infl u-ences control. In this research, it was proven that bar-gaining power (BP) has a positive and signifi cant impact on control (C) with t-values 9.73 and SLF = 0.85. The results indicated that the higher the bargaining power of local partners, the more positive the infl uences on control were with respect to the local partners in the operating IJVs. Bargaining power in this research is measured by three variables, namely resources based, strategic importance and available alternative. It is ob-vious that the higher the resources based and available alternatives variables, the higher the bargaining power of local partners. Blodgett (1992) identifi ed resources as access to knowledge, market, and technology, access to capital market, access to distribution channels, raw materials, access to human resources, access to govern-ment, and management capability.

Another measurement of bargaining power is stra-tegic importance. The strategic importance of IJVs to local partners is very high, refl ected in the positive synergy between IJV businesses and the local partners’ other businesses. For local partners, an IJV is one of their important chains in vertical / horizontal integra-tion or diversifi cation. Furthermore, an IJV’s revenues and profi ts provide a signifi cant contribution to local partners’ income. Strategic importance, however, also has a negative impact on bargaining power (Bacha-rach & Lawler, 1984 and Pfeffer & Salancik, 1978); the higher the IJV’s strategic importance in the eye of local partners, the lower the local partners’ bargaining power is. The results show that local partners’ available alternative in the automotive industry is very low. This is refl ected by the current diffi culty of local Indonesian partners in fi nding Japanese partners.

3.2.2 Hypothesis 2 (H2): Control positively influences appropriated relational rent (rejected hypotheses).

One of the critical aspects of IJV management is how to gain and maintain control, so that local partners can realize their expected outcomes (Yan & Gray, 2001). Some earlier studies have shown that control is not always directly related to performance (Zhang & Li, 2001; Killing, 1983). Mjoen and Tallman (1997) argued

that strategic control is likely to play a signifi cant role in granting resources contributed by partners.

The results of this study indicate that structural control in human resource management policy is mostly dominated by local partners. This reconfi rms the importance of the local partners’ ability in handling human resource problems, as well as corporate and government regulations related to human resources. Nonetheless, decision-making control in organiza-tional structures is more likely the result of negotiation during the formation of IJV.

In the arena of operational control, the role of local partners and Japanese partners are imbalanced. Even in retail sales stock supply plan (RSSP) preparation, lo-cal partners hold more control because they have more information than the Japanese partners. The fact that they interact directly with customers, make them able to identify customer needs earlier and more accurately.

Local partners have fewer roles in strategic control, especially in deciding on how much and when they can invest. This decision is closely related to the changing of designs and variations of new vehicles in which lo-cal partners have virtually no role. Therefore, it is not surprising that until now, Indonesia never was able to produce its own car or motorcycle because the new design and technology has been highly controlled by Japanese partners. This situation is even worse due to the lack of clarity on government policies toward automobile industry in Indonesia. In this case, the In-donesian government should develop a strategic plan of action on how and where the nation will advance the domestic automotive industry, how knowledge transfer should be developed, and how to develop an integrated value chain that can support the industry.

Although initiatives usually come from local part-ners, this study showed that local partners also have little input in deciding when and how much dividends will be shared. Japanese partners who bring technol-ogy, also have appropriated their shares by receiving fees for their patented technology.

It is also expected that the more available alterna-tives local partners have, the higher their bargaining power is. The results show that local partner’s available alternative in the automotive industry is very low. This is refl ected by the current diffi culty local partners have in fi nding Japanese partners.

3.2.3 Hypothesis 3 (H3): Control positively influences inbound spillover rent (rejected hypothesis).

Instead of merely not infl uencing appropriated rela-tional rent, in fact, control has no impact on inbound


spillover rent. Inbound spillover rent, which could be used by local partners are technology, capabilities and skills, and networking. Lavie (2006) fi rmly argued that inbound spillover rent could materialize if there is a good relationship in which both partners enjoy their partnership.

Having structural, operational and strategic control, does not necessary mean that local partners can auto-matically absorb the technology brought by Japanese partners. Although technology is an intangible resource and one of the important aspects of intellectual capital (Teece, 1986), the transfer of knowledge and technol-ogy development has had less attention in Indonesia (Sampurno, 2006). Therefore, it is not surprising that local partners do not feel that they posses even pas-sively gained essential knowledge after years plunging into the automobile industry.

3.2.4 Hypothesis 4 (H4): Absorptive capacity positively influences appropriated relational rent (accepted hypothesis)

Since IJVs with Japan have been established for quite sometimes and partners are well acquainted to each other, local partners feel that they can maximize their exploratory learning. In fact, most Indonesian partners have not felt any signifi cant clash of cul-tures during their partnership. Indonesian managers admit that they have learned a lot from their Japanese partners, both regarding production technology and management systems. Not surprisingly, many Japanese management systems have been well implemented in IJV corporations or in other local partners’ fi rms.

In exploratory learning, local partners seek to understand and absorb the given knowledge. While in transformative learning, local partners learn how to adjust knowledge and skills to local culture and their individual capacities. A local partner’s ability to transform their newly acquired knowledge and skills is highly dependent on the degree to which they share the vision and agreed upon mission they share with their foreign counterparts. It is also important for lo-cal partners to learn specifi c skills and knowledge not only at the operational level but also at the manage-rial level. Interestingly, Japanese partners are willing to share much knowledge and educate local partners on a variety of topics, as long as it is not related to product design.

The third learning level is exploitative learning in which knowledge and skill, having been adopted and adjusted to the local partner’s culture and capability, is applied. Local partners acknowledged that their exploitative learning is not optimal. This is refl ected

from their hesitance to develop their own brands and products.

Indonesian partners also recognized that through joint venture they could gain appropriated relational rent, such as economies of scale, access to new or international markets and capability improvement. So far, they have been able to do exploratory, transforma-tive and exploitative learning, although the fi eld of technology production is still quite limited.

3.2.5 Hypothesis 5 (H5): Absorptive capacity positively influences appropriated relational rent (accepted hypothesis)

Our theoretical analysis showed that local partners’ bargaining power was somewhat low because of the very existence of IJV, which is very important to them. Most of the time, an IJV is one of a local partner’s many business elements, which may diversely range from component suppliers, vehicle producer, and dis-tributors in other supported services. Local partners acknowledged that IJVs enable them to benchmark any kind of technology and managerial skills which eventually improve local partners’ capabilities.

4 ConclusionThis study shows that bargaining power can be

measured through detained resources, available alter-natives and the level of strategic importance of IJVs. Our qualitative and quantitative studies clearly indicate that the bargaining power of local partners is low, while variability of controls is determined by a local partner’s structural, operational and strategic controls. Local partners’ bargaining power is low because their contributed resources are not signifi cant for IJVs. It is clear that local partners make important contribu-tions to system management, access to local market, access to local labor forces, and interaction with the government. Nevertheless, only system management is considered by Japanese partners as a valuable resource. Access to local labor forces and government are not considered as determining resources.

It is apparent that Indonesian partners only play a signifi cant role in structural control. It means that they only contribute in preparing organizational structure, human resource management, and in maintaining standard operating procedures. Our hypothesis shows that bargaining power can have a signifi cant infl uence on control. In this case, low bargaining power brings the Indonesian partners a low degree of control.

IJV success in achieving economies of scale, en-tering international markets, developing technology, improving capacity and fi nancial profi t, and allowing


local fi rms to have products with their own brands, are the key measurements of appropriated relational rent. Of those six measurements, local partners have achieved four of those variables. Inbound spillover rent is determined by the degree of technology, capability and networking.

Since there is only a few business players and brand holders in the automotive industry, local partners’ alter-natives for foreign partners are limited. This situation makes local partners’ bargaining powers even weaker. Having weak bargaining power, local partners cannot hold controls, especially in strategic control.

However, as stated in the fourth and fi fth hypoth-eses, appropriation could be performed when local partners increase their learning capacity, and therefore, their capabilities. There are several types of capability related to technology, namely production capabil-ity, investment capability and innovation capability (Teece et al., 1997). Absorptive capacity is improved properly when exploratory, transformative and ex-ploitative learning are well-performed continuously and consistently (Lane, Salt, Lyles, 2001). Some local partners, having run their businesses for almost 30 years, have learned many aspects of the automotive industry. In sum, local partners have completed explor-atory learning. Local partners also have experienced transformative learning by adapting and adjusting received knowledge and skills to their local culture and capability levels. They have not, however, suc-cessfully passed into the mode of exploitative learning due to the many restrictions placed on them by their Japanese partners.

We have to be aware that bargaining power through control has no signifi cant relation with appropriated relational rent or inbound spillover rent. Therefore, absorptive capacity improvement, in fact, is one of the effective ways for local partners to appropriate their performance. Nevertheless, we have to admit that so far there is no single national automotive brand that has been developed in Indonesia.

This study brings a clear message that absorptive capacity improvement is an effective way for local partners to appropriate both appropriated relational rent and inbound spillover rent. So, what is the implica-tion of this research to industry policies? To improve the situation of the Indonesian automobile industry, the government should have specifi c courses of action in choosing the direction of automotive industry. The government has to determine benchmarks of success for the automotive industry and communicate it with the industry’s players; hence, government and industry together can determine actions to develop this indus-try. If the government wants to expand job openings

for the Indonesian population and reduce unemploy-ment level, they should drive local partners to reach economies of scale and to become one of the Japanese partners’ production bases.

Becoming an automotive production base of Japanese partners, especially with respect to the assembly line, will help the private sector to focus their businesses. For example, the private sector can forget their dream of building national cars and be more concerned about establishing assembly lines for products to be sold on the global market. The government is expected to become more focused on efforts to establish Indonesia as a global spare parts producer by developing a good coordination among related elements of the Indonesian economy, such as industry, commerce, labor, micro small and medium scale enterprises, and both private sector and govern-ment fi nancial institutions.

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