1.1 Background to the Study
Today’s economic marketplace is increasingly characterized by globalization due to the dynamics of technology.
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Recently, the special merits of FDI and particularly the kinds of incentives offered to foreign firms in practice have begun to be questioned. Fuelling this debate is that empirical evidence for FDI generating positive spillovers for host countries is ambiguous at both the micro and macro levels.In a recent survey of the literature, Hanson (2001) argues that evidence that FDI generates positive spillovers for host countries is weak. In a review of micro data on spillovers from foreign-owned to domestically owned firms, Gorg and Greenwood (2002) conclude that the effects are mostly negative. Lipsey (2002) takes a more favourable view from reviewing the micro literature and argues that there is evidence of positive effects. Surveying the macro empirical research led Lipsey to conclude, however, that there is no consistent relation between the size of inward FDI stocks or flows relative to GDP and growth. He further argues that there is need for more consideration of the different circumstances that obstruct or promote spillovers as national culture happens to be an inevitable factor in determining the size and growth pattern of outward and inward FDI.
In order to provide an all encompassing insight in the role of culture with respect to FDI, an extensive research approach is called for. Culture is an elusive and complex concept, imbued in many facets of life and business. As previously stated, FDI has assumed a crucial role in the globalisation of economic activities. The basic concept of FDI reflects the objective to obtain a lasting interest in an economy other than that of the investor’s origin (Menon et al, 2006). A FDI relationship consists of two entities; a parent business enterprise and its foreign subsidiary. Together they comprise a Multinational Enterprise (MNE).
Foreign direct investment has various possible entry strategies. Most common are so-called Greenfield investments, Joint Ventures, Mergers or Acquisitions (Chang and Rosenzweig, 2001). Contrary to FDI, culture is a rather more elusive concept. Hofstede (2001) described culture in the following way: “Culture is the collective programming of the mind that distinguishes the members of one group or category of people from another”. It is evident that culture is imbued in many facets of life, making it challenging to gain intimate knowledge of a country’s culture. A complete understanding of the foreign country’s culture infused into the UK economy however, is a necessary prerequisite for corporate success through foreign investment.
1.3 Statement of the Problem
One major element that is considered to be a critical success factor concerning foreign investment is the elusive concept ‘culture’. Current studies show that the UK economy is in a global mix with emerging economies such as China, Brazil and India which have been attracting significant quantities of foreign investment. These so-called emerging countries offer significant growth potential and low cost labour and thus attract countless multinationals seeking to reap these benefits (Menon et al, 2006). These emerging markets however are often characterized by national and corporate cultures significantly different from their western counterparts. The resulting cultural differences can impede a firm to successfully achieve the goals that have been set out (Chen and Hu, 2001) and in the long-run lead to a shift in market concentration from the UK to these emerging economies. In times past, only very few studies to date attempt to provide insights regarding the relationship between FDI and National culture. In order to fully uncover the untapped potential FDI offers, an all encompassing understanding featuring both the concept of foreign direct investment and culture is imperative.
1.4 Objective of the Study
It should also be emphasized that business to a large extent is about realities at an empirical level and less about deep value structures (Gullestrup, 2006). Trading activities between disparate cultures are, for example, easy to organise as the meetings are concerned with relatively “trivial” facts of trading operations rather than deep values. FDI is different. Here you engage and commit your organisation much more in a foreign culture. Even so, you may not need to touch the deep. Structures to any large extent, but you may run into strong managerial preferences and belief, as is often the case with MNEs that believe strongly in their own management formula. The primary goal of this research is to conceptualise the cultural issues related to the management of FDIs by analysing the factors that influence the choice between joint ventures, wholly owned Greenfield (i.e, start-up) investments, and acquisitions.
The specific objectives are:To empirically assess in what respects national cultural values influence the feasibility of Foreign Direct Investment. To determine the trending Profile of natural cultural values and Foreign Direct Investment. To proffer policies that the government can adopt to fine-tune foreign investments by appreciating the importance of cultural differences in the economy.
1.5 Research Goal and Question
Given the stated aims and objectives in the section above, the following are the research questions which would aid understanding of the contributions of national culture to FDI.What are the impacts of fusing commerce and national cultures when organizations migrate business functions internationally 2.What are the main dimensions of culture 3.How does the Indian culture influence the MNE’s performance given its entry mode and the cultural distance between India and the MNE
1.6 Scope and Limitation of Study
An examination of public and private partnership (PPP) intervention in the economy is wide and deep. It covers cultural, social, political, psychological, even spatial and economic domains. This project centres on the cultural aspects and implications of combined intervention. The study will cover the cultural distance between the country of the investing firm and the country of entry, the more likely a firm will choose a joint venture or wholly owned Greenfield over an acquisition and also the culture of investing in a firm is said to be characterised by uncertainty avoidance regarding organisational practices between 1981 and 2010 as informed by data availability.
1.7 Research Outline
This paper is structured in five parts. In this first section, the research topic and objective have been presented, and the research question has been formulated. In the second section, the theoretical background of the central concepts in the research will be clarified. Based on the central research question and important findings in the literature, a conceptual model will be drawn, which will guide the continuation of the research. In the third section, the proposed implementation of the research, and the data-collection and processing will be described; furthermore, the concepts in the conceptual model will be operationalised. In the fourth section, the results of the data-collection will be presented, and the analysis of the results takes place. In the fifth and last section of this paper, the conclusion of this research will be presented and discussed, along with reflections on the research’ limitations, and the provision of managerial and academic research.
1.8 Chapter Summary
The research was directed at conceptualising the cultural issues related to the management of FDIs Looking at the FDI as a package of resources, most focus has been on the financial component and especially on the technology component and on technology transfer. The management cum cultural component is mentioned but rarely getting the same empirical attention as the technology component. The omission of a direct discussion of the aspects of organisational and national cultures will of course provide an incomplete pictogram of the impacts of FDI which tends to have a multiplier effect on Growth. The background to the study provided a solid foundation to the understanding of the concepts clearly stating the fundamental problem that could emerge out of any ineffectiveness in policy prescription, the objective and research question was also outlined bearing in mind the empirical framework that will be explored in the later stages of the study.2 Literature Review
2.1 The Concept of Foreign Direct Investment
FDI, also known as (international) direct investment, forms part of the capital account of the balance of payments. ‘Direct Investment’ is defined as an investment that adds to, deducts from, or acquires a lasting interest in an enterprise operating in an economy other than that of the investor where the purpose is to have an ‘effective voice’ in the management of the enterprise.2 In FDI statistics, an effective voice is measured as 10% of the share capital of a company; any investment below this is counted as ‘portfolio’ investment under balance of payments statistics and not included FDI.
It should be noted that FDI is a financial concept and is not the same as capital expenditure on fixed assets (although an investment may include this).FDI statistics are normally recorded on a ‘net’ basis, meaning disinvestments by companies are included. FDI covers a range of forms of investment (UNCTAD, 2011). The examples given below relate to outward investment, but reverse of these for the foreign firm would be inward investment and vice versa for INDIA:
A foreign company establishes a branch or subsidiary in a foreign country-India, injecting start-up capital. This is often known as a ‘Greenfield’ investment.
A foreign company buys or sells (in full or in part) the equity of an existing foreign company-India. This is often known as M&A activity.
A foreign company puts additional capital into an existing foreign subsidiary-India or allows it to retain profits rather than return them to the parent company.
FDI statistics measure two different concepts – stocks and flows. Investment stocks measure the total book value of investments by a country and not a simple sum of investment over time. They are therefore subject to changes in valuation in company accounts, as well as exchange rate fluctuations. Flows measure annual levels of net investment, and can vary significantly year on year.
Office of National Statistics (2005) reports that FDI data should be used with caution; a significant proportion of FDI flows can be accounted for by large multinational M&As. An example of this is the Vodafone acquisition of Mannesmann in 2000 that had a significant effect on flows between the UK and Germany. More recently, in 2005 a transaction involving Shell between the Netherlands and the UK made up 45% of UK inflows in that year. Therefore, large flows do not necessarily indicate significant ‘greenfield’ investments, they can be large M&A transactions, and high flows may be dominated by just a few transactions.
2.1.1 Brief Overview of FDI in India
In 2009, following the UNCTAD (2010) global investment trends monitor, foreign companies invested ?46 billion in India, a decrease of ?3.2billion (7%) from 2008 and the lowest value since 2004. The largest decreases in inward investment flows in 2009 were from Asia and Africa. The largest investor was France, with ?20 billion or 44% of inward FDI, largely accounted for by the acquisition of British Energy Group Plc by Electricite de France (for a reported ?9.2 billion). The US was the second largest investor with ?19 billion (41%).
UK M&A activity in 2009 was stronger than in 2008 in India .significant transactions that took place in 2009 included the purchase of Barclays Global Investors Plc by Blackrock Inc (for a reported ?9.5 billion) and Resolution Ltd acquiring Gatwick Airport (for a reported ?1.9 billion).
Table 2.1: Inflow and Outflow of FDI into India: Past and FutureSource: Economist Intelligence Unit (EIU) Source: GOI (2007)
In spite of the obvious increases in Indian FDI flow year on year as obvious in the table above, the Economist (2008) suggests that:
“India, though improving, has one of the worst fiscal positions in the world. The government tries hard to conceal this fact, boasting that it has reduced its deficit to an estimated 3.3% of GDP in the year ending March, from 6.5% in 2001-02. However, in a recent report the IMF argued that the true total deficit is closer to 7% of GDP once you add in the state governments’ deficits and various off-budget items. If the losses of state electricity companies are also added in, the total deficit could top an alarming 8% of GDP”.
For a successful entry into a foreign market such as the India market, the choice of an entry mode is important because of its influence on the relationship between the role of the subsidiary and corporate performance of the firm. Every entry mode has different implications, advantages and disadvantages regarding risk, ownership, and control. What is the best entry mode in a given situationThe most appropriate entry mode has to be selected.
The second moderating effect on the relationship between the role of the subsidiary and corporate firm performance is cultural distance, defined as difference in shared values and beliefs between the subsidiary and the MNE. The influence of culture on the effect of the role of the subsidiary on the corporate performance of firm depends on the cultural distance between home and host countries (Chen and Hu, 2001). To understand the way cultural distance affects a business structure, we rely on the four dimensions identified by Hofstede2001).
2.1.3 Scientific Relevance
Little is known about a subsidiary’s contribution to an MNE’s corporate performance (Chen and Hu, 2002). Even less is known about the influence of cultural distance and entry mode of an MNE on the contribution of the subsidiary to corporate performance. Much literature exists on the different entry modes, the determinants of entry modes, or the influence of the characteristics of a host country (the culture) on foreign direct investment (Furrer, 2010; Root, 1982; Chang and Rozenzweig, 2001; Dikova and Witteloostuijn; 2007, Bouoiyour, 2003). The majority of the existing academic literature only takes into account the link between entry mode and corporate performance. (Woodcock, Beamish and Makino, 1994) or the link between cultural distance and corporate performance (Gomez-Meija and Palich, 1997). To the best of our knowledge, no literature yet exists on the contribution of a firm’s subsidiary to the corporate firm performance of the MNE.
This study aims at contributing to close this gap in the literature by examining the influence of cultural distance and entry mode on the relationship between the contribution of the subsidiary and the corporate performance of the MNE. The study focuses on Moroccan subsidiaries.
2.2 Theoretical Background
In the previous section the research question and reasoning for conducting this research was provided. This section will supply the theoretical foundations that are necessary to execute this research. The first part will deal with the concepts of the conceptual model. The second part of this section deals with the links between the concepts. The relevant theoretical concepts are explained and analyzed, and have lead to a theory-based conceptual model.
2.2.1 Entry Modes
When firms decide to enter a foreign market, they have to choose a mode of entry. Different entry modes exist. Dikova and Witteloostuijn (2007) divide investment in foreign countries in two strategically important decisions. The first decision concerns the establishment mode choice, which refers to the level of ownership and the second decision concerns the entry mode decisions, which refers to the level of control. The level of ownership and the level of control are matched to different entry modes in Figure 2. Chang and Rosenzweig (2001) made also a distinction between four types of foreign investment decisions. They distinguished between full ownership, which can be achieved through Greenfield investment or Mergers and Acquisitions (M&A), and partial ownership, which is Joint Ventures (JV) or Strategic Alliances (SA) (Chang and Rosenzweig, 2001). The different modes of foreign direct investment (FDI) can be classified along the dimensions of ‘degree of control’ and ‘degree of ownership’. Exporting and outsourcing are not included as strategies of FDI because these strategies are non-equity investments (Beamish, Morrison, Rosenzweig and Inkpen, 2000, p. 114). Alliances exist in various forms, such as contractual Strategic Alliances (SA), Joint Ventures (JV), franchises and equity participation (Collis and Montgomery, 2005). According to the literature, SA and JV are the most common modes of entry into foreign markets and for this reason we only include SA and JV in our study. Besides this, in most studies SA and JV are treated as one concept (Collis and Montgomery, 2005; Faulkner, Child and Tallman, 2005). For reasons of simplification, in this study JV and SA will also be treated as one concept and we will refer to this concept as JV&SA. JV&SA are partnerships between two parties (Faulkner, Child and Tallman, 2005). They are formed when an MNE does have some valuable resources to enter a foreign market, but needs the resources of another firm to successfully enter the market. JV&SA are used to capture the positive sides of both Greenfields and M&A, while avoiding the negative sides of both modes (Collis and Montgomery, 2005, p. 110). Forming an alliance is the fastest way to seize an opportunity in a foreign market (Faulkner, Child and Tallman, 2005). Therefore, access to complementary assets and speed are the benefits of an alliance. However, forming an alliance does also face some challenges. The most important drawbacks of forming an alliance are the lack of control and leadership. Also, the relatively high risk of an alliance is another important drawback since an alliance has to maintain a shared vision, integrate learning, and possibly assists a potential competitor (Collis and Montgomery, 2005). M&A can be defined as purchasing or combining a controlling interest in another firm (Chang and Rosenzweig, 2001). An advantage of M&A is that it offers an easy establishment of local presence in a foreign country and it removes a possible competitor from the market. M&A is valuable when an MNE cannot imitate or accumulate the required resources (Collis and Montgomery, 2005, p. 105). A disadvantage may be the risks of overpayment or the inability to assess the value of the bought assets (Chang and Rosenzweig, 2001). Another disadvantage may be the possible post-acquisition integration failure due to cross-cultural differences and technological mismatches (Dikova and Witteloostuijn, 2007). Also, through an M&A the MNE possesses the whole acquired firm, including unnecessary adjunct businesses that are not valuable for the objectives of the MNE (Collis and Montgomery, 2005, p. 107). A Greenfield investment can be defined as the setting up of a new plant or other establishment from scratch (Chang and Rosenzweig, 2001). The Greenfield entry mode is the easiest way to transfer intangible assets into a new country (Collis and Montgomery, 2005, p. 109). Another advantage of Greenfields is that they offer full control over the local establishment (Chang and Rosenzweig, 2001), which leads to the possibility of presence of the corporate culture in a foreign country. An important disadvantage is the longer duration of the establishment period and the time spent on building a network locally or acquiring the know-how (Dikova and Witteloostuijn, 2007). Another drawback is the risk of not having success on the new project. A Greenfield comes with a high investment and when the project appears not to be a success, the investment costs are difficult to recoup (Collis and Montgomery, 2005, p. 109).
2.2.2 Cultural Role of Subsidiaries
Rugman and Verbeke (1992) assess the extent to which the results of Bartlett and Ghoshal’s (1989) work can be incorporated in what has now become one of the core explanations of multinational strategic management, i.e., the transaction cost-based theory of international production. They demonstrate that the transaction cost approach fully incorporates the empirical findings of Bartlett and Ghoshal’s (1989) work. To do so they make a distinction between location-bound and non-location-bound firm-specific advantages. In addition, three possible uses of country-specific advantages by multinational enterprises need to be identified. While the transnational solution, as proposed by Bartlett and Ghoshal (1989), is not in itself a new theory of multinational strategic management, it is compatible with the transaction cost-based model of multinational strategic management. Bartlett and Ghoshal (1989) state that‘In the future, a company’s ability to develop a transnational organizational capability will be the key factor that separates the winners from the mere survivors in the international competitive environment’ (1989, p. 212).
Transaction cost theory, as a predictive model, argues that both the form and competitiveness of the international operations of an MNE depend crucially upon the configuration of three elements (Rugman and Verbeke, 1992): (1) firm-specific (or ownership-specific) advantages (FSAs), including both proprietary knowhow (unique assets) and transactional advantages; (2) country-specific (or locational) advantages (CSAs), which state that some benefits are associated with locating certain activities in particular countries; (3) there are internalization advantages, which refer to the relative benefits associated with different entry modes (e.g.,
exports, licensing, Joint Ventures, FDI and other forms of investment) when serving foreign markets. Rugman and Verbeke (1992) propose a 2 x 2 matrix to classify the MNE’s activities for both home and host country operations. This matrix is depicted in Figure 3. On the vertical axes, the perceived potential of a particular country’s CSAs for the competitiveness of the MNE can be translated into the strategic importance of the local environment. On the horizontal axes, the perceived potential of the operation to contribute to FSA development necessary to improve the MNE’s competitiveness can be translated into the level of internal resources and capabilities.
The Understanding of the Concept Culture within the Three Management Approaches
As we deal with rather disparate national cultures that may endanger the success of an FDI, it is important to know, how the three approaches conceptualise and resolve potential cultural conflicts. Conventionally, a distinction is made between national cultures and organisational cultures. In most literature on cultural issues related to cross-border management, the differences in the national cultures are outlined and the managerial implications of these differences are discussed. Often specific schemes for conceptualising and measuring the differences are used, such as Hofsteede’s five dimensional scheme (Hofsteede 2001). This approach for taking cultural differences into account is, however, not capturing the real business situation of, for example, an FDI as it ignores the organisational cultures. In case of an FDI, national and organisational cultures meet in two different ways depending on the FDI-mode:
• In case the FDI takes the form of a JV, two organisational cultures meet. They are each embedded in a different national culture, but the meeting place is within the national culture of one of the partners
• .In case the FDI takes the form of a subsidiary; one organisational culture creates an organisational culture within a national culture disparate from its own.
Thus, compared to most literature on inter-cultural management, we include into the modelling of inter-cultural management the meeting place and who will meet as important parameters. The situation is clearly different depending on the location for the meeting. In case of a JV, the foreign partner is less bound by his own national culture while the local partner is directly embedded in his own national culture at the same time as his company has developed its own organisational culture. In case of a subsidiary, the FDI-firm comes out of a foreign organisational culture, but does not meet a specific organisational culture. When it composes its new organisation abroad, it meets the values and preferences of the people to be employed and of course the organisational culture of the partners around the subsidiary. The different possibilities of meeting place and meeting who are shown in Figure 2.Meeting in Home Country
Meeting in Host Country
Meeting in a JV
Two organisational cultures meet in same national culture
Two organisational cultures meet in a national culture of one of the JV-partners
Meeting in a Subsidiary
One organisational culture meets its own national culture
One organisational culture meets a new national culture
Development of cultures through interaction
Figure 3: Culture in Action.National culture-values derived from socialisation a)Organisational Culture – structures and routines derived from experiential learning in the work place
b)Individual Culture – concrete and discrete actions embedded in national and organisational cultures
Figure 3 pinpoints the interaction between the three levels of culture, national, organisational and individual and the interaction between them and with the individuals in interaction as the cultural
This approach to the understanding of inter-cultural management does not in any way ignore inter-cultural problems and that such problem can harm and destroy cross-border activities. It is first and foremost an approach to understand what happens when cultures at national, organisational and individual level meet. Based on these interactive meetings, the approach claims that culture becomes an action and a “negotiation” parameter that has its own contingencies for each of the partners at the meeting.
It should also be emphasized that business to a large extent is about realities at an empirical level and less about deep value structures (Gullestrup 2006). Trading activities between disparate cultures are, for example, easy to organise as the meetings are concerned with relatively “trivial” facts of trading operations rather than deep values. FDI is different. Here you engage and commit your organisation much more in a foreign culture. Even so, you may not need to touch the deep structures to any large extent, but you may run into strong managerial preferences and belief, as is often the case with MNCs that believe strongly in their own management formula.
Thus to summarise, to conceptualise the cultural issues related to the management of FDIs, it is proposed to include the following factors:
1. The meeting place, i.e. in which national culture is the activity to be embedded.
2. The meeting level, i.e. do two organisational cultures meet as in a JV or does one foreign organisational culture meet a national culture as in case of establishing a FDI-subsidiary
3. The meeting mode, i.e. focus on interaction at the individual level (culture in action)
4. The meeting depth, i.e. to what extent is deep structures of a culture or empirical practices at stake.
2.2.3 Cultural Distance
Culture can be defined as shared values and beliefs. The influence of culture in entry decisions depends on the cultural distance between home and host country (Chen and Hu, 2001). Business culture on the other hand is the reflection of the business by others as well as by the employees themselves. Many researchers tried to analyze different cultures by dividing it into different ways. To understand the way cultural distance affects a business, we use of the four dimensions identified by Hofstede (2001).
Power distance is the extent to which less powerful members in a culture expect and accept that power is distributed unequally. Low power distance cultures try to equalize the relationship between superior and inferiors. It means that there are not many steps between the leader of a company, e.g. a CEO and the lowest subordinate. High power distance however means that there is a centralization of power, while the subordinates have less power within the business and a long way to become a leader within the corporation. High scores mean that it is hard for people who have to start in the lower regions of a company, to become a high profile employee someday. In these countries there is a possibility of frustration among those people. This could also lead to unmotivated workforce since they cannot achieve these positions in the first place (Hofstede, 2001).
Individualism is the case when the employee just focuses on himself and his family, while collectivism highlights the focus on group actions. Societies, which are seen as individualistic, see as a personal opportunity for everybody to achieve the highest ranks. In collectivistic societies on the other hand, the goal shifts to a group achievement. Within individualism, business culture is seen as a hire and fire matter. A single employee needs to deliver her/his work or else (s) he will be fired. In collectivism theory, people are more concerned for others as this offers protection in exchange for loyalty. Collectivistic societies normally have a big social system and employee protection laws. Individualistic countries support the motivation of employees, as they have to fight for their jobs. However, this could lead to a higher competition for workforce between firms (Hofstede, 2001).
Masculinity refers to the role of genders within society. In high femininity societies, men and women both value ‘feminine’ qualities of life above the more traditionally ‘masculine’ qualities. Masculine attributes include, control and power forced upon the employees. This variable can be seen as an indicator of how a society differentiates between genders. Also, it displays the chances for female employees within the ranks of a company. A high score on this variable would mean that there is a large difference between genders, which means less opportunities for females and that men are dominating the business world. On the other hand,
high score on this variable would show that there are equal opportunities for the genders and females and males are not seen as different when it comes to doing their tasks within the company. The important aspect of masculinity for business is the fact that companies that acknowledge females as equals can make use of a larger workforce when they are searching for a new employee. A balanced company gender-wise can benefit within its business climate as well (Hofstede, 2001).
Uncertainty avoidance means to what degree the members of a society feel threatened by uncertain and unknown situations. Precision and punctuality is not as important in these societies. Societies with low uncertainty avoidance also display more interest in experimentation and variety. These societies are less dominated by rules or restrictions which can be found in countries with high uncertainty avoidance. Within these societies precision and punctuality are very important combined with a preparation for unusual occurrences. It does not tolerate uncertainty, so this society has to make use of rules (Hofstede, 2001).
With this framework in mind, we are able to determine if a firm has adapted its organizational culture and strategic behavior to the cultural differences with its subsidiary or not. In addition to that, it allows us to see in which field the business adapted to the culture and in which field they did not in order to achieve their ultimate goal of gaining corporate value. The differences in the four dimensions of Hofstede (2001) from the headquarters to the subsidiary allow us to determine the cultural distance within this relationship.
2.2.4 Corporate Performance
Corporate performance is a topic that has ignited much debate, whether this can only be defined in economic terms or also by intangible assets, such as knowledge. Much research has been conducted on what elements define the economic performance of the firm and its relation with corporate value, less is known about the corporate performance in general. Alongside, value creation as the ultimate goal for firms to exist, has always divided researchers. There are the ones who state that profit maximization and therefore shareholder value is a business’s ultimate goal and is the criterion for corporate performance and all other goals are subordinate. Others claim maximizing social welfare should be what firms strive for (Jensen, 2002). For this research, corporate performance is defined as the well-being and well-doing of the firm in the long run, as this is easier to measure than social welfare in total. We distinguish corporate performance in economic firm value, knowledge, cost reduction and synergies. According to Zimmerman (2003), economic firm value is determined by the business strategy and organizational architecture of the firm (decision-right assignment, performance evaluation and reward systems), which leads to certain incentives and actions. Consequently, this has an effect on the corporate performance of the firm. Similarly, customer satisfaction is usually related to firm performance (Zimmerman, 2003). Collis and Montgomery (2005) argue that a firm’s profitability is intertwined with its resources and capabilities and its corporate strategy. Firm performance maximization states that managers ‘should make all decisions so as to increase the total long-run market value of the firm’ (Jensen, 2002). Total value is the sum of the values of all financial claims on the firm. This includes equity, debt, preferred stock, and warrants (Jensen, 2002), but it can also be defined by its return on investment or its market share.
Rumelt (1974) provides arguments for a strong correlation between high profits and a strategy providing good opportunities for activity sharing or knowledge transfer. Possessing the right amount of knowledge and being able to transfer this knowledge leads to a competitive advantage, which in turn contributes to the corporate performance of the firm. According to the Williamson (1986) Information Cost theory, internal capital market access increases corporate performance in two ways. First, it reduces under-investment costs through a reduced reliance upon the external capital markets. These costs are a product of information asymmetries (Lundstrum, 2003). Second, internal capital market access increases corporate performance by increasing the efficiency of capital allocation across projects. However, Jensen’s (1986) theory suggests that diversified firms suffer from agency costs brought on by the manager’s easy access to cash. These costs include over-investment and excessive perquisites. An internal capital market increases the availability of cash, therefore exacerbating agency costs (Lundstrum, 2003). Creating economies of scale and scope is another way to reduce costs (Collis and Montgomery, 2005). Economies of scale are created when the average cost of producing each unit decreases as more units of a good or service are produced. Economies of scale are created when it is less costly to combine two or more product lines together in one firm instead of producing them separately.
According to Rumelt (1995), overall corporate performance can only be enhanced when business unit responsibilities have been clarified and individual unit performance is made transparent. In this way all resources are leveraged throughout the firm and synergy is created. Overall it can be stated that the corporate performance of a firm is not solely created through those four aspects separately. It is the intertwinement and mutual dependence that influence a firm’s corporate performance.
2.2.5 Links between the Concepts
When firms engage in overseas production through foreign direct investment, they must have some form of proprietary advantage to compensate for the natural disadvantage of competing with established firms in a foreign country (Birkenshaw et al., 1998). These advantages can be subdivided into two distinct types: asset advantages that lie in the exclusive possession of income generating assets; and transaction advantages, which entail the firm’s ability to economize on transaction costs as a result of multinational coordination and control of assets (Dunning, 1980, 1988). Previous research tends to assume that the MNE’s firm-specific advantages originate in the parent company, whereas the reality is that subsidiaries can play an important part in the creation and maintenance of such advantages (Birkenshaw et al., 1998). In this research, we are concerned with understanding those factors and roles that differentiate between high-contributing and low-contributing subsidiaries.
The roles of subsidiaries may differ in several ways, such as the degree to which they are actively involved in the formulation and implementation of corporate strategy and the degree to which they are creators and users of knowledge within the firm (Gupta and Govindarajan, 1991). According to the research of Ghoshal and Bartlett (1990), some subsidiaries may have the authority to make strategic and operating decisions autonomously, whereas others may be implementors of headquarters-developed strategic decisions. To name a few examples, subsidiaries can act as contributors to or leaders of innovation projects (Bartlett and Ghoshal,
1986); they can provide high numbers of outflows of valued resources to the whole corporation (Gupta and Govindarajan, 1994) and they can gain mandates for developing and producing certain product lines on a global basis (Roth and Morrison, 1992). Terms such as specialized contributor, strategic leader, and active subsidiary have been used to refer to those subsidiaries that contribute substantially to firm-specific advantage, while terms such as implementor and branch plant are used to refer to those that do not contribute significantly to firm-specific advantage (Birkenshaw et al., 1998).
One role that can be given to a foreign subsidiary is that of a world or global product mandate (O’Donnell and Blumentritt, 1999), or a strategic leader (Ghoshal and Bartlett, 1986; 1989). When a foreign subsidiary has the role of a global mandate, it has worldwide responsibility for a complete set of value activities associated with a particular product or product line. The strategic and operational activities are centralized and coordinated worldwide, but the critical point or focus of decision making is at the subsidiary level, not at headquarters (O’Donnell and Blumentritt, 1999). For subsidiaries with this global mandate role, the global market, not the home market of the subsidiary, is the primary focus throughout the development and production of the subsidiary’s product (Poynter and Rugman, 1982). According to Reich (1990), the higher level of strategic decision making that accompanies these types of strategic roles helps develop the expertise and managerial capabilities of the middle- and upper-level managers at the subsidiary. Another characteristic of a foreign subsidiary is international interdependence; the degree to which the activities and outcomes of the foreign subsidiary affect or are affected by the activities and outcomes of headquarters or other foreign subsidiaries of the MNE. Competitive actions in one country location affect those taken in another location (Porter, 1986). An increased amount of interaction facilitates the transfer of capabilities and knowledge between the subsidiary and other organizational units. Sources of competitive advantage can then include international scale and scope economies. It requires an efficient flow of resources between the different units of the firm. When determining the contribution of the role of the subsidiary to the corporate performance, this research will use the transaction cost theory of multinational strategic management (Rugman and Verbeke, 1992).
Transaction cost theory as a predictive model argues that both the form and competitiveness of the international operations of an MNE depend crucially upon the configuration of three elements; Dunning (1988a) provides a comprehensive overview. The three elements of the transaction cost theory of the multinational enterprises are: First, firm-specific (or ownership-specific) advantages (FSAs), including both proprietary know-how (unique assets) and transactional advantages. Second, country-specific (or locational) advantages (CSAs), which state that some benefits are associated with locating certain activities in particular countries. Third, there are internalization advantages. These refer to the relative benefits associated with
different entry modes (e.g., exports, licensing, Joint Ventures, FDI and other forms of investment) when serving foreign markets.
Bartlett and Ghoshal (1989) proposed the ‘transnational solution’, a firm able to develop non-location bound (NLB) firm-specific advantages (FSAs) and location bound (LB) FSAs. They identified four generic organizational types: a strategic leader, a contributor, a black hole and an implementor. To determine the different types of roles of subsidiaries and their contribution to the corporate performance, these organizational types will be used in the research.
The resource based view of the firm originated from recent competence-based theory (Teece, Rumelt, Dosi and Winter, 1994). According to this resource-based view, core competences allow the firm to successfully achieve competitive advantage in the market. They are acquired through internal learning processes.
According to Wernerfelt (1984) core competences relate to tangible and intangible assets such as distinctive skills, organization and tacit knowledge, context-specific know-how, skills and capabilities developed by the firm in the sphere of technology and management. When firms lack the ability to develop knowledge and competences they need, they have to search and acquire them externally. When the needed resources and complementary assets are available abroad, it influences the entry mode in foreign markets. It is the need for these resources and complementary assets that determines the specific type entry mode.
Based on the theoretical background of this study, the following propositions will be examined:
Proposition 1: Cultural distance
We expect that the cultural distance based on the cultural distinctions (power distance, masculinity, individualism, and uncertainty avoidance) does have an indirect influence on the corporate performance.
Proposition 2: Entry mode
We expect that the entry mode of the subsidiary (Greenfield, M&A, JV&SA) does have an indirect influence on the corporate performance.
Proposition 1: Contribution of subsidiary
We expect that the subsidiary (strategic leader, contributor, black hole, executor) will have a direct influence on the corporate performance
2.2.7 Chapter Summary
The study established an understanding of the non-economic determinant of FDI and that the entry mode is a direct function of the cultural differences and distance of countries and the role of subsidiaries as found in the results of Bartlett and Ghoshal’s (1989) which is incorporated in what has now become one of the core explanations of multinational strategic management, i.e., the transaction cost-based theory of international production. In further delineating the complexities of the impact of national culture issues on FDI, a proposition is made based on the theoretical background.3. Research Methodology
Response will be drawn from Vodafone India, while a dual perspective will be adopted as the research approach. One of the approaches is the qualitative (FGDs) and the second is the quantitative technique under which a multivariate regression analysis and a correlation analysis will be used to measure the degree of responsiveness of cultural variables. Dummies will be created in the construction of the questionnaire evaluated in response to a covariate (FDI). Data used that is not gotten from the responses of field survey are extracted from the Ministry of Statistics and Programme Implementation of India and the office of national statistics (ONS), MA4: Business monitor.
3.2 Research Approach
A research approach defines the means and methods by which a researcher collects and analyses data with which the aims and objectives as well as research questions will be addressed. In other words, the research approach provides order and focus to the process of obtaining, interpreting, presenting and analysing research information (Collis and Hussey 2003). In general terms, there are two broad approaches to undertaking a research: qualitative inductive and quantitative deductive methods. According to Saunders et al (2007) the inductive approach essentially entails the interpretative attempts to comprehend meanings attached to phenomena and particular research contexts; the deductive approach on the other hand has to do with pure empiricism and `scientific’ research in general. Furthermore, Denzin and Lincoln (1998) point out that the adoption of either of the qualitative or quantitative approaches may depend on the researcher’s experience, perception of philosophy, and personal values.
Accordingly, the approach that this researcher chose to adopt for the present study was in part influenced by subjective interpretations of the cultural issues involved in evaluating Foreign Direct Investment in India in order to determine the most suitable method that would facilitate thorough analysis. Indeed, Shih (1998) also sheds more light on how a researcher’s subjective interpretations can play a role in the selection of a research approach by itemising major factors for consideration when deciding on a research method. For him, these factors include the research philosophy, phenomenon and subject-matter, the level and nature of the research questions, practical considerations related to the research setting, and the efficient use of resources. Indeed, Habermas (1972) also claimed that research is influenced in varying degrees by a researcher’s interests and values; personal, social and other interests that constitute part of a researcher’s peculiar context are invariably enmeshed in the research. Underscoring this idea is the suggestion that a consistency between the aims and objectives of a research, the research questions, the methodology, and the individual philosophy and values of the researcher influences the research process (Proctor, 1998).
3.3 Sampling Methodology
q In order to achieve an adequate spread of interviews across the organization, the Modified Multi-Stage Sampling Technique approach will be used for sampling. That is, starting from the selection of starting points up to the selection of dwelling structure, selection will follow a purely random process. Final respondents to be interviewed will however be selected via a set of specified eligibility criteria included as screeners in the questionnaire.
q Employees and top-level management will be selected using the “Kish Grid” in order to remove bias; each day’s job starts with the use of day’s code (date of the day which must be a digit e.g if the date of the day is 7 we start the day’s job from house numbered 7 or dwelling number 7 taking a count from point of alight. If it is 29 we add up 2+9=11 it is further added up as 1+1=2 meaning that the day’s job starts from dwelling structure 2.)
q Peradventure there are not dwelling structures (office) we use the next dwelling structure as our starting point) in order to avoid starting each day’s job from a particular side of any given department/office.
q Selection of employees: Within each dwelling structure, the interviewer determines the first respondent to begin with by using the worker-selection grid to randomly select the qualifying workers. The selection grid is a table of random numbers with listed alphabets from A to K on the rows, and figures on the column. The interviewer on entering a dwelling structure, counts the number of workers including employers and employee(s) in the dwelling structure, starting from the topmost floor if it is a multiple storey building, and then traces the total number of employers counted against the alphabet pre-coded on his/her questionnaire. Where the two (number of employers & alphabet) intersect is the department where the qualified respondent would be sought.
For the purpose of this study an employee base is defined as a group of individuals living together, who share a common working arrangement and who recognize a person as the head of the department/organization. For an individual to qualify as an employee, he she must have stayed with the rest of the members for a minimum period of six months prior to the time of interview.
v Purposive sampling will be applied in getting employees/ respondents to be interviewed thus ensuring arbitrary selection of respondents and giving every employee equal opportunity of being interviewed, thereby eliminating bias.
v The selection will be purposive. For a respondent to qualify he/she must be a decision maker of the targeted businesses or organisations.
Specifically, all interviews will be conducted face to face in respondents’ offices with the aid of the fully structured questionnaire.
Quota will however be evenly distributed amongst the following specified target businesses or organisations as shown in the sample structure ensuing slides
The target respondents would be decision makers in their various organisations in Vodafone and Macdonalds e.g. IT officers, chief financial officers, financial managers, accountants, human resources and customer care agents, Entry staffs e.t.c.
3.4 Data Processing using the Hyper-Research Code-Based Builders
q Data processing will include the following stages:
v Listing of verbatim questions/code frame preparation
v Post – coding of verbatim questions
v Test data structure
v Data capture
v Data verification/clearing
Listing of verbatim/others (specify)
q The responses to verbatim questions/other specified will be listed taking 25% of the sample. This is to ensure that responses across study locations are featured in the code frame preparation. The responses are tallied and codes are assigned from responses with highest frequency to the one with least frequency. The frequency listing is used to prepare the code frame.
Post – coding
q The code-frame is used to post-code verbatim questions/others specified. The client may wish to approve the code-frame before post coding commences.
Data Structure Setup
q All questions/variables on the questionnaire will be defined using the data capture software. This will include definition of valid responses, lower and upper band codes as well as skip logics for all questions, which reduces data entry errors
Data Structure Test
The data structure is tested by trial data entry
q of not less than 120 questionnaires. This tests to ensure all logics and skips are well defined without errors and that data structure works perfectly.
q The data structure will be analysed using the multivariate regression analysis method to capture the effects of national culture on FDI.
q As part of our quality control, 20% of the total sample are re-captured (verified) to identify/bring out data entry errors if any. Holecounts table will also be generated to identify errors on outliers/inconsistent data which are then cleaned. We go through this process to ensure that clean data are analysed.
q All questions will be cross tabulated by appropriate variable showing descriptive statistics such as frequency, column percentages, mean scores etc.
q Data will be supplied in SPSS format as well as Microsoft Excel Spreasdsheet
3.5 Quality Control Measures
q In order to ensure accurate and reliable results of fieldwork, emphasis will be placed on quality control. The following quality control procedures will be applied:
v Pre-briefing of respondents.
v Review of all completed questionnaires for legibility, accuracy and consistency.
v Monitoring the accuracy of the individual interviews.
v 10% – 20% spot field checks of field interviews to eliminate fraud and inaccurate form filling.
v Edit and check the quality of each questionnaire before punching. Any questionnaire suspected would not be punched.
v Reliable coding type will be used in the coding of the open-ended questions.
q In order to ensure accurate and reliable results of fieldwork, the following quality control checks are employed:
v Group interviewing approach-focus groups
v Field checking of all questionnaires for consistency, uniformity and omission
v 20% on-the-spot field checks of field interviewers
v 30% back-check of each interviewer’s work
v 100% editing of questionnaires in-office before data processing
3.6 Survey Instrument
The structured questionnaire to be used for this study was developed upon approval of the study.
The instrument (questionnaire) to be used will however cover the following key investigation areas:
v Lifestyle typologies for India
v Key life stage typologies for India
v Whether segmentation of profession should be based on cultural lifestyle
v The peculiarities of national culture and its effects on international management and FDI.
v Examine the cultural difference, working practices and language barriers
3.7 Limitations to the Methodology
One of the main limitations to the present methodology particularly relates to data collection. It would be noted that only 120 interviews were conducted as opposed to more which could have improved the validity and reliability of the present outcome. Interviewing more people would have inherently improved the objectivity and strength of data collected while creating more awareness to the researcher about other critical issues within the present research context which could have been mislaid by interviewee’s and yet essential to the present research goals. More so, because of the subjective nature of data and its Indian origin, interviewee’s could be bias in their own views therefore causing limitations to the outcome of the data. While this study also adopted secondary data alongside primary data in order to address some of these limitations, the deficiency in the primary data collection can still not be fully compensated by these secondary sources.4. Analysis and Discussion of Results
In this chapter, tables and diagrams are presented in order to make for an easier analysis and comparison of the cultural indicators that determines the growth of FDI in India.
This chapter also presents and details the results of other findings from the Ministry of statistics and programme implementations. For the purpose of simplicity, the chapter is structured into three sections. Following this section, section 4.2, details the summary of research goal and question, 4.3 dwells on the data analysis process and method of analysis, section 4.4 focuses on the estimation technique adopted to evaluate the study and finally 4.5 discusses the research findings of the study.
4.2 Summary of Research Goal and QuestionWhat are the impacts of fusing commerce and national cultures when organizations migrate business functions internationally 2.What are the main dimensions of culture 3.How does the role and activities of the Indian culture influence the MNE’s performance given its entry mode and the cultural distance between india and the MNE
While the first and second research questions have been explored to a reasonable degree in the preceding chapters, the third question as presented above will be given the most attention in the analysis section given its centrality to the research aims and objectives. As presented earlier, the aim of this research is to provide novel insights into how the role national culture on FDI, taking the moderating effect of cultural distance and entry mode into consideration.
4.3 Data Analysis Process and Method of Analysis of Survey
After coding the main data extracts which are presented in the appendix and SPSS data editor, each code is further analysed and explained in relation to the FDI secondary data and statistics obtained from government departments and reports. It should be noted that for ethical reasons, the interviewee’s names are not directly mentioned in the analysis thus, in cases where an interviewee’s response is quoted in the analysis.
For the purpose of clarity, it is equally pertinent to mention that each sample drawn using the multi-stage sampling technique which possibly represents more than one issue but indeed in many instances a range of issues. Since not all data extracts can be represented in the SPPS data editor, the close-ended questions are analyzed in one single context using the multivariate regression model and correlation technique. As an illustration, some of the data extracts from the transcript shows that FDI improvement, better working practice, element of cultural differences and language barriers plus religion encourages domestic growth.
Notwithstanding this process, the data being presented and analyzed are to the best of this researcher’s knowledge, representative of the interviewee’s precise opinions and perspectives.
4.3.1 Descriptive Analysis
Figure 4.2a: Foreign Direct Investment (1980 – 2010)
Comment: FDI inIndiahas been on a volatile trend recording a downswing and upswing at different times between the start of the economic recession of the early 1980s till date. In the past there has been several pro-poor policies targeted at “Attaining sustainable economic growth through public-private partnership” for the sole purpose of reducing the surging rate of FDIMeanStd. DeviationN foreign direct investment as a percentage of GDP26.14525.0176431 position of employees1.2903.6925131 Current Salary$38,205.65$24,289.65531 cultural theory and practise1.2581.6815531 Religion(Belief & Practise)1.1935.4016131 cultural adaptibility1.58.99231 Language barrier1.10.39631 Cultural Sensitivity and awarenes1.26.68231
Comments: In the table above, we analyse the mean and standard deviation in relation to the observations. The distributions of the mean values of the cultural variables are equally distributed, the standard deviations from the mean line further explains the low variability of risk in determining the growth pattern and trend of FDI using a blend of organizational and individual cultures.
4.4 Multivariate Regression Analysis
The original intent of this study was to perform OLS regressions to determine trends in FDI. I planned to semi-replicate Sethi et al.’s 2003 study and run a multivariate regression model based on the information in the SPSS database drawn from Vodafone India.
The ultimate goal in regression analysis is the estimation of coefficients which implies the relationship between dependent and independent variables. The sign of coefficient of each independent variable indicate its relationship with dependent variable, while the magnitude of the coefficient implies the degree of responsiveness of dependent variables to independent variable.
The models for this study are stated below as:
(FDI) = F (C1, C2, C3, C4, C5, C6. ) …………………………….i1(Constant) Position of employees= C1 Current Salary = C2 Religion(Belief & Practise)= C3 Cultural Adaptibility =C4 Language barrier =C5 Cultural Sensitivity and Awareness= C6
In all six cultural variables given the cultural characteristics of India was tested against the foreign direct investment as a percentage of GDP.
Table 4.2a: Regression Table with Cultural Information (Outcome) IModel Unstandardized CoefficientsStandardized CoefficientsTSig. BStd. ErrorBetaBStd. Error 1(Constant)21.6473.700 5.850.000 position of employees-4.4995.199-.621-.865.395 Current Salary1.35E-005.000.065.201.843 Religion(Belief & Practise)-.8893.737-.071-.238.814 cultural adaptibility.034.987.007.035.973 Language barrier6.5203.059.5152.131.044 Cultural Sensitivity and awareness2.8966.404.393.452.655
Table 4.2b: Regression Table with Cultural Information (Outcome) II
RR SquareAdjustedR SquareStd. Error of the EstimateChange StatisticsDurbin-Watson R Square ChangeF Changedf1df2Sig. F ChangeR Square ChangeF Changedf1df2Sig. F Change .444(a).197-.0035.02591.197.984624.458.809
a Predictors: (Constant), Cultural Sensitivity and awarenes, cultural adaptibility, Language barrier, Religion(Belief & Practise), Current Salary, position of employees
b Dependent Variable: foreign direct investment as a percentage of GDP
Analysis on the Potency of the impact of National Culture on FDI in India- Standardized Coefficients and Probability value
The impact of the position of the employee motivated by promotion is subject to organizational cultures in Vodafone like any other Multinational. From table 4.2a, the beta estimates of column 4 is negative or has an inverse effect on foreign direct investment in india, this conforms to a priori expectation and managerial theories and practice within the organizational framework as it can be clearly seen in the review of literature that the position of employees is a direct consequence of on-the-job performance (Hoftseede, 2001), a parameter determined by the organizational culture of Vodafone and in the national culture of India. The result also shows an insignificant effect on position of employee inNigeria. As the employee moves up the management hierarchy, foreign direct investment falls by 62%, this trend is consistent overtime due to the remittance and transfer of profits abroad to the parent company inUK.
In the result, there exists a positive but insignificant relationship the current salary of employees and FDI, salary and earnings is majorly subject to performance ratings within the organisation’s cultural framework. Salary and earnings increases direct foreign investment by 6.5%, it should be noted however that the positive effect is below 10% and relatively small further confirming that salary is not a core determinant of FDI and at such contributes a small proportion to the growth of an MNE within the national culture framework.
A cursory look at Religion, it could be drawn that religion contributory effect onindia’s FDI is negative to the tune of 71% accounting for an inverse relationship. Individual culture within an organization is fuelled by the subject and practice of religion and could be an instrument for efficiency or inefficient within the organization. The managerial relevance of religion cannot be overlooked as it is a practical day to day concept that affects decision making. The variable is also insignificant.
In addressing how well Vodafone adapts to the Indian cultural environment, the cultural adaptability measure was incorporated to see the degree, magnitude and direction of responses from Vodafone employees and management staff, in reference to the beta estimate of cultural adaptability in table 4.3a, the more Vodafone adapts to the cultural environment of India, the more the realization of its growth objectives and goals to the tune of 0.7%.
In bridging the gap in cultural differences, language barrier is taken into consideration. The removal of the presence of language barrier in the organization’s Cultural framework enhances the direct foreign investment. This contributes 51% to a change in foreign direct investment language barrier has the disadvantage of post-acquisition integration failure which may be due to cross-cultural differences and technological mismatches (Dikova and Witteloostuijn, 2007).
Finally, in understanding the concept of culture within the three management approaches, cultural sensitivity and awareness was analysed. Conventionally, a distinction is made between cultural sensitivity and cultural insensitivity. In most literature on cultural issues related to cross-border management, the differences in the national cultures are outlined and the managerial implications of these differences are discussed. The result depicts that a cultural sensitive individual or employee in Vodafone (high, moderate or low) reacts to a certain as measured by the responses to the tune of 39%. Cultural distance also emerges out the concept of cultural awareness and also the influence of culture on the effect of the role of the subsidiary on the corporate performance of firm depends on the cultural distance between home and host countries (Chen and Hu, 2001).
In term of goodness of fit of the model as shown in table 4.2b, the coefficient of determinations R2 in the modelis 0.98. This indicates that about 98 percent of the total variations in foreign direct investment (Dependent variable) are explained by the variations in included national cultural variables (Predictors). This shows that our model explains large proportion of variations in FDI inNigeria. The model also represents a good measure of fit. The F-statistic shows overall significance of the model. The F-statistic is significant at 5% level. We, therefore, conclude that the model is not significant in explaining the variations in the dependent variable.
5. Conclusions and Recommendation
5.1 Discussion of Research Findings
Traditionally, firms preferred to invest in countries with similar cultures because there was no learning curve associated with such locations. Similarities in language, religion, legal structure, distinct work ethics and geographic proximity can explain the dominance of western economies.
The Study have found that the cultural distance between countries affects FDI flows: the greater the cultural distance between two countries, the lower the amount of FDI from VodafoneUKto theIndia. Geert-Hofstede created four cultural dimensions to measure cultural distance: the Power Distance Index, Individualism, Masculinity, and Uncertainty Avoidance Index (Hofstede, 2001), a pure representation of the concepts were incorporated in the analysis which suggests that a society’s level of inequality is endorsed by the employees as much as by the management. In other words how does vodafone ensure that individuals are “integrated” into groups.
The ways in which the Indian cultural processes have been carried out has indeed limited its possible growth potentials which can be derived from the acceptance of foreign culture and work ethics. Indeed, when compared to other emerging economies which have reformed in the two decades, the acclaimed growth and foreign investment policies ofIndiacan be said to be relatively successful.
If what the study have found holds true, I would expect that greater differences between theUKandIndiain the different measures would indicate lower FDI flows intoindiabecause it would indicate a greater cultural distance between both countries. However, Sethi et al. utilized this measure in their study on trends in FDI, and they found that cultural proximity to theU.S.is not as important to MNEs as it was in the past (Sethi et al, 2003). And in that light, the Indian FDI trend was found to exhibit the same behaviour as shown in figure 1 in the previous chapter.
Firms’ standpoints regarding cultural disparities are changing, and firms are now investing in locations with vastly different cultures, so this variable may no longer be as important in the investment decision. Strategic asset-seeking firms value access to different cultures, institutions and systems, and different consumer demands and preferences which they can tailor their products to satisfy. There is a growing geographical dispersion of knowledge based assets and these firms want to harness such assets from foreign locations.
As can be further drawn from data analysis,Indiahas one of the fastest population growths in the world and so does its need for cultural integration and human capital needs increases. The competitive economies of the future will indeed not compete based on resources but on the working practices, cultural adaptability, cultural distance and a common understanding in the business language of the Global economy.
Finally, cultural and social development is imperative to the inflow of FDI inIndiaas this has been the bedrock of development in other competitive economies in the global market. Over the years, more attention has been accorded economic reforms but cultural reforms have suffered significant policy attention and where policies have been made, implementation has suffered. In fact where most policies have been implemented, the government has often failed to define appropriately the contributory role of subsidiaries, the entry mode of MNEs and the cultural distance all of which are propositions that will have a direct influence on FDI and corporate performance.
In this chapter the main conclusions of the research will be discussed in order to formulate an answer to the research question.
How the role and activities of the Indian culture does influence the MNE’s performance given its entry mode and the cultural distance between India and the MNE?
First, an answer will be given to the question on how the notion of culture contributes to the differences in FDI policies. The Indian way of life differs from the Western mentality in terms of directness, long term vision and norms and values. For instance, respect is a very important aspect in the Indian way of life. Different managers found it difficult to adapt to these non-Western norms and values. A frequently used example by some managers was ‘the Dutch directness’. Indian people tend to be more indirect in their way of approaching others than Western, and especially the Dutch, people are. .
Furthermore, gender segregation seems to play a more important role in the indian society than it does in Western society. Inindiathe more traditional roles of men and women are still present; men work and women take care of the household. It is hard for women to combine the working and private life because of these traditional roles. The women who do work are mostly in administrative jobs and customer service as depicted in the survey questionnaire, because they are seen as more friendly, they have a nice voice, are passionate about the customer and are seen to be more trustworthy than men. With this research it became clear that women are regarded more suitable for particular jobs like customer care and sales. Few women are to be found in management positions due to the household and IT obligations which lead to the fact that they cannot travel to customer sites, which is often needed for the higher ranked positions. Companies do say that they want to change and help women, but their priorities and policies show differently.
In general, it became clear that when dealing with Indians it is important to adapt and keep in mind the characteristics of the Indian culture and know that there is of course a difference in nationality, but certainly also a big difference in mentality. The Vodafone company mentioned that they offer women the same opportunities as men but this is not how their employees think about it and experience it. Regarding the research question, the following can be concluded. Western companies in Indiastimulate the emancipation of cultural values within the working environment and labor market by providing flexible HR policies, like a day-care or the opportunity to work part-time as depicted in customer care and sales employees. However, the question arises if these kinds of policies are already accepted within Indian society.
5.3 Implications for Further Research
More research should be conducted on the impacts of national culture on FDI and the influence of cultural differences on MNEs organisations. Most occupations are associated with masculine or feminine characteristics; during the research it became clear that women are mostly active in customer service jobs and less often in consultancy jobs due to job characteristics. It seems like there is a powerful gender symbolism when it comes to what kind of jobs women should fulfil. This means that when women cross these occupational borders they may find themselves in an isolated position, since they are expected to stick to the gender appropriate job.
Higher positions are often characterized as masculine, therefore fewer women fulfil them. Women in higher positions often come, according to our research, from rich families. These rich women have the power to change things, because their voice will be heard and they are not suppressed by their spouses. It is interesting to investigate how rich women could be encouraged to strive for the position of all women on the labor market. In addition, more and more women are studying inindia; it would be interesting to explore this development over the years.
Secondly, it would be challenging to research the acceptance of implemented managerial and cultural polices in relation to the existing traditional role models and take some external factors into account, like foreign investment policies and the role that the home and host company play.
The fundamental objective of the research is to empirically assess in what respects national cultural values influence the feasibility of Foreign Direct Investment using VodafoneIndiaas a case study in order to provide recommendations for future foreign investors.
The conclusion already clarified the differences in cultural practice and adaptability between subsidiaries inIndiaand their headquarters in theUK. In this paragraph, however, the findings will be discussed and implications for further research will be proposed, but first, recommendations for multinationals that consider investing inIndiawill be provided.
In short, multinationals that invest inIndiahave to take the Indian culture into account. Some specific Cultural and management policies for the subsidiary inIndianeed to be designed locally. For instance, religion is one of the main differences with the Western World. Indians are very attached to their religion and therefore religion intervenes also in the professional sphere. This results in certain requirements like a special room for praying and a special work schedule for the Hindu Faithful.
Second, the way employees are managed is challenging. According to some managers in Vodafone the Indian mentality is different when it comes to a sense of responsibility, interpersonal contact and the long term focus. Indians are very direct in cultural related issues and seem to be offended easily compared to Western norms and values. This means that the manager has to be more careful when it comes to work appraisals. Appraisals should be done taking the cultural variables and characteristics into consideration. In this matter managers need to invest more in the interpersonal contact with their employees.
Third, the women who do fulfil higher positions in the organizations could organize corporate goals like gender ratios in the organization they work for. However, rich women might not want do this, as they might be are afraid of losing their own position due to more competition. As a result the class difference stays intact.
Fourth, the managers of Vodafone mentioned some limitations in their current HR policies, for instance, the process of recruiting women. Most women inIndiaare active in administrative and customer service jobs. Managers experience that it is harder to find women for IT, software engineering or consultancy jobs due to the job characteristics, like the requirement for a technical background. However, it is not only the required education that leads to a lack of women, it seems also related to a traditional role model who assumes that women do allegedly not like to travel and they are not interested in these types of jobs. The limited HR policies make it impossible for women to combine their working and private life. This means that the traditional gender role model stays intact. Especially in lower classes, women are expected to do the household at home
Finally, there also some managerial policies implemented inIndiathat do not exist in Western countries. For example, one of the managers offers loans to his employees and he appointed one of his administrative workers to the function of employee support. A lot of employees at this company do not understand the workings and come up with questions about forms and letters they received. The employee support helps these people to fill in their form or to answer the letter.
In the conclusion some factors are mentioned which may influence the adaptation of cultural policies to the Management practice of Vodafone. However, for the right interpretation of these conclusions some general limitations will be discussed.
Though the study has an international character, some cultural differences, language barriers and religious differences did not exist but the fluent understanding and communication between both parties, that is the interviewer and interviewee could have been influenced by sentimental feelings. Also the ideas and prejudices that the Indian interviewees had about people from western companies and Western countries could have influenced the answers of the interviewees. Like the one of the HR manager believed that the researchers already looked from a tunnel view to his country and his organization. He thought that everybody from a Western country has the idea that women inIndiaare oppressed by men and he therefore might have given desirable answers to deny this stereotypical view.
Finally, time constraints could have influenced the answers gathered during the data collection. In some cases there was less than fifteen minutes left to ask the manager questions about the integration of cultural policies to management practise and the consequent relevance of managerial skills in dealing strategically with cultural-related issues in the organisation.References
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