Headquarters - Subsidiary Relationship:
Issues and Challenges
A Study of A Dutch Shipyard’s Headquarters – Foreign Subsidiaries Relationship
Master Thesis
Name : Michelle Wolters
Student no. : 5983746
Date of submission : 10th of August, 2014
Course : MSc in Business Studies – International Management Institution : Amsterdam Business School, University of Amsterdam
Supervisor 1 : Dr. Stephan von Delft Supervisor 2 : Dr. Niccolò Pisani
Abstract
The aim of this study is to describe the MNEs headquarter and foreign subsidiaries relationship and investigate what issues and challenges exist within this relationship. This relationship is investigated from the perspectives of both the headquarter and subsidiary with the main purpose to identify in what way those challenges between the headquarter and the subsidiary influence the relationship. There are three main themes investigated with regard to this relationship: knowledge sharing, coordination and control mechanisms and the degree of shared values. Furthermore, this study will take into account the clients’ perspective on the relationship, within the internationalization of the case company.
Keywords : Internationalization, knowledge transfer, shared values, control mechanisms, headquarter – foreign subsidiary relationship, trust
Acknowledgements
This thesis is written as final part of the master Business Studies at the University of Amsterdam. First, I would like to thank Dr. Stephan van Delft for his guidance and support during the writing of this thesis. Especially, the recommendation of some literature was very useful in the starting phase. Second, I would like to express my gratitude to all the participants of this research for their time and effort to share their opinions, knowledge and experience with me by participating in an interview. Their input and contributions have been of great value for this study.
Amsterdam, August 2014
Contents
1. Introduction ... 6
2. Theoretical Framework ... 10
2.1 Internationalization and the MNE ... 10
2.2 Internationalization Process ... 11
2.2.1 The Uppsala Internationalization Model ... 11
2.2.2 Different views on Internationalization ... 12
2.2.3 Internationalization of Technical Consulting Firms ... 12
2.3 Headquarter – Foreign Subsidiary Relationship ... 14
2.3.1 The Network Structure of the MNE ... 14
2.3.2 Shared Values ... 15
2.3.3 Barriers to Relationship Building ... 17
2.3.3.1 Interdependent Network ... 17
2.3.3.2 Information Asymmetry ... 19
2.3.3.3 Conflicting Interests ... 20
2.3.3.4 Control Mechanisms ... 21
2.4 Company – Client Relationship ... 22
3. Method ... 24
3.1 Case Study Research ... 24
3.2 Data Collection ... 25
3.3 Case Criteria and Selection ... 27
3.3.1 Case Company ... 28
3.3.2 Chinese dredging market ... 29
3.4 Qualitative Data Analysis ... 29
4. Results ... 31 4.1 Data presentation ... 31 4.1.1 Headquarter ... 31 4.1.2 Subsidiary ... 40 4.1.3Client ... 51 4.2 Comparison ... 54
5. Discussion and Conclusion ... 56
5.1 Discussion ... 56
5.1.1 Implications of Theory ... 56
5.1.2 Implications for Managers ... 57
5.2 Conclusion ... 58
Bibliography ... 60
Appendix ... 64
1. Discussion Guide ... 64
Figure 1: Internationalization of engineering consulting firms ... 13
Figure 2: Conceptual Model ... 23
Table 1: Interviewee details ... 26
Table 2: Interviewee details (client)... 26
Table 3: Interview questions linked with the propositions ... 27
Table 4: Summary Headquarter ... 39
Table 5: Summary Subsidiary Netherlands ... 49
Table 6: Summary Subsidiary China ... 50
Table 7: Cross-Case Data Analysis ... 54
Table 8: Results on working propositions ... 56
List of abbreviations
HQ Headquarter
MNE Multi National Enterprise
IM International Management
FDI Foreign Direct Investment
IB International Business
FSA Firm Specific Advantages
6
1. Introduction
“Build an organization that is ready for the next generation of global competition”. This is one of the
outcomes of the McKinsey report “Urban world: The shifting global business landscape”. According to this report, companies have to rethink about the structure and location of the management, due to a shift of business towards emerging markets such as China. As a result of the increased complexity in global business, management has to think about the challenges and issues that influence this complexity. The Economist investigated the challenges that companies face when they have to operate in increasingly international markets. They focused specifically on the role that cross-border communication and collaboration play in the success or failure of the companies’ internationalization strategy. One of their main outcomes in the report “Competing across borders” is that effective cross-border communication and collaboration are a critical factor in the financial success of companies with international aspirations (Bolchover, 2012). 48% of foreign businesses, including leading multinational corporations, fail and withdraw from the Chinese market within two years of establishing operations there.1 Hence, being a global brand does not guarantee success in China. Companies such as eBay and Tesco failed to enter the market and those failures include both internal and external aspects. As mentioned in the McKinsey and The Economist report , companies have to focus on their internal structure in order to become more effective in the international markets.
Cullen and Parboteeah (2005) state that world economies are becoming increasingly borderless and interlinked, allowing companies to expand their domestic business. In order to improve competiveness and capture greater shares in more global markets, companies internationalize their activities. On the other hand, Geppert et al (2003) indicate that globalization strengthens the views of multinational enterprises (MNE). The reason for this being that organization are required to adapt to both national and regional specifications while simultaneously draw attention to national and cultural differences.
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7 Cullen and Parboteeah (2005) also state that there are some key trends in this globalization process. These trends include the growing trade across borders, sharing of information technology, blurring lines between borders and the rising importance for companies to become more multinational in order to sustain a competitive position.
Stages during globalization towards foreign subsidiaries
By setting up foreign subsidiaries, a wide variety of knowledge and skills are created. Johansen (2007) found evidence that motivation, knowledge, absorptive capacity and the role of the subsidiary influences learning, and the more embedded the subsidiary, the better the collaboration between the headquarter and the subsidiary. By creating knowledge in foreign subsidiaries, those subsidiaries can be viewed as strategically important in generating knowledge of foreign markets. This is also supported by Roth and Nigh (1992) and Birkinshaw (1996); a subsidiary may be strategically profitable rather than financially profitable thanks to their valuable resources and capabilities. These studies highlight the important role of the subsidiary in terms of strategic relevance and show that the frequency and degree of communication influences the financial performance of the subsidiary. It is likely that economic globalization is easier than cultural globalization, since firms have to take into account different cultural and social aspects. According to Qin et al. (2011) more difficult aspects, such as trust, could be potential obstacles in the cross-border collaboration.
While setting up a subsidiary, and thus expanding a firm’s business to a foreign market, companies faces numerous challenges in maintaining an effective relationship between the headquarter and the foreign subsidiary.
Cultural distances. Ambos et al. (2006) state that national and cultural differences and organizational distance in relation to variety and work practices between headquarters and foreign subsidiaries can create barriers to knowledge transfer and organizational learning. (Kaufmann and Roessing 2005; Roth and Nigh 1992; Mudambi and Navarra; 2004).
8 The optimal balance between delegating and maintaining control and coordination.
(Roth and Nigh 1992)
Make sure that there is a common set of values and goals that exist in the headquarters-subsidiary relationship that can play a role in minimizing conflicting interests (Kim et al. 2005; Li 2005; Nohria and Ghoshal 1994).
So far, according to Schotter and Beamish (2011), most research in the domain of headquarter-subsidiary relationship lack integration with the theory. One of the reasons is that most of the literature take a one-sided perspective with respect to the level of analysis. Either they focus on the headquarters or on the foreign subsidiary. Hence, little research exists in terms of viewing the relationship closely from the perspective of both the headquarter and the subsidiary (Kaufmann and Roessing, 2005). Roth and Nigh (1992) also identified that most of the research conducted on the relationship between headquarter and subsidiary generally relates to the influencing aspects of the financial performance of the subsidiary or the headquarter rather than the effectiveness of the relationship. As such, the clients’ perspective has been less common to investigate in research concerning the relationship between headquarter and subsidiary.
A single multinational company based in the Netherlands is the selected case company to investigate the relationship between the Dutch headquarter and the subsidiary (both the location in the Netherlands and the various locations in China), in particularly the knowledge sharing, the common values and the degree of control mechanisms. One of the case company’s largest clients provided their opinion of the delivered services. As a result, this information will provide an indication of the effectiveness of the relationship towards the Chinese market. . In his research, Steers (1975) suggests, to measure organizational effectiveness on the basis of operational goals that the organization is aiming to pursue. Moreover, in business language, operational effectiveness is often divided into a variety of components; leading and controlling functional performance, measuring and improving the process and leveraging and automating processes. By combining the literature with the practical approach of operational effectiveness, this research will define the effectiveness of the relationship in terms of the processes and procedures within the organization.
9 This thesis is structured as follows. First the relevant literature for this study is discussed. The headquarter – subsidiary relationship literature is reviewed and is used as unifying theoretical lens to conceptualize and discuss this relationship. To make it more specific, the literature on knowledge sharing, coordination and control mechanisms and shared values sets the foundation for the discussion of the concepts on which the three working propositions are developed. The section concludes with the conceptual model and the supporting working propositions.
This study is designed by working propositions and a conceptual model. However, during the research, the following central research question will be answered:
What are the issues and challenges related to operating in China from the perspective of both the headquarter and subsidiaries?
The aim of this research is therefore to describe the MNEs headquarter-foreign subsidiary relationship, to clarify what factors influence this relationship, to investigate the consequences and to point out a direction to strengthen the relationship in the final chapter on managerial implications.
Furthermore, this research also attempts to gain an insight into how the internationalization process of the case company so far may influence the relationship between the headquarter and subsidiary in the future expansion. Therefore, a second sub-question will be answered:
Given the perspective of both the headquarter and subsidiaries relationship: how could the organizational effectiveness of the headquarter – subsidiary relationship be improved?
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2. Theoretical Framework
The literature review will firstly describe the internationalization process of the MNE in general. The second part will focus more on the specific relationship between the headquarter and subsidiary and what kind of barriers exists to this specific relationship building.
2.1 Internationalization and the MNE
According to Williams (2009), “MNEs are amongst the world’s most powerful types of organizations” (2009: 92). They “account for a large share of intellectual property rights and contribute to the economic development of host countries in which they operate” (2009: 92). Buckley and Casson (2009) describe the emerging role of the MNE in their research. Because of market imperfections, firms will create an internal market in order to increase profits and avoid certain costs. First, internalization of a market refers to the replacement of an arm’s length contractual relationship (e.g. external market). Second, internalization of an externality refers to the creation of a market of any kind where non-existent before. In this context, internalizing markets across national boundaries leads to MNEs. Buckley and Casson (2009) indicate that knowledge is seen as the single most important intermediate product to internalize external markets. The current view on MNEs that has emerged over time treats them as social communities. Those communities are viewed as a ‘knowledge network’ that becomes activated by certain variables. One of these variables is inter-unit networking and their research highlight the importance of knowledge creation and knowledge transfer across borders is important in the current business environment (Buckley and Casson 2009; Williams 2009).
As said by Rugman and Verbeke (2004), MNEs are the key drivers of globalization, as they foster increased economic interdependence among national markets. To go abroad, MNEs can make use of a wide range of entry strategies such as exporting, franchising, licensing, joint-ventures or wholly owned-subsidiaries. According to Buckley and Casson (2009), each entry modes has his advantages and disadvantages. Drawing upon the literature, the optimal choice of entry depends on the firm’s strategy and global objectives (Pan and Tse, 2000). In emerging economies such as China, MNEs traditional face ‘liability of foreignness’. As a result of this liability of foreignness, companies faces a higher degree of uncertainty in emerging markets. MNEs have to decide when they want to enter the
11 host country and in what entry mode (Peng 2001). Furthermore, when firms internationalize, they faces dual global and local pressures (Grøgaard 2012). One of the outcomes of their research is that an MNE has to deal with global integration and identify the benefits of integration, while simultaneously recognizing the value of investing in the development of local experience and networks. For that manner, foreign subsidiaries are important for the MNE as a whole. Rugman et al (2011), focused in their research also on global and regional strategies of MNEs. Over the past fifty years, there has been a shift from a country level of analysis to the subsidiary level of analysis. The subsidiary acts as the key building block in international business nowadays. The reason behind this statement is that the subsidiary is important for the MNE because the subsidiary is embedded in the network of MNE’s (Rugman et al. 2011).
2.2 Internationalization Process
2.2.1 The Uppsala Internationalization Model
There are many ways for MNEs to expand their business abroad. One of the most accepted and widely acknowledge theories within this subject, is the Uppsala Model; A stage model approach of internationalization (Johanson and Vahlne, 1977). This model explains how firms gradually intensify their activities in foreign markets. It suggests that the potential benefits of exploiting firm specific advantages (FSAs) abroad, needs to be weighed against the risks of operating in unknown foreign environments and the costs of learning to do business there. It proposes that internationalization is a certain path dependent process whereby a firm’s international expansion process is a function of its past knowledge base. Furthermore, the stage theory approach argues that international expansion is influenced strongly by managerial learning. The first step to internationalization improves the firms’ foreign market knowledge. Over time and through experience, firms increase their foreign market commitment and expand to more psychically distant markets (Coviello and Martin, 1999; Johanson and Vahlne, 1977).
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2.2.2 Different views on Internationalization
The assumption that the firm’s international expansion has to run through numerous stages has been questioned and received some criticism. The view of internationalization through stages has been challenged by the emergence of ‘born global’ firms. (Knight and Cavusgil 2004; Oviatt and McDougall 2005). According to Hennart (2009), the internationalization model of Johanson and Vahlne is determined by the MNE’s host-country experience. However, Hennart (2009) states that companies that enter foreign markets must take into account the advantages of local complementary assets and bundle those advantages with their own FSAs. Another study that criticized the Uppsala model is the research of Oviatt and McDougall (2005). They highlight the rising importance of adjustments to the stage model. As globalization trends shape the world business environment, new types of firms have developed. Those firms focusing on rapid internationalization. Therefore, the traditional internationalization perspectives like the Uppsala model are challenged. Knight and Cavusgil (2004) also indicate a rise for more dynamic firms which becoming international very fast. These firms distinguishes themselves from other firms because their origins are international, as the management has a global focus. Those types of firms are called ‘early adapters’ of internationalization. Due to increases in speed and quality of international communication and transportation, the costs of multinational interchange has reduced. The main outcome of the study of Oviatt and McDougall (2005) is that improved international communication and transportation along with the homogenization of markets in many countries should simplify and as a result, shorten the process of firm internationalization.
2.2.3 Internationalization of Technical Consulting Firms
Within the internationalization process of manufacturing firms, the stage process or the Uppsala model of internationalization is often recognized as the dominant perspective. However, within
service firms, there are also stages identified in the internationalization process. These stages differ
from the stages in the Uppsala model (Roberts 1999; Krull, Smith and Ge 2012). Reasons for service firms to internationalize can be reactive or proactive. Firms who are reactive are often demand-driven and firms who are proactive are often supply-driven. Firms who are demand-driven, are also referred
13 Phase 0 Pre-internationalis ation:servicing the domestic market Phase 1 Chasing work and taking every opportunity; developing international contacts and networks Phase 2 Chasing work and taking most opportunities; more focus on larger projects and profitable work Phase 3 Maintaining and strengthening client relationships; increasing focus on developing geographically close markets Phase 4 Focus on integrating international operations and development of centre offices; new markets selected based on future outlooks Phase 5 Increasing coordination of international business operations; decreasing autonomy of centre offices; strengthening and growing of centre offices
to as client-following and they respond to the needs of the customer (Majkgård and Sharma 1998; Krull, Smith and Ge 2012). By entering foreign markets, it is less uncertain for service firms to follow the “client-following” strategy since they can make use of their existing network abroad. Within service firms, Krull et al. (2012) make a distinction between service firms and Engineering Consulting Firms (ECFs). The demand for the services of ECFs is most of the time project-based and they can serve different countries with their technical knowledge and engineering services. Figure 1 shows the different stages of this process for ECFs.
Figure 1: Internationalization of engineering consulting firms Source: Adapted from Krul et al. (2012)
Krull et al. (2012) found that through the whole internationalization process of an ECF, the motivation of individuals has a major influence on the process. One of the results of their study is that individuals influences what direction the firm takes in the process of internationalization. They highlight the fact that the role of the individual in shaping the strategy for the firm is important. One important finding is that, instead of deciding on a strategy at a higher level and then push it into the rest of the organization, ECFs often do it the other way around: they use a bottom-up strategy to internationalize. Although the internal resources of a firm such as networks led to new opportunities, the motivation of
14 the internal employee is of big importance for the internationalization process. Furthermore, the relationships and network that are established by those ECFs are highly important for internationalization of the firm (Krull et al. 2012; Coviello and Martin 1999).
2.3 Headquarter – Foreign Subsidiary Relationship
2.3.1 The Network Structure of the MNE
Rugman et al. (2011), indicate that the most important unit of analysis for most international business theory is still the MNE as a whole, simply because most strategic decisions are taken at that level. Hence, MNEs often faces difficulties with translating and applying firm-level theory to the subsidiary as unit of analysis. Since the role of the subsidiary becomes more important, those subsidiaries become the key building block of the MNE and are viewed as a differentiated network. Hence, the MNE has to understand the linkages between subsidiaries to shift the focus from the parent firm to the subsidiary as a unit of analysis. Foreign subsidiaries are often embedded in the MNEs network, while simultaneously act as a member in its external market network (Li 2005).
According to Birkinshaw et al. (1998), the role of the subsidiary is becoming increasingly important as contributor to the development of firm-specific advantages (FSAs). There has been a shift from the MNE as only unit for the generation of FSAs to a more collective responsibility for the entire network, including the subsidiaries. Moreover, they found that subsidiary initiative is strongly associated to an entrepreneurial culture of the subsidiary. This entrepreneurial culture promotes the development of specialized resources of the subsidiary as well. Ghoshal and Barlett (1990) state that MNEs are considered multi-center structures where firm-specific competitive advantages can be located in their networks of subsidiaries in different countries by accessing subsidiaries’ knowledge resources. Building close ties with the external environment of the subsidiary allows them to develop new knowledge that benefits the subsidiary, while simultaneously develop competences for the organization as a whole (Ghoshal and Barlett 1990; Li and Scullion 2006). Moreover, Li and Scullion (2006) identified this external environment as an important holder for knowledge. More specific,
15 customers are a very important source of local knowledge within his external environment, because the customer can indicate their needs based on their existing knowledge.
The transformation towards the network structure of the MNE show that firms are becoming more complex, less hierarchical and less dependent on firm-specific advantages developed mainly in the home country and thus only by the parent company. Ambos et al. (2006) identified this changing role of the HQ as prime source of knowledge and competencies. Headquarters becoming more and more a receiver of knowledge from their internationally dispersed subsidiaries. Moreover, according to Miesing et al. (2006) subsidiaries are creating their own knowledge and highlight the fact that for an successful intra-organizational knowledge transfer a trust-based collaboration is necessary. Trust encourages teamwork and collaboration and to create a more competitive global position, firms will have to cooperate (Ambos et al. 2006; Miesing et al. 2006). Luo (2005) stresses the fact that within the network MNE different subunits have to both cooperate and compete with each other. In his research he combines both concepts and speak about ‘coopetition’. This is also found by Tsai (2002), which implies that due to the rising globally dispersed networks of the MNE, the issue of coordination and control is becoming more difficult (Luo 2005; Tsai 2002).
2.3.2 Shared Values
Volkmar (2003) identified the notion of shared values between headquarter and subsidiary and found that the performance of the company as a whole is influenced by the degree of shared values. Simultaneously this research found that conflict between headquarter and the subsidiary arises where foreign subsidiaries have already established and developed their own unique culture. In order to achieve alignment of organizational values between headquarters and subsidiaries, the degree of overall organizational cultural asymmetry is associated with the amount of change required in the foreign subsidiary. They highlight the notion of shared values between the headquarter and the subsidiary. When those values are shared, the subsidiaries make decisions along the lines of the overall corporate objectives (Volkmar 2003; Li 2005).
16 In order to create mutual benefit for the headquarter and the subsidiary, one identified that trust, shared values and a shared vision are important determinants to create those benefits. A high degree of shared values among both the headquarter and the subsidiary is one way to improve the relationship of both parties and has a positive impact on the organizational performance of the firm as a whole. Moreover, to support global strategic integration, common view or a shared vision in the headquarter – subsidiary relationship, is an essential element to improve organizational performance (Li 2005; Nohria and Ghoshal 1994).
On the other hand, within the relationship between the headquarter and the subsidiaries there are different specific control problems that arise and each relationship is differentiated to fit the particular environmental and resource conditions in the specific context. According to Nohria and Ghoshal (1994), centralization and “the extent to which decisions are made according to impersonal rules, routines and procedures” (1994; 492) are some elements that occur in establishing this differentiated fit in each subsidiary. Simultaneously, they also highlight the fact that it is difficult to achieve an approach that both integrate and differentiate the values and procedures of the company. Contrary, Williams and Triest (2009) found that the more shared values exist in the MNE, the more the headquarter is willing to decentralize the decision making process. As a result, subsidiaries eventually create their own values since they have more decision making power. Ultimately the subsidiary will create different values compared to the headquarter. In their research, Williams and Triest (2009) link the degree of decentralization to the subsidiary with cultural distance between the host and home country. According to Welch et al. (2005), cultural distance may contribute to cross-cultural conflict. Numerous elements of cross-cultural conflict act as a constraining factor in developing a successful integration between different units within the MNE network. They found for instance that differences in communication tactics make it harder for the parent firm to transfer the corporate values, objectives and knowledge (Welch et al 2005; Ambos and Ambos 2009; Ghemawat 2001).
WP 1: A higher degree of shared values is positively associated with the organizational effectiveness of the headquarter-subsidiary relationship
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2.3.3 Barriers to Relationship Building
2.3.3.1 Interdependent Network
As said by O’Donnell (2000), together with the increased international interdependence of subsidiaries, firms can exploit their international activities to achieve and maintain a competitive advantage in the global marketplace. The issue of interdependence between headquarters and their foreign subsidiaries is much discussed in relation to the network view of the MNE (Li 2005; Roth and Nigh 1992). To create valuable subsidiary resources and transfer them across the organization requires a network of linkages between headquarter and subsidiaries and information sharing, which can subsequently result in a high degree of interdependence. To coordinate the interdependence between headquarter and subsidiary, there is a need for higher levels of social capital that facilitates the coordination of cross-border activities between the headquarter and the foreign subsidiary (O’ Donnell 2000; Li 2005). This is also found by Kostova and Roth (2003) and Miesing et al. (2006), who highlight the fact that it becomes increasingly important to create social capital under conditions of higher interdependence. As said by Miesing et al. (2006), literature on social capital explains the importance of shared norms and reciprocity within the organization, in order to establish an environment where different members of the network create new knowledge. Together with this rising creation of new knowledge, also the level of trust between the members of the network increases. Since the rising globalization, more focus is on the relationships in business, to create a more competitive position. In their paper, Miesing et al. (2006) define social capital as “the ability of people to work together for common purposes in groups and organizations” (2006: 117). As also identified by Ghoshal and Barlett (1990), the way firms compete globally requires an organizational learning where knowledge and for instance managerial skills are transferred through the organization. Social capital that is formed through interactions with the headquarter and the representatives of its foreign subsidiaries, or boundary spanners, becomes a social good when experience and knowledge are shared. Boundary spanners are described by Kostova and Roth (2003) as “an individual employed at a subunit who currently has, or has previously had, direct contact(s) with a headquarters representative.” (Welch et al. 2005; Kostova and Roth 2002; Li and Scullion 2006). Schotter and Beamish (2011) found that
18 boundary spanners are increasingly important for MNE’s. The presence of a boundary spanner does have a positive effect on intra-organizational knowledge sharing. Moreover, boundary spanners can build international trust between headquarters and subsidiaries. When there is a lack of trust between the two parties, it is possible that subsidiary managers behave and make decisions only in their own interest (Schotter and Beamish, 2011).
The nature and complexity of the headquarter – foreign subsidiary relationship is characterized by tensions between the autonomy of the subsidiary and the need from the headquarter to control the firm. Previous studies showed that centralization encourages the firm to share information because centralization provides “coordination and integration across the interdependency” (2002; 186). However, more recent studies show that centralization impede intra-organizational knowledge transfer due to certain costs a firm has to make. From that point of view, centralization may be not the most effective way to coordinate the subsidiary. Furthermore, headquarters are not able to make all the decisions for the subsidiary as it does not possess the local knowledge of the foreign subsidiary (Nohria and Goshal 1994; O’Donnell 2000; Tsai 2002). To receive more of this local knowledge from the foreign subsidiaries, Ambos et al. (2006) found that headquarters can benefit from reversed knowledge sharing. With this knowledge, headquarters can for instance make a more specific global strategy or improve internal processes within the MNE itself. (Ambos et al, 2006).
The more distant there is between the home and the host country, the more difficult may be the communication and understanding of the other party. According to Barner-Rasmussen and Björkman (2005) for instance, achieving knowledge sharing among globally dispersed units is of great importance. Hence, communication is necessary within an organization for transferring specific knowledge in the organization. This may be more difficult within an organization with different cultures, such as Western and Chinese organizations. Cultural difference is described by Qin et al. (2008) as “the extent to which the shared norms and values in China differ from those in the country where the MNE headquarters are located.” Numerous studies highlight the concept of cultural distance in the relationship between headquarters and their foreign subsidiaries (Ambos and Ambos 2009; Gupta and Govindarajan 2000; Li and Scullion 2006; Ghemawat 2001). From a Western point
19 of view, China is frequently considered as “the most foreign of all foreign places”. Cultural distance between the home and the host country affects the way knowledge is spread and the effectiveness of this dispersion, and thus it affects the knowledge transfer within the firm (Li and Scullion 2006). However, Ambos and Ambos (2009) identified in their research that little was known in our understanding how knowledge transfer is affected by distance between the firm’s units. They found that firms should take a look at how they adjust their transfer mechanisms to the distance between the headquarter and the subsidiary in order to achieve the most effective knowledge transfer between those units. In their study they made a distinction between geographic, cultural and linguistic distance. This is in line with the study of Qin et al. (2008), who highlight that cultural distance may be an important factor that influence cross-border knowledge transfer. In addition on the research of Ambos and Ambos (2009), Foss and Pedersen (2002) point that the way knowledge transfer within the MNE network cannot be the same due to context specific information and hence, organizations have to implement different transfer mechanisms. Drawing further on different knowledge transfers within organizations, Gupta and Govindarajan (2000) divided knowledge in both inflows and outflows. Knowledge inflows is the knowledge that flows from the headquarter into the subsidiary, in order to provide the subsidiary with the “ know-how” of the MNE. Knowledge outflows focuses on the knowledge that flows from the foreign subsidiary back to the headquarter. This information is locally developed, due to the specific environmental location of the subsidiary and provides valuable information for the headquarter (Gupta and Govindarajan 2000; Qin et al 2008; Ambos et al. (2006).
2.3.3.2 Information Asymmetry
According to Björkman et al. (2004), information asymmetry arises when a foreign subsidiary decides not to transfer knowledge to other MNE units, even though this would enhance the overall performance of the parent company. It is in the subsidiary’s self-interest not to transfer this knowledge. Barriers to knowledge transfer include motivational factors, the lack of absorptive capacity, cultural differences and task distance. As a result, this could therefore raise the level of information asymmetry (Nohria and Ghoshal 1994; Szulanski 1996). Simultaneously, Ambos et al. (2006) indicate that it is becoming more and more important for the headquarter to absorb knowledge
20 from their foreign subsidiaries so that the headquarter can benefit from this local knowledge. In general, subsidiaries have local information due to its location in the host country. As indicated by Ambos et al. (2006), this local information is valuable for the competitive advantage of the MNE. Due to this information advantage, headquarters are becoming more dependent on subsidiaries and their local information. In their paper they focus mainly on the benefits for the headquarters using reversed knowledge transfer, as explained by Ambos et al. (2006).
However, with regard to technology transfer, headquarters and subsidiaries faces higher uncertainty in transfer this source of knowledge to host countries. Especially in emerging markets like China, many threats for imitate and copying for the transferred technology seems to exist. One of the reasons is that in China there is a lack of awareness regarding respect for intellectual property (Nohria and Ghoshal 1994; Kaufmann and Roessing 2005). Moreover, the strategic direction of both subsidiary and headquarter could be different. The subsidiary will benefit in the short run from sharing technical knowledge with the market, while the headquarter is more reluctant in sharing this technical knowledge while having a more long-term vision (Kaufmann and Roessing 205).
WP 2: A higher degree of organizational knowledge sharing between the headquarter and the subsidiary is positively associated with the organizational effectiveness of the headquarter-subsidiaries relationship.
2.3.3.3 Conflicting Interests
Schotter and Beamish (2011) describe in their paper two forms of conflict within an organization: functional and dysfunctional. The difference is that functional conflict improves the performance, while simultaneously dysfunctional conflict has a negative effect on performance when this kind of conflict arises during decision making processes. Divergent interests is one of the drivers of conflict within an interdependent relationship. Within conflict, they made a distinction between task, process, and relationship conflict. According to Jehn and Mannix (2001), process conflict is related to the disagreement of employees on how specific tasks should be achieved. Within this process conflict, task responsibility and task execution are issues that concern this process conflict (Schotter and Beamish 2011; Jehn and Mannix 2001). Organizational conflict is based on information asymmetry,
21 which in turn is associated with the barriers to knowledge sharing as explained by Kaufmann and Roessing (2005). As said by Mudambi and Navarra (2004), subsidiaries are initially established by the parent firm with certain goals and objectives. In addition, several studies identify that by creating a common set of values and goals in the headquarters-subsidiary relationship, this contributes to minimize their conflicting interests (Kim et al. 2005; Li 2005).
MNEs has grown in size and organizational complexity over the years, and together with this, the issue of coordination and control has become more apparent (Birkinshaw et al. 2000; Tsai 2002). As said by Roth and Nigh (1992), an important aspect is the recognition of a foreign subsidiary as an interdependence between the subsidiary and its headquarter. For specifying the managerial role within the headquarter-subsidiary relationship, it is important that this interdependency is recognized. In this way, the effectiveness of the relationship between the headquarter and the subsidiary may be influenced. In their research, Roth and Nigh (1992) highlight the fact that it is necessary to look at the integration process to manage the interdependent interests. They found evidence that if the headquarter achieve goals and objectives through cooperation and greater coordination, this will result in the subsidiary recognizing this interdependency. Roth and Nigh (1992) state that the development of a shared MNE-wide management culture with flexible channels of communication leads to more effective headquarter-subsidiary relationships and an increased commitment of the subsidiary managers to the company as a whole. As said by Kauffman and Roessing (2005), in industries where technology is transferred, conflicting interests arises when the goals of the subsidiary are not in line with the goals of the company as a whole. They also found evidence that consensus between headquarter and subsidiary management is harder to reach in industries where technology transfer is imbedded. (Kaufmann and Roessing 2005).
2.3.3.4 Control Mechanisms
Gupta and Govindarajan (2000) identified that barriers to knowledge absorption could include power struggle factors between the headquarter and the foreign subsidiary. Hierarchical relationships within headquarters and subsidiaries can also be viewed as an agency-theory. Agency theory has been argued to be useful in the context of identifying the relationship between HQ and subsidiaries (Mudambi and
22 Navarra, 2004). Within this hierarchical relationship, the theory assumes that the responsibilities and decision-making authority are delegated from the headquarter to the subsidiary to a certain extent. If the subsidiary make decisions that are not compatible with how it is desired by the headquarters, this may lead to possible increase in the control of the headquarter. This is also in line with the research of Roth and Nigh (1992), who state that an increasing discretion of the subsidiary within the decision making process may increase the uncertainty from the headquarters’ point of view if the subsidiary act consistent with the overall direction of the parent company. To overcome such uncertainties, companies often set certain goals and procedures to make the subsidiary aware of the strategic direction of the firm. Especially for an international dispersed organization it is important to align the direction between the headquarter and the subsidiary because of the differentiated tasks and responsibilities (Roth and Nigh 1992; Nohria and Goshal 1994). Simultaneously, Birkinshaw et al. (2000) found that if the subsidiary overestimate the strategic role within the MNE, this lead to greater coordination from the headquarter, which in turn reduces the level of cooperation between the headquarter and the subsidiary. According to Tsai (2002) and Luo (2005), it becomes more difficult to use coordination mechanisms within an organization when there are different units in the network that has to compete with each other. The more the headquarter decides to centralize their control on its subsidiaries, the less those subsidiaries are willing to share their knowledge with other subsidiaries in the network (Tsai 2002).
WP 3: A higher degree of coordination and control mechanisms between the headquarter and the subsidiary is positively associated with the organizational effectiveness of the headquarter-subsidiaries relationship.
2.4 Company – Client Relationship
As indicated by Nell et al. (2011), headquarters and subsidiaries often share the same relationships within their network. Both headquarter and subsidiary have for instance a relationship with the same customer in the host country. To create competitive advantage there is a growing awareness that collaborative relationships within the company and the network of the company, offer opportunities for further growth (Ulaga 2003; Möller and Törrönen, 2003). Möller and Törrönen (2003) found that there are three dimensions that are important for the value creation from the customer perspective.
23 Knowledge Sharing Coordination/ Control Shared Values
Shared Values Knowledge
Sharing Coordination/ Control HQ Level Organizational effectiveness of HQ – Subsidiary relationship Subsidiary level Organizational effectiveness of HQ – Subsidiary relationship Overall MNE Organizational effectiveness of HQ – Subsidiary relationship Client’s Perspective
Efficiency, effectiveness and network functions are the dimensions most identified by customers which create value for the customer. To make the dimensions more specific, Ulaga (2003) identified eight dimensions of value creation, all identified from the customer perspective. These dimensions include product quality; service support; delivery; supplier know-how; time-to-market; personal interaction and the price. While most of the dimensions are based on the delivered products and services, little is known about the degree of shared values and thoughts about the collaboration between headquarter, subsidiary and the client and to what extent this creates value for the customer.
To summarize the described literature and to create a more specific model, the conceptual model below is drawn. The model is based on the previously discussed literature. The model presents the relationship between the headquarter and both the subsidiaries and, in addition, the clients perspective is incorporated to create a complete picture and make the model a closed loop. The view of the client serves like a check whether the shared values of the company are in line with the perspective of the client.
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3. Method
The following chapter addresses the methodology of this research. It reveals the steps that I have taken, including the reasons, in order to create methodological fit. Furthermore this will increase the quality of this research.
3.1 Case Study Research
The research design points out the way of how the research questions will be answered (Saunders et al. 2009). Qualitative research lacks the strong procedures comparing with quantitative and therefore qualitative research is often done in case-study design. The essence of qualitative research is to identify characteristics and structure of a phenomena and therefore, case studies are helpful to a better understanding of such phenomena (Jonker and Pennink 2009).
This study is a single case study where the emphasis is on exploring the case companies internationalization and within it, the headquarters- subsidiary relationship in detail by describing the theory on the subject meaningful. Eisenhardt’s (1989) model of building theory from qualitative case study is used as a guideline in this research methodology to build new knowledge on the internationalization process of the case-company. Eisenhardt (1989) explains case study as a strategy that focuses on understanding the dynamics present within a single-setting, pursuing relations between theory and the gathered data. For this research, qualitative, deductive and inductive research method was chosen in order to build propositions from data recovered, moving from observations to broader generalizations, whilst simultaneously developing existing literature on the subject.
In providing in-depth understanding of the current phenomena, the case study method is seen most appropriate for this research. In order to gain understanding of the experiences of the respondents involved in the collaboration process of the case-company, the primary research technique applied in the data collection were semi structured in-depth interviews. This type of non-standardizes interview offers the researcher the liberty to vary the order of questions, to ask additional questions and to explore research themes (Yin, 2009).
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3.2 Data Collection
The primary source of data collection is semi-structured interviews. There were approximately sixteen “required” questions dealing with shared values, knowledge sharing and control mechanisms; this structured dimension allowed for meaningful and standardized comparisons across interviews. The questions with their corresponding propositions are shown in table 3. Each interviewer was also able to add his or her own thoughts and visions arising within the interview. This is the unstructured part of the interview and gives the research a more in-depth character.
To make myself more confident with qualitative research and the interview protocol, I’ve send an e-mail to Andres Schotter (Schotter and Beamish 2011) with the question whether he had valuable input for structuring the interviews. I received a document (see Appendix 1) that he used as a guide during the interviews for his article. This document evolved as suggested in the pertinent methodological literature (e.g. Yin, 2009 and Eisenhardt, 1989). His most important advice was to not probe too specifically at the beginning of the interviews.
Within the single-case company research, altogether sixteen in-depth face-to-face interviews were conducted. Four interviews were conducted in the Dutch headquarter, four in the Dutch subsidiary and three interviews were conducted in the Chinese subsidiary. Lastly, also five interviews were conducted at the biggest Chinese client in order to investigate the perspective of the client. All interviews took 60 to 90 minutes and most of them were tape-recorded. Afterwards the interviews were transcribed. Those steps are taken to minimize information biases. The respondents were carefully choses and are from different departments and different function levels. These individuals are likely to have different views and opinions with regard to the training process in China. Table 1 lists the interviewees from HQ unit to subsidiary unit and shows the function of each in the company. The interview questions were designed to collect data that covered the propositions.
26 Headquarter Royal IHC IHC China Training (Netherlands) IHC China Training (China)
Table 1: Interviewee details
Besides both the headquarter and the subsidiaries view, this research also included the clients view on the collaboration. The feedback of the client on the delivered services and existing collaboration will provide valuable information, in view of further internationalization. It answers for example the following questions within the existing collaboration between the case-company and the client: are they feeling comfortable with the procedures and where do they see room for improvement? Also questions regarding their vision on training in general were included so that both the clients view on the collaboration with the case company as the view on the delivered services are included. Therefore, the following respondents were selected and interviewed:
Table 2: Interviewee details (client)
Secondary data, including personal observations accounted for the preliminary work in order to gain understanding of the company and dredging industry. The interview schedule included both closed and open questions, which were answered in the own words of the respondents. In the interview the following key themes were covered: interviewees role within the organization and knowledge about the Chinese market, the degree of knowledge sharing within the company (between HQ and subsidiaries), the (strategic) vision of the Chinese subsidiary (currently and in the future, what has been learned so far, possible challenges and issues regarding companies future business in China), and Interviewee Function Unit Location
1. Director HQ NL 2. Director HQ NL 3. Area Manager HQ NL 4. Regional Director HQ CH 5. Director S NL 6. General Manager S NL 7. Project Manager S NL 8. Project Manager S NL 9. Sales Manager S CH 10. Operational S CH 11. General Manager S CH
Interviewee Function Unit Location
13. General Manager & CFO Client CH
14. HR Manager Client CH
15. HR Representative Client CH 16. Head of Dredging School Client CH 17. Operational (Captain) Client CH
27 the control mechanisms and decision making process. The interview questions were designed to collect data that covered the propositions.
# Question WP1 WP2 WP3
1 What's your role within the organization?
2 What is your opinion about deliver dredge training in China?
3 How are you involved in the collaboration between the headquarter and IHC China Training? 4 In your opinion: what are your responsibilities within IHC China Training?
5 How well do you think the information flow between the HQ and IHC China Training (both Netherlands and China) works out?
X 6 How do you share information about your work with the Dutch HQ? X 7 To what extent you consider the Dutch HQ to be knowledgeable about the Chinese market
conditions for training?
X 8 What kind of support do you expect from the headquarter, before, during, and after training? X 9 What are the different goals between the HQ and the subsidiaries with respect to training in
China?
X 10 Do you feel that your strategic direction is aligned with the strategy pursued by the HQ? X 11 Do you feel a difference between the vision of IHC China Training and the strategic direction
of Royal IHC in China from the HQ?
X
12 What is your vision for IHC China Training? X
If yes, what are the main goals at the moment?
What is your opinion about the future of the Chinese subsidiary?
13 What is your opinion about the current decision making process with respect to training in China?
X In what way have they exerted control?
14 What are the differences in the way the HQ exerts control with respect to selling training in China in comparison with other countries?
X 15 When selling training in China, how should the decision making process should be designed? X 16 Are you aware of the current decision making process within IHC China Training? X 17 Do you think there is a clear vision about the decision making process in the headquarter
regarding training?
X If yes: what is the current vision?
Table 3: Interview questions linked with the propositions
3.3 Case Criteria and Selection
The selection of the case is an important aspect in the case study design since the population is of important influence on the generalizability of the findings (Eisenhardt, 1898). Several case studies have been conducted to headquarter – subsidiary relationships, for China-based subsidiaries (Qin et al 2011) and for high technology companies (Nohria and Ghoshal 1994; Kaufmann and Roessing 2005). Companies faces numerous issues and challenges in their internationalization process. In this study the case selection criterion is the internationalization process with multiple subsidiaries. In addition it had to be a case where the client was also willing to collaborate in the research to investigate whether the headquarter and both subsidiaries thoughts and visions are in line with the clients point of view in terms of collaboration. Thus, the case company was chosen due to a basic sampling frame (Yin, 2009); a Dutch based company with subsidiaries both in the home and host country.
28 This single-case study focuses on the Dutch shipyard sector and provide an analysis of the relationship between the Dutch headquarter and the subsidiaries of Royal IHC. More specific, this case focuses on the issues and challenges the Royal IHC faces in their internationalization strategy to the Chinese market. Unit of analysis (Yin, 2009) are the Dutch based headquarter, one Dutch based subsidiary and the foreign subsidiaries based in China. The following paragraphs reveal more information about the background of the company and their internationalization process in China so far.
3.3.1 Case Company
Royal IHC is focused on the continuous development of design and construction activities for the specialist maritime sector. It is the global market leader for efficient dredging and mining vessels and equipment and a reliable supplier of innovative ships and supplies for offshore construction. Royal IHC has in-house experience for engineering and manufacturing integrated standard and custom-built vessels, advanced equipment and also providing life-cycle support. Royal IHC has over 3.000 employees based at various locations in the world. (Royal IHC’s homepage) MTI Holland, Royal IHC’s dredging knowledge center, is the worldwide leading center of expertise in the area of translating knowledge of dredging, mining and deep-sea mining processes into the specification, design and application of equipment. The Training Institute for Dredging (TID) is part of MTI Holland. In any project there needs to be a balance between project, people and equipment. When acquiring new modern equipment, the crew needs to have the right competences to be able to operate the new equipment and its automation systems in such a way, that they fully benefit from the efficiency of the equipment and achieve maximum results on the different projects. Training Institute for Dredging (TID) can identify the room for improvement of dredging operators, identify their training needs and design specific training programs in order to obtain the level of dredging competences needed to perform the job.
The crisis in the shipbuilding industry has led to greater rivalry in the market. This has resulted in increased price competition. To adapt to these new market conditions, one of Royal IHC’s spare points is will be internationalization in order to increase efficiency and reduce costs. (Royal IHC’s
29 Annual Report 2013) In China, Royal IHC established an subsidiary: IHC China Training. (Royal IHC’s internal presentation 2012). The board of management of Royal IHC points out that the transfer of knowledge to customers and training their crew and intensifies customer relationships are spare points for the future to gain access to potential markets.
3.3.2 Chinese dredging market
According to the International Association of Dredging Companies (IADC) the global dredging market amounted to € 10.7 billion. China is the largest dredging market, accounting for 29% of the total market worldwide. China remains an important market for Royal IHC not only for its current and future growth potentials but as one of their its biggest customers, the world’s top ports and terminals are located in Asia. One of Royal IHC’s spearheads is future internationalization. It intends to achieve this by building a strong and broad distribution and service network in China. To become a leader in services, the company has established the Training Institute for Dredging to offer the client professional training, rather than solely as a support function to equipment sales. With establishing IHC China Training, a visionary goal of the headquarter was to enter the Chinese market and provide their clients with the desired training facilities for dredging. The headquarter of Royal IHC is located in Kinderdijk, the Netherlands with a local subsidiary also located in Kinderdijk. The foreign subsidiaries are located in Beijing and Tianjin providing sales, services and spare parts in China. These Chinese offices report directly to the headquarter in Kinderdijk. The office in Beijing is responsible for the sales of new vessels. The office in Tianjin is responsible for the sales of spare parts, maintenance and services, including training for dredging.
3.4 Qualitative Data Analysis
Measuring qualitative data is a complex process, but it gives meaning to the results by incorporating the explicit logics of the respondents. As said by Schotter and Beamish (2011), organizational effectiveness appeared to be a more comprehensive measure compared to financial performance measures and operational performance measures, because this method takes into account broader organizational goals and multiple parties. Moreover, organizational effectiveness takes into account that the interests of both headquarter- and subsidiary are not necessarily aligned. The effectiveness of
30 the relationship between the headquarters and the subsidiary of a MNE is also discussed in the article of Roth and Nigh (1992). They describe the effective management as one of the key challenges for the management. As indicated before, this research will describe the effectiveness of the relationship in terms of the processes and procedures within the collaboration between the headquarter and the subsidiaries. The perception of the interviewees are used to indicate this effectiveness.
This research is shaped by working propositions, which means that the way the data collection is shaped has been influenced by the propositions. Therefore, the interview guide and the data collection tries to answer the propositions. Together with the collected data through interview, secondary data is also used as data source. The analysis of the data started with transcribing all the recorded interviews. The data analysis is done through thematic content analysis for the transcripts. By this approach, data will be categorized into meaningful data. (Saunders, 2009) According to Miles and Huberman (1984), qualitative data analysis consists of three flows of activity: data reduction, data display and data conclusion. Data reduction refers to the process of selecting, focusing and transforming the raw data that appear in the interviews. It also includes the coding of the collected data. All the relevant data was categorized, which refers to the first-level coding of data. After this, the first order codes are reviewed in order to create themes; this is known as pattern coding. (Miles and Huberman, 1984) In this research, the themes primarily emerges from the so called theory-related material technique. In this way, the connection between the working propositions and the data is ensured. (Ryan and Bernard, 2003)
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4. Results
The next section firstly discusses the degree of which the working propositions are supported by the findings of this research. This will be done by presenting the results per unit of analysis. After the separate results, there will be a brief cross-analysis to compare the differences and similarities in the case.
4.1 Data presentation
In the interviews, issues and challenges related to the headquarters-subsidiary relationship were brought forth which were seen to have an impact on the relationship between the two parties. The working propositions were tested and new insights were added to the findings. The different tables provide the key summary of the findings and gives an overview of the perception of the interviewee regarding the main themes of this research: knowledge sharing, shared values and coordination and control. Based on the collected data, extra themes are added to the tables as those themes were highlighted to be important for the interviewees.
4.1.1 Headquarter
1. Knowledge sharing
From the perspective of the respondents of the headquarter, the knowledge sharing overall is currently seen as positive. If the subsidiary share all the information they have and as much as possible, the decision from the headquarter will be more objective and more towards the direction which the subsidiary wants.
“That’s certainly true. The procedure is in fact very simple and transparent. If they show me the benefits of providing services to non-clients in China, than I will be happy to look at the possibilities. But if they ask me just the question ‘is it a go or a no-go?’ than it is probably a no. They have to convince me and provide me of all the information. And at the moment, I think it’s going very well.” [Area Manager]
32 Since the product managers are more separate from the subsidiary, they rely more on the fact that there is a certain trust in the organization to share the knowledge there is within the company. Trust is something that is required by the headquarter from the subsidiary and simultaneously the headquarter needs the subsidiary to accept and trust the decision, even if the decision is negative for the subsidiary.
“You never know what kind of information you are missing. Sometimes you get to know information afterwards and then you think: ‘that’s a shame that I didn’t knew it before’. The more you share, the less resistance you will generate. If you share less information, some people may think it is deliberately kept away while that may not have to be the case. But I think we’re on a good way now, as far as I can judge.” [Product Director 1]
The headquarter receives information from the Chinese market through the subsidiary. Since competition is rising and the Chinese market is also becoming more knowledgeable about specific technology, the headquarter wants the subsidiary to focus more and more on the information sharing of the evaluation of the provided services in China.
“I see room for improvement in the feedback on what exactly is happening in China. We want to know the feedback of our Chinese clients and learn from it to improve our future services. I think that’s a point that could be better sometimes.” [Product Director 2]
The importance of transferring knowledge of the Western-way of working to the local subsidiaries was seen important. In this way, the company strategy and philosophy will be much more embedded in the local subsidiary and gives the customer the feeling that the company act like ‘one-company’. By open and honest communication, the subsidiary will have a better overview of the company strategy for a certain client or project.
“We have contact on a –almost- daily basis with Tianjin and Beijing and the GM of China is visiting the Netherlands at least once a month. We always have discussions and meetings going on, because the geographical distance is sometimes a problem though. But those visits are very valuable for sharing both our thoughts and information.” [Area Manager]
33 The overall conclusion of the headquarter on the degree of knowledge sharing within the organization, is that the more information they share, the better the relationship between the headquarter and the subsidiary will be and hence, the effectiveness of this relationship. The headquarter stressed the importance on collecting and receiving as much information as they can from the subsidiaries, in order to make a deliberate decision.
2. Shared values
Most of the respondents of the HQ show the same clear vision about the strategic direction of the subsidiary. Training is seen as a very valuable resource, but it should never be the first priority. It should be a medium but not a goal:
“We see training as a resource to attract the people inside our business and make them aware
of the quality of our equipment. What we face in China, is that hardly no customer thinks about training in the same way. That’s our problem.” [Area Manager]
Both the product directors and area manager are critical towards sharing technical knowledge to non-clients in China.
“The biggest companies in China expressed the wish to become the biggest dredge company in the world; not only in dredging, but also in building the dredge vessels. And if you look at our history with some of the Chinese parties… they copied a lot of our stuff so I think we have to be careful in sharing our knowledge with them. They don’t have respect for intellectual property at all. In fact: it doesn’t even exist in China. So, we could do two things: ignore and sell as much as possible or be careful and always look at it case by case. I prefer the latter.”
[Product Director]
In the company history there were some bad experiences with imitating and copying of the Chinese market. It’s due to this fact that some respondent are somehow skeptical in serving the Chinese market in the same way as they do it in other parts of the world.
