Mitigating the Liability of Foreignness
- From Emerging to Mature Market
MBA Company Project
Name: Yue Wu (11429755)
Contact: maymayren@gmail.com
Supervisor: Dr. Michelle Westermann-Behaylo
Date: 15
thAug 2018
Executive Summary
With the in-depth economic globalization process and the development of China’s economy in recent centuries, more and more Chinese enterprises plan or have started doing business in foreign countries. In most cases, these companies’ internationalization processes started with intra-group business and positioning themselves as group company’s sales
representatives. On one hand, these overseas subsidiaries had an acceptable performance by levering their firm-specific advantages (FSA). On the other, due to the lack of local experience, huge institutional and cultural distance between China and host countries (especially western countries), these multi-national enterprises (MNE) are hard to really anchor themselves as a real local company.
In this paper, firstly, the author will articulate the key issue that causing international business expansion and localization problem – liability of foreignness (LOF).
Then the author will review its theoretical background and relevant literature on cross-national distance, distinguishing and overcoming LOF.
In addition, the author will incorporate various frameworks and propose a holistic model to help MNE to identify and mitigate their LOF. There are three steps in the proposed model: the first step is to identify general distances between home country and host country; the second step is to use the heuristic checklist to identify company’s current and potential LOF; the last step is to find proper frameworks to mitigate the LOF.
Further to that, in order to help Chimbusco Europe BV (CEBV) facilitate its localization strategy and enhance its overall performance, the author will use the proposed model to identify and give recommendations to mitigate its LOF.
Table of content
I. Introduction ... 4
II. Literature Review ... 7
A. Cross-border Distance ... 7
B. Identifying LOF ... 8
C. Mitigating LOF ... 9
III. The Framework and Application ... 11
A. The Framework ... 11
A.1 A Model of Identifying and Mitigating LOF ... 11
A.2 Cross-national Distance Framework ... 12
A.3 Heuristic Checklist ... 14
A.4 Mitigating CEBV’s LOF ... 17
B. Application ... 25
B.1 Marine Bunker Industry ... 25
B.2 CEBV ... 26
B.3 Application of Cross-national Distance ... 27
B.4 Application of Identifying CEBV’s LOF ... 33
B.5 Application of Mitigating CEBV’s LOF ... 36
B.6 Application of Staffing Strategy and Others ... 41
IV. Managerial Recommendations ... 43
V. Conclusion ... 46
I. Introduction
In recent years, foreign-Chinese firms have received unprecedented attention due to China’s economic prosperity and rapid growth of investment. Chinese firms start doing business in another country by green field, joint venture or M&A, aim for long-term business and want to proceed with localization strategy (Hong, Pieke and Stam, 2017). Nevertheless, the localization process is not easy for these Chinese firms, due to the huge institutional and cultural differences between China and the host countries. In this paper, the user will use CEBV as an example to explore how to solve these problems.
First, the author will give a brief introduction of CEBV’s key issue. CEBV is a Dutch-located Chinese state-owned enterprise (SOE) who has focused on group-related business. CEBV had a very good business development and rapid growth since its establishment. Nevertheless, in recent 4 years, due to market saturation and change of group business strategy, the rapid growth has stopped. CEBV has tried to explore new customers, exploit existing customers and start the local business, but the result was not encouraging. Due to CEBV’s current situation, the paper will focus on the international business (IB) perspective and use institutional approaches to figure out potential solutions for CEBV.
More and more scholars have noticed that institution-based view plays an important role in MNE’s international expansion. The cross-national distance between two countries is one of the main topics in IB domain. Previous scholars have identified several dimensions that impact country-level distance: distance framework (Ghemawat, 2001) and cross-national distance framework (Berry, Guillen and Zhou, 2010) are the most appealing ones. While cross-border distance’s studies help people understand the gaps at country-level, other scholars have focused their attention on distinguishing and overcoming specific LOF at firm-level: cultural related LOF (Calhoun, 2002); institutional distance (Eden and Miller, 2004); comparing the disadvantages with local firms (Mezias, 2002) and holistic approach to identify and mitigate LOF (Sethi and Guisinger, 2002). All these literature and frameworks help companies know better about their weaknesses in doing business distance. By applying the literature and frameworks, companies could identify and mitigate their LOF, and as a consequence, improve their international strategy and performance.
After a short review of existing theories, the author will explain the main frameworks that going to use to solve CEBV’s key issue. First of all, the author will apply the cross-national distance framework (Berry, Guillen and Zhou, 2010) to identify the general distance between China and the Netherlands. Second, the author will incorporate couples of researches from institutional distance framework (Eden and Miller, 2004), culture distance framework (Calhoun, 2002), and ideas from Mezias (2002) and Matsuo (2000) to make a heuristic checklist, the checklist will be used to identify CEBV’s current and potential LOF. Last but not least, according to CEBV’s identified LOF, the author will choose several suitable frameworks to solve CEBV’s key issue. In this case, the frameworks that have chosen are culture map framework (Meyer, 2014) to solve internal and external cultural issues; expatriate strategy to solve language issue and the fluctuation of LOF (Mezias 2002) and strategies about different institution set up to solve institutional issues (Philips, Tracy and Karra, 2009). In order to identify and solve CEBV’s key issue, the author also has interviewed CEBV’s managers and employees to acquire relevant information.
After a thorough analysis, the author will give recommendations to help CEBV tackle with its LOF. The recommendations include cultural integration strategy, expatriate strategy, and staffing strategy. The proposed cultural adaptation strategy will mitigate CEBV’s inside and outside cultural issues, improve its organizational efficiency and performance; the expatriate strategy will reduce institutional distance and the fluctuation of LOF; the staffing strategy will facilitate CEBV’s localization process. Due to the commonalities of managerial issues that Chinese enterprises have encountered in the Netherlands, other Chinese companies could also use the proposed model and analysis to solve their own LOF and accelerate their localization process.
There are five chapters in this paper. Chapter I is the introduction. Thereafter comes chapter II “the literature review”: the author will first review the literature on country-level distance, and then review the literature about identifying and mitigating the company’s specific LOF. That is followed by chapter III “framework and application”: in the framework section, the author will explain the construct of proposed model, and then give a detailed explanation on each framework that used in the model; in the application session, the author will apply the proposed model to CEBV’s case, and help CEBV identify and mitigate its LOF. In chapter IV,
the author will give recommendations to CEBV. Finally, this paper will end up with chapter V called “conclusion”, the author will give the final conclusion of this paper there.
II. Literature Review
Which factors decide companies’ IB strategy? Which factors decide the success and failure of companies in doing business internationally? These are two most fundamental research questions in IB field that scholars wanted to solve (Peng, 2004).
Doing business internationally is more risky, complicated and costly due to the unfamiliarity and distance. MNE have to bear more cost to deal with these additional risks and
complexities. The additional costs not only limit to financial cost but also could be a higher operational risk, fewer business opportunities or higher degree of employees’ conflict. These additional costs are called LOF (Hymer, 1960).
It has been over 40 years after the notion LOF was proposed by Hymer (1976) in his doctoral dissertation in 1960. Over years, the concept of LOF has been widely accepted. All the companies doing business internationally will confront LOF (Zaheer, 1995), which local companies don’t have. In this chapter, the author will review the relevant literature.
A. Cross-border Distance
In IB domain, how cross-national distance influences companies’ international investment and strategy is one of the most important areas that scholars have focused on. Geert (1980) first argued that cultural difference is important to cross-national distance, and proposed a four-dimensional framework to measure international cultural distance. By analyzing 116,000 questionnaires in 50 countries and using index scores to evaluate the work-related value patterns, he found cultural difference could be categorized by four dimensions: power distance, uncertainty avoidance, masculinity, and individualism. His work is widely used by scholars as the foundation of international distance research. Over years, scholars have developed new frameworks and measurements from the cultural distance. One of them is the cultural value framework (Schwartz’s 1992), which offered a more comprehensive array of cultural dimensions. Overtimes, scholars found that though culture distance is one of the most important cross-national distance dimensions, there are more dimensions that
On top of cultural distance study, scholars also have developed more dimensions to evaluate the impact on cross-border distance. Cave (1996) has identified the dimension of economic development; Henisz (2000) found the dimension of language, legal system and religion; and Guillen and Suarez (2005) has noticed that different percentage of internet user also is one national-distance dimension.
Untill now, the most appealing framework to measure national distance is the four-dimensional distance framework (Ghemawat, 2001). Ghemawat (2001) argued that
administrative distance, geographic distance, cultural distance and economics distance are four dimensions that impact national distance. Under each dimension, he also proposed several sub-dimensions, which gave a more detailed understanding of national-distance. The four-dimensional distance framework may be one of the most comprehensive distance studies for so far, besides cultural distance, the framework also took multi-dimensions into consideration. Furthermore, the framework provided more detailed sub-dimensions to enrich the national distance analysis. However, weaknesses of the framework are also clear: first, the dimensions are not complete, more dimensions could have impacts on national distance, e.g. demographic distance, knowledge distance; second, the framework didn’t provide detailed measurements and data sources, so that users couldn’t make quantitative analysis according to the framework.
In 2010, a new framework on cross-national distance (Berry, Guillen and Zhou, 2010) was introduced. Based on previous scholars’ researches, the framework proposed a more complete structure: nine dimensions to measure national distance. Besides that, the framework also offered detailed indicators and data sources to measure these national distance dimensions. The author will give a more specific introduction to this framework in the next chapter.
B. Identifying LOF
Due to different situations, the company’s LOF vary from one to another. It is important to identify the company’s all current and potential LOF in the company’s specific context.
The seminal and most widely used framework to identify LOF is a four-dimensional
framework (Zaheer, 1995). Zaheer (1995) argued that the LOF come from four sources: (1) physical distance: the travel cost, communication cost due to time difference and
transportation cost; (2) cost from the company’s context: degree of organizational learning engagement and etc; (3) cost from host country: hostility, discrimination, different business practice, restriction and etc; (4) cost from home country: restriction of export, national difference and etc.
On top of that, it is generally understood that national culture is another identified source of LOF. Calhoun (2002) identified the interplay between different cultural dimensions and firm performance: the interplay between corruption level, tenure, experience, and performance. Similar to Calhoun’s work, Matsuo (2000) found that LOF arises in three aspects: distance between HQ and foreign subsidiary; cultural and language differences; and economic and political differences.
In addition, Seith and Guisinger (2002) argued that the reason of LOF is because of the firm’s inability of understanding the international business environment. Furthermore, Eden and Miller (2004) noticed that LOF is also generated from the institutional distance, and provided a three-pillar framework to identify LOF: institutional distance in cognitive, normative and regulatory aspects influences LOF, and brings unfamiliarity, relational and discrimination hazards to the MNE.
C. Mitigating LOF
In general, there are two categories of researches that help companies overcome or mitigate the LOF, namely, mitigate specific LOF and holistic approach to solve the company’s overall level of LOF.
The first category of researches helps MNE overcome specific LOF. Offensive and defensive approach was proposed to eliminate the LOF of doing business in China (Luo, Shenkar and Nyaw, 2002). Besides that, Mezias (2002) discussed the relationship between expatriate rotation and LOF, and the correlations between expatriate strategy and organizational performance. In addition, Nachum (2003) researched the differences between British local
companies and British-located international companies and gave the ideas on mitigating LOF on several dimensions: cultural distance, entry mode, organizational structure and etc. Calhoun (2002) also found the correlations between different cultural dimensions and the level of LOF that company has faced, and gave some suggestions to solve cultural related LOF. Further to Calhoun’s research, Meyer (2014) proposed an eight-scale culture map to explain how the cultural differences impact business performance and how to solve culture related LOF. Furthermore, in 2009, Philips, Tracy and Karra (2009) provided different
strategies to deal with institutional uncertainty and distance. And in 2010, Klossek, Linke and Nippa (2010) reported that due diligence, reputation, reliability enhancement, experience and share of control could effectively mitigate LOF, according to the empirical analysis of several German-located Chinese companies. Barnard (2010) also reported that several factors impact the LOF of developing countries’ MNE doing business in developed locations. In general, there are quite some papers have discussed how to mitigate specific LOF. The second category of papers gives holistic approaches to identify and overcome LOF. Mezias (2002) developed a comprehensive two-part framework: first use proposed indicators to select relevant local companies as benchmarks; then identify the different business practices; finally, eliminate identified differences by organizational learning
engagement. His framework provided a new approach and several indicators to identify LOF, but it is not easy to find suitable benchmarks in the most cases. Other literature falling on this category are the ones suggested that the company should create and develop a core ability to overcome LOF in general. Seith and Guisinger (2002) offered a model to eliminate LOF: they argued that companies’ international business environment reading ability is crucial to mitigate LOF. Companies need to develop IBE-reading ability both on organization-level and individual-organization-level, and the IBE-reading ability would be MNE’s key competitive advantage. Companies with IBE-reading ability may be even outperformed than local
companies. Perterson and Pedersen (2002) found that the degree of organizational learning engagement is positively correlated with the level of LOF that MNE face. They also found that the large group companies may mitigate LOF quicker than small MNE because large groups have a stronger intention and ability to apply organizational learning before entering into the foreign market. Finally, they suggested that companies should positively apply organization learning, as it is crucial to mitigate LOF.
III. The Framework and Application
In this chapter, first of all, the author will incorporate several frameworks and propose a new model to identify and mitigate LOF. Then the author will give the detailed explanation of each framework that has incorporated into the proposed model. Finally, the author will apply the model to CEBV’s specific context, and try to identify the full spectrum of its LOF and mitigate them.
A. The Framework
A.1 A Model of Identifying and Mitigating LOF
Based on scholars’ previous researches, the author has selected, combined several frameworks and proposed a new model to identify and solve MNE’s LOF issues. Figure 1 shows the model to identify and solve the LOF.
Figure 1. LOF Identification and Mitigation model
There are three parts in this model: the first part is to use distance framework to identify general difference at country-level; the second part is to use the heuristic checklist to find
out the full spectrum of company’s LOF. Last part is to apply appropriate frameworks to mitigate the identified LOF.
In the first step, the author has selected the cross-national distance framework (Berry, Guillen and Zhou, 2010, p1460) to identify country-level distance. The national distance doesn’t necessarily equal to company’s LOF, but make a national distance analysis right before the company’s LOF scan is necessary, the reasons are: first, though national distance is not identical to LOF, national distance is highly correlated with LOF; in a certain sense, it could be recognized that most of LOF derive from national or regional distances; second, nation distance gives people the first impression about how big the distance is; the understanding of national distance facilitates users to identify LOF; third, the company’s business environment and situation change constantly, but general national distance remains the same in a relevantly long time period, keep general national distance in mind could always give people a good basis of LOF analysis. Here, by analyzing the national distance, managers could already think about which distance may link to the company’s specific LOF.
After having the general national distance in mind, people could move into the second step. Here, the author has incorporated several frameworks to a heuristic checklist, which could be used to identify the company’s current LOF and potential LOF in the future.
Right after the company’s LOF is clear, people could then find and apply appropriate frameworks to develop strategies to mitigate relevant LOF. Because of the complexities of LOF, it is not possible to have a universal framework to solve every single LOF, managers have to find out proper ones themselves.
A.2 Cross-national Distance Framework
Again, scholars have paid too much attention to the impact on the cultural distance at country-level but ignored the others. It is necessary to assess the distance in every possible dimension and link them to the company’s specific context. The author has chosen the cross-national distance framework (Berry, Guillen and Zhou, 2010) as the main framework to assess the country-level distance. Based on previous scholars’ researches, the framework provides nine dimensions to measure cross-national distance in all aspects. Furthermore, the framework could measure national distance in a more quantitative way: in each dimension,
the framework offers indicators and gives data source to each indicator. Figure 2 depicts the nine dimensions cross-national distance framework and indicators of each dimension.
Figure 2. Dimensions and Indicators of Cross-national distance framework (Berry, Guillen and
Zhou, 2010, p1465)
The framework is built on three pillars conceptual institutional theories. First, national business system: “particular arrangements of hierarchy-market relations becoming
national governance system: "set of incentives, safeguards, and dispute-resolution processes used to order the activities of various corporate stakeholders" (Kester, 1996, p10), such as managers, employees, vendors, and authorities. Last but not least, national innovation system: composition of institutions that facilitate the advancement of innovation and technology (Nelson and Rosenberg, 1993).
The nine dimensions are economic, financial, political, administrative, cultural, demographic, knowledge, connectedness and geographic distance. For each dimension, the framework provides several indicators to measure the distance. In addition, for each indicator, the author also proposed sources of data where the distances could be calculated quantitatively. The data sources are from World Bank, POLCONV, freedom house, CIA factbook, USPTO and etc.
A.3 Heuristic Checklist
As mentioned in the literature review, scholars have identified some sources of LOF in different papers. In this session, the author will combine relevant papers and propose a heuristic checklist. In combination with country-level distance analysis, the checklist will facilitate managers in MNE to find out all current and potential LOF. The checklist is developed from Eden and Miller (2004)’s framework which was originally designed for the choice of different entry modes. Eden and Miller (2004) proposed three types of hazards derived from the institutional distance, this makes the sophisticated concept of institutions more understandable. On top of that, the author added two additional sources: information asymmetry and cultural difference (Calhoun, 2002) to make the checklist more integrated. Table I shows the checklist with all different LOF sources and theoretical information. In the checklist, the first dimension is spatial cost; the source was originally identified by Zaheer (1995). Based on Zaheer (1995)’s argument, the author also incorporated the ideas from Eden and Miller (2007) and Mezias (2002) to make the dimension more complete. There are two sub-dimensions in the checklist under spatial distance: geographic distance and unfamiliarity. Geographic distance relates to the costs that generate from distance, such as the communication cost with headquarter (HQ). Unfamiliarity as a source of LOF was proposed by Calhoun (2002), he identified two situations that cause LOF of unfamiliarity: the cost that the local companies also have, but based on the constant knowledge building, local
companies have less, e.g. due to the unfamiliarity of Dutch GAAP, foreign companies have to outsource their bookkeeping to external accountants; and the interest that only local
companies could enjoy, foreign companies are excluded: foreign government’s entry barriers on some industries. In addition, the author has added up one time cost as it is a generally recognized LOF that stems from physical distance, e.g. the evaluation cost before entering the new country.
The second dimension is information asymmetry cost. Information asymmetry means that the local companies have more useful information than foreign companies. Due to
information asymmetry, foreign companies lose business opportunities because of the lack of relevant information. Calhoun (2002) argued that the LOF from information asymmetry couldn’t be solved by a simple information exchange mechanism; the problem would only be solved when the cultural distance is solved in the foreign companies.
The third dimension right after information asymmetry is institutional distance. Scott (1995) first gave institutions a three-pillar definition: regulatory (formal), normative (informal), and cognitive (informal). Regulatory distance means “existing laws and rules in a particular national environment which promote certain types of behaviors and restrict others”
(Kostova, 1997, p180). Further to that, Eden and Miller (2007) gave regulatory pillar a simple explanation as “may or may not do” (Eden and Miller, 2007, p16), which could be simply understood as the country-level and company-level regulation differences. Normative distance means “social norms, values, beliefs, and assumptions about human nature and human behavior that are socially shared and are carried by individuals” (Kostova, 1997, p180), a simple explanation was provided by Eden and Miller (2007, p16) “what is or is not true”. The last pillar is cognitive distance: “schemas, frames, and inferential sets, which people use when selecting and interpreting information, it reflects the cognitive structures and social knowledge shared by the people in a given country” (Kostova, 1997, p180). Simply definition is “what can or can’t be done” (Eden and Miller, 2007, p16). Beyond three-pillar institutional framework, Eden and Miller (2007) also had identified three consequences from the institutional distance, namely, unfamiliarity hazards, discrimination hazards, and
relational hazards. The unfamiliarity hazards refer to MNE will have extra cost due to
unfamiliar with the foreign market and regulation. The discrimination hazards mean the cost that incurs from the discrimination from stakeholders in the foreign country, such as
consumer, government, authority and foreign partner. Last, the hazards from relationship refer to two different levels: intra-organizational relation hazards, the hazards will create extra governance and communication cost; inter-organizational relation hazards, hazards will generate additional negotiating cost with customers, government, and the settlement of dispute.
The last dimension in the checklist is the cultural difference. Calhoun (2002) noticed that without a certain degree of cultural understanding and integration, foreign companies will have information asymmetry problems due to the reason that tacit information can’t be transferred smoothly. The information asymmetry generates uncertainties in the foreign companies. Further to that, Calhoun (2002) argued that the cultural distance also will generate LOF in both external and internal environments. In the external environment, cultural issues will hinder the understanding of informal practices, which results in a loss of business opportunities. In the internal environment, if the company doesn’t fully understand the culture and individual value in the host country, agency problems could be raised. In addition, the author has added language (Matsuo, 2000) as an additional sub-dimension to cultural distance as language is the basic tool to convey information.
The aim for this list is to help managers rethink their company’s situation and identify the full spectrum of LOF. There might be some overlaps in the list, such as: “benefits denied to foreign firms” could be in both “spatial cost” and “discrimination hazards”, but as the checklist is aiming for “full spectrum”, the overlap will not be a problem.
In addition, the checklist has four answers to each identified LOF: not applicable, not
possible, bear and needs to be solved. The reasoning behind that are: first, some LOF are not possible to mitigate, e.g. the additional travel cost from host country to home country; second, some dimensions are not applicable to every company; third, the LOF that company is willing to bear, e.g. additional accountancy cost due to unfamiliarity of one country’s GAAP; fourth, the LOF need to be solved, these LOF is critical to the company and need to be solved as soon as possible.
Dimension Sum-dimension third-tier dimension Source
Spatial cost
Geographic distance - Zaheer (1995)
Unfamiliarity
Cost foreign firms incur disproportionately to domestic
firm
Mezias (2002) Benefits denied to foreign
firms that are enjoyed exclusively by domestic firms
(country level)
Mezias (2002)
One time cost Eden and Miller (2007) Information asymmetry - - Calhoun (2002) Institutional distance Regulatory, normative and cognitive Unfamiliarity hazards Scott (1995), Eden and Miller
(2004) Relational hazards
Scott (1995), Eden and Miller
(2004) Intra-organizational
Scott (1995), Eden and Miller
(2004) Inter-organizational
Scott (1995), Eden and Miller
(2004) Discrimination hazards
(company level)
Scott (1995), Eden and Miller
(2004) Cultural
difference
Internal environment - Calhoun (2002)
External environment - Calhoun (2002)
Language - Matsuo (2000)
Table I, Heuristic LOF Identification Checklist (Adapted from Eden and Miller 2004)
A.4 Mitigating CEBV’s LOF
Generally, due to the complexity and variety of each LOF, there is no universal framework that solves every specific LOF. Here the author has chosen several frameworks that are appropriate to solve CEBV’s LOF.
A.4.1 The culture map
A lot of scholars have devoted themselves to national cultural researches: compensation practices of national cultural distance (Schuler and Rogovsky, 1998) and a new competence building, e.g. trust (Doney, Cannon and Mullen, 1998) for MNE to solve cultural issues.
Among these frameworks, there is an interesting and practical one: “the culture map” (Meyer, 2014). Meyer gave more insights and practical suggestions on national culture distance in her book: “navigating the cultural minefield: learning how to work more effectively with people from other countries”, and another HBR article published in 2015 (Meyer, 2015). Meyer (2014) proposed eight cultural scales to evaluate culture differences. Furthermore, she proposed two polarities in each cultural scale to measure the differences and tactics to overcome the differences.
(1) Communicating
Figure 3. Countries’ Average Communicating Preference (Meyer, 2014, p36)
Figure 3 shows the average countries’ differences in communicating. This scale shows how people communicate with each other. There are two polarities, low-context: means the communication is accurate, clear and brief, there is no further meaning beyond one’s words; and high-context: means the communication is nuanced, profound and sophisticated, the expression often has further meaning and implication. The countries sit on one polarity perceive people on the other polarity differently, e.g. people from low-context perceive the people from high-context are lacking of transparency, secretive, untrustworthy. On the contrary, high-context people think that some obvious thing they don’t need to speak out.
(2) Evaluating
Figure 4. Countries’ Average Evaluating Preference (Meyer, 2014, p58)
Figure 4 depicts how people address their negative feedback in different countries. In some countries, people are more straightforward; whilst in other countries, people are reluctant to give direct negative feedback.
Figure 5 shows the inter-relationship between the first and second dimensions. In combination with communicating, figure 5 depicts the interrelationship between
communicating and evaluating. In low-context and direct negative feedback culture, people are transparent and express their negative feedback directly. For those who are in quadrant B (high-context and direct negative feedback), communication is sophisticated, but when it comes to the negative feedback, the directness could scare others who don’t know the culture.
(3) Persuading
Figure 6. Country’s Average Persuading Preference (Meyer, 2014, p76)
Figure 6 depicts the different cultures in the way of persuading others. In some cultures, people like to first address the principle then outcome; whilst in other cultures, people prefer to express application first. It is notable that the author says that Chinese people use neither principles-first nor application-first approach; they use the way so-called holistic approach, that is, think from macro to micro aspects, completely different from westerners think from micro to macro aspects.
(4) Leading
Figure 7 shows countries average positions in leadership styles. It is generally understood that in most of the western countries, people prefer non-hierarchical structure, whilst in some eastern countries long power distance and hierarchical leading style are predominant in business practice.
(5) Deciding
Figure 8. Country’s Average Deciding Preference (Meyer, 2014, p115)
Figure 8 shows the variation of the decision-making process in different countries. In
consensual cultures, discussion takes place before making decisions; and once the decision is made, it won’t be changed; whereas in other cultures, people prefer to use top-down
approach to make decisions, managers make decision with less upfront discussion, discussion might take place afterwards, and the decision may change if necessary. (6) Trusting
Figure 9. Countrys’ Average Trusting Preference (Meyer, 2014, p129)
Figure 9 summarizes the variation of trusting preference for business purposes across different countries. In task-based countries, people tend to trust people according to their performance in business exercises; whilst in relation-based cultures, people incline to build trust slowly through informal relationship, e.g. evening drinks or meals.
(7) Disagreeing
Figure 10. Countrys’ Average Disagreeing Preference (Meyer, 2014, p149)
This scale is disagreeing; the countries’ average preference is shown in Figure 10. People in some countries express their disagreement publicly, and that won’t influence the
relationship, e.g. people from Germany and the Netherlands. In other countries, addressing disagreement publicly is treated as disrespectful behavior and will impact on the relationship, so that people prefer to express their disagreement privately.
(8) Scheduling
Figure 11. Country’s Average Scheduling Preference (Meyer, 2014, p168)
Figure 11 shows the average countries’ preference on scheduling. People from some countries prefer to stick on the time schedule, focus on deadlines and one time one thing; whilst people from some other countries prefer flexibility: multiple things at a time and people just keep their schedule flexible to embrace more opportunities.
For each culture scale, the author also proposed strategies and tactics to tackle the impacts. On top of that, Meyer (2014) also proposed three rules to make cultural change: (1) the process of change is challenging, need to be prepared; (2) multiple scales need to be applied as company’s stakeholders are from different nations, each of them has unique culture, so
do it one by one; (3) identify not only the negative impact but also the positive impact, in which cultural differences could be shortened; (4) people need to adjust their positions constantly to fit the different cultures.
In contrast with cultural dimension framework (Hofstede, 1980), culture map framework provides more understandable and detailed scales to measure culture differences and gives strategies to manage them. In some dimensions, culture map framework also incorporates the dimensions from cultural dimension framework, for an example: “leading” Meyer (2014) combines “power distance” (Hofstede, 1980) to make the hierarchical leading style more explicit.
A.4.2 Expatriate Strategy and Institutional Distance
The selected frameworks are intended to solve the identified LOF of CEBV.
(1) Expatriate strategy. Due to CEBV’s organizational setup, expatriate plays a very important role in creating and dealing with LOF. Figure 12 depicts the correlation between expatriate’s rotation and the fluctuation of LOF; the stars in the figure are the time of expatriate rotation. In general, the overall LOF reduced by organizational learning engagement, but at the time of rotation, the LOF increase sharply because the new expatriates need time to adapt to the new environment.
Figure 12. Relationship between Expatriates Rotation and LOF (Mezias, 2002, p278)
Further to expatriate strategy, Mezias (2002) argued that the using expatriate affects the company’s competence of minimizing LOF, especially when expatriate is in the executive
position. Whether use expatriate or not depends on the different overall strategy: consistency of home country or integration of host country (Mezias, 2002).
(2) Institutional distance. Philips, Tracy and Karra (2009) proposed different strategies to deal with institutional issues. The choice of different strategies depends on the level of institutional uncertainty and institutional distance, figure 13 shows the framework. There are four quadrants in the framework: if both institutional uncertainty and institutional distance are high, the firm should avoid doing business in that region; whilst if host country’s institutional distance and uncertainty are low, the firm could transfer its home country’s institutional setup to the host country.
Figure 13. Institutional Uncertainty, Distance and Strategy (Philips, Tracy and Karra, 2009, p341)
B. Application
In this section, the author will apply the above-mentioned frameworks to CEBV. It is worth to have a brief introduction of CEBV’s industry, the company, and CEBV’s current situation before the application, as it will facilitate the understanding and analysis.
B.1 Marine Bunker Industry
Marine bunker industry is the industry that doing marine fuel supply and relevant activities. The companies in the industry involve in physical bunker supply, bunker trading, bunker hedging etc, and the industry is downstream of the maritime transportation industry. Marine fuel consumption accounts for approximately 70% of the total voyage cost, so ship owners and operators are sensitive to the fuel price. If sail schedule allows, ship owners and operators even prefer to deviate vessels to take bunker in a cheaper port.
Due to the economic prosperity and high cargo demands, Asia is the biggest bunker market in terms of physical bunker supply and bunker trading. Three out of the four biggest marine bunker areas are in Asia, namely, Singapore, China, and Fujairah. The other one is the Amsterdam-Rotterdam-Antwerp (ARA) area in Europe. All four bunkering areas account for over 50% volume of physical marine bunker supply.
Typically, there are three types of company in this industry, namely, physical bunker supplier who owns physical facilities, such as oil barge, oil storage etc to physically deliver fuel to the vessels; bunker trading company: purchase from physical bunker supplier and sell to ship owners and operators, they don’t directly involve into physical bunker delivery, but they will bear the credit risk, like CEBV; and broker: charge commission from either buyer or seller by arranging transactions between buyer or seller from their particular relationship from ship owners or physical suppliers.
B.1.1 Industry Current Situation
(1) The bunker trading market conditions are tough. The average gross margin rate per deal is about 0.2%, gross margin rate in the industry has decreased continuously in the last ten years.
(2) Cruel competitions are predominant in the industry. Companies often fight for 25 cents/MT margin, which accounts for around 0.06% of revenue. In some Asian markets, in order to keep market shares, companies even make deals at a loss.
(3) Credit risk is extremely high after the financial crisis. 30 days payment term without pawn is an unwritten rule in the industry. A lot of ship owners went bankrupt during the crisis, even the big ones. Without good credit management ability, bunker companies could easily go bankrupt.
B.2 CEBV
CEBV was established in 1989, is a marine fuel bunker trading company located in Rotterdam. The company was previously known as Sino Union BV and changed the name to CEBV in 2009 due to the acquisition from Chimbusco Group (biggest physical bunker supplier in China, 3rd biggest one in the world). Chimbusco group is owned by China Cosco Shipping group – a Chinese SOE with the biggest transportation fleet in the world. Figure 14 shows the brief organizational structure of CEBV.
Figure 14. Brief Organizational Structure of CEBV
At the time of establishment, the company aimed to help the group’s vessels order marine bunker (marine fuel) in ARA area, there was only 1 employee that deployed by the group company. In almost 30 years’ development and benefit from the acquisition, CEBV has developed its business portfolio into three main parts: (1) purchase bunker from Chimbusco group and sell to European customers, physical deliveries take place in Chinese ports, this accounts for 70% of CEBV’s revenue; (2) purchase bunker from European and African suppliers and sell to China COSCO shipping’s fleet, physical deliveries take place in Europe and Africa (mainly in ARA area), this accounts for 28% annual revenue; (3) both purchase from and sell to third parties, the physical bunker delivery takes place in Asian excluding
Chinese ports, this accounts for less than 2% revenue. Furthermore, CEBV generated over 400million USD annual revenue, almost 1million USD net incomes and trades over 1million MT bunkers in 2017. Figure 15 summarizes CEBV’s current different business portfolio.
Figure 15. Business Portfolio of CEBV
CEBV’s current strategy is operational excellence with a bit inclined to customer intimacy (Treacy & Wiersema, 1995). CEBV has expanded its business geographically across Europe and Africa, created the economy of scales and constantly adopted cost reduction initiatives to reduce its operational cost. On top of that, CEBV has also levered its FSA to improve performance: use the strength of credit risk management from group company to manage credit risk, and to use the financial facilities from other internal companies to lever its business scale. CEBV also has kept its operation in small size in terms of employees: two home country managers who take responsibility for operation and finance, four Dutch employees that take care of customer maintenance, daily operation, and finance tasks. In addition, CEBV has developed an IT platform to pursue customer management, operational analysis and to help CEBV timely adjust its market tactics.
B.3 Application of Cross-national Distance
Table II shows country-level distances between China and the Netherlands. In general, there are huge the distances between the two countries.
Regarding economic distance, in 2017, GDP per capita in China was 8827USD, and is 5 times larger in the Netherlands; though the inflation rate is almost the same, China’s import and
export per GDP are much smaller than the Netherlands. The income difference impacts the companies in the retail industry as the different level of GPD per capita influences the
average national income. The consumers have a different attitude towards their expenditure with different level of national income, e.g. people from lower income region prefer low-cost product, whereas quality and other attached value might be in their secondary consideration; people from higher income region prefer perceptive values over basic utility. Export and import per GPD show the country’s export and import intensity and the degree of economic openness. According to Table II, China’s export/import intensity and openness are less than in the Netherlands.
With respect to financial distance, China’s private credit percentage is 24%, higher than the Netherlands; this might give a LOF to Dutch-located Chinese companies as it is harder to get financial facilities in the Netherlands. Nevertheless, the figures of weighted stock market capacity and the number of listed companies in the Netherlands are higher than in China, this gives an impression that the Dutch stock market is stronger. In this sense, it is easier to finance from the Dutch capital market.
As for the political distance, none of them are in the same trade union except for WTO. Further to that, the Netherlands’ policies are more stable, and the Netherlands is more democratic. Different democratic level impacts the leadership styles in the business practice. As regards to administrative distance, there is no colonizer-colonized link, no common language and even no same single religion between the two countries. Regarding the sub-dimension: legal system, China’s data is not applicable from the data source, so the author has picked up the general legal information from Wikipedia: “Chinese law is based on
Germanic-style civil law, socialist law and traditional Chinese approach.”1, the Dutch civil law was heavily influenced by the German Bürgerliches Gesetzbuch (civil code of Germany)2. Due to limit legal knowledge, the author only found that there were some degrees of similarity in the law system as both of which were influenced by German civil law. Legal system distance aside, it could be already recognized that the administrative distance is very high.
1
https://en.wikipedia.org/wiki/Chinese_law
2 https://en.wikipedia.org/wiki/Law_of_the_Netherlands 2 https://en.wikipedia.org/wiki/Law_of_the_Netherlands
Furthermore, it is noticed that the language barrier creates a LOF for the Chinese company in the Netherlands.
With regard to cultural distance, China’s degree of masculinity is by 23% higher, power distance is by 73.27% higher and the uncertainty avoidance is by 80.99% higher than the Netherlands. Regarding individualism, the author can’t find relevant questions in WVS, but it is generally understood that collectivism is more appreciated in China; on the contrary, individualism is preferred in the Netherlands. These cultural distances constantly affect Chinese companies’ performance in the Netherlands.
As for the demographic aspect, in general, the distance is acceptable. 10% difference in life expectancy, 16% difference in birth rate and 10% difference in the population under 14. Only the indicator “population over 65” has a big difference, the indicator demonstrates that the Netherlands is in the aging society compare with China. The impact is that in the
Netherlands, the product of elders has more market as the percentage of aging population is high.
Regarding knowledge distance, China’s data of patents granted per 1million populations is higher, and the number of scientific articles is lower. The two indicators show contradictory results where further analysis is needed. The result may have a profound impact on
knowledge-intensive companies, but it almost has no impact on CEBV.
According to Table II, the global connectedness distance is also high. China’s tourism
expenditure/receipts per GDP are lower, and the percentage of internet using population is only halfway compared with the Netherlands. The distance will impact companies in the e-commerce industry.
Last, the geographic distance between China and the Netherlands is almost 8000km. On top of that, two countries are in different time zones, 6 hours time difference in the summer and 7 hours in the winter time. The distance directly links to the LOF of spatial distance (Zaheer, 1995).
Again, above cross-border distances showed a clear difference between China and the Netherlands. Not every distance links to CEBV’s specific LOF, but the analysis could give a general impression of distances at country-level, and facilitates managers to identify CEBV’s LOF.
Dimension/Indicator Variables CHN NL Difference% Data source
Economics distance
Income GDP per capita USD 8,827.00 48,223.20 -446.31% https://data.worldbank.org/indicator/NY.GDP.PCAP.CD Inflation GDP deflator (% GDP) 105.00 106.00 -0.95% https://data.worldbank.org/indicator/NY.GDP.DEFL.ZS
Exports Export (% GDP) 19.80 86.50 -336.87% https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
Imports Import (% GDP) 18.00 74.80 -315.56% https://data.worldbank.org/indicator/NE.IMP.GNFS.ZS
Financial distance
Private credit Domestic credit to
private sector (% GDP) 155.80 118.80 23.75% https://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS Stock market cap Market cap to listed
companeis (% GPD) 71.20 133.20 -87.08% https://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS?view=chart Listed companies
Number of listed companeis (per 1 million population 2.51 6.00 -138.62% https://data.worldbank.org/indicator/CM.MKT.LDOM.NO Political distance Policy-making uncertainty Political stability measured by considering independent institutional actors with veto power
0.27 0.78 -192.28% https://mgmt.wharton.upenn.edu/faculty/heniszpolcon/polcondataset/
Democratic
character Democracy score, 2018 14/100 99/100 -607.14% https://freedomhouse.org/report/freedom-world/freedom-world-2018 Size of the state Government
consumption (% GDP) 14.30 24.30 -69.93% https://data.worldbank.org/indicator/NE.CON.GOVT.ZS?view=chart
WTO member WTO member Yes Yes www.wto.org
Regional trade agreement
Dyadic membership in
the same trade bloc No No www.wto.org
Dimension/Indicator Variables CHN NL Difference% Data source
Administrative distance
Colonizer-colonized link
Weather dyad shares a colonial
tie No No -
Common language % population that speak the
same language in the dyad No No -
Common religion % population that share the
same religion in the dyad No No -
Legal system Whether dyad shares the same
legal system Waived Waived -
Cultural distance
Power distance Inverse respect for authority 41.90% 72.60% -73.27% http://www.worldvaluessurvey.org/wvs.jsp Uncertainty
avoidance Job security and trust 28.40% 5.40% 80.99% http://www.worldvaluessurvey.org/wvs.jsp
Individualism - -
Masculinity Importance of family and work
v4/v8 38.10% 29.50% 22.57% http://www.worldvaluessurvey.org/wvs.jsp
Demographic distance
Life expectancy Life expectancy at birth, total
(years) 76.00 82.00 -7.89% https://data.worldbank.org/indicator/SP.DYN.LE00.IN
Birth rate Birth rate, crude (per 1000
people) 12.00 10.00 16.67% https://data.worldbank.org/indicator/SP.DYN.CBRT.IN?view=chart Population under 14 Population ages 0-14% (% of
total) 18.00 16.00 11.11% https://data.worldbank.org/indicator/SP.POP.0014.TO.ZS
Population over 65 Population ages 65 and above
(% of total) 11.00 19.00 -72.73% https://data.worldbank.org/indicator/SP.POP.65UP.TO.ZS
Dimension/Indicator Variables CHN NL Difference% Data source
Knowledge distance
Patents
Patent grants by office and origin, and patents in force per 1 million population, 2016
291.64 112.59 61.39% http://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2017-chapter2.pdf Scientific articles Number of scientific articles per
1 million population 307.48 1,761.71 -472.95% https://data.worldbank.org/indicator/IP.JRN.ARTC.SC
Global connectedness distance
International tourism expenditure International tourism, expenditures (% GDP) 2.13% 2.46% -15.27% https://data.worldbank.org/indicator/ST.INT.XPND.CD International tourism receipts
International tourism, receipts
(% GDP) 0.36% 2.22% -510.62% https://data.worldbank.org/indicator/ST.INT.RCPT.CD?view=chart Internet use Individuals using the Internet
(% of population) 53.00 90.00 -69.81% https://data.worldbank.org/indicator/IT.NET.USER.ZS
Geographic distance
Great circle distance Distance between two capitals 7833km 7833km -
B.4 Application of Identifying CEBV’s LOF
Before the LOF identification process, the author gave the country-level distance analysis to CEBV’s managers and employees, and asked them to think about which country-level
distance could be linked to CEBV’s LOF. By doing that, a potential LOF of language barrier has been identified by managers. Then the author provided the heuristic checklist to everyone, explained the meaning of each dimension and asked people to think about current and potential LOF in CEBV. Table III illustrates the final result of identified LOF in CEBV.
In the dimension of spatial cost, the LOF from geographic distance mainly generates from the interactions between CEBV and HQ. Due to the physical distance and time difference (China is in GMT +8, the Netherlands is in GMT +1 or +2), extra costs incur on business trip (travel from the Netherlands to China) and communication with HQ (international calls and time difference). CEBV’s LOF on communication is more severe than other MNE as CEBV’s HQ also is CEBV’s key vendor; intensive communication took place every morning between CEBV and HQ. In addition, as Dutch tax authority has adopted OECD’s transfer pricing practice since 2016, due to the compliance purpose, CEBV has to spend extra tax
consultancy cost. Though CEBV has above-mentioned LOF, it is clear that these costs can’t be eliminated unless CEBV relocates to another region which is closer to its home country. At this sense, CEBV has to bear these LOF. Furthermore, there is no one time unfamiliarity cost, as these costs were incurred at the early years of CEBV’s establishment. Finally, most of the additional costs from “spatial cost” either have been offset by CEBV’s operational excellence strategy or it’s not applicable right now. In general, this dimension has limit impact on CEBV. Second, information asymmetry cost. The cost is generated in two folds. First, due to the unfamiliarity, CEBV’s managers need to spend more time to acquire relevant information, e.g. information about new local regulations; the cost has been solved by using consultancy service and knowledge building in CEBV. Second, CEBV loses business opportunities, because CEBV doesn’t have some of inquiries from its customer; the reasons could mainly be
attributed to either discrimination or relationship. Customers prefer to do business with local companies under the same condition; CEBV’s customers are geographically dispersed, it’s not easy to build up the relationship with distance. At the certain sense, CEBV’s the
information asymmetry LOF is derived from its cultural and institutional distance; it will be further identified in the dimensions of institutional and cultural distance.
Dimension
Sum-dimension third-tier dimension LOF Potential treatment
Spatial cost
Geographic distance -
Communication with HQ, business trip cost, transfer pricing cost
Not possible
Unfamiliarity
Cost foreign firms incur
disproportionately to domestic firm
Extra tax consultancy cost Bear
Benefits denied to foreign firms that are enjoyed exclusively by domestic firms (country-level)
No Not applicable
One time cost No Not applicable
Information
asymmetry - -
More communication cost, customer don't send inquire to CEBV Needs to be solved Institutional distance Regulatory, normative and cognitive
Unfamiliarity hazards Don't fully understand
Chinese business practice Needs to be solved Relational hazards See next two boxes See next two boxes
Intra-organizational
Communication barriers, uncertainty to employer, group's policy isn't understandable
Needs to be solved
Inter-organizational
Customer perceives the differences in business practice; weak customer engagement
Needs to be solved
Discrimination hazards (organization-level)
Customers tend to do business with western based companies, harder to get discount from local company Needs to be solved Cultural difference Internal environment -
High employee turnover, lack of motivation; non-transparent from employer, uncertainty, no discussion, hierarchy Needs to be solved External environment -
Different business practice between China, NL and other countries
Needs to be solved
Language -
Language barrier within CEBV, at the beginning of expat rotation; customer communication problem
Needs to be solved
Third, cost from the institutional distance. The sub-dimension of unfamiliarity hazards is mainly from that CEBV’s Dutch professionals don’t fully understand Chinese business practice, e.g. there are additional barging fees in some Chinese ports, but due to the unfamiliarity, CEBV’s Dutch professionals don’t charge the additional costs to customers. Relational hazards both exist inside and outside the organization. Inside the organization, as group company uses integration strategy, CEBV needs to submit various periodical reports and follow a lot of group policies, Dutch professionals can’t understand, as the practice is not applicable to Dutch companies. Outside the organization, the institutional distance also undermines the relationship between CEBV and customers: most of CEBV’s deals physically take place in China, before bunker delivery, a lot of formalities need to be done in Chinese ports. Addition to that, there are extra charges in some specific ports, which are not applicable in other countries. CEBV can’t control the process of physical delivery, but all of which influence customers’ perception toward CEBV, as CEBV is a Chinese company and a subsidiary of Chimbusco group. Discrimination hazards at the company level have also perceived as a problem, people in CEBV noticed that customers are more willing to work with western-based companies under the same conditions, as customers perceive they can understand western-based companies’ business practice better. Customers only send the Chinese ports inquiries to CEBV, as CEBV is one of the few companies who can do it. Last, LOF on cultural aspect has been identified as well. The cultural problems both exist inside and outside the organization. Inside the organization, from expatriate’s perspective, there is a high employees’ turnover; though CEBV gives a competitive market salary, some employees still don’t want to stay longer; furthermore, the employees are not motivated and don’t want to take initiatives. From Dutch nationals’ perspective, the company is non-transparent; managers don’t ask their opinions; they need to constantly ask managers’ consents, all above drive proactivity away. Outside of the organization, the
miscommunications between CEBV’s Dutch employees and people from Chinese vendor are often happened; same problem also exists in the communication between CEBV’s
professionals and customers outside Europe.
Language distance is also identified a potential LOF of CEBV. Though neither of two countries uses English as the native language, Dutch ranked No.1 in best non-native English speaking
countries 20173; the problem comes from CEBV’s expatriates. Expatriates in CEBV are Chinese nationals; normally expatriates come to CEBV and stay for 3-5 years. As English is not a working language in Chinese SOE, and English and Chinese are totally different language, expatriates have to adopt English working environment at the beginning of their tenure.
To summarize, according to the above analysis, CEBV’s LOF from the spatial distance were either solved or unable to solve. CEBV’s most influential LOF are from the institutional and cultural distance. On top of that, one potential LOF: the potential language barrier has been identified at the time of expatriate’s rotation. CEBV as a typical Dutch-located Chinese SOE, above identified LOF also conforms to Hong, Pieke and Stam (2017)’s report.
B.5 Application of Mitigating CEBV’s LOF
B.5.1 Application of Culture Map
In this section, the author will apply culture map (Meyer, 2014) to CEBV’s specific context, and mitigate the cultural related LOF. As the cultural issues both existing inside and outside CEBV, the author will pick up both CEBV’s typical stakeholders both from inside and outside and analyze their cultural patterns to make the analysis more thorough.
Figure 16 shows the different cultural patterns of CEBV’s stakeholders. First, the thin black arrow stands for Dutch average preferences in the cultural pattern; the author added this to check the movement of CEBV’s Dutch employees. Second, the black arrow is the CEBV’s Dutch employees’ cultural pattern. Third, the red arrow is CEBV’s Chinese employees’ pattern. Fourth, the green arrow is CEBV’s key Chinese vendor’s cultural pattern, as the key vendor is a traditional Chinese SOE, the cultural pattern could be recognized as the average position for Chinese people. Last, the orange arrow represents the position of CEBV’s key French customer.
Figure 16. Culture Map from CEBV employees and Key Customer and Vendor
The cultural patterns of each group were discussed with CEBV’s professionals with
considering the country’s average cultural pattern provided by Meyer (2014). The cultural pattern of CEBV’s Dutch employees is when they working with Chinese people, whilst the pattern of CEBV’s Chinese employees is when they working with Dutch. Furthermore, the pattern of “leading” from CEBV’s Dutch employees is when they consider it should be in the CEBV; pattern of “leading”, “deciding” and “scheduling” for CEBV’s key vendor and key account were picked up from country average figures, and adjusted through CEBV’s professionals comments.
It is shown in figure 16 that benefits from the cross-cultural working experience and knowledge-building, Dutch employees’ cultural pattern has moved a little bit toward the middle so that they could work well with Chinese professionals who sit on the opposite side. The trend of cultural pattern’s movement is also seen by Chinese employees, they have adopted a part of the cultural integration, and the pattern has moved from the green arrow to the red arrow.
In general, there are three types of cultural pattern relationships between Dutch and Chinese professionals in CEBV.
First, almost no gap: communicating, persuading and scheduling. Over years, people in CEBV have noticed the differences on communicating. To make communication more efficient, Dutch professionals have accepted a bit of high-context communication, Chinese
professionals also have well applied low-context communication skill in most of the cases. Same like communicating, there is almost no gap in persuading and scheduling. With respect to persuading, according to Meyer (2014), Chinese people use holistic thinking approach, from macro to micro aspects, which is totally different from Dutch. But in general, both Dutch and Chinese people prefer application-first over principle first, people in CEBV also didn’t find problems with this scale. In terms of scheduling, though Chinese people like flexible time scheduling whilst Dutch prefer to stick to the schedule, Chinese professionals also have accepted the Dutch standard. The difference that has been noticed is Dutch professionals in CEBV stick to one time one thing, no interruption, whilst Chinese professionals are still following several things one time as they believe this is the most efficient way to accomplish their goals. But this has no influence on mutual working, as both parties’ ways of working have been accepted by the others. On top of that, in China,
punctual is a virtue, whereas people want to be more flexible in scheduling is because they don’t want to lose opportunities.
Second, the gap exists, but the impact is limited: evaluating, trusting and disagreeing. Regarding evaluating, Chinese employees are well aware Dutch way of evaluating and have accepted a certain degree of being evaluated in Dutch way and also have applied a bit Dutch way of evaluating, but not that much. This conforms to Meyer (2014)’s argument: Dutch way of evaluating gives direct negative feedback with politeness, if one applies it directly without understanding the subtle differences, it would be considered a rude behavior. Same goes for
disagreeing, both parties are aware of the gap and could go a bit to the middle and live with other party’s behavior. Regarding trusting, people from both parties are aware of the difference and also can live with the difference.
Third, the gap exists and the impact is big: leading and deciding. Regarding leading, CEBV’s executives are from home country, though they have applied a bit of non-hierarchical leading style, Dutch professionals still think that is not enough. They prefer non-hierarchical leading style, and local country professionals often complain that they don’t want to confirm everything with their managers before doing it. Regarding Chinese professionals, sometimes they thought the host country professionals were not respectful enough and don't take initiatives in working. Almost same story goes to the scale of deciding: local country professionals complain that the company is not transparent, no discussion before making decisions and the decisions either changed freely afterwards or have proved not the best option later on; whilst home country executives think this is the most efficient way of making decisions, because discussion costs time and the result is unpredictable.
As the main cultural LOF are from leading and deciding. The cultural gaps between CEBV’s home and host country professionals negatively influence CEBV’s organizational efficiency and overall performance, this LOF needs to be fixed immediately. With respect to leading style, as proposed by Meyer (2014), Chinese professionals should be well aware the Dutch business practice on leading style, should try to apply goal-oriented leading style, and
shouldn’t care too much about the hierarchical level; whilst Dutch professionals should learn a bit about the hierarchical structure, and be well aware of the gap. Regarding deciding, as suggested by Meyer (2014), host country professionals should be well aware the gap, and try not to expect for their input and be flexible about the decision; in the meanwhile, home country professionals should leave more room for discussion before making decisions. Furthermore, team norm about leading and decision-making should also be established in CEBV. In addition, Chinese executives should adopt more to Dutch business practices, not another way around, due to the needs for localization. A certain degree of adaptiveness will also facilitate CEBV’s inter-group business by increasing the level of customer engagement. To summarize, in the past, according to knowledge-building and cross-cultural working experience, the basic needs of cultural integration have been solved in CEBV. However, due to the strategic focus - intra-group business, CEBV hasn’t thought deeply and thoroughly
about the cultural gaps between Chinese and Dutch employees, that created the invisible tension between two parties, as a consequence, high employee turnover and lack of initiatives both existing in CEBV. By applying culture map framework, the author has identified the most severe cultural issues are from the scales of leading and deciding, the author has given tactics to mitigate the gaps according to the culture map (Meyer, 2014). (2) Outside of the organization.
The author has picked up two most representative examples: Chinese key vendor and French key account, the cultural patterns could be seen in the illustrative figure 16.
The cultural gaps between CEBV’s Dutch professionals and people from French key account are relatively big in the scale: communicating, persuading, leading, deciding and trusting. Among these scales, communicating, persuading and trusting directly impact CEBV’s business; whilst leading and deciding have the indirect impact. Regarding communicating, people from key account incline to “high-context” communicating; in contrast, CEBV’s Dutch professionals are more straightforward. To make the communication more efficient, CEBV’s Dutch professionals should “read in the lines”, take more attention to the customer’s tacit information. With respect to persuading, good quality of persuading could lead to a higher deal price. As suggested by Meyer (2014), the tactics to persuade a person in principles-first culture are to try to address the underlying principle before addressing outcomes. In terms of trusting, it is clear that the cultural pattern of French customer is biased to relationship-based culture. In this sense, CEBV’s professionals should positively build up common
interests, relationship with the customer, not only focus on the business itself. With respect to leading and deciding, the impact is indirect, but if CEBV’s professionals could try to understand customer’s ways of working, they could communicate with empathy and will result in the increase of customer engagement. In terms of trusting, working with people from a more hierarchical culture, a certain degree of respect is important: use last name to contact with person with higher level person; use their way to address greeting; when have business dinner, mind about the seating arrangement and keep the person informed to show the respect etc.
CEBV uses homogenization strategy to manage culture issues outside of organization, that is, Dutch professionals focus on European local customers and vendors, as the perceived
