“Distances to foreign markets in developed-countries: The effect of liability of foreignness and a CAGE framework analysis on an MNE with foreign
subsidiaries’’
A case study of a French multinational looking to grow in Russia, Singapore, Germany and The Netherlands in the international shipbuilding industry
R.F.M. van der Zwet (student number 10459456) Amsterdam Business School
Executive MBA – Company Project 10-09-2014
2 Table of Contents
Preface 3
Abstract 4
1. Introduction 5
2. The shipbuilding industry 8
3. Literature review
1. The CAGE framework 11
2. Institutional theory + contingency theory 14
3. The Resource Based View 17
4. Liability of Foreignness 18
5. Cross cultural communication competence and multicultural
team performance 20
6. Knowledge flows within multinational corporations 21 4. Data and method
1. Semi-structured interviews 23 2. Documentary analysis 24 5. Findings 25 6. Discussion 39 Reference list 47 Exhibits 50
3 Preface
This case study could not have been done without the support of people working at Nexans, in particular Stephane Mortelette and Bob de Kruijf, both being very open to providing me with the opportunity to do this project at Nexans. The explorative character of this case study, helped me in the induction phrase of my new job, and let me exploring the organisation from the inside, while learning about constraints and challenges that colleagues are facing working across the globe in Nexans.
When starting off in this company project, my first idea was to focus only on the different country aspects via classical approach of the CAGE distance framework. But when starting the interviews, I’ve seen that internal factors and struggles are
important additions to picture the full story. That was why I have included other theory and why I have broadened my scope.
The support of my supervisor, Prof. John Cullen, and the comments of Johan Lindeque and Jeroen Kraaijenbrink were vital to have reached this point.
4 Abstract
Contrary to what people often believe, the world is less globally integrated than it seems. Employees of MNE’s operating all over the world know that it is much easier to work with certain countries than with others. This has proven to be the case for Nexans too. Not only the physical distance between two countries determines the real distance between them, other types of distance like cultural, administrative and economic parameters are resulting in a less perfect integration than presumed. These cross-national constraints are not only external, also within the firm barriers are present that have an effect on the firm’s performance. For Nexans, both these internal and external cross-national aspects are having an influence on success. This case study confirms the analysis done by Ghemawat, but brings firm-specific and industry-specific additions. Because the intensity of cooperation with cultures that are closer to the culture of their own, differences come more often to the surface than the
distances to eg. Russia, which is via all parameters much further away. Internally, the knowledge-transfer between different locations is far from perfect, and the
capabilities to work with different cultures seem to be important to overcome what came out of this study. The distances from France or Germany to Russia seem much longer than the distances to Singapore, the Netherlands and Germany itself. Liability of foreignness is visible in Russia, where this is much weaker, although not invisible, in the other countries I have looked at. There are certain distances to these other three countries that should not be underestimated, mainly because of the cultural differences. Managers working on the strategy of the firm for the market segment in scope are advised to take the distances in this case study into consideration when progressing with executing the strategy. Furthermore, a lack of focus, commitment and motivation is sometimes visible because of misalignment of goals between the different locations in this group and a diverse set of playing fields within the teams in the host-countries.
5 1. Introduction
Nexans is a worldwide leader in the cable industry, it offers an extensive range of cables and cabling systems aiming to raise industrial productivity, improve business performance, enhance security, enrich the quality of life, and to assure long-term network reliability. With an industrial presence in 40 countries and commercial activities worldwide, Nexans employs 25,000 people and had sales in 2013 of 6.3 billion Euros. Nexans is listed on the NYSE Euronext in Paris.
At a certain moment in time, Nexans started expanding outside the French borders, knowing that international growth would be the direction for future success, and therefore to keep all stakeholders satisfied. Although top management is mainly French, more and more ‘European’ individuals are attracted to the firm, making not only the playing field but also the management more international. Essential is the right understanding and exploitation of Nexans’ capabilities, technical resources, know-how and skills, and even more essential, transferring these to the regions that are in scope to reach the same success as they have reached at home.
Nexans focuses in each geographical area on countries and market segments that are growth drivers. In every country, there is a focus on the specific segments that are leading in the strategic approach. This means that the teams that are working on a certain market segment, operate cross-country and local country managers are aligning their strategy with the strategy of the ‘segments’. Nexans has the following Business Units or Market Lines:
1. Infrastructure
2. Industry (this is the Market Line in scope for this project) 3. Building
4. Local Area Networks (LAN)
This case study will focus on one specific Segment in the Business Unit/Market Line ‘Industry’, which is the ‘Shipbuilding segment’1
. Since the 1st of July, I have started working for Nexans in this segment, as Area Sales Manager for Germany, The Netherlands, Singapore and Russia. All of these countries have a flourishing
6 shipbuilding industry in common. This case study will look at the global trends and will compare the local situations in these countries using the CAGE framework and the theory about the liability of foreignness (LoF). It will also look at the research about knowledge sharing between HQ and subsidiary, as well as the strategy that suits best to increase or strengthen business in these countries. However the world is less globally integrated than people often assume, and because distances exist between different countries, I will look at the influence of all these distances (both internal as external) on the firm’s performance. The CAGE framework has a focus only on countries, so I will include the role of the subsidiary and the degree of internal knowledge-sharing in this study and the industry/firm specific experiences of
managers working for Nexans, as this contributes more to the actual problem than just the comparison between countries.
It is useful to understand the global developments that are driving the growth and high potential in the shipbuilding segment:
1. A rising global demand for, and the production of energy
2. The globalization of trade and industrialization of emerging countries 3. Increased mobility of people and goods in emerging countries
4. Automation of production processes
To exploit these opportunities in the most optimal way, Nexans applies a pro-active investment, partnership and acquisition strategy, often working with local subsidiaries in the countries where customers in a segment are located. This plurality of countries creates an interesting opening to the theory of the CAGE distance framework
(Ghemawat, 2001), that looks at the deeper reasons why certain countries are often much further away from the home countries than others, and than people think they are. Besides the search about what creates distance between countries, I’ll integrate the industry specific distances and inter-company distances that affect Nexans’ performance in these four countries.
My first input for this research came from the strategy outline, where I learned that the team focussed on three pillars to sustain future growth in the countries Nexans will operate, and that can be seen as an addition to the linchpins of the corporate
7 strategy that I have described above. These pillars are: global expertise, local presence and technical leadership. This means that the cooperation with the local entities and the transfer of knowledge is material.
Apart from the CAGE framework, this paper will look at the potential presence of liability of foreignness (Hymer, 1976) and how this affects the internationalizing strategy for the four different countries where growth is our ultimate goal.
This research will look more accurate at the distances between the home firm and the four countries that I will be responsible for: Germany, The Netherlands, Russia and Singapore. It will investigate the experiences of managers in the organisation that have worked in or with these countries, to analyse the ‘real distances’ and obstacles that can be expected in this country, as well as the intricate challenges that arise having the local subsidiaries as key contributors and communicators to the strategy execution, influencing our performance as a segment. This should be taken into consideration, which I will include in the discussion. Porter (1986) with ‘Changing patterns of International Competition’ is an article that interestingly focuses on the changed rules regarding the external environment, relevant to this research. For countries as Russia and Singapore, Nexans needs to balance the view from an international perspective with the country specific approach. The business
environment for Nexans and the whole cable industry is continuously changing and full of opportunities and challenges. Transferring intangible and tangible assets, and knowledge sharing among the group, are two patterns that are related to the literature, and will be integrated with the outcomes of the analysis of the CAGE distance
framework and the expected liability of foreignness.
For the Shipbuilding market segment, Nexans decided to centralize the production, and to produce (almost) all shipboard cables in one single plant (Monchengladbach, Germany), where before two plants combined (Monchengladbach, Germany and Lyon, France) were producing this product range. Economies of scale, cost savings, total quality management and operational efficiency were the motivation behind this decision, a process called the RACE project. What strengthens the direction of centralizing production further is that this market segment has a resilient character, where other industry segments are more cyclical in demand.
8 2. The Shipbuilding Industry
The global shipbuilding industry has suffered heavily from the economic crisis that hit the economy in 2007. After a brief period of continuous growth before these years, shipbuilding is continuing to manage contraction and downsizing due to industrial overcapacity and an overabundance of ships of all categories. This has led to stiff competition and reduced profit margins for both shipbuilders and owners.2
Now that demand from the industry is picking up again, a trend is visible for higher quality materials, with higher demand and expectations looking at technical
specifications and fire safety certifications. This is something that is beneficial to Nexans as a company, who strives to be a leader on technical and innovative grounds. This trend is enhanced by higher expectations from the industry regarding operational efficiency of vessels and environmental advantages, and both are cable-based
solutions. Enforced by the recent tragedies with the Costa Concordia in Italy and the MV-Sewol ferry in South Korea in 2012, extra focus has been given to the safety regulations again, including the usage of flame retardant construction materials like cables. The following industry trends are expected to be visible in the coming 5 years: 3
• In 2011, the shipbuilding sector continued to recover in line with global economic growth. Demand is set to decline, however, in coming years because of increased concerns over the global economy’s growth prospects against the background of a deepening European crisis. Other sources however, indicate that the order books for 2014 and 2015 look much better than the previous years. Q4-2013 was the first quarter for European shipyards where the order book increased again compared to the quarter before, since the beginning of the crisis
• Shipbuilding production reached record levels in 2011, due to a large volume of new orders placed before the outbreak of the financial crisis. Lower ship prices led to new orders exceeding forecasts in 2010-2011.
• Shipbuilders have been confronted with higher raw materials prices. This has become a major impediment to reducing costs in the industry and has added to
2 Shipbuilding global market analysis 2012 3 Shipbuilding global market analysis 2012
9 overall profitability pressures. Although ship prices have started to pick up, after hitting bottom in 2009, the rise has been weak and prices remain at historically low levels.
• South Korean shipbuilders such as Samsung, Daewoo and Hyundai continue to dominate the industry landscape. Although Chinese players have seen
remarkable growth due to their low-cost strategies, they have not yet breached the high-end segments, like cruise ships, yachts and special vessels. We consider the Chinese and Korean market largely inaccessible
• As the industry faces higher fuel costs and stricter environmental regulations, the focus is shifting from quantitative expansion to qualitative upgrading. Demand is increasing for high- performance ships (energy saving, environmentally friendly). This creates an opportunity for South Korean, Japanese and European shipyards, all with extensive technical know-how.
Shipbuilding is a labour intensive and capital-intensive industry, where the pre-financing of working capital and price fluctuations in raw materials like steel and oil are increasing risk. In additional to these generic trends in the global shipbuilding market, it is necessary to discuss the further market segmentation in shipbuilding and to examine the local circumstances, before we can look at the details per country. Countries and firms in Europe have built and developed capabilities that really are valuable, costly to imitate, rare (Barney, 1991) and the organisations fully support them as they know their unique capabilities provide them with the raison d’etre. The market is fairly transparent, every shipyard has limited capacity to build and everyone in the industry knows what orders are ‘in the market’ and which organisations and institutions to stay close to.
The majority of all vessels built consist out of bulk carriers and container vessels (cargo ships), and are built in Asia. Ninety percent of the world trade is seaborne, and the over the last five years the dry bulk fleet has doubled, and the containership fleet has nearly tripled. Asian shipbuilders (South Korea and China as nr. 1 and nr. 2 respectively) hold a global market share of around 96%, with European yards holding a marginal production share of just 4%. However, new orders are concentrated on
10 higher value-added vessels, a segment where Europe holds a market share of 20%. Besides cargo ships, two other categories can be defined: Passenger ships and
specialized ships. The passenger ship category can be further split into ferries, cruise ships and yachts. The specialized ships can be split into offshore vessels (drill ships,
FPSO, FSRU), naval vessels (submarines, military ships), dredgers, tugs and
icebreakers. As passenger ships and specialized ships add more value and are more
complex to build compared to cargo vessels, Europe is a step ahead of the market leaders working on low value added vessels. High value added ships like cruise ships, are all built in Europe. European shipyards have a monopoly on building cruise ships, and there was a striking example about how difficult it is to copy that. When two orders were given to Mitsubishi in Asia, by the leading cruise vacation company Carnival Corporation, the monopoly seemed to be broken up. Unfortunately for Mitsubishi, things went wrong in the production process and the company could not deliver as planned4, strengthening the Europeans position in this ‘niche segment’. Another example where Europe enjoys exclusivity is the construction of mega and super yachts. The Netherlands, Germany and Italy have been leading this segment for years, and are delivering almost all exclusive state-of-the-art yachts in the world.
11 3. Theory review
3.1. CAGE distance framework5
The CAGE distance framework helps to identify and assess the impact of ‘distance’ on various industries, where the word ‘distance’ can be expressed in several ways. For this research, the framework can complement on the company’s existing country market portfolios. The attractiveness of a foreign market can be analyzed by looking at four basic distances between home and host country: cultural distance,
administrative distance, geographic distance and economic distance.
Administrative/Political distance, Geographic distance and Economic distance are summarized in the table in Exhibit C. The upper portion of the table lists the key attributes underlying the four dimensions of distance. The lower portion shows how they affect different products and industries.
Examples provided in the theory about former-colonial ties between countries (ten times as much trade as without these ties), a common currency (340% increase in trade) or being part of a common trading bloc (330%) speak for themselves. But every country will have specific ‘distances’, directly related to the industry or not, that can create barriers to expansion. Companies routinely overestimate the attractiveness of foreign markets and this is the main reason why this framework can assist by assessing how attractive a market really is. Although global communication might have become easier, distance in many other ways still matters. In this case study, the framework will be used to compare the distances towards the four different countries that are in scope and will also look at the country individually.
.
Figure 1 - Ghemawat, 2001
12 Figure 2 - Ghemawat, 2001
A country's cultural attributes determine how people interact with one another and with companies and institutions. Differences in religious beliefs, race, social norms, and language are all capable of creating distance between two countries. This can be in respect to customers or distributors, but this goes as well for the local office that assists internally while doing business with those external parties. I will also involve the corruption perception index and the ‘bribe payers index’ in the assessment. Institutions like governments, organisations that prescribe an industry about health and safety and environmental institutions create the administrative or political distance. Administrative distance is defined as the dimension formed out of formal and informal parts of a society. We can say that when the formal parts do not subscribe what is allowed and what is not, that the informal part takes over. This obviously differs per country, and the attitude and organisation of institutions, play a big role in determining the administrative distance. Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. (North, 1990) The institutional framework defines this further into
13 the business field to ‘the set of fundamental political, social and legal ground rules that establishes the basis for production, exchange and distribution. (Davis and North, 1971) So besides the determination of the administrative distance, strategic choices are (or should) not only be affected by the industry conditions and firm-specific resources, but also by the formal and informal constraints regarding the institutions in that country. In my point of view, the theory does not stress the importance of
institutional development explicitly enough under the category of administrative distance. Therefore I would like to add the measurement of institutional development and institutional distance. In line with recent research, I discuss the theory about institutional theory in the next paragraph, to emphasize the increased importance of institutions in entry mode research (Hoskisson, Eden, Lau, & Wright, 2000; Yiu & Makino, 2002). One can argue that institutions are already covered in the
administrative or political distance, but I believe this is not sufficient. The
administrative or political components in the model focus on the level of democracy and presence in trade / political or monetary associations, where the institutional component focuses much more on the dynamic aspects of the institutional
environment, including important regulations that determine the rules in this global industry.
The geographic distance is the third component of distance in the framework, but this doesn’t just imply the physical distance there is between countries. The transportation and communication infrastructures are important to study, as well as the topography and the distances between urban areas within the borders. Does the country border any seas and how are the ports located? In particular, products with low-value-to-weight or bulk ratios experience this distance as important and difficult to overcome, which is mostly not the case in the cable industry. For example, companies that find geography a barrier, might proceed in direct investment in a local plant.
Economic distance is the distance measured by the wealth or the income of consumers and firms in the relevant countries (Ghemawat, 2001). Multiple studies in the field of international business have examined the impact of economic distance on the choice of foreign market entry, and of the most suitable entry mode (e.g. Zaheer & Zaheer, 1997). This parameter keeps in mind the cost and quality of local resources that are needed to achieve the goals in that country. How accessible these resources are, will
14 partly determine the attractiveness. This dimension also contains the gap in the
economic profiles that significantly affects investors’ preferences in doing business.
3.2 Institutional theory + Contingency theory
As mentioned in the previous paragraph, the influence of institutions has recently received more focus in the theory than in the past. Evidence shows that transaction- cost variables may be underspecified, and institutional factors significantly contribute to explaining entry mode choice (Yiu & Makino, 2002). The basic idea of the
institutional theory lies in the idea that institutions determine the ‘rules of the game that are present in the host economy will have an effect on performance of firms entering this economy (Peng, 2003; North, 1990). According to the institutional theory the institutional environment is the main determinant of firm structure and behavior (DiMaggio & Powell, 1991). The institutional theory knows two directions of research, the economical approach (North, 1990) and the sociological approach (DiMaggio & Powell, 1991; Scott, 2001). Much of the research that followed combined these two approaches and we can conclude that both directions are complementing each other. (Peng, 2009)
Before extra attention was given to institutions and their effect of doing business abroad, research focused mainly on other ideas:
Thus far, strategy researchers have primarily focused on industry conditions (Porter, 1980) and firm resources (Barney, 1991) as drivers of firm differences, leading to competition- and resource-based perspectives, respectively. (Peng, 2003)
According to North (1991) firms face both formal and informal constraints in new business environments. On one hand formal constraints refer to different
constitutions, formal rights and laws. For example, the formal part refers to (local) government regulations or licenses for building work, whereas the informal aspect complements where the formal aspects are not providing the answer. Personal contacts and relationships are in many countries still of major importance (Redding, 1972).
Institutions refer to factors like the legal framework that is present in a country and to what extent rules and laws are actually enforced. Another aspect relevant for this
15 study are the institutions that determine the regulations and specifications products need to comply with, in compliance with safety regulations at sea. The main goal of institutions should be to facilitate an effective functioning of the market, allowing for transactions with minimal costs and risks (Peng, 2009).
The other approach is the sociological approach. Firms need to adapt their strategies to the rules of the game and to the common beliefs that are present in the environment they operate in. Institutional theory covers how firms deal with institutional forces, how strategic choices are influenced by these rules, norms and beliefs and how to optimally adapt to the environment. Scott (1995) claims that institutions are made of three different pillars: regulative, normative and cognitive. The regulative pillar focuses on regulations such the law and other regulations. Firms have to comply with legal requirements to avoid conflicts (e.g. tax, environmental regulations). The normative pillar focuses on social aspects and covers how firms are socially or
professionally expected to behave. The normative pillar is closely linked to moral and ethical dilemmas that firms may face. The cultural-cognitive pillar draws on the idea that social actors act because they attach meanings to their actions. Meanings are socially created through communication and interaction. The cultural cognitive pillar emphasises “templates for particular types of actors and scripts for action” over roles and obligations (Weber, 1996). Shared experiences and shared understandings about the world or the relevant aspect of the world in which particular social action is taking place result in taken-for-granted ways of operating. “A cultural cognitive conception of institutions stresses the central role played by the socially mediated construction of a common framework of meaning” (Scott, 2001). Differences in institutional
development in countries are proposed to play an important role in host country selection and foreign market entry strategies (Xu & Shenkar, 2002).
Contingency theory states that there is no best way to organize or lead a firm: the optimal strategy depends on the internal and external situation of the firm (Lawrence & Lorsch, 1967). The basic assumption is that the fit between strategy and context significantly affects performance. This theory supports the views given in the institutional theory that the best performance is achieved when a strategy is chosen that takes both internal and external aspects into account. A summary from the
16 different literature combining the contingency theory can be found below.
17
3.3 The Resource Based View (RBV)
The RBV starts with the firm as the starting point to create competitive advantage, and not the industry. Resources can lead to competitive advantage for a firm when they are valuable, rare, inimitable and non-substitutable (Barney, 1991). There is an important aspect in this framework that will prove relevant to this study, which is the fact that the organisation must be open and capable of exploiting the benefits of the resources, including internal support. Of course these specific resources relate to the reason that firms expand business abroad, to exploit opportunities locally. Also, firms can enter foreign markets in order to develop new resource-based advantages (Luo, 2002). Being valuable and rare are aspects that speak for themselves, but the inimitability and non-substitutability that are explained in further detail by Barney (1991), and are relevant to this case study.
Time plays an important role in the development of VRIO resources. First, historical conditions influence the path that firms have followed through time and may have resulted in unique value-creating strategies that competitors can simply not imitate, as they have not walked that same path. The second is causal ambiguity; it is another reason for imperfectly inimitability. This means that competing firms might
understand what resources another firms possesses, but do not understand how they’re used to obtain competitive advantage. Competitors may identify resources, but when the relationship and interaction between them is not understood, value creation won’t be easy. The last aspect that Barney refers to is social complexity. Competitive advantage may be imbedded in such socially complex phenomena such as
organisational culture with certain attributes (Barney, 1991) or the relationship with suppliers (Porter, 1980; Barney, 1991) that it is almost impossible for competing firms to get to identical conditions.
There are several other theories that continue on Barney’s work as it still is one of the most popular in this field of interest. I mention here the core competences by Prahalad & Hamel (1990), the knowledge-based view (Grant, 1996) and the dynamics
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3.4 Liability of Foreignness (LoF) (Zaheer, 1995; Hymer, 1960)
Liability of foreignness has been a popular subject to study in the field of
international business (Zaheer, 1995; Hymer, 1960; Eden & Miller, 2001). The idea is based on the theory of costs of doing business abroad by Hymer (1976), who was apparently a fanatic on this subject. The concept rests on the idea that national firms enjoy advantages over foreign firms in their home country, as they have access to better local information, may receive better treatment from the government and avoid costs that new entrants in this country are facing.
Despite the efforts of Hymer, Zaheer is seen as the main actor that published about this subject. She defines LoF as follows:
”All additional costs a firm operating in a market overseas incurs that a local firm
would not incur.” (Zaheer, 1995)
Zaheer has provided evidence that local companies outperformed new entrants, and authors like Eden & Millar (2001) and Sethi & Judge (2009) have outlined that LoF is just one of the costs of doing business abroad. The costs of doing business abroad by Hymer adds on the LoF as a cost of doing business abroad by naming the relative production costs, relational hazards and to manage the operations from a distance. Having said this, attention is needed to distinguish LoF from the other types of costs mentioned above. Two types of LoF hazards are described by Eden & Miller (2001), which are ‘unfamiliarity hazards’ and ‘discrimination hazards’. When reading the article of Zaheer (‘no local roots’), Eden & Miller point at a similar aspect with their unfamiliarity hazards, where they mean the lack of knowledge about the local market. Discrimination hazards not only refer to the discriminatory measures from host and home country governments, but also suppliers and buyers take to favour local firms over foreign subsidiaries.
What I find an interesting separation done by Sethi & Judge (2009), is the split between LoF and LoM (Liability of Multinationality), the first pointing at the different circumstances between the MNC subsidiary and the local firms, where the latter looks at the interaction between the home country firm and the subsidiaries and the international business environment. Both phenomenons are in scope here. An important difference is that the LoF will reduce over time, where the LoM will have
19 its ups and downs, fluctuating in strength over time as long as the firm operates across borders (Sethi & Judge, 2009).
Zaheer (1995) identified four sources of liability of foreignness that widely encompass the prevailing perspectives. The first source is the cost due to spatial distance, like real tacit costs such as the cost of transportation, travel and coordinating subsidiaries in different time zones. Considering transactions cost economics, these costs will lead to a growth in coordination costs, due to potential opportunistic behaviour at the foreign sites, an economic uncertain environment and the need of high frequency interaction (Williamson, 1991). It has to be noted that these costs are expected especially when firms have equity ownership in the foreign country. These costs are less expected to occur in the case the company only exports or works with distributors, although they might occur in these types of partnership too (Eden & Miller, 2001).
The second source that Zaheer comes up with, refer to the unfamiliarity in the local environment and the costs that arise from that. The habits of the people in the host country and the cultural differences result in effects on the way business is done (Hofstede, 1980). Business norms, business ethics and the relationship with clients and suppliers may differ to what the entrant is used to back home. In line with these differences, language can be a barrier to coordinate processes on unknown grounds (Pathak, 1983). In some way most of the people that are connected to the business communicate in English, but in many occasions certain part of the message will be lost when the two (or more) parties do not possess the language skills on the same level.
The third source consists of measures by the host-country such as nationalistic regulations affecting foreign companies, protecting local companies.
The fourth and final source is concluded as the costs that are imposed by the firm because of the home-country, for example regulations that try to prevent transferring funds or technology to the host country. Both the third and the fourth are considered discriminatory LoF, because of their discriminatory nature between nations (Zaheer 1995; Sethi & Judge, 2009).
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3.5 Cross cultural communication competence and multicultural team performance
Successful international business today demands high professional expertise and understanding of diversity between cultures. Organisational researchers who recognize the diverse nature of the workforce have increasingly focused on examination of work teams with multicultural members (Jackson et al., 1995; Lawrence, 1997; Snow et al., 1996). They have argued that workforce diversity can improve team performance, and hence advance organisational efficiency and effectiveness (Cox, 1993; Kirchmeyer and McLellan, 1991; Tung, 1993). To work effectively with a diverse group of people, multicultural team members need to know the cultures which they are interacting with and must also appreciate their team members’ personalities, conflict behaviour and life experiences (Triandis and Singelis, 1998). Increasing reliance on multicultural teams in the modern workplace calls for growth in understanding communication processes necessary to develop high performance teams (Wheelan et al., 1998). In the paper that combined data regarding this topic (Matveev & Nelson, 2004), the authors suggests that current knowledge and practice of multicultural team performance do not sufficiently take into account the effects of cross-cultural communication competence. Additionally, it states that the success of the organisation is dependent on the performance of multicultural teams, what is very much applicable to Nexans. A lot of research concludes that
multicultural teams have benefits, looking at the variety of skills, perspectives and personal attributes (Cox et al., 1991; Watson et al., 1993). But interaction problems may create team cohesion and different cultures bring different views on motives, intentions, behaviours, stereotyping, ethnocentrism and prejudices. Managing the cultural diversity, cultural differences and cross cultural conflicts has become the most common challenge in multi-cultural teams (Matveev & Nelson, 2004).
21
Figure 3 – Mataav & Nelson, 2004
The framework above relates to the national cultural orientations, the competence to communicate cross-cultural and how the multi-cultural team performs.
From Matveev & Nelson (2004): Past research identified various characteristics that constitute cross cultural communication competence, including relationship skills, communication skills, and personal traits such as inquisitiveness (Black and Gregersen, 2000; Kealey and Protheroe, 1996; Mendenhall, 2001;
Moosmüller,1995). This competence entails not only knowledge of the culture and language, but also affective and behavioral skills such as empathy, human warmth, charisma, and the ability to manage anxiety and uncertainty (Gudykunst, 1998; Spiess, 1996, 1998)
3.6 Knowledge flows within multinational corporations
The last part of theory I want to include is the article about knowledge flows within MNE’s is the basic idea that MNE’s create value from the internalization of their accumulated knowledge and from their knowledge “assets” (e.g., patents, trade secrets, and organisational routines) (VRIO resources as Barney describes, RvdZ) which can be traced back to the pioneering work of Hymer (1960), Caves (1971), and Buckley and Casson (1976) (Monteiro, Arviddson and Birkinshaw, 2008). Today there is a broad consensus that an MNC is “an international network that creates, accesses, integrates and applies knowledge in multiple locations” (Almeida et al. 2002). To respond effectively to its environmental heterogeneity, the MNC must
22 differentiate the activities of its subsidiaries, but it must also integrate them (Ghoshal and Nohria 1989). As Schulz (2003) puts it, the integration of the knowledge of the MNC on a worldwide basis, although difficult, is what enables MNCs to reap the “incremental value of being multinational” (Kogut, 1989).
The reality, however, is that knowledge integration within the MNC is far from perfect. There is ample evidence in the literature that knowledge is “sticky” and that leading-edge management practices do not flow rapidly and uneventfully from country to country (e.g.,Chew et al. 1990; Leibenstein 1966; Szulanski 1995, 1996; Teece 1981). Prior research has examined the difficulties of transferring tacit and complex knowledge within the organisation (e.g., Szulanksi 1996, Zander and Kogut 1995), the importance of motivation and absorptive capacity for transferring knowledge (e.g.,Gupta and Govindarajan 2000), and the relevance of central network positions in intraorganisational knowledge transfers (e.g., Tsai 2001).
An important finding in this article is that a large part (22%) of the subsidiaries interviewed (171) indicate that they are receiving inflows of information or new practices, less than once a year. Research shows that these ‘isolated subsidiaries’ underperform compared to those that receive sufficient in- and outflows of
information. The article basically confirms the hypothesis that the perception of HQ of the capabilities of the subsidiary determines the frequency knowledge transfers. For this case study, we’ll remain with the conclusions of the literature prior to this conclusion, confirming that MNE’s concerned about how they might better manage their internal knowledge flows to and from subsidiaries, can make a difference in their performance.
23 4 Methods
4.1 Semi-structured interviews
One of the unique powers of case study research design is the ability to deal with different data sources such as documents, observations and interviews (Yin, 2003). I have collected data through semi-structured interviews, providing the advantage of varying the questions in order receive the relevant examples and data for the case study. Non-standardized interviews are an appropriate way to seek understanding for the ‘how’ and the ‘why’ (Saunders et al. 2009). In total twenty-three people were interviewed. People working in the different subsidiaries, HQ, the shipbuilding segment and people that had to deal often with a specific nationality.
The questions asked can be found in the annexes, but the direction in the interview differs per person. Some people are much more experienced in describing the cultural differences between nationalities, but some were much more triggered and activated by the topics about knowledge transfers. Therefore the output was often different, but contributed in some way to the findings that will start on page 23. The mixture of nationalities, experience and positions, provided complete an interesting input. While interviewing, the executive was asked about his or her perception about the ‘distances’ that the CAGE framework prescribes. Also, questions were asked about different potential forms of liability of foreignness, and I will measure in which countries we can expect this to be strong, and in which countries not. Besides the question about the actual presence of this phenomenon, striking examples were collected that illustrate the common opinion about the different countries.
4.2 Data analysis
Next to the theory that I have described, I have used the CAGE distance analysis output by Prof. Ghemawat as starting point via a subscription on
www.ghemawat.com/cage. The tool takes the following parameters into account: language, religion, diaspora, trade bloc, currency, colonizer, corruption, political stability, legal origin, distance in km., adjacency, time zone, GDP per captita, GDP growth, HDI (Human Development Index) and internet penetration. Important additions I have made other than the outcomes from the semi-structured interviews are the corruptions index, the economic freedom index and the bribe payer index
24 provided by the World Bank. Other secondary data sources are the strategic roadmap of the market line ‘Industry’, segment ‘Shipbuilding’, a detailed report by an external consultant, Nexans annual reports, internal strategy documents, emails regarding business matters and RFQ’s coming from the countries in scope. Much of the data is broader than the scope of my case study, therefore I carefully review what is
applicable to the shipbuilding segment, and to see what can be extrapolated from general BU information. Furthermore, documentation, interviews and annual reports from the international shipbuilding industry has been included in this study, as well as customer visit reports and market newsletters that Nexans subscribes to.
25 5. Findings
It has been proven that absolute levels of globalization today are much lower than is commonly thought. (Ghemawat, 2001) Borders still matter, and people overestimate the rate of globalization of the world in general. The categories of the CAGE
framework are providing influencing factors that prevent the perfect integration of international trade, and these factors are tested within and around the Nexans organisation.
The findings about the four different countries will be presented in the perspective of both the CAGE framework and the connection to the causes of liability of
foreignness. These findings will have an effect on the attractiveness of these different markets.
As a starting point per country, I took the outcomes of the CAGE distance analysis output, calculated by the calculation tool of Prof. Ghemawat
(www.ghemawat.com/cage), as explained in the method and theory section earlier. I have included the distance comparisons with the four countries in scope from both France and Germany. This data was collected by Ghemawat6 and are touching the macro-situation, but will be further supplemented for this specific industry and from the perspective of Nexans as a unique firm.
5.1. Within country analysis: Germany
The calculated distances between countries from the perspective of French
companies, concludes with Germany being very close, on the third place, just after Luxembourg and Belgium.7 But there is an important side note in this case study. A substantial advantage for Nexans is that the actual production site for the Shipbuilding segment is located in Germany; a factory that was added to the group Nexans in 1992. An important part of the staff of the Shipbuilding segment is located in Germany, as where senior management of the Market Line ‘Industry’ is located in Paris. This comes together as a mixture of a German and a French firm.
The German market is an important market for Nexans. We estimate that Nexans has a market share of about 65% of the total German shipbuilding market, worth about 14
6 Exhibit C – Summary of outcomes including the analysis of Ghemawat 7 Exhibit C - Summary of outcomes including the analysis of Ghemawat
26 million euro in terms of turnover.8 To compare, the total European cable market for ships is estimated at 55 million euro.
The Germans focus on two out of the three categories that I have described in chapter 2, which are: passenger ships (European market share 90%) and specialized ships (European market share 15%). Within the passenger ship market segment, the cruise ship market is by far the largest one in Europe. Worldwide it accounts only for 1% of the total vessels produced, but 15% of the cable supply for the shipbuilding market is directed to these vessels. 50% of the total European cable demand comes from the cruise ship market, not surprising; these companies receive full focus from the industry. In Europe, the demand for specialized ships is growing in favour of the demand for ‘commodity ships’, like container vessels. For the first time in history, not a single container vessel had been produced in Germany.9
These shipbuilders are enormous firms, have a complex organisation and require JIT-delivery. All this information is essential to understand when making the connection to the theory relevant in this study.
Different managers in the organisation have confirmed that the liability of foreignness (Zaheer, 1995) does not apply to the German market, except the obvious costs of spatial distance, meaning the people traveling from France and Germany respectively to the factory and Nexans HQ. Furthermore, Nexans is perceived in Germany as a German company, reducing the effects of the liability of foreignness extensively. Looking at the shipbuilding industry, German is still the common language and decision makers do expect to be approached in their language, which is different for example to the financial industry. Although they master the English language to some degree, this is a cultural barrier that may affect success and performance;
‘It is of key importance to have dedicated people on the road that are looking after the goals and challenges of our business unit in Germany, whereas speaking the language and understanding the way Germans do business is understood. Dutch people are generally easily accepted when they possess the language well enough’
8 Exhibit D - Competitive analysis
27
‘Bringing the message across to senior management within this account won’t succeed when you don’t master the language. Efforts to start of the foreseen project require as less noise as possible during the conversation. Speaking a language is one thing, but the level that both can communicate in this language has created a
bottleneck in the past’
These findings contradict the outcomes of the analysis done by Ghemawat, which suggest that this would play a minor role in the business between these two nationalities.
Another cultural aspect, what indeed applies to internal communications between French and German executives, is the way how things ‘get done’. Six out of the eight German stressed the quality of some French managers, but also explained that the ‘punctuality’ that German people put in their work, is not always shared by French colleagues, who have a more ‘laidback approach’, as one interviewee called it. Internally, a course had previously been provided for German staff how to deal with the French culture and habits in business life. For the German market, a certain degree of traditionalism is applicable, where customers demand enough face-to-face time with their suppliers and the personal relationship plays an important role. One French executive explained how he experienced his time when working in Germany;
‘The perception of and the attitude towards technology is very different in the German culture compared to that of the French. Engineers enjoy much more regard/respect for their background then they do in France. The first thing written on a business card is the demonstration of what title (PhD, Dipl., Ing). they carry. Technology is positively perceived and an important aspect of the German culture, important to notice doing business there’
Another representative added;
‘Doing business in Germany is more ‘fact based and, no-nonsense. Technical know-how matters.’
All respondents agreed that administrative barriers like the absence of colonial ties, absence of a monetary or political association or weak institutions do not prevent Nexans to perform well. The government in Germany has liberalized their policy,
28 looking at the index of economic freedom over the years.10 But other institutions than the government exist. The German organisation VDE (Verband der Elektrotechnik, Elektronik und Informationstechnik) plays an essential role in the cable industry, as it sets industry standards and provides (or withdraws) licenses and certifications to those who produce products in this industry. Although interviewees stated that the VDE provides the same barriers to foreign suppliers as they do to local firms, knowledge about their procedures and ‘German strictness’ is important to keep in scope. Geographical barriers from the German plant to the German market do not seem obvious. The country is relatively big, but business activities are relatively centralized in the northern part, where most of the maritime business activities take place. What could be concluded from the interviews is that operations need to be fast, flexible and united in the northern part of the country in order to keep the geographical distance to a minimum. Cables need to be cut in short lengths and have to be delivered within 24 hours; therefore warehousing and distribution at the right location are vital. This means that geographical distance to part of the market increases quickly when the distance from storage to customer increases.
None of the respondents believed that any economical distances exists, although the German shipbuilding industry has come back from a large recession. For the first time since many years, 2013 had more turnover again than consecutive years. Germany is recovering from the economic crisis that started in 2007, and has seen the economy growing again in 2012 by 0.9%. The average per capita income has grown as well, and research shows that this leads to more international trade (Frankel & Rose, 2000), making a market more attractive. Interviewees pointed at the strong market position that Nexans has with Meyer Werft, who holds a market share of 72% (together with sister company Neptun Werft) of the total German shipbuilding market. 83% of the ships produced in Germany are exported, with US cruise line operators as the main customers. Most of the specialized vessels and yachts stay in Europe. The positive outlook for this segment decreases the economical distance to the German market. None of the respondents believed that liability of foreignness applies to the German market, but most of the people answered that the liability of multinationality does
10
29 affect performance. Some respondents indicate that different angles of attack
sometimes lead to interesting discussions, but some also conclude that different cultures approach situations or challenges in different ways.
The internal knowledge transfer, in this case from factory to subsidiary and vice-versa, is far from optimal. There are cases of a lot of misunderstanding or frustration when working with colleagues in foreign subsidiaries. Some interviewees believe this is because in the past people used to source from other factories, and some people believe this is because of misalignment of targets or that there are too many different targets.
5.2. Within country analysis: Russia
In the interview with the VP of Sales, based in Paris, it became clear that he sees the focus on specific segments as an important organisational strength, and also points at the importance of the local organisation or local subsidiary.
‘All of these segments have a growth potential. With a broad spectrum of products, we can follow our customers globally and provide them locally with the right offer…in countries like Russia and Singapore, building trust is more important than in western countries. Knowing your internal organisation (local subsidiary, RvdZ) and the relationship with them is just as important as your external relations.’
One executive commented;
‘The strength of having specific focus on many different segments creates expertise in …. that specific team, but the issue is that the local organisation is expected to assist in their country in all of these segments, making knowledge sharing extremely
important but as well limited in terms of capacity within the local organisation. Strategy alignment is one aspect, but capacity is determining what is possible and what is not.’
The contradiction of the presence of local resources in Germany/France (technical knowledge, marketing knowledge, success stories) and the market potential is
consistent with the broadly accepted premise that transfer of tacit knowledge between firms occurs more effectively in cases of geographical proximity and cultural
30 interviews, these constraints seem to block fluent communication between the
organisation in Germany/France, and the Russian subsidiary.
For Nexans, the technical and production resources in Germany have be linked to the demand for shipboard cables in Russia via the market competences of the Russian subsidiary. The diamond network model (Rugman & Verbeke, 1993) confirms the idea that the optimal configuration of the subsidiary is needed to optimize the
maximum exploitation of the host-country’s (host firm’s) resources abroad. Multiple executives in the organisation have confirmed this observation.
Measured from Germany, the analysis by Ghemawat concludes that the CAGE distance to Russia comes at place 44 out of the 162 countries that are in scope of his research. This is even lower, at place 61, taken from the French perspective.
Executives within in the organisation stated that much in that conclusion comes from the cultural differences between both nations. Russia scores 28/100 in the corruption index, and a certain form of corruption is indeed embedded in the culture. A French executive with 15 years experience in Russia shared the following;
‘For Russia you can say: ‘The more things change, the more things stay the same’. Western multinationals like we are, want to stay away from corruption and bribery, but certain ‘routines’ in Russia cannot be ignored. Therefore a ‘middle man’ is
needed that first of all has the network and speaks the language, but is also capable of dealing with these ‘routines’, the things we don’t do.’
A Russian manager mentioned in line with the second source of LoF (Zaheer, 1995);
‘Being unfamiliar is exactly what confronts you with extra costs. To know how, how and what to do in certain situations, takes time to learn. And time costs money’ ‘Logistics in Russia is not as transparent as they are elsewhere in the world; it takes time to learn where to go, in the beginning you’ll pay too much.’
Another outcome of the interview was that the Russian business culture is still very top-down orientated, especially in the construction industry, of which the shipbuilding industry is part of. In business life a certain ‘macho culture’ exists, and overcoming LoF by having local people on the ground, will only work when these people are
31 perceived as legislated to make real decisions, without needing to make a phone call to France or Germany.
From an institutional view (administrative factor) we see an extremely low value in the results. This is also one aspect that is confirmed by interviewees, concluding that institutions are not putting in a lot of effort to prevent corruption, and even playing an important role in sustaining it. The corruption index score of 28 is very low,
indicating strongly corrupt actions as abuse of power, secret dealings and bribery.11 Administrative distance strongly exists and decreases FDI and exports to Russia substantially.
‘There are no colonial ties and there are some tensions from the past, but most important is the lack of transparency. VAT-related issues are not as they are with us, and often are used to claim an extra percentage. This is what I would call an
institutional weakness. There are import tariffs (15%) for foreign cable producers, but many other documents make it often difficult to get goods in the country on time, with delays of weeks, resulting in unhappy customers, who then prefer local
producers again.’
‘Shipbuilders and the Russian navy are large employers, closely related to the government and in a way ‘national champions’. The state requires Russian materials for planes or ships produced in Russia, although the local quality is much lower and less reliable, where within Navy the global trend is to buy the highest standards.’
Many of the respondents from Russia and executives that have worked in Russia describe multiple examples where local suppliers and companies are preferred over foreign firms. Regulations and certifications are very old-fashioned, with many still originating from the Soviet period. Even though there are higher quality standards available in the market for comparable or even lower prices, institutions require ‘Russian standards’ for shipboard cables, because the standards won’t get updated. One person in the Russian organisation commented;
‘Since Crimea had been integrated in the Russian federation, and political hostility increased, the government officially told all Russian companies: Source locally! Do
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not buy from the west unless you don’t have another option.’
In Russia, geographical distance is seen as a cause of the lack of information flows or tacit knowledge. The segment approach that Nexans operates, as for shipbuilding, requires close cooperation to perform, including alignment of goals and resources. The Nexans subsidiary has a direct contact with the subsidiary, and according to the managers that were interviewed, no distributors or further middle men are needed to reach these prospects.
The plant for Shipbuilding is situated up to 5000 kilometers away from the region where most of the Russian shipbuilding industry is located. This physical distance with a moderate and often weak infrastructure, do not help Nexans in gaining market in this country, as local producers have much shorter lead times. Transportation costs are therefore significant, as well as the lead times, where the latter is an important part of receiving the orders or not.
There is talk of economical distance as well, resulting in the earlier mentioned state of corruption;
‘Because many people in the business and in government organisations do not earn a lot of money, they charge local companies, and especially companies that are
unfamiliar, fees to get things done.’
‘Employee turnover in our office is a problem. It takes time to learn, but people change jobs easily when another company offers an small amount of money extra compared to what they earned. This is costly to organisations that want to enter the Russian market, Nexans included.’
‘There is no single accounting standard like you know in Europe or in the United States. You have to understand that this creates huge difficulties, and in order to report according to the law, again, middle men are required to overcome this.’
All respondents confirmed that liability of foreignness applies to western companies active in the Russian market. Local requirements and understanding local certificates (quality, duties, tax, and logistics) require people that are familiar with these aspects. Knowledge sharing is concluded to be moderate as updates from the plans are only
33 received rarely. Although many did not confirm to have difficulties with this, they admitted that this could be much better. Repeatedly the following (not only Russian) statement came back;
‘It is the technical know-how of Nexans that can make the difference in our market, that extra we can offer compared to local producers with whom we can hardly compete on price. Updates on innovations from Germany provide us with extra ‘ammunition’.
Responses from the different subsidiaries confirm how Schulz concludes that the worldwide integration of knowledge enables the MNE to reap incremental values of being multinational, over the local cable producers there are in Russia. There are two reasons given why knowledge sharing could be improved;
‘There is so much to do here in our office, that we hardly have time to talk with our colleagues in Europe to share experiences. There is focus on many different markets. Second, we lack insight in the stock situations per plant; our lead times are too long. Russian customers are focused on the short-term, and expect short lead-times after they have sent the RFQ or Purchase Order’
5.3. Within country analysis: The Netherlands
The Dutch market appears to be very close to the German and French host-countries in terms of CAGE-distance as analyzed by Ghemawat. Nevertheless, for this industry, two managers have explained that they tried to overcome the Dutch cultural
differences by appointing a Dutch executive that would have fewer difficulties to open up this market than a German person would have. A manager of the Dutch subsidiary also noted the following:
‘Dutch people appear to be much more direct and solution driven than eg. the French managers, who tend to be more hierarchical, political vulpine and tend to delegate more than we do. This is something to take into account going both ways.’
From a German and French perspective, respondents confirmed the mentality of the Dutch, adding that the character of the Dutch people in and outside the business is strikingly international. German managers indicated that the Dutch culture is well
34 perceived in Germany, especially in the younger generations. There are relevant cultural differences between the business structures in the shipbuilding industry in The Netherlands and other countries:
‘The shipbuilding market is controlled by the installers, holding close relationships with the shipyards. Shipyards have outsourced much of the installation work over the years, forced by the heavy competition, leaving them in a much more flexible position when less orders come in. The installers are buying all the equipment and supplies, not the yards, but there are exceptions’
‘The attitude of the Dutch in business is effective, but did come across as ‘too tough’, letting the best be the enemy of the good. The remarkable was that after the
negotiations, everything is fun and much more personal. The French approach negotiations differently.’
Administrative barriers are very low, having a low corruption index (83), being a very open economy and they are part of the EU. Most of the executives interviewed
indicated that the Dutch institutions do not increase distance, but there are parts of the economy that are protected in a way, contradictorily to what is presumed:
‘The national railroads (NS) have standards for a certain type of cable that had been produced by a Dutch supplier for many years. When our German factory tried to develop an alternative, all technical specifications could only be delivered in Dutch. This, however, does not apply to the shipbuilding industry, as far as I know.’
Geographical distance has been an issue in the past, but this is expected to improve now the production facilities have centralized in Germany, just across the border;
‘From my experience, as a rule of thumb, a maximum radius of 500 km is allowed to remain agile enough to serve the market fast and to remain competitive looking at your transportation cost. We have our cutting facilities in Buizingen, not too far from Brussels. The culture here is: ‘Ordered today, delivered latest tomorrow. This is something hard to understand for some people, it differs from other cultures.’
Additional distance can occur when unfamiliar with the distribution structure in Holland;
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‘The Netherlands have always been an ‘installer’s country’ or ‘wholesaler’s country’, this is simply how it has developed over the years. They take away complexity and hassle from, in this case, the shipyard. Part of this service is what Nexans Nederland is offering as well’
The Netherlands are considered as the most ‘international’ country, where 30% of the GDP is export-related, which is relatively high when comparing this to the world average of just 10-15%. In general, The Netherlands have seen a decrease in GDP in 2013, where most important export partner Germany grew again. But for the industry in scope, most of the orders come from outside the country, having an impact in the economical distance.12 The Shipbuilding industry in The Netherlands has two important pillars: The super yachts (and mega yachts) and the special sea vessels (dredgers, tugboats, special freighters, offshore vessels). Looking at the super yacht industry, 36 new orders have been received in 2013, against 14 in 2012. The total order portfolio for 2013 was 66 yachts, representing 2.6 billion euro of turnover. An interview with a marketing representative of the leading yacht building organisation in The Netherlands, confirmed these figures and indicated that the trend is ‘bigger and bigger’, but that there is a downwards pressure on the price.
59% of the special sea vessels and almost 100% of the yachts are exported outside The Netherlands. Of the total maritime industry, which is worth 6.4 billion euro, 3.42 billion euro comes from suppliers and subcontractors (installers), stressing the cultural difference again in structure for The Netherlands, compared to distribution structures in other countries.
‘Economically we have felt the impact of the downwards trend in the shipbuilding industry. The other reason was that Cofely, our main customer, lost all the business to other installers like Alewijnse. We hope to see improvement again now the
shipbuilding segment recovers.’
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Figure 4 - Sales performance Nexans Nederland
Also the Dutch office is dependent on knowledge-sharing processes between HQ in Paris or the plant in Germany, and the people in the Dutch subsidiary. The perception here as well is that knowledge needs to be collected from the plant, and here we can find the clear comparison with the literature about knowledge flows within
organisations. Knowledge transfer can be framed as processes of ‘problemistic search’ (Monteiro, Arviddson and Birkinshaw, 2008), stating that three aspects need to be true: (1) it is motivated by a particular problem such as a failure to satisfy one of its goals; (2) it is simple-minded, meaning that it proceeds on the basis of a simple model of causality unless driven to a more complex one; and (3) biased, meaning that the search process is steered by the prior experiences and goals of the managers driving it.
The problem often is that a request from, in this case, the Dutch market arrives, where input is needed from people outside the subsidiary. It is a simple-minded problem, and definitely biased by prior experience, in this example by frustration about people not answering, people that have different goals (Eg. stock reduction vs. revenue increase; product development vs. standardisation). The frustration finds a source in the lack of technical (human) resources.
5.4. Within country analysis: Singapore
Singapore is basically one of the easiest countries to do business or to invest in, when looking at the different parameters that determine the attractiveness.13 It has one of the highest GDP’s per capita, offers an open and non-corrupt business environment
13
37 and has relatively low taxes for investors. Singapore is an important HUB towards South-East Asia and is one of the most attractive countries to invest in. Nexans has a representative office that sources from the different Nexans factories in the world, acting as a sales office between the South-East Asian market and the European or Asian production sites. Culturally one aspect came forward multiple times;
‘The Asian culture is more impatient. We expect quick response times and so do our customers. It is in the perception of people in Singapore unacceptable to have a full month (August, RvdZ) without response because everyone is on holidays.’
‘Singapore is the most business friendly environment one can imagine, but customers here require local people that they can reach to complain or to ask questions to when they like. The different time zone and geographical distance does not allow direct business with the other side of the world, people don’t feel comfortable with that.
Clearly the geographical distance is contributing the most to the CAGE distance in the overview, where culture is not seen as an extra distance. None of the people that were interviewed indicated that cultural distance is present, although vice-versa, some comments were given about the perception of time. Certain decisions where input from Paris or Europe is required, cannot be taken in August, when many people are on holiday. This is difficult to understand from the cultural point of view in Asia, increasing cultural distance. One manager commented:
‘It’s easy for the people in South East Asia to source from the plants in Korea and Asia, geographical distance influences logistical costs and lead times. Supply from Europe is not as much in scope as the Asian supply. What I also miss is an open dialogue. The people are easy to talk to, but there needs to be one person in the driver seat when a project involves two countries.’
Institutions are not increasing the CAGE distance when comparing either Germany or France with Singapore. This is confirmed by the people that were interviewed
internally.
‘The institutions that determine the rules are liberal and open, welcoming any form of foreign entrance into the country. This is clearly embedded in the culture.’
